If you own a rental or investment property, or rent on sites like Airbnb or VRBO, you open yourself to a lot of risk. Forming a Limited Liability Company (LLC) and transferring ownership of the property from yourself individually into the LLC’s name can help protect you. Doing so shields you from personal liability if something happens on the premises while a tenant or short-term renter is occupying the space. For example, if the renter trips on your porch, the renter can only sue the LLC for damages, sparing your personal assets. The process to transfer ownership of your property to an LLC is relatively straightforward. However, the intricacies can be complicated if you don’t know the documents that are necessary. We recommend you speak with an attorney to make sure you handle everything correctly.

Transferring ownership of a rental or investment property to an LLC may seem daunting, but we’ve done our best to outline the process here. You must discuss the transfer with your mortgage lender to ensure there are no issues on that front, form your LLC with the Secretary of State, transfer title to the LLC via a quitclaim deed, and, finally, edit leases and rental agreements to include the business as the landlord. Every county and municipality differ in what they require for the recording process. Cook County and Chicago require extra documents in addition to the quitclaim deed, including the MyTaxDec transfer and the Full Payment Certificate.

Check with Your Mortgage Lender

You will still be responsible for making timely mortgage payments on the property, even though you intend to transfer legal ownership to the LLC. Speak to your mortgage lender before you do anything else. Depending on your financial situation, there may be additional steps. Most lenders allow for this kind of transfer, but each will have their own requirements. You may have to refinance the mortgage into the LLC’s name, which can take a few months.

If your LLC does not have an established credit history (which, if it is newly formed, it would not), you will likely have to sign the refinanced mortgage as a personal guarantor. Contacting the bank about your mortgage should be the first step. Then, you can adequately prepare and plan for the timeline to transfer the property. And if the bank outright prohibits it, at least you will know before you actually form the LLC and try to transfer ownership.

Form the LLC for your rental property

Next, form the company with the Secretary of State (SOS). Illinois has a fairly straightforward process which can generally be done online. However, it’s important that you know the necessary steps to take so that you don’t miss anything critical. The SOS also provides a helpful guide to organizing an LLC on their website.

  1. Pick a name. The name of your LLC can generally be anything you’d like (with some limitations; see the SOS’s guide, linked above, for more information). It can’t be improper of offensive, and it must be distinguishable from names already taken by other businesses. It must also end in “LLC” or “Limited Liability Company.”
  2. Decide on a registered agent. A registered agent is a person or business that is tasked with receiving official notices for your company. They must be located in Illinois, and you will need to appoint one in order to file. They receive mail/documents government agencies, including the SOS, as well as court filings should you ever become involved in litigation. You can act as your own registered agent, or you can hire an outside company to do this.
  3. Complete the Articles of Organization. You must complete the Articles of Organization, the official document submitted to the SOS to form the LLC. It’s easiest to file this online. Information you’ll need includes: LLC name, registered agent name and address, business address, and manager name and address. The manager(s) of the business does not necessarily have to be a member (i.e. owner), but it can be. They oversee day-to-day operations of the business. For small businesses, many times the manager and member are the same person. We recommend speaking with an attorney to discuss the distinctions and various options as to how to structure your business.

Complete Your LLC’s Formation

The SOS reviews and approves filed Articles of Organization within 7-10 business days (or within 24 hours, if you paid for expedited service). They will send a stamped copy of the Articles; once you receive this, your LLC will officially be formed.

  1. Prepare an Operating Agreement. Though not required to form your LLC, we highly recommend you prepare an Operating Agreement for your LLC. This document contains a high-level overview of how you run your business. It includes terms discussing member voting, what to do if a member leaves or another person wants to join to business, and how to dissolve the business. Many times a bank will require an Operating Agreement when setting up a bank account or applying for a loan.
  2. Obtain a tax ID number. This is called a “Federal Employment Identification Number,” and can be obtained online through the IRS’s website. You will need this number for when you file taxes and also to open a bank account.

Note: Illinois recently started offering the ability to form a Series LLC, which is basically a business that has the ability to form multiple sub-series LLCs underneath a “head” or “umbrella” LLC. Each series LLC has liability protection from the other. Given its recent rollout, you cannot file a Series LLCs online. Speak with an attorney to discuss the pros and cons of this type of business.

Open a Business Bank Account

It’s vital that you open a separate bank account under the LLC’s name. This separates the LLC’s funds and personal funds and simplifies rent collection and security deposit organization. Distinct accounts are key for preserving liability protection between the LLC and yourself individually.

Transfer Ownership of Property to LLC

Transferring ownership of the property is the most time-intensive and complicated part of the process. Please note that this section discusses and refers to transferring ownership in Cook County, Illinois. Other counties throughout Illinois and the country probably require different information, so make sure to check with that county directly.

The legal document that transfers a title of property is called a deed. There are two types of deeds you can utilize for this type of transfer: a warranty deed or a quitclaim deed. Warranty deeds are more complex and guarantee more assurances than quitclaim deeds. You likely received a warranty deed when you purchased the property. You generally use them to transfer ownership between unrelated parties. A quitclaim deed simply transfers ownership of the property; it does not guarantee that the title is good. Because you are not transferring the title to an unrelated or third party, a quitclaim deed is fine for transferring ownership to an LLC.

Steps to transfer property in Cook County

1. Prepare the quitclaim deed.

A quitclaim deed is a relatively short document, only a few pages or so. You can find sample deeds online, but it’s best to hire an attorney to make sure all legal components are complete. Required information on the deed includes a legal description of the property (you can find this on your warranty deed or within your mortgage documents), the property identification number (PIN; this can be found by searching the property on the Cook County Assessor’s website), and the grantor/grantee (also known as the buyer and seller) of the property. The grantor is the individual “selling” the property and the grantee is the LLC “buying” the property. You will also need to include a “consideration” amount in the deed. For a more standard property sale (i.e. buying a house), the consideration is the amount paid for the house. In this instance, you still need to include a small consideration amount to make sure the deed is legal. $10 is usually sufficient. Note that the deed must be notarized!

2. Sign and notarize the grantor/grantee affidavit

Both the grantor and the grantee must sign a grantor/grantee affidavit. For an LLC transfer, they will be the same person. The grantor/grantee affidavit must be notarized and can be handled at the same time as the deed. Once the affidavit and signed and notarized, attach it to the signed and notarized quitclaim deed and scan it as one complete document. This will be important for when you have to e-record the deed (discussed below).

3. Complete the MyTax declaration

For Illinois transfers, you will also have to complete an online transfer tax declaration. This can be quite confusing, so it’s best to have an attorney help you. You have to create an online account for all transfer declarations. The declaration requires similar information as the deed (legal description, PIN, building specifications such as square footage). It also asks whether the transfer is exempt from taxes; for a transfer to an LLC, the answer will generally be yes. This is because the consideration (i.e. amount paid for the sale) is a nominal amount and not subject to taxes. Once the declaration is complete, you will utilize the number given to you by MyTaxDec to finalize the e-recording.

4. Prepare the Full Payment Certificate (FPC)

This step is for City of Chicago properties only (but please note other cities/municipalities may have a similar requirement). The city provides a good overview of this requirement here. This certificate, issued by the Department of Finance, indicates that the owner has paid all utility charges in full. All transfers of property require an FPC. You will need to upload the notarized deed and affidavit when you complete the FPC online. A transfer that is exempt under the tax, as described above, will not incur a filing fee for the FPC.

5. Record the deed

You must complete all steps 1-4, above, before the Cook County Recorder’s Office will accept and record your deed. The office provides an overview of e-recording on their website. You will need the deed, grantor/grantee affidavit, and MyTaxDec file number to submit the deed for recording. You will have to pay a fee (usually around $100) to e-record and it will usually take the recorder’s office a few weeks to review the deed. They will notify you if there is an issue with the filing. The LLC will own the property once the CCRO accepts and records the deed.

Edit Leases and Rental Agreements

Finally, you will need to edit your existing leases to state that the landlord is now the LLC (instead of you individually). This is very important; if you do not edit the leases, then a tenant or renter could still try to sue you individually.

Ensure that all rental funds are deposited into your new business bank account. If you rent a property using Airbnb, VRBO, or a similar site, check with the service to determine whether you need to do anything with them to reflect the change of status.

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