We believe it is possible for title to the property to be transferred to an LLC without affecting your right to collect on the loan and potentially foreclose the mortgage. We are not aware of any state law restrictions that would prohibit such a transfer, but we recommend reviewing the terms of your mortgage to determine whether it contains a due-on-transfer clause that would require acceleration.

Freddie Mac’s Single-Family Seller/Servicer Guide provides that ownership of a mortgaged premises securing a mortgage that does not contain a due-on-transfer clause can be transferred without restriction. If the mortgage does contain a due-on-sale or due-on-transfer clause, the servicer must “accelerate the debt and initiate appropriate foreclosure action” upon learning of a transfer of ownership, unless acceleration is otherwise prohibited by the Guide.

Assuming the mortgage does not contain an enforceable due-on-transfer clause, you may not restrict a transfer of ownership of the mortgaged premises. Further, the Guide expressly permits transfer of ownership of the mortgaged premises to an LLC if the following conditions are met: (1) at least twelve months have passed since the note’s origination date, (2) the servicer has complied with all mortgage insurance requirements applicable to the transfer, (3) the original borrower is the managing member of the LLC taking possession of the property, and (4) the servicer notifies the original owner that the mortgaged premises must be transferred back to the original owner prior to any subsequent refinance or modification application to meet Freddie Mac’s underwriting requirements.

Since the transfer of the property would not involve the LLC assuming the mortgage or a release of the borrower’s liability, we believe the terms of the note would continue to be enforceable against the borrower. Additionally, the Illinois Code of Civil Procedure provides that “from the time a mortgage is recorded it shall be a lien upon the real estate that is the subject of the mortgage” and the Illinois Conveyances Act states that “mortgages . . . shall take effect and be in force from and after the time of filing the same for record . . . as to all creditors and subsequent purchasers, without notice.” Consequently, if your mortgage was properly recorded, we believe it would remain a valid and enforceable lien on the property, regardless of who holds title.

Further, we do not believe you would need to have the borrower sign an agreement acknowledging the transfer, since it does not involve an assumption of the mortgage or a release of liability. However, we recommend retaining a copy of the executed sale contract or other document reflecting the transfer of ownership, such as a quit claim deed, for your records.

For resources related to our guidance, please see:

• Freddie Mac Single-Family Seller/Servicer Guide, Section 8406.1 (“Ownership of the Mortgaged Premises securing a Mortgage that does not contain a due-on-transfer clause can be transferred without restriction. However, the Servicer must accelerate the maturity of a Mortgage that contains a due-on-sale or due-on-transfer clause when a Transfer of Ownership occurs, unless acceleration is prohibited by provisions of Sections 8406.3 or 8406.4 or applicable law. References in the Guide to ‘due-on-transfer clause’ includes ‘due-on-sale clauses’ and similar provisions in the Mortgage documents that require acceleration upon a Transfer of Ownership. . . . Upon learning of a Transfer of Ownership that is subject to acceleration under the terms of this chapter, the Servicer must accelerate the debt and initiate appropriate foreclosure action in accordance with applicable law, the terms of the Security Instrument and Chapter 9301.”)

• Freddie Mac Single-Family Seller/Servicer Guide, Section 8406.4(a) (“In addition to the federal restrictions on the exercise of the due-on-transfer clause provided in Section 8406.3, Freddie Mac will not, and the Servicer may not, restrict a Transfer of Ownership of the Mortgaged Premises in the following situations:

• The Security Instrument does not contain a due-on-transfer clause

• The Security Instrument contains an unenforceable due-on-transfer clause

                                                          *     *     *     *     *

     In connection with any Transfer of Ownership listed in this Section 8406.4, a Servicer may not
     evaluate the creditworthiness of a transferee, require a transferee to assume the Mortgage, or
     otherwise require the Servicer’s or Freddie Mac’s approval of the transfer. However, if the
     transferee wishes to assume the Mortgage and/or the transferor requests to be released of
     liability, the Servicer must determine the creditworthiness of the transferee. Refer to Sections
     8406.5 and 8406.6 for additional information.”)

• Freddie Mac Single-Family Seller/Servicer Guide, Section 8406.4(b) (“In situations where all of the following conditions are met, Freddie Mac will permit a Transfer of Ownership of the Mortgaged Premises:

• At least 12 months have passed since the Origination Date . . .

            The transfer is to a limited liability company (LLC) or limited partnership
            (LP), provided that:

                      The managing member/general partner of the LLC/LP is the original
                      Borrower. If there are multiple Borrowers, all of them must be
                      members/partners of the LLC/LP, and at least one of them must be
                      a managing member/general partner. If the transfer results in a
                      permitted change of occupancy type to an investment property,
                      such change must not violate the Security Instrument (e.g., the
                      12-month occupancy requirement for a Primary Residence), and

                      The Servicer notifies the original owner or natural person that the
                      Mortgaged Premises transferred to an LLC/LP must be transferred
                      back to the original owner or natural person prior to any subsequent
                      refinance or modification application to meet Freddie Mac’s
                      underwriting requirements

• The Servicer has complied with all mortgage insurance requirements applicable to the transfer

In connection with any Transfer of Ownership that meets the conditions of this Section 8406.4, a Servicer may not evaluate the creditworthiness of a transferee, require a transferee to assume the Mortgage or otherwise require the Servicer’s or Freddie Mac’s approval of the transfer. However, if the transferee wishes to assume the Mortgage and/or the transferor requests to be released of liability, the Servicer must determine the creditworthiness of the transferee. Refer to Sections 8406.5 and 8406.6 for additional information.”)

• Illinois Code of Civil Procedure, 735 ILCS 5/15-1301 (“Except as provided in Section 15-1302, from the time a mortgage is recorded it shall be a lien upon the real estate that is the subject of the mortgage for all monies advanced or applied or other obligations secured in accordance with the terms of the mortgage or as authorized by law, including the amounts specified in a judgment of foreclosure in accordance with subsection (d) of Section 15-1603.”)

• Illinois Conveyances Act, 765 ILCS 5/30 (“All deeds, mortgages and other instruments of writing which are authorized to be recorded, shall take effect and be in force from and after the time of filing the same for record, and not before, as to all creditors and subsequent purchasers, without notice; and all such deeds and title papers shall be adjudged void as to all such creditors and subsequent purchasers, without notice, until the same shall be filed for record.”)

• Illinois Conveyances Act, 765 ILCS 5/31 (“Deeds, mortgages and other instruments of writing relating to real estate shall be deemed, from the time of being filed for record, notice to subsequent purchasers and creditors, though not acknowledged or proven according to law; but the same shall not be read as evidence, unless their execution be proved in manner required by the rules of evidence applicable to such writings, so as to supply the defects of such acknowledgment or proof.”)

• Freddie Mac Single-Family Seller/Servicer Guide, Section 8406.5 (“For Transfers of Ownership that require the Servicer to first determine the creditworthiness of the transferee, and for all assumptions and releases of liability, the Servicer must obtain the following: . . . A copy of the executed contract of sale or other document reflecting the Transfer of Ownership (e.g., quit claim deed) . . .”)