What happens if the property has a mortgage and I deed it into my LLC? – North Carolina

Short Answer

In North Carolina, deeding mortgaged property from an individual name into an LLC usually does not remove the mortgage or the individual borrower’s personal responsibility on the loan. The bigger risk is the mortgage’s “due-on-sale” (or similar) clause, which may let the lender treat the transfer as a default and require the loan to be paid off or refinanced. Even if the lender does not act right away, the clause can still matter later (for example, when trying to refinance, sell, or get insurance set up correctly).

Understanding the Problem

In North Carolina real estate, the decision point is whether an owner can transfer title from an individual name to an LLC by quitclaim deed when a mortgage (usually secured by a deed of trust) is still on the property. The key issue is what the existing loan documents allow the lender to do after a transfer of ownership, and whether the transfer changes who owes the debt or who can be foreclosed on if payments stop.

Apply the Law

Under North Carolina law, recording a deed changes who holds title, but it does not automatically change the mortgage debt or the lender’s lien. Most residential and many commercial loans also include a contractual “due-on-sale” clause that can be triggered by a transfer of the borrower’s ownership interest—even if the transfer is to an LLC the borrower controls. If the clause is triggered, the lender may have the right under the loan contract to demand full payoff, require a refinance, or impose other conditions.

Key Requirements

Title transfer vs. debt obligation: A quitclaim deed can transfer ownership to the LLC, but it typically does not release the individual borrower from the promissory note.
Lender consent / loan terms: The mortgage or deed of trust may restrict transfers and may allow the lender to call the loan due if title changes without permission.
Recording and transfer costs: The deed must be recorded with the county Register of Deeds, and North Carolina’s real estate excise tax may apply depending on the consideration/value reported.

What the Statutes Say

N.C. Gen. Stat. § 105-228.30 (Real estate excise tax) – Imposes an excise tax on instruments conveying an interest in real property, generally based on consideration/value, paid to the Register of Deeds before recording.
N.C. Gen. Stat. § 161-31 (Tax certification in many counties) – Allows certain counties to require certification that no delinquent property taxes are liens before the Register of Deeds accepts a deed for recording (with an attorney-supervised closing exception statement).

Analysis

Apply the Rule to the Facts: Here, the plan is to move North Carolina real property from an individual name into an LLC using a quitclaim deed. That deed can change the record owner to the LLC, but it will not automatically change the borrower on the loan, and it will not remove the lender’s lien from the property. The main practical risk is that the mortgage documents may treat the transfer as a prohibited transfer and allow the lender to demand payoff or require a refinance/assumption.

Process & Timing

Who files: The current owner (grantor) signs the deed to the LLC (grantee). Where: The county Register of Deeds where the property is located. What: A properly drafted and notarized deed (often a quitclaim deed for this type of transfer) plus any county-required cover sheets/transfer forms. When: Before recording, confirm whether the county requires tax certification and whether excise tax is due at recording.
Loan review and lender contact: Before recording, review the promissory note, deed of trust, and any riders for transfer restrictions and due-on-sale language. If the loan requires consent, obtain written lender approval (or a written waiver) before recording to reduce the risk of a default claim.
After recording: Update insurance (named insured and additional insured/mortgagee clauses as appropriate), confirm how property taxes will be billed, and keep the loan payments current. If the lender later requires a refinance or assumption, plan for underwriting and closing timelines that can vary by lender and county.

Exceptions & Pitfalls

Assuming the LLC “takes over” the mortgage: A deed alone usually does not substitute the LLC as the borrower. Without a lender-approved assumption or refinance, the individual borrower typically remains responsible on the note.
Due-on-sale surprises: Some lenders ignore transfers for a while, but the issue can surface later during refinancing, sale, insurance claims, or if the loan goes into default.
Transfer tax and recording issues: Even an “internal” transfer can trigger North Carolina’s excise tax depending on how consideration/value is reported. Many counties also require tax certification or an attorney-supervised closing statement before recording.
Insurance and liability gaps: If the LLC becomes the owner but the insurance policy remains only in the individual’s name (or vice versa), coverage disputes can arise. Lenders also often require specific mortgagee/loss payee language.

Conclusion

In North Carolina, deeding a mortgaged property into an LLC can change the title owner, but it usually does not change the mortgage debt or release the individual borrower. The main risk is the loan’s due-on-sale or transfer restrictions, which may let the lender demand payoff or require a refinance if the transfer happens without consent. A practical next step is to review the note and deed of trust and obtain written lender approval (if required) before recording the deed with the county Register of Deeds.

Talk to a Real Estate Attorney

If a mortgaged property is being deeded into an LLC, a lawyer can review the loan documents for transfer restrictions, help structure the deed and recording correctly, and flag transfer tax and insurance issues that often get missed. Call us today at [919-341-7055].

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.