Texas Property Owners Flock to LLCs as Attorneys Warn of Costly Transfer Errors

Across Texas, a growing number of property owners are transferring real estate into limited liability companies (LLCs) as part of asset-holding and risk-management strategies. However, attorneys caution that mistakes during the transfer process can lead to serious legal and financial consequences.

According to a Congressional Research Service analysis using U.S. Census Bureau and HUD data, LLCs, limited partnerships, and similar entities owned 15.4% of all rental properties and more than 40% of rental units in larger properties nationwide. While individuals still own most small rental properties, structured ownership is common among investors.

"LLC ownership itself is not the problem," said Stephen K. Ganske, a real estate attorney with Texas Horizons Law Group. "Problems arise when owners transfer property without accounting for loan terms, deed requirements, or Texas statutory rules that govern real estate conveyances."

Texas continues to have a high rate of property ownership. The Federal Reserve's 2025 Economic Well-Being report indicates approximately 63% of U.S. adults owned their homes in 2024, while roughly 28% rented. Entity-based ownership represents a growing share of rental housing nationwide, particularly in multifamily and investment properties.

One major risk involves due-on-sale clauses. Most Texas mortgages include these clauses, which allow lenders to demand immediate repayment if the property is transferred without consent. These are governed at the federal level by the Garn-St. Germain Depository Institutions Act of 1982. The Act generally permits lenders to enforce due-on-sale provisions upon a change in ownership, subject to limited exceptions. However, it does not automatically exempt transfers from an individual to an LLC, even if the owner controls the entity. As a result, transferring mortgaged Texas property into an LLC without lender approval may place the loan in default.

Using the wrong deed can also create title problems later. Under Texas Property Code § 5.021, a conveyance of real property must be in writing and signed by the grantor. Additionally, Texas Property Code § 11.001 requires deeds to be properly recorded in county land records to be effective against third parties. Errors often occur when owners use quitclaim deeds to transfer property to an LLC. While quitclaim deeds are recognized in Texas, they provide no warranties of title and are frequently treated by lenders and title insurers as creating uncertainty. In contrast, general warranty deeds offer assurances that the grantor owns the property and that the title is free from undisclosed claims.

Many owners also forget to get lender approval first. Most Texas mortgages are secured by a deed of trust, which governs the relationship between the borrower, lender, and trustee. These documents frequently prohibit transfers without the lender's approval. Transferring property to an LLC without lender consent may not trigger immediate action, but it typically constitutes a technical breach of the deed of trust, giving lenders discretion to enforce remedies later, including accelerating the loan.

LLCs remain a widely used ownership structure for Texas real estate, offering organizational clarity and liability separation when properly implemented. However, transferring property into an LLC is a legal transaction governed by federal mortgage law, Texas property statutes, and the loan's contractual terms. Mistakes such as triggering due-on-sale clauses under federal law, using the wrong deed under the Texas Property Code, or failing to obtain lender consent under a deed of trust can expose owners to unexpected financial and legal consequences.

Based in Texas, Texas Horizons Law Group provides legal services in real estate, estate planning, probate, business law, and related matters. The firm serves clients across Texas, including Central Texas communities.