More Texas property owners are turning to limited liability companies (LLCs) to hold real estate as part of asset-protection and risk-management strategies, but attorneys warn that common mistakes during the transfer process can create significant legal and financial problems.
Nationally, entity-based ownership is on the rise. 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. According to the Federal Reserve's 2025 Economic Well-Being report, approximately 63% of U.S. adults owned their homes in 2024, while roughly 28% rented. At the same time, entity-based ownership represents a growing share of rental housing nationwide, particularly in multifamily and investment properties.
One major risk is triggering a mortgage's due-on-sale clause. Most Texas mortgages include these clauses, which allow lenders to demand immediate repayment if the property is transferred without consent. The Garn-St. Germain Depository Institutions Act of 1982 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 property into an LLC without lender approval may place the loan in default.
Another common error involves using the wrong deed. Texas law strictly regulates property conveyances. Under Texas Property Code § 5.021, a conveyance must be in writing and signed by the grantor, and Texas Property Code § 11.001 requires deeds to be recorded to be effective against third parties. Owners often use quitclaim deeds, which provide no warranties of title and create uncertainty. Lenders and title insurers generally expect general warranty deeds, which offer assurances of clear title. Using the wrong deed can lead to title defects that complicate future sales or refinancing.
Finally, many owners forget to obtain lender approval before transferring property. Most Texas mortgages are secured by a deed of trust, which typically prohibits transfers without consent. Transferring property to an LLC without lender approval is 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,” Ganske said. “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, using the wrong deed, or failing to obtain lender consent can expose owners to unexpected financial and legal consequences. Texas Horizons Law Group provides legal services in real estate, estate planning, probate, business law, and related matters, serving clients across Texas, including Central Texas communities.
