Can A Contract Be Assigned

Question

I represent the buyer. We have been under contract for a couple of weeks now.  My client signed the contract in his personal name.  After meeting with his CPA, my client now wants to change the “Buyer” to an LLC.

Can my client do this?

Answer

You essentially want to know if your client can “Assign the Contract” to his LLC.

According to Louisiana Civil Code Articles 2642 and 2653, generally speaking, a Contract may be assigned unless an Assignment is prohibited in the contract.

(This Assignment will release your client from the rights, obligations, and responsibilities contained in the Contract and the LLC will now “be on the hook” for those same rights, obligations, and responsibilities.)

If the parties used the standard Louisiana Residential Agreement to Buy or Sell, then there is no language in this form prohibiting the Assignment of the Contract and, thus, your client may Assign the Contract (and all of its rights, obligations, and responsibilities) to his LLC.

It is recommended that you, as the Buyer’s agent, prepare an Addendum to the Contract switching the identity of the buyer from the individual to the LLC and also releasing the individual from the Contract.

However, there are two things to consider:

  1.     Does the buyer have a lender; and/or

2.     Is the property a HUD, Short-Sale or Foreclosed property.

 

If the Buyer has a lender, you need to run this Assignment by the lender to make sure the lender approves the Assignment.  In certain circumstances, some lenders may not allow the Assignment prior to closing and will only be able to complete the loan process in the Buyer’s personal name.  If this occurs, the buyer might be able to do an “Act of Transfer and Contribution of Property” to his LLC after the closing, but there are potential consequences with this method that must be discussed with the client.

(The explanation of these consequences would take an entire newsletter.  So, if you have clients with questions in this area please contact H.L. “Rye” Tuten, III, to learn more)

If the property is a HUD, Short-Sale or Foreclosure property, sometimes the seller may not allow the “Switch in Buyers” once the Contract is signed.  (The “Act of Transfer and Contribution of Property” might be relevant here, also).