Why a 100% U.S.-Owned LLC Is a Must for DSCR Loans: The Case of Loan 1366 – Assaf
When it comes to DSCR (Debt-Service Coverage Ratio) loans, investors often assume that entity ownership is a formality. But Loan 1366 an investment loan application submitted by Assaf demonstrates just how crucial the ownership structure of your LLC really is.
DSCR Loans and U.S. LLC Requirements
To qualify for a DSCR loan, borrowers must meet a set of clear yet often overlooked prerequisites. One of the most critical: the borrowing entity must be a 100% U.S.-based LLC owned by individuals not by another foreign entity.
Why?
DSCR loans are designed to evaluate a property’s rental income potential rather than personal income. However, lenders still need clarity and control over ownership for legal, tax, and risk reasons. When a foreign company owns part of an LLC, it creates legal complexity and liability concerns especially when it comes to enforcing terms in the event of a default.
The Case of Loan 1366 – What Went Wrong?
Assaf Vigdor submitted a DSCR loan application for a property appraised at $138,000. All documents were in order, and the appraisal was completed. The process moved smoothly into underwriting until the ownership structure came under scrutiny.
The issue? The borrowing entity, Vigdor Properties LLC, was 50% owned by an Israeli company, Startup City Ltd.
Although Assaf provided legal documentation showing he was the sole owner of Startup City, the lender refused to proceed. According to their guidelines, an LLC with foreign entity ownership, regardless of indirect control, disqualifies the application.
Why This Wasn’t Caught Earlier
Assaf’s frustration was understandable he had been transparent about the ownership from the beginning. But the review of the entity’s ownership wasn’t triggered until the underwriting stage, which is standard in DSCR loan processes. Until then, lenders focus on the initial documentation, property value, and rent coverage.
When final review began, the lender informed the borrower that they could proceed only if the LLC ownership was restructured to reflect 100% U.S. ownership by Assaf himself.
The Turning Point
Assaf was unwilling to make ownership changes. He requested the appraisal report and a refund of the escrow deposit. However, based on the terms agreed to in the initial engagement including the use of Nadlan Capital Group’s resources for nearly three months the $2,000 escrow was non-refundable unless interest rates had significantly increased, which they hadn’t.
While the lender offered to resume the loan if the ownership structure was updated or a new U.S.-owned LLC was formed, Assaf chose not to proceed.
Key Takeaways for Future DSCR Borrowers
- Use a 100% U.S.-Based LLC
Lenders will not proceed if the LLC has any foreign entity as part of its ownership. Ensure your entity is structured correctly before applying. - Be Prepared for Late-Stage Review
Many checks like entity ownership are not reviewed until underwriting. Don’t assume early silence means approval. - Escrow Is Earnest
Most brokers and lenders use escrow deposits to cover labor and processing. These are typically non-refundable once underwriting begins. - Document Indirect Ownership Carefully
Even if a U.S. person owns a foreign company, that doesn’t translate into acceptable LLC ownership unless the foreign entity is removed from the chain.
Final Thoughts
Loan 1366 is a cautionary tale. Entity structure is not just paperwork it’s a qualifying condition. If you’re planning to use an LLC for a DSCR loan, make sure it’s 100% U.S.-owned from the start. Doing so avoids costly delays, processing losses, and potential deal failure. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.
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