what are the odds?

Question

What are the odds of getting sued by a tennant? I am new to investing and made the mistake of buying my first property in my own name rather than an LLC, so now I am trying to figure out if it is worth changing it over or to just keep it as and buy my next one through an LLC

Account Closed · Answer

My mother-in-law owed a duplex (1 up 1 down). I was living in the upper unit and there was a tenant in the lower unit.

The lady tenant has a fight with her boyfriend. It got loud enough to notice. For some reason she ends up sitting in the open front window during the fight. Half in, half out. At some later point she jumps. The height was 5-8 feet above the ground. She sprains her ankle. I watched the whole thing.

A while later I hear that my mother-in-law is being sued by the tenant. The lady claims that she fell on the steps up to her unit and it was somehow the landlord's fault. The insurance company was proposing to settle rather than fight the suit. I said that I had seen her jump and there was no way the injury was from a fall.

The insurance company got me on the phone and recorded me answering a series of questions concerning the incident. That was the end of the lawsuit.

The above took place in San Francisco CA.

Some areas are prone to lawsuits. San Francisco at that time has 1 lawyer for every 75 people.

John Corey

Michael Rossi · Answer

jphsa,

100%!  That is the chance that you will be sued if you have a large rental portfolio for a significant period of time.   Watch your TV for an hour and see how many of those scumbag contingency lawyers are on there oozing their slime.  You don't really think they are spending all the money advertising for nothing?  There is an epidemic of sue-happy lazy low-lifes in this country.  They are too lazy to make money for themselves and so they hope to make it from YOU  - jphsa -  the rich landlord.  I know many successful landlords and EVERY ONE OF THEM HAS BEEN SUED!

I was sued for $500,000 in another business because my partner's wife slept with everyone in the state.  When he divorced her, she sued him and me because we were living the good life and she was not.  I had absolutely nothing to do with any of it, but I still got sued.  We won after $15,000 in legal fees.

I had a tenant stage an accident when we evicted him.  Two days before the eviction hearing in court, he pulled down a portion of the ceiling in the kitchen and pretended that his mother had been injured.  A scumbag contingency lawyer attempted to sue, but I conducted my own investigation and found that the "victim" was already totally disabled and yet was working under the table at a bar and for a rehabber.  I threatened to call the IRS, social security, and to file insurance fraud charges and the lawsuit disappeared.

I've got another one now, where a tenant claimed she fell into the water meter hole (with the cover mysteriously off).   I believe that her son was hiding drugs in the meter and left the lid off.  How that could possibly be my fault is beyond me, but the tenant sees dollar signs and has one of those scumbag contingency lawyers from TV after us.  I threatened to contact the drug task force about her son and his activities and haven't heard anything else  -  yet.

Will tenants sue you in an attempt to win the landlord lawsuit lottery?  YOU BET THEY WILL!

Do you need a LLC if you are going to be in this business in a serious way?  YES.  An unbrella policy is fine but it won't cover a lot of risks that tenants are suing for.  If you read these policies and your landlord policy, you'll find that they don't cover lead paint, mold, asbestos, and other environmental risks.  Tenants are suing for these things (which is why the insurance won't cover them).

Good Luck,

Mike

Frank Adams · Answer

Do things right and they're very slim. The "lawsuit abuse" epidemic exists only in the mind of Republican politicians who always need something to scare you with. After it was the Soviet Union (collapsed of its own weight) it was lawsuit abuse. Notice that ever since 9/11 we don't hear too much about it. They've got something else to scare you with.

That said. I'd be a lot more concerned with having at least a $1MM umbrella policy than an LLC. Get sued without the umbrella and the insurance company has very little reason to fight. They'll "throw in" the policy in a minute rather than spend $$ on attorneys. But when they've got a couple of MM on line, all of a sudden their legal department is real involved.

BTW, I was once a member of a very large "apartment owner's" association. We did a poll once on who had been sued. It was a pretty small number and we had a lot of apartment complexes with multiple hundreds of tenants. Afterward I spoke with a few that had been, to a man they admitted that the plaintiffs had been injured and that had they settled for a "reasonable" amount the lawsuit would probably not have happened.

None of them thought the plaintiff had "made out financially" via the courts.

all cash