Securities compliance and investor liability

[Alejandro Antonio Taylor JR]

Hello everyone,

Have a question in regards to engagement with a real estate lawyer and the risk of being sued by investors if an investment in a Multifamily property.

Part of an engagement letter with a real estate lawyer reads like this:

“Attorney makes no guarantee whatsoever as to the investment outcome of the proposed venture, and Client is advised that Client may be sued for damages by investors under many theories of law should the investment fail, even if all securities compliance matters have been correctly implemented.”

The question I have is can you still be sued by investors if all correct paperwork and subscription agreements and liability waivers are agreed upon and filled out, investors are completely informed and aware of the investment they are getting into and the risks involved and all securities matters are correctly implemented?

I understand any investment comes with risks and you must do your due diligence when investing in a property to minimize theses risks. What else can be done to minimize these risks?

Thanks in advance for any help and hope all of you are well.

[Ujwal Velagapudi]

I think that verbiage your attorney has is 100% valid & true. I'm no lawyer, but have seen the most ridiculous cases. You can be sued for anything in this country, doesn't matter what you do on paper. So I personally would be fine reading that, he as an attorney is only looking out for himself too. 

So you ask can you still get sued by investors if all paperwork, agreements, information, etc. is relayed correctly? Definitely. But that doesn't mean you are in the wrong, or that you are not able to defend yourself, or that it will result to much. But you certainly can get sued.

I always make sure every piece of communication is in written form, preferably digital. All documents are formally signed. Also I recap any important conversations and send it via email to confirm/clarify our phone conversation. This is key because I don't want something to be misconstrued, assumed, or implied (even though this will be in legal docs anyways). Having your verbal conversation in a written format changes things, I've seen it so many times, so make sure to recap and bullet point the items you discussed. 

So yes, from my experience anybody can get sued. But you will have a lot easier path to defending if you proactively protect yourself with some steps. I'd be interested to get a lawyer's perspective on this as well on BP. 

Before all that, I would make sure the LP's I'm working with are people I have a relationship with. Just a piece of advice I've been told that can save a lot of headache down the line. Lots of people have money to give, but who do you want to go into business with when stuff hits the fan, or simply doesn't go the way they want.