130 Replies

Hey all..

interested to hear some discussion surrounding the recent BP Podcast on Asset Protection (the "YOU WILL GET SUED" issue)

So far I have 7 rental properties all multi unit having several units each, and they are just all under my name, which according to the attorney in the podcast, should NEVER be done for exposure reasons.

I feel like I've gotten a lot of mixed advice. Insurance Agents tell you insurance is the solution. Attorneys tell you LLC is the solution. My CPA tells me the LLC's are too expensive to operate and set up and that he's never dealt with people having issues not having properties under LLCs.

Wondering what all of you EXPERIENCED investors out there have done for your personal strategies, and do you find the statement true that, "it's not IF, but WHEN you'll be sued"?

My problems are at this point, the due-on-sale clause being possible if I transfer my properties to an LLC, and also, applying for financing. Do you all find issues with applying for financing under Trusts or LLCs?


+Seth Mosley

Mosley Properties

I'd like to see responses to this! *followed*


While I am not an experienced investor, I am an experienced attorney. I understand both sides of the situation but let me pass on some street experience. If a plaintiff's attorney sees that you own the property personally and they find that you have other assets (ie, other pieces of property), they get excited. You never want to excite a plaintiff's attorney. If they see other property on the table, they are more likely to take on the case and sink their teeth into you further.

Yes, the insurance guys have a good point. Insurance is mandatory cost of doing business. But what if the insurance does not cover the situation? Insurance companies love you while you are paying premiums but get very picky once there is a claim. What happens if your situation is one of those many exclusions that rarely get attention until a claim is filed? Then you are on the hook personally.

Plus lets talk about the IRS. You want them to see that this is a legit business. Running everything off of a Sch C is not a great idea. Plus if one property gets the IRS' attention so does all of your personal stuff. With an LLC, you only have the LLC audited. Plus, according to TurboTax, your chances of an audit with an LLC are .04%. With a Sch C it is, 1.17%.

They are not hard to maintain. I teach my clients how to do it themselves once we set it up for them.

Hope that helps.


Tim thanks for the reply, 

do you have anything to add to the element of getting loans through an LLC and the difficulty that goes along with that territory aside from commercial loans that don't have nearly as good of terms?




We have transferred properties in and out of LLCs due to some banks not wanting to loan to the LLC. You are going to have to personally guarantee the loan so some banks do not care. It is not a huge obstacle.


Ok, I guess I should probably talk more in depth about it with my lender.


I am very interested in this also. I have been trying to achieve some form of asset protection for many years. I have contacted several local attorneys with no luck. I have my properties in separate LLC's, but attorneys have told me that will not protect you from an aggressive attorney. I got excited when I heard the #109 podcast because Scot was saying all the things that I wanted to hear. I have sent him an email, and left a phone message. I have not heard back from him. Maybe that podcast generated a lot of new business.

I emailed Scott as well with no response - not a good first impression.  If you're going to offer your time and availability, best be prepared to deliver on your offer.

But yes it sounded like he had a lot of good things to say. I just want to know in reality how It can apply to me.

My lender said they will not loan to a trust or LLC, but there is a way to quick capture the property at closing so that you can still place the property under an LLC. Going to try that this next time around.

Thanks and would still like to hear some more responses!

Bigger  question: how many of you have actually been sued ? I wonder how accurate his assumption is...


When I first got started I guess I had some "built in" asset protection because I owed more on the properties than they were worth. Ha Ha. I have been lucky, over the years I have not been sued, But ironically now after all the years with tenants and no problems, I may be looking at a suit. Although it is not related to a rental the properties may be at risk.   frivolous lawsuits are a real threat, probably more today than ever before. If you are faced with this situation you will see firsthand how real it is.

If you have to ask whether or not you need an LLC then you don't need one. Get lots of insurance and do not give up current asset protections on ERISA assets.

Originally posted by @James Kendrick :

If you have to ask whether or not you need an LLC then you don't need one. Get lots of insurance and do not give up current asset protections on ERISA assets.

 James, what do you mean by this?

This a bit vague.

@Seth Mosley  

Check out my other responses on this very topic.  To find out how to protect yourself you need to visit an asset protection attorney.  But more importantly you need to speak with a wrongful death litigation team to find out how they dismantle LLCs in court.

LLCs were never designed to be used by participants in commerce as asset protection vehicles. The purpose of an LLC is for an entity to meet the legal characteristics of a C corp and the pass-through characteristics of a partnership. Asset protection just happens to be a side benefit. When a judge determines that a defendant has established an LLC for legal protection and not for use in commerce, that judge may disregard the legal structure of the LLC and look through to its owners. And do the same for every other LLC that the owner might have an interest in. In other words, the hurdle to clear in attaining the asset protections of an LLC are very high. Judges have been known to disregard LLCs simply because a third party guarantor is involved in a financing arrangement.

Nothing against lawyers but they like to pitch LLCs like wills and trusts because they are very easy to setup and the fees are good. A young attorney who needs billable hours is quite eager to pedal LLCs to build a clientele. It's just the way the law firms work. The problem is that those attorneys have never had to defend the LLC.

Avoid the LLC until you have multiple millions of $$$ to protect. Then you bring in a high-powered law firm and they do everything. Meanwhile, make sure you are maxing out 401k plans and pensions if available. These assets fall under Federal ERISA protections and cannot generally be taken away from you. Next, to the extent you are eligible, max out roth IRAs, traditional IRAs, and SEP IRAs as they offer a great deal of asset protection as long as you don't play games. Then look at 529 plans depending on your state.

Go get minimum $1 MM of umbrella insurance (you probably need more).  This will serve you well and is very cheap.

Wrongful death attorneys are very skilled at dragging LLC members through court for so long that you will regret ever owning any real estate. Insurance companies know how to play this game and settle quickly.

Great response!

Was actually hoping to see this kind of response. James are you speaking from experience as a buy and hold investor yourself? Not meaning to insult, just asking!

This has been my suspicion the whole time that it is an easy $ job for attorneys, when in reality the LLC doesn't actually hold up in court as a protection entity.

Love to hear from anyone else on this issue who is speaking from experience?


One other note to throw out for question - according to Scott's podcast with BP, he was arguing that insurance companies won't pay it half the time if the judge deems the suit outcome is intentional on the owner's end. Is this the case in the REAL WORLD?

@Seth Mosley   

I am a buy and holder type.  But don't make asset protection decisions based on what I am saying.  Go talk to some attorneys.  Not the ones that defend you but the ones that litigate for plantiffs. 

As to the question of insurance companies not paying, they will be named as a defendant alongside you and your LLCs so it doesn't matter.  They can't choose not to defend or pay unless you have criminal liability.  And then you need a different kind of attorney.

I'm not sure what is meant by an intentional outcome.

I was just referring to what he said in the podcast about insurance companies declining to cover you in the event of a lawsuit.

@Seth Mosley

Yes, what Scott said was correct. If an insurance company can use one of their exclusions to not provide you coverage, they will. This has nothing to do with the Judge but instead it is your insurance company that will make that decision. Intentional wrong acts are one of those exclusions. You punch your tenant in the nose while fixing the toilet, he sues for damages, your insurance will not cover you. However, a good plaintiff's attorney will not plead intentional acts in his/her civil case against you because he/she wants the insurance coverage. (Ancient lawyer secret)

@James Kendrick

You have some misconceptions on the law. For example, an insurance company will not be named as a defendant in the lawsuit. In fact, the mere mention of insurance coverage can cause a mistrial. 

Also, a judge is not going to dismantle your LLC until and unless a judgment is received against you and the plaintiff is now attempting to collect. Have I done so before, yes. A entity, corporation or llc, can be pierced by you not complying with the law to keep it valid. All the better reason to have a relationship with your attorney and not legal zoom.

However, a good plaintiff's attorney will not plead intentional acts in his/her civil case against you because he/she wants the insurance coverage. (Ancient lawyer secret)

interesting point, Tim!

Originally posted by @Bryan Hancock :

I know Scott personally.  I'll forward this thread to him to see if we can get him to respond.  Scott will be speaking at my WIN meeting next month for anyone near Austin if you'd like to attend.  

 Would love it if Scott would chime in! :)

Is the guy in the podcast selling services for asset protection? Might key in on that.

40+ years in RE and financing, never lost a dime in any suit, never had a suit from a tenant, never had my insurance company (E&O or liability) hire an attorney for any suit. Anyone who cried foul went away after talking to their attorney or meeting with them.

Best asset protection as to liability, don't be negligent and have tons of insurance, simple, easy and cost efficient.

Now, when you are worth a M+, you can look at asset protection and estate planning. Most that get suckered in have no assets to protect.

If you're scared of being in business, education usually takes care of that, but some use your fears to motivate you into getting "protection"; LOL, how old is that ploy? I'm guessing it goes back to B.C.   :).

Originally posted by @Bill Gulley :

Is the guy in the podcast selling services for asset protection? Might key in on that.

40+ years in RE and financing, never lost a dime in any suit, never had a suit from a tenant, never had my insurance company (E&O or liability) hire an attorney for any suit. Anyone who cried foul went away after talking to their attorney or meeting with them.

Best asset protection as to liability, don't be negligent and have tons of insurance, simple, easy and cost efficient.

Now, when you are worth a M+, you can look at asset protection and estate planning. Most that get suckered in have no assets to protect.

If you're scared of being in business, education usually takes care of that, but some use your fears to motivate you into getting "protection"; LOL, how old is that ploy? I'm guessing it goes back to B.C.   :).

 Bill, thanks for taking the time to write. These are the kind of responses that are helpful, from someone who's been active in the biz for a while now.

It is always interesting when someone has a service to sell, how the story can become skewed.

Not saying this is the case with  Scott, but I've just been very skeptical on the whole schpiel attorneys give on LLCs, contrasted with a lot of what I've heard from real world Pros....

Hello all,

First off, I willingly accept your rebuke and chastisement for not being prepared for the overwhelming (and unexpected) response from the podcast. I have had an opportunity to catch up and I'm ready for you. If I have not gotten back to you yet, please reach out again. As a courtesy, and somewhat of an apology, if you previously reached out to me and I have not contacted you back, I will give you a 30 minute consultation (which I normally charge $100) as a complimentary service. During that consultation you can ask me any questions you like...about your business. I'm taking you on the honor system about the complimentary consultation and prior contact.

My background is in high stakes Plaintiff litigation against insurance companies such as United Healthcare, so my point of view in asset protection is grounded in the practicalities of the litigation war. Our goal is get a plaintiff and their attorney to drop suit before it is even filed. We do this by creating a system of legal entities and trusts spread among different states that are isolated from each other for liability purposes and that obscure actual ownership of the asset. We want them to believe their probability of success multiplied by the extent of the recovery does not justify the expense of the lawsuit. (the formula that plaintiff's attorney's use to determine whether to take a case on contingency is "probability of success" X "recovery" > attorney fees). Why multistate use of companies? It's yet another tool which makes it difficult for the plaintiff to discover the extent of your assets and increases the costs of litigation by potentially having to fight a separate suit in another state. Imagine the costs of having to fight multiple wars at once...their attorney bills start to look like the US national debt. This system of protection exhaust both their will to fight as well as their resources. A client will likely not want to pay out of pocket if the odds of recovery are slight, and an attorney on contingency will likely refuse the case or encourage a quick settlement. I have defended the system I am proposing and I have personal experience in representing a client where it has stifled a $75,000 lawsuit before it was ever filed. Remember the costs of just getting through discovery in any decent litigation is at least $10,000 in just attorney fees and its significantly less than that to set up the proper protections. But remember that this is your BEST CASE scenario (paying your attorney and having the case dropped), I won't go into the worst case scenarios unless someone asks me to because I'm not a fear monger and I don't believe in it.

Some people have claimed you may not need asset protection, and I have similar thinking clients who don't have fire insurance. Instead they decide to self insure. That decision about self insuring against fire, floods, and lawsuits is up to you. Asset Protection is litigation insurance. You may get lucky and never have a flood or house fire; you may get lucky and never get sued. Ask someone you know who has been sued in any serious capacity and they will tell likely tell you it was horrible in how it impacted their life for months or even years. I can tell you I've seen people visibly age in mere months of being in a lawsuit. Again, not trying to be a fear monger but whatever you think your probability of getting sued is, the emotional cost means energy your aren't using to make money which is real dollars lost in your business. A solid and well thought out asset protection plan lets your sleep easy (well easier anyway) through the storm.

Regarding whether LLC's are easily disregarded, there are a couple of points here. First, a properly structured LLC that is maintained correctly is tough for anyone to get around in Texas. Second, not all attorney's are made equal when it comes to attacking these structures and most of my Plaintiff attorney colleagues do not share the impression that they are easily set aside in Texas. Third, properly separating your operating company from your asset holding company greatly increases your protections in real terms against a plaintiff's recovery. Fourth, you will want to know the effect of a charging order against the LLC in the state which holds your property (Texas and Nevada are great for asset holding companies as the charging orders are fairly weak).

Asset Protection is not a one size fits all, and the various instruments are on a sliding scale of protection and their associated costs. If you want damn near bullet proof asset protection you can get a Delaware Statutory Trust, but those cost $7,000+. They also have no maintenance costs besides the payment to the Delaware trustee (unlike the LLC which has yearly maintenance and franchise taxes). If you think that an LLC is easily swept away, then you can feel secure in the DST. The legislation was intended to create THE safest and most anonymous entity. With the maintenance savings and high protections, many investors (especially those in CA) have chosen to go this fact in the last week I have set up 5 of these entities for CA investors. If you're from California and looking to save money on your taxes and maintenance you're going to be blown away about how many problems the DST can solve for you.

Again, my apologies for not getting back to you and please take me up on my offer for the free 30 minute consultation (normally I charge $100 to get me on the phone). Looking forward to hearing from you. I promise you that I will respond to your email or call by the next business day from here on out.

P.s. If you have specific points you want me to weigh in on please indicate that to me as a "mention". My time is very pressed at the moment attempting to help as many clients as I can that have gone years without protection but are now feeling the urgency, so I appreciate your patience. Thank you. 

Phone: 5127573994

Email: [email protected]

@Bill G. I'm always happy to hear that people have not gotten sued over the course of their career. This likely means that you are very diligent in monitoring the statements you make, the contracts your enter into, etc. that could get you involved in a lawsuit. I would also venture that you have gotten some good advice and education early on in your real estate investment career. Would you mind posting a link or further informing me on what educational services I can point my clients to so that they can have your same level of diligence and care? 

Just to reiterate a couple of points about insurance...

The idea of insurance keeps coming up time and time again, so let me give my two cents about it. We could estimate on the low end that insurance for fire and flood is 1% per year and we all tolerate this cost because of the catastrophic loss a fire or flood would cause. I'm only an expert when it comes to New York and Texas law, and for my clients a one time 1% cost to set up legal entities is necessary since Texas has passed statutes which entice claims that are very lucrative to Plaintiffs and also happen to be exempt from the insurance policies coverage. Losing one of these lawsuits is catastrophic to their wealth because the damages easily with attorney fees easily make it above the $50,000 mark, and foreclosures of property continue until the judgment is satisfied. I try to make this clear in all my posts and talks that you need to know the law of your state to know the risks that you face in your business. For example, Texas has homestead laws which protect your personal house, car, horse, etc. from any judgment. If that's all you own in Texas, then you obviously don't need an LLC or any asset protection.

You might be thinking that the insurance company would always get called into the suit when you get sued. This is not the case in Texas or anywhere that allows treble damages (3x multiplier+) for intentional fraud claims. In Texas, these claims are based upon the DTPA and to get the higher damages you must plead that it was an intentional act. Intentional acts are exempt from insurance. In the mind of a plaintiff's attorney, if their are sufficient assets to cover the cost of the suit, they would rather fight you and your pocket book than the deep pockets and very experienced attorneys of the insurance company. 

So some people think that they are honest and above board and that will protect them from a lawsuit based upon fraud, but they are wrong. My clients are all honest people, and they still get sued for fraud. The fraud can be based on anything you say or do which lead someone to act or fail to act thereby causing them damages. Since we can't drill into the head of a defendant to find out if they really intended to deceive the Plaintiff, a jury is used to examine the circumstances and make the determination. It does not matter whether in your mind you really intended to state a falsehood or not, merely that what you said turned out to be incorrect is sufficient. if the other party is damaged and it appears you did the wrongdoing, do you believe a jury is going to appropriately ponder the legal nuance between negligence or intentional fraud? One example is what I gave in the podcast regarding a client of mine was sued for a single statement made in a single email that the "plumbing under the house was replaced" . There was a misunderstanding regarding the representation from one party to the other, and viola you have a fraud lawsuit. 

It doesn't mean anything to me personally if anyone chooses to use an attorney for their legal, a CPA for their taxes, or insurance for their property. My goal is to merely educate and let people decide what their tolerance for risk is. Of course if you can get away without paying for entities to protect from legal liability, and you never get audited by the IRS, and your house doesn't burn down, you are better off not paying for services that protect you from that. 

At the end of the day, I believe we all make better decisions when we understand the risks and can appropriately weigh those risks against the costs according to our personal risk tolerance.

LOL Scott, my profile has the main aspects of my educational madness, I doubt it can be duplicated if anyone wanted to, my mess up was not going to law school.

I don't think luck had anything to do with keeping me from being flooded with unhappy clients or others. I have had a few, I went to the mat with more than one lawyer, I just throw them in a head lock and squeeze and they give up, some sit on their sabre. Fraud is very difficult to bring when you deal honestly and disclose. It's misunderstandings that you have to deal with.

I suppose that convoluted system would be rather expensive, but around here, one good way to open up a shell LLC is to it's ability to actually conduct business, is it properly funded? Setting an LLC or any entity up is one thing, is it actually a viable business operation or is it an empty shell that gets run through like Grant going through Richmond (no offense Richmond).

Scott, everyone makes a living, I'm not objecting to your niche. Unlike fire insurance, fire isn't used to motivate one to obtain insurance, scaring (as some do) some small investor into thinking they have a real risk exposure might be questionable. Suits against real estate types certainly happen, but to what % of investors get sued and then what % lose, I think a house fire is more likely.   

True, intentional acts are not insured, I don't beat my tenants or shoot at them, some may and they may intentionally mess with others, in which case, they need to address their problem. No doubt, some need to watch their back.

But, those with assets and lean on knowledge may seriously consider protecting their tails.

Best way to protect your assets is not to own them! LOL  :) 

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