How to sue a self-directed IRA?

Question

Hi all,

wondering if anyone can shed light on how to sue a self-directed IRA properly? We were in a purchase contract for a property titled in a self-directed IRA.

We canceled but the "owner" (beneficiary of the IRA) refused to release the deposit.

The beneficiary signed the agreement, but later on signed in the name of the custodian (which he was not authorized to do).

Do we sue the beneficiary? The IRA? The custodian?

Anyone?

Thanks

Thomas

Thomas Richter · Answer

This was a while ago, but here is the outcome:

I named the IRA, the beneficiary, and the custodian as defendant parties. The custodian prepared a declaration which stated that they are not liable. The beneficiary showed up to the trial.

The judge thought that she would probably agree with the custodian's declaration. I agreed with her and explained why there were three defendants.

The judge then declared that she had to take the "standing" issue under consideration; in other words, she didn't know either whether it should be the IRA or the beneficiary (who is the self-director, but doesn't hold signature power) should be the correct defendant, or whether the IRA could even be sued at all (even though the IRA can hold title).

We argued the merits of the case which was pretty clear-cut in my favor.

After about two month we received the judge's written verdict which stated that the beneficiary had accepted responsibility by

a) signing the contract (which he shouldn't have since he didn't have signing power - that should have been the custodian)

b) showing up to trial and arguing his case

c) counter-suing me for damages

The judge showed that there was no question as to who was entitled to the deposit; we had not removed any contingencies and the escrow company was court-ordered to release the deposit to me. The judge also awarded me $1,000 civil fine as per the purchase agreement (withholding of deposit without reasonable good-faith cause).

The defendant promptly paid.

Needless to say this leaves the question about IRA property-ownership and whom to sue open.

Jared Wilson · Answer

thanks for updating us.  This was quite interesting.

Justin Windham · Answer

@Thomas Richter

Thanks for the update. Congrats on getting your deposit back.

Dmitriy Fomichenko · Answer

Talk to an attorney about your specific situation, public forum is NOT a place to ask for legal advice.

Patrick Liska · Answer

First check your purchase agreement, a lot of times there is a clause that states that if the buyer backs out, that the seller has the right to keep the deposit. there are certain conditions, but the seller could always claim something. think it will be an up hill battle for you. but let us know how you make out.

Lorina Delfierro · Answer

The Self directed IRA is the account, an asset owner. The IRA can't decide, cant direct and  cant't write the check to pay.

The Custodian is the holder of the IRA,the account , he writes the check and watches the beneficiary to not do prohibited transaction per IRS rules.

The beneficiary, who receives all the benefits of the IRA and directs the Custodian to pay, sell and buy.

If you sue the IRA and you win , you wont get paid because the beneficiary who direct the Custodian to pay was not sued.

You all have to sue the IRA, Custodian and the beneficiary.

Justin Windham · Answer

@Thomas Richter

Keep us posted on any new developments, please. Good luck.

Thomas Richter · Answer

@ Stuart not if it falls within the jurisdiction of small claims.

@ Douglas Escrow has requested to be named as a defendant so that they can release the deposit due to a court order. They're afraid the seller will sue them if they release it.

Stuart Birdsong · Answer

@Thomas Richter Doesn't the Earnest Money dispute go to mediation before a civil suit ca be filed?

How to sue a self-directed IRA?

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