How to sue a self-directed IRA?

17 Replies

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

Yeah, my personal and three other lawyers had no clue. Seems like it's quite a grey zone. The answer was always, name everyone. I figured maybe someone has done it before. 

Thx

Thomas

Who is holding the deposit. If it is the beneficiary, he can't touch it or he has just disallowed his IRA be self dealing. That might be some leverage you can use.

An accountant and attorney that is familiar with IRA issues is John Hyre out of OH. He is arguably the number one guy to talk to for an issue like this.

His website Hyre Legal

Whenever we are taking anyone to court as the Plaintiff I instruct my attorneys to name every possible party. Let the judge/magistrate dictate who gets dismissed and who is liable. Whether it be foreclosure suit or anything of the sort our policy is to name anyone and everyone tied to the case in any way shape or form.

Originally posted by @Thomas Richter :

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

You would have to go after at least the beneficiary and the IRA. The IRA is a legal entity. So you may have some fun with it. You'd probably have to name the custodian to make sure. however, who was the deposit given to?

The deposit is with escrow.

I'm not sure if the IRA qualifies as a legal entity like a LLC, corp or trust. It's an investment vehicle regulated by the IRS, not by state statutes. I.e. it doesn't have to have an address, or be filed with State authorities. It's essentially an asset, no?

Who or what did you make out the deposit check to? I would start there. There should have been some kind of agreement that the deposit be held in escrow and can't be released without written instructions from both parties. Did he deposit it into the IRA right away?

I would sue him individually and as the custodian of the IRA

Just my two cents worth

@ 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. 

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.

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.

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.