Been sued? Please share.
Rental Property Investor · Los Angeles, CA · Member since 2015 · 30 posts · 56 votes
Been sued? Please share.
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Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
8yOriginally posted by @Ken Weiner:
There are so many discussions on here about the most appropriate asset protection strategies for various situations. Umbrella policies, LLCs, holding LLCs, land trusts, etc. People debate whether someone else can simply "pierce the veil" of these entities.
I was wondering if anyone out there that has actually been sued. If so:
- What were you sued for and for how much?
- What asset protection structure did you have, if any? Insurance? LLC? Other?
- What was the result?
I'd love to hear first-hand experiences of people whose asset protection strategy has actually been tested. I'm sure many others on here would benefit as well. Let's devote this thread to actual first-hand experiences instead of asset protection advice of which there is already plenty of on BiggerPockets.
Got sued. For $2,000,000. They lost, at every level. They appealed. Went all the way to the Ninth Circuit Court of Appeals. Set a Precedent. Went through 4 jurisdictions and took 6 years. What do you want to know?
.
91 Replies
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Matthew McNeil:
Originally posted by @Jay Hinrichs:
Originally posted by @Matthew McNeil:
I recently asked my PM if they ever heard of one of their clients being sued (250+ clients). They said "never" in 15 years serving as a PM.
I've never been sued in 10 years as an RE investor. I put each property in a separate LLC and have good insurance. I also have a great PM who uses a very thorough rental contract.
so you have a set of quick books for each property and file a separate tax return for each property ??? that seems like a bunch of work.. I guess it depends on the size of your portfolio.. at one time we had 350 homes.. that would be a little wild to have 350 LLC's and do 350 tax returns..
I had a partner that insisted on some new builds we were doing.. that each be its own LLC.. so there you go own LLC own checking account separate tax returns.. by the time we got to about the 5th one he said screw that this is too much work.
plus you cant just bank rupt an LLC if you do they come after you personally.. these do not protect you personally..
Yes, my PM tracks all income and expenses for each door separately as part of their management services, and a detailed financial spreadsheet is provided for me.
I imagine that most BP members probably don’t have the size or depth of a portfolio such as what you own. My take on it, for us smaller guys anyway, is that if the government has set up a legal structure with certain built in protections to limit someone from being personally liable outside of that business entity then why not take advantage of it.
I only have 2 rentals left.. and one is in escrow and the other will be sold as soon as tenant buys it or moves.. then I will be sans rentals.. and only in Notes.. and my home building business and short term lending business.. pay a little more in tax but make way more than rentals make. WAY more.
- 8yScott SmithPro MemberAttorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
@Ken Weiner I was in corporate litigation before transitioning into asset protection, and did my fair share of suing people. So definitely have a few war stories there. If you're interested in some stories of clients I've had since transitioning onto the defense side of real estate law--those who have come to me too late (after being sued) or those who have had their assets saved by planning ahead with proper strategies--I'm happy to tell a couple. Of course, I'll have to remove names and identifying info for legal ethics reasons. As another commenter pointed out, anonymity is a huge part of asset protection, so you're not likely to hear too many people sharing personal stories because it would defeat the purpose of the anonymity protections they have in place.
Example of a recent one: We had a lady whose asset protection strategy saved her from a lawsuit that was all based off of a miscommunication--a single word in an email regarding which particular plumbing had been replaced. Her statement made total sense in context, but her exact words could have been used against her and the tenant started hollering threats to sue. Fortunately, her AP strategy stopped the suit before it really began. That's what the best ones do.
I'd like to point out most of the suits I've seen don't involve intentional, deceptive fraud. They're misunderstandings or mistakes that expose the person to liability, or often, cases that insurance declines to cover. - Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes8y
Originally posted by @Jay Hinrichs:
Originally posted by @Matthew McNeil:
Originally posted by @Jay Hinrichs:
Originally posted by @Matthew McNeil:
I recently asked my PM if they ever heard of one of their clients being sued (250+ clients). They said "never" in 15 years serving as a PM.
I've never been sued in 10 years as an RE investor. I put each property in a separate LLC and have good insurance. I also have a great PM who uses a very thorough rental contract.
so you have a set of quick books for each property and file a separate tax return for each property ??? that seems like a bunch of work.. I guess it depends on the size of your portfolio.. at one time we had 350 homes.. that would be a little wild to have 350 LLC's and do 350 tax returns..
I had a partner that insisted on some new builds we were doing.. that each be its own LLC.. so there you go own LLC own checking account separate tax returns.. by the time we got to about the 5th one he said screw that this is too much work.
plus you cant just bank rupt an LLC if you do they come after you personally.. these do not protect you personally..
Yes, my PM tracks all income and expenses for each door separately as part of their management services, and a detailed financial spreadsheet is provided for me.
I imagine that most BP members probably don’t have the size or depth of a portfolio such as what you own. My take on it, for us smaller guys anyway, is that if the government has set up a legal structure with certain built in protections to limit someone from being personally liable outside of that business entity then why not take advantage of it.
so are you filing a separate tax return for each LLC like your suppose to do ?? or just lumping it all into one.. that's the big killer in this equation in my mind... I am all for LLC's I have 11 of them personally.. and I spend close to 50k a year just in CPA fees to manage those business's.. its costly.. I could cut that down to 10k or so if I just had one..
Yes, my CPA prepares a return for each LLC - separately. I pay about $300/return.
- Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes8y
Originally posted by @Scott Smith:
@Ken Weiner I was in corporate litigation before transitioning into asset protection, and did my fair share of suing people. So definitely have a few war stories there. If you're interested in some stories of clients I've had since transitioning onto the defense side of real estate law--those who have come to me too late (after being sued) or those who have had their assets saved by planning ahead with proper strategies--I'm happy to tell a couple. Of course, I'll have to remove names and identifying info for legal ethics reasons. As another commenter pointed out, anonymity is a huge part of asset protection, so you're not likely to hear too many people sharing personal stories because it would defeat the purpose of the anonymity protections they have in place.
Example of a recent one: We had a lady whose asset protection strategy saved her from a lawsuit that was all based off of a miscommunication--a single word in an email regarding which particular plumbing had been replaced. Her statement made total sense in context, but her exact words could have been used against her and the tenant started hollering threats to sue. Fortunately, her AP strategy stopped the suit before it really began. That's what the best ones do.
I'd like to point out most of the suits I've seen don't involve intentional, deceptive fraud. They're misunderstandings or mistakes that expose the person to liability, or often, cases that insurance declines to cover.Scott, we'd very much like to hear your stories - or better yet, if you can just advise us based on experience what you recommend as the best strategies to employ regarding asset protection. Many of us have dove into Clint Coons' approach (Anderson Business Advisors) for example, but that adds a whole new level of understanding (and money) to navigate those waters.
Generally, I'm finding that feedback to these "LLC" questions (which have been posted on several forums) leaves BP members needing to piece-meal together an asset protection framework that lacks enough clarity from a legal person such as yourself. Granted, there are variables that would influence and subsequently guide each member towards a different strategy but if there's some basic advice you can offer that would be great.
Thx!
- Rental Property Investor · Round Rock, TX · Member since 2016 · 1k+ posts · 971 votes8y
@Matthew McNeil @Jennifer Hurt Here is a diagram to help you in your question:
- Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes8y
Originally posted by @Costin I.:
@Matthew McNeil @Jennifer Hurt Here is a diagram to help you in your question:
I didn't have a question... And there's more to deciding whether or not to set up an LLC than following a flowchart :) Cheers!
- Real Estate Investor · Las Vegas, NV · Member since 2011 · 45 posts · 12 votes8y
In Cali, being sued by ADA lawsuit farm out of san diego. They sue me, and my tenant. The insurance doesn't cover ADA suits.. so sucks.. out of pocket loss. They have about 10-20 plaintiff that they use and sue all up and down california. My complainant has at least 50 suites so far this year and hundreds in the past. They sued for handicap sign being faded, no van accessible parking sign and so forth. Small things.. They want 5 figures.. couple grand for fine and 10K+ legal fees. Mind you they just input business name and complainant's name and send out the lawsuit with typos, and wrong pronouns. the yelp review shows that the law office is behind bullet proof glass... for good reason.
ADA lawsuit, these guys sue everyone and everything.. they even sued dmv offices (lost), city offices (neighboring city and won) and sue all types of business from mom and pop to starbucks, gas stations and the corporation. It's like they throw darts (suits) and see what sticks and how much they can get out..
I'm going to have to do some prevention. I'll put the building in an LLC, and the home in a family irrevocable trust with me and spouse in control? Also need to find some umbrella insurance.
As for Tort reform, the granny at McD deserved her money. McD knew and didn't fix the too hot coffee issue and I've seen the injuries on a documentary and nobody would wish that on their worst enemy... unless they are the ADA lawsuit throwing types... then I'll throw that and the lettuce from chipotle and chicken with samonella on you.
- Rental Property Investor · Round Rock, TX · Member since 2016 · 1k+ posts · 971 votes8y
@Matthew McNeil Just trying to help. If your situation is more complicated than my diagram, then you definitely should talk with a specialist like @Scott Smith.
- Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes8y
Originally posted by @Ken Weiner:
There are so many discussions on here about the most appropriate asset protection strategies for various situations. Umbrella policies, LLCs, holding LLCs, land trusts, etc. People debate whether someone else can simply "pierce the veil" of these entities.
I was wondering if anyone out there that has actually been sued. If so:
- What were you sued for and for how much?
- What asset protection structure did you have, if any? Insurance? LLC? Other?
- What was the result?
I'd love to hear first-hand experiences of people whose asset protection strategy has actually been tested. I'm sure many others on here would benefit as well. Let's devote this thread to actual first-hand experiences instead of asset protection advice of which there is already plenty of on BiggerPockets.
I’ve gotten 100s of form letters from lawyers that are written on behalf of tenants.
actually “sued” and taken to court only a few tomes (by the city).
Lost only once (LLC / insurance wouldn't have helped)
- Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes8y
Originally posted by @Steve Vaughan:
Great point about insurance premiums. For $180k in structure replacement and $500k liability (that's the biggie) my premiums are usually under $500 a year for a LL policy. Even more affordable relatively for primary res., but only $300k liability.
If every tenant sued for the dreaded slip n fall, how could insurance co's, whose job is to measure and actuate risk, offer 300-500k in liability protection for a measly $45 a month?
On apartment buildings I own cash, normally Gl is the only insurance I get. If that.
It’s about $30/door/year. Just wrote a check for $5,900 for GL for 204 units.
- Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes8y
Originally posted by @Kevin Martin:
So it doesn't really matter what type of asset protection you have; you will get named personally in a law suite regardless. Whether you have a LLC, trust, Corp, ect. It doesn't prevent you from personally getting named right? Sounds like being a ghost (trust?) would be the first line of defense then just make sure you are insured right?
You assume that it's no big deal if the LLC gets sued as long as you don't
That's odd. The LLC is what owns the property/ properties. It has assets and equity.
Hell I’d rather be be sued personally. I don’t have sh*t :)
- Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes8y
Originally posted by @Jay Hinrichs:
Originally posted by @Matthew McNeil:
I recently asked my PM if they ever heard of one of their clients being sued (250+ clients). They said "never" in 15 years serving as a PM.
I've never been sued in 10 years as an RE investor. I put each property in a separate LLC and have good insurance. I also have a great PM who uses a very thorough rental contract.
so you have a set of quick books for each property and file a separate tax return for each property ??? that seems like a bunch of work.. I guess it depends on the size of your portfolio.. at one time we had 350 homes.. that would be a little wild to have 350 LLC's and do 350 tax returns..
I had a partner that insisted on some new builds we were doing.. that each be its own LLC.. so there you go own LLC own checking account separate tax returns.. by the time we got to about the 5th one he said screw that this is too much work.
plus you cant just bank rupt an LLC if you do they come after you personally.. these do not protect you personally..
FYI I have properties in the own LLC. I dont use quickbooks but my property management software doesn't care about LLCs (and doesn't care if they're all managed out of one account. It'll track what each property does regardless). And I only do one set of taxes. For "Cody". As the income from each LLC rolls to me as if they were not in an LLC.
So having tons of LLCs isn’t much work at all. $300 and 10 min to form a new one (I get 4-5 at a rome every few years). And 10 min for each to file with the SoS once a year. So it adds about 3-4 hours a year of complexity.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Cody L.:
Originally posted by @Jay Hinrichs:
Originally posted by @Matthew McNeil:
I recently asked my PM if they ever heard of one of their clients being sued (250+ clients). They said "never" in 15 years serving as a PM.
I've never been sued in 10 years as an RE investor. I put each property in a separate LLC and have good insurance. I also have a great PM who uses a very thorough rental contract.
so you have a set of quick books for each property and file a separate tax return for each property ??? that seems like a bunch of work.. I guess it depends on the size of your portfolio.. at one time we had 350 homes.. that would be a little wild to have 350 LLC's and do 350 tax returns..
I had a partner that insisted on some new builds we were doing.. that each be its own LLC.. so there you go own LLC own checking account separate tax returns.. by the time we got to about the 5th one he said screw that this is too much work.
plus you cant just bank rupt an LLC if you do they come after you personally.. these do not protect you personally..
FYI I have properties in the own LLC. I dont use quickbooks but my property management software doesn't care about LLCs (and doesn't care if they're all managed out of one account. It'll track what each property does regardless). And I only do one set of taxes. For "Cody". As the income from each LLC rolls to me as if they were not in an LLC.
So having tons of LLCs isn’t much work at all. $300 and 10 min to form a new one (I get 4-5 at a rome every few years). And 10 min for each to file with the SoS once a year. So it adds about 3-4 hours a year of complexity.
that's a great point I file returns because all of mine has some partner in them so I need to do that to generate a K 1.. although I think for the paranoid asset protection crowd if you lump everything together your probably just be viewed as an alter ego and get sued personally anyway.. As they are not stand alone..
- Specialist · Austin, TX · Member since 2018 · 18 posts · 6 votes8y
Hey @Matthew McNeil! Legal writer in the AP field here. I work for @Scott Smith and can tell you we have an asset protection crash course and a couple of webinars that could be useful resources for you. What would help you out most? With the boss-man's permission, I'd be happy to share a simple diagram that shows how some of these basics work. You can also check out Scott's many articles on the subject here on BP. We've answered a LOT of the recurring questions, but are also working on some things to hit on the most frequently asked so investors can get a clearer "big picture" of how these legal tools protect your assets.
P.S. @Costin I. has had a sneak peek at the e-course, but I'd have to get permission from the family to share that resource and wouldn't want to violate Self-Promo rules. The diagram he shared may actually be one of ours, but if it isn't, I can tell you that it IS accurate. I'll bug Scott to get back to you today--it's hard for him to see things he isn't tagged on. Have a great weekend man! - Specialist · Austin, TX · Member since 2018 · 18 posts · 6 votes8y
@Jay Hinrichs Actually, there are several things asset protection attorneys and professionals can do to prevent this "alter-ego" problem.
First is structuring the entity properly. Traditional LLCs are much more likely to be "pierced" because of pooled assets. SLLCs are slightly more secure and there's very little case law on them precisely because they are tough to fight. Setting up entity properly means not going it alone--your lawyer is the one who can help you make decisions about whether you want a single- or multi-member, whether passing through for taxes is in your best interest, etc.Second is utilizing it properly--which means it's a good idea to check with your attorney before transferring anything into or out of the SLLC structure.
Third is securing your anonymity. We like to do this with a Land Trust, and have written about this process of disguising company ownership before here on BP. What you might not be aware of yet is that you can actually pair a Land Trust WITH a SLLC to completely remove you (as an individual) from the picture. The Anonymous Trust will be listed on state filings. Trusts are three-part documents that, if structured correctly, will be filed privately. Names aren't under obligation to be reported to the state. So if someone comes to sue you, they will see the property is owned by Series (A,B,C,whatever) and that the structure is owned by XYZ Trust. Your anonymity is vital, and land trusts can also protect you and your investments from identity thieves.Finally, you have to do your part to maintain these structures. That means not co-mingling operations and assets. The companies that hold your assets (Series in the case of the SLLC) should NEVER do business with the public. That's your shell company's job. In fact, if someone comes after you, the shell company is the fall guy. That's the one we want them to sue, because it owns nothing.
I hope that has helped clarify some of your concerns. - 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Mary Browder:
@Jay Hinrichs Actually, there are several things asset protection attorneys and professionals can do to prevent this "alter-ego" problem.
First is structuring the entity properly. Traditional LLCs are much more likely to be "pierced" because of pooled assets. SLLCs are slightly more secure and there's very little case law on them precisely because they are tough to fight. Setting up entity properly means not going it alone--your lawyer is the one who can help you make decisions about whether you want a single- or multi-member, whether passing through for taxes is in your best interest, etc.Second is utilizing it properly--which means it's a good idea to check with your attorney before transferring anything into or out of the SLLC structure.
Third is securing your anonymity. We like to do this with a Land Trust, and have written about this process of disguising company ownership before here on BP. What you might not be aware of yet is that you can actually pair a Land Trust WITH a SLLC to completely remove you (as an individual) from the picture. The Anonymous Trust will be listed on state filings. Trusts are three-part documents that, if structured correctly, will be filed privately. Names aren't under obligation to be reported to the state. So if someone comes to sue you, they will see the property is owned by Series (A,B,C,whatever) and that the structure is owned by XYZ Trust. Your anonymity is vital, and land trusts can also protect you and your investments from identity thieves.Finally, you have to do your part to maintain these structures. That means not co-mingling operations and assets. The companies that hold your assets (Series in the case of the SLLC) should NEVER do business with the public. That's your shell company's job. In fact, if someone comes after you, the shell company is the fall guy. That's the one we want them to sue, because it owns nothing.
I hope that has helped clarify some of your concerns.I know this sounds good in theory but just like you have smart attorneys setting this stuff up ..there are equally smart ones that will figure out who owns the stuff.. your trust does not go to a closing.. you do.. anyway.. just not anything I am worried about.. liability to me is covered with my insurance.. And personally I own no rentals.. my personal main exposure is someone getting hurt on my job.. or product defect and I have insurance for that.. you cant just hide behind a shell in these instances again the courts will go right through them in reality.. most of the folks on BP that own rentals this is just simply over kill but if they like it hey go for it..
- Specialist · Austin, TX · Member since 2018 · 18 posts · 6 votes8y
@Jay Hinrichs Those smart attorneys have yet to figure out a consistently effective way to get the job done. With enough preparation, you can anticipate every move. Those who really value their anonymity use private legal docs to designate a second person to sign for them. Similarly, the shell company is the one doing business with the public, and you can employ anyone to do that; it doesn't have to be you. That said, your set-up sounds ideal for your situation, and that's awesome and the greater lesson of your post (for me, at least). You hit on one of the single biggest misconceptions about asset protection, whether you meant to or not.
Your post makes a great point that asset protection isn't one-size-fits-all. Liability sounds like enough for your situation and circumstances. But that's not the situation of MOST real estate investors. Most investors--that I encounter at least, and my job means I'm encountering lots of them in specific situations--own or plan to own a rental property, for instance. So I try to be careful not to speak in absolutes, because what works for you won't necessarily work for another investor. Someone with no rentals but a high risk career should be fine with just that first-line of defense insurance, but that wouldn't cut it for the apartment complex owner or investor hoping to grab up 8 properties by the end of the year. We're all unique, and that's why a qualified AP attorney/pro will take your individual circumstances into account before making recommendations.
I don't know most of the people on BP and have heard one story of overkill, but have seen far too many cases of failure to prepare at work. When someone comes to us because their litigation nightmare has begun, it's a little late! The law favors the proactive in most areas, but especially real estate/landlord-tenant/asset protection. Thanks for your thoughtful comment! - 8yScott SmithPro MemberAttorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
@Matthew McNeil Oh Lord, where to start, I've got tons of 'em. It's great that you're interested in asset protection. The best advice will be from a seasoned professional familiar with your circumstances, but of course there are some general guidelines to be aware of. You can read my Bigger Pockets blog features on asset protection and other legal topics here. There's enough on LLCs and Series LLCs to keep you busy for a little bit, but @Costin I. has a great diagram below that covers some of the basics.
You can also check out my piece on the different levels of asset protection for real estate investors to start thinking about the best strategy for you. I'm not your attorney so I can't give you personalized advice in a public forum, but am happy to answer any questions you may have and direct you to some materials that can help you get better informed! I look forward to discussing it further. - Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes8y
Most of my court cases were my suing people: evictions and foreclosures. Someone got hurt on the sidewalk on my property (owned by us). They sued, but it got thrown out for some reason.
Here are two lawsuits that happened in my market: Last week, a fire in a rental building took the lives of several people. The fire department reported that the smoke detectors were not adequate and items were blocking some of the passageways. I am sure a suit will happen. And I am sure they will be looking to settle with an insurance company, as most people don't have the assets to pay off such a settlement from this type of tragedy.
Another, a back porch collapsed, killing several people. It was determined that porch had some work done both out of code and without permits. The guy most likely had severe legal problems.
Keep up your properties, abide by the law, keep your assets in separate LLCs. There are many other ways, such as putting other assets in your wife's trust name. Etc...
- Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes8y
I have a story from the other side of the fence.
Years ago, I rented an apartment on a 6 month lease, with first months rent and 1/2 month security deposit. At the end of month 5 I gave notice I would move at lease end. Paid 1/2 months rent, and sent a note I needed the other half to find a new place, but no worry the place is undamaged. I had done this before more than once, no problem. A few days later I get a 3 day notice to pay or quit / leave. Then they sued for eviction. I moved out end of month as planned. No damage to the place.
They continued the legal process. Eventually I went to court representing myself. I believe it was small claims court. The landlord did not show up, but sent an attorney. The judge was angry, attorneys are not supposed to be in small claims court. The judge decided they were technically allowed to sue me, beacuse I technically broke the contract. I had to pay some court costs, but nothing else. So, nobody won that fight.
The hood and building were C class at best, I would say. Still are. At the time we called it El Cockroachador, a twist on the apt buildings name. Looking at Yelp reviews people still complain about roaches there. Same owner too, I bet he is rich. But slimey nonetheless.
Try not to go nuts with the suits. ;>)
- Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes8y
Originally posted by @Costin I.:
@Matthew McNeil Just trying to help. If your situation is more complicated than my diagram, then you definitely should talk with a specialist like @Scott Smith.
Apologies Costin. I didn't mean to sound dismissive in my reponse to your post. I realize it took a lot of work to put that diagram together and I'm sure its been a great help to many people.
- Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes8y
Originally posted by @Mary Browder:
Hey @Matthew McNeil! Legal writer in the AP field here. I work for @Scott Smith and can tell you we have an asset protection crash course and a couple of webinars that could be useful resources for you. What would help you out most?
Mary, have you ever watched the TED video "The Angony of Trying to Unsubscribe" which has been viewed 11 million times?
- Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes8y
It doesn't sound like anyone has had a lawsuit as exciting as the one that I am in the middle of. In this case, insurance was useless, but there was one very important lesson learned.
So the LLC that owns one of the property's that I control, along with my current PM, was named in a lawsuit. It seems that a guest of one of the tenants was shot while attending a party. Hmm, I had not heard of any shootings while we controlled the property, so I looked at the occurrence date. The date was prior to our ownership, so I requested that we are taken off as a named defendant. I received no response until I received another document with more information and a questionnaire. It seems that it is being inferred that by buying the property, not only did I buy the asset, but also the liability. Here is a good reason why to not to buy an entity to avoid increased taxes due to the property sale, or other advantages. Well, we had not bought the entity and therefore should have no liability for the previous owner's liabilities.
So I contacted our insurance carrier to see if they would write a letter to get us off the defendant list. The only letter I received back from the insurance, was one that stated that they were not the carrier at the time of the incident and therefore would not defend us.
So onto a 5k retainer to get a lawyer to write a letter stating that we had no liability in this case and to be taken off the suit. We are still waiting on the response. In the meantime, I did answer the questions on the interrogatory. I will let you know what the results are as they come in.
I do want to add some flavor to this story and fill in the premise of the lawsuit. It seems a party guest was shot in the back and had $12,000 worth of medical bills. That number is correct. For that cost, she must have received a bandaid and an aspirin. The suit goes on to claim that the owner was negligent in protecting the guest and warning them of the possibility of something of this nature occurring. They claim that the owners should have been aware of the "likelihood of an occurrence" of this type and should have protected the guest and warned them of the possibility of another occurrence.
Now, why should the owners have thought to protect the guest form this incidence, and had warned her?
Wait for it
Wait for it
Wait for it
Wait for it
Because, 7 years prior to this incident, there was a similar incidence on the property.
I told my lawyer, that if they do not take us off the suit, we will countersue for our expenses. They say, if you are in RE and you have not been sued yet, you will be. Just make sure that you are covered. So the lesson learned is to make sure in every transaction, I make sure that there is a clause that the seller will indemnify and defend us for any case coming from an incident that was prior to our ownership. This clause is to survive the closing.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Jeff Greenberg:
It doesn't sound like anyone has had a lawsuit as exciting as the one that I am in the middle of. In this case, insurance was useless, but there was one very important lesson learned.
So the LLC that owns one of the property's that I control, along with my current PM, was named in a lawsuit. It seems that a guest of one of the tenants was shot while attending a party. Hmm, I had not heard of any shootings while we controlled the property, so I looked at the occurrence date. The date was prior to our ownership, so I requested that we are taken off as a named defendant. I received no response until I received another document with more information and a questionnaire. It seems that it is being inferred that by buying the property, not only did I buy the asset, but also the liability. Here is a good reason why to not to buy an entity to avoid increased taxes due to the property sale, or other advantages. Well, we had not bought the entity and therefore should have no liability for the previous owner's liabilities.
So I contacted our insurance carrier to see if they would write a letter to get us off the defendant list. The only letter I received back from the insurance, was one that stated that they were not the carrier at the time of the incident and therefore would not defend us.
So onto a 5k retainer to get a lawyer to write a letter stating that we had no liability in this case and to be taken off the suit. We are still waiting on the response. In the meantime, I did answer the questions on the interrogatory. I will let you know what the results are as they come in.
I do want to add some flavor to this story and fill in the premise of the lawsuit. It seems a party guest was shot in the back and had $12,000 worth of medical bills. That number is correct. For that cost, she must have received a bandaid and an aspirin. The suit goes on to claim that the owner was negligent in protecting the guest and warning them of the possibility of something of this nature occurring. They claim that the owners should have been aware of the "likelihood of an occurrence" of this type and should have protected the guest and warned them of the possibility of another occurrence.
Now, why should the owners have thought to protect the guest form this incidence, and had warned her?
Wait for it
Wait for it
Wait for it
Wait for it
Because, 7 years prior to this incident, there was a similar incidence on the property.
I told my lawyer, that if they do not take us off the suit, we will countersue for our expenses. They say, if you are in RE and you have not been sued yet, you will be. Just make sure that you are covered. So the lesson learned is to make sure in every transaction, I make sure that there is a clause that the seller will indemnify and defend us for any case coming from an incident that was prior to our ownership. This clause is to survive the closing.
hopefully the seller has money to indemnify you.. and maybe the seller then turns this over to his or her carrier..
I think one of the main points people miss in all this.. even if you have protections etc.. you get named you may do nothing wrong but you still have to spend money to defend.. I think a lot of these folks think that just by having asset protection the other side is just going to go away and give up... I have been around this for 4 decades and been named for just being the broker on one deal.. the battle was between the developer and his money people they sued 30 plus people from me to the garnder and janitor on the project.. but for most of these folks not doing high level business and just owning a handful of SFRs pretty safe stuff.. I have owned over 500 sfr's at one time or another and have never been sued by a tenant.. so I will knock on wood.
NOw when I worked for a big syndicator in the bay area who had a Billion dollar plus portfolio in the 80s they were constantly in litigation with their apartment communities...
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