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?
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91 Replies
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Jeff Greenberg these guys owned most of their stuff in Sacramento and Stockton.. so lots of violent acts by tenants and more than a few drownings.. drunk and fell off a 3 story veranda that kind of thing.
A developer I worked for in Lake Co ca I was the broker on his project he had a lake front one.. and some dude drunk decided to dive off the 3 story veranda.. well clear lake at certain times of the year is not clear at all.
water was only about 18 inches deep he went head first... and while did not die was injured and well you can guess the rest..
So sometimes we just cant predict Darwinism.. I see that in silly things pilots do and die from.. Like the baseball player doing low level full speed dives off of Florida and caught a wind tip and poof gone. And U know the plane manufacturer is going to get sued along with others.. that's why light aircraft that should cost about 200k and be profitable at that are 750k its the insurance from each crash .. Or Cory LIdle flying his Cirrus into NY city condo.. same thing that's the plane we have and I followed that one closely family sued Cirrus. People die relatives sue quite common.
- Specialist · Austin, TX · Member since 2018 · 18 posts · 6 votes8y
@Matthew McNeil I have not, but do know the fresh hell of hitting "unsubscribe" a million times. I swear GlassDoor is still sending me emails for a job hunt I went on in 2012. I have to unsubscribe from EVERY SINGLE SEARCH TERM I ever ran, and a whole bunch I didn't. Until I learned the beauty of filtering, I considered deleting that email account.
I did subscribe to my own thing I recommended and so far zero spam. i'm not signed up for anything else from where I work and I'm pretty sure it's actually over now that the whole deal is live. :) Guess I'll have to add that to the ever-growing "to-do list" of ted talks. - Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes8y
I once read a story about 2 Doctors.
Dr. A was a GREAT doctor! BUT... had terrible bed-side manners.
He cared about the cure, not the patient, so spent very little time socializing.
Dr. A certainly cures a lot of patience as this is his primary focus.
Dr. B was a mediocre Doc. BUT, he had GREAT bed-side manners.
When his patients come in, he makes them feel welcomed, talks to them about the things they are interested, be it Sports or some collectable, Food and Wine, Vacations, etc. While he knows enough to be an adequate Doctor, people are happy after they leave even if the problem has not been solved in the best way.
The article then investigated which of these two doctors got sued the most.
Dr. A got sued far more times than Dr. B.
I won't conjecture about the moral or lesson of this story.
HOWEVER, I have owned Rental Properties for 21 years in NYC. I treat all my tenants as the Customers they are. Fix every problem quickly and visit my properties as often as I can. Sometimes, we would share a drink together and I certainly wish them happy holidays when the time comes.
I will say that even if I'm following Dr. B's plan for extra Liability protection (meaning, both Docs have malpractice insurance and I certainly have Landlord Liability Insurance), I consider the extra effort to get to know your tenants as the cost of extra liability protection.
Besides that, it gives me a good feeling and the buildings are easy to manage when the tenants are happy!
- Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes8y
I have asked my PM who manages thousands of doors over many years about how many of his clients ever got sued. His answer was NONE. Only exception is small claims court for deposit. Nothing else. The fear of being sued for everything you own over a rental property is really way overblown. Driving your car and killing or maiming someone is a far far bigger risk. I do carry umbrella coverage on my rentals (and my car for that matter!) but beyond that I dont see the need for any complex asset protection.
- Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes8y
@Jeff Greenberg good luck with the suit! Even if you get your expenses back, you'll never get the time, unfortunately.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Account Closed:
I have asked my PM who manages thousands of doors over many years about how many of his clients ever got sued. His answer was NONE. Only exception is small claims court for deposit. Nothing else. The fear of being sued for everything you own over a rental property is really way overblown. Driving your car and killing or maiming someone is a far far bigger risk. I do carry umbrella coverage on my rentals (and my car for that matter!) but beyond that I dont see the need for any complex asset protection.
Agreed and most of the folks have never been in a lawsuit and the reality is the court will look at a company that is stripped of assets and deem it not a real company and then your personally liable anyway.
I went through this ad nauseum on my new home communities I build .. we have far more potential than any landlord … And the reality is we build each one in a separate LLC so if your running around with LLC's with no equity and little to no value in them .. then they will Pearce those if needed.
and you have to look at the asset.. if I had 3 story walk ups.. I would personally own a huge liability policy for falls off the 3rd floor.
but if I have vanilla SFRS what is someone going to sue you for.. ????? and they sue for liability claims.. and to protect yourself you need liability insurance just like your saying with auto. Folks that think they can just be in business and have no exposure just have never been sued in theory maybe in reality.. NO way..
- Specialist · Austin, TX · Member since 2018 · 18 posts · 6 votes8y
@Jeff Greenberg
I'm sorry you had to learn the hard way about insurance being useless for asset protection. I feel like I say some version of the sentence "Insurance is not a substitute for asset protection" about eight times daily. I'm also sorry you're in a litigation nightmare and hope you can get set up with some stronger asset protection to prevent future ones. Sounds like you've got some serious drama on your hands!
I hope you're lawyer is on top of this. Your lesson learned is dead on as well. For anyone else horrified by Jeff's story, here's some info on how to use contingency clauses to CYA and get better deals. It must SUCK to realize that a single clause could have prevented this...storm of feces. Hope you are successful in countersuit, if that's what it comes to. Have you considered having your attorney take a look at your rental agreements for your properties in light of this incident? He/she may be able to see some other opportunities to anticipate completely insane future occurances. - Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes8y
@Mary Browder Asset protection wouldn't come into play until later down the road, if it got that far. The missing clause is the only thing that I see that could have saved the legal expenses at this point.
- Specialist · Austin, TX · Member since 2018 · 18 posts · 6 votes8y
@Jeff Greenberg Ideally, asset protection comes into play well ahead of the lawsuit even being filed. I don't know that there's any 100% guaranteed method for everyone or the details of your ownership, so I'm just throwing that out there as a caveat to some thoughts.
If this property had been structured inside of a Series LLC (as a child series) or inside of a land trust, or a Series LLC/Land Trust combo, the plaintiff would have had a harder time initiating the suit at all. Most attorneys don't WANT to take cases that take on SLLC structures. Now I don't know that your deal structure would have allowed for that, so please understand this isn't a criticism of what you've done so much as a thought experiment/post-mortem on how asset protection could prevent someone else from falling into a similar situation. If you do end up in court over real estate, it's a pretty common argument that when you buy the property you buy the liability. That's why the contingency solution you mentioned is so important. Obviously it's BS that you could have predicted this particular situation, but it's a liability inherent to owning a complex that, well, stuff pops off.
Insurance definitely wouldn't have made a difference, even if you'd had the mightiest policy in the world. The difference an SLLC/Anonymous Trust structure *could have* made is just making the initial suit more of a pain. I don't know how many properties you have inside of that LLC that has been named in the suit, but if it's just the one--good. But for investors pooling multiple properties inside of a single traditional LLC are doing so at great personal risk. A suit like yours would then place ALL of those properties on the line in the event of a judgment. A Series LLC, by contrast, would limit the judgment an opposing attorney could possibly collect to the property within that series (just the one property associated with the suit), rather than everything. It sounds like your lawyer's a smart one who made sure you aren't personally liable--any properly structured LLC can take care of that. But by limiting the amount possible to "win" in judgment, motivation to sue is sucked away. This brings us full circle back to the original point.
If a lawyer is checking you out, with a pissed off client in their office ready to sue, the first step is to research what assets are associated with your name. In this case, they saw the LLC that owns your property. For most attorneys to even sue a Traditional LLC, they need strong motivation, usually in the form of a client with cash to throw into it or a juicy asset to collect in judgment. Ideal asset protection strategies make you a bigger pain in the *** to sue in the first place, and limit what they can get on their (almost always hypothetical/potential) "payday." The Series LLC/Anonymous Trust structure can make an investor a more difficult target all around, and usually will stop the lawsuit before it even starts. It is true that in asset protection, the law absolutely favors the proactive.
Again, I'm not saying that this would definitely have made a difference or even been the best option in your case. I don't know the details of your deal structure, purchase, partner agreements, property, etc., and am obviously not your lawyer. But all of us who own property can be held responsible for liabilities inherent to the property, whether that's grandma crashing through the staircase of a recent remodel or nutjobs showing up and causing drama at apartment complexes. In theory, ANY LLC structure *should* take care of this where there is no intentional fraud/outright negligence. Obviously neither is the case here. All that said, I'm truly sorry you're in this situation. It's so absurd that if your stuff weren't on the line, it would almost be funny. Here's hoping you've got an absolutely zero BS judge who understands liability can't be incurred by your failure to be psychic or Superman. It sounds like your attorney is on the ball--I'd be using the same argument to distance your LLC from the liability. No liability, no case. Then it's your call on whether to contersue, and hell, I would! (That's my opinion as a human, not a legal professional. I'd be personally pissed off at someone wasting mine and my partner's time, money, and energy, and want them to pay the bill.) Frankly, the "likelihood of an occurrence" of this is remote, even WITH a previous but totally unrelated incident. I mean, did you even own the property when the seven-years-prior incident occurred?
Thanks for your thoughtful comments and genuinely entertaining write-up of what must be a terribly frustrating situation! LMAO @ your speculation about the medical costs. Sounds like the ER took this about as seriously as they would a nasty case of itchy feet. Here's hoping you don't have to pay for the $800 Ibuprofen or anything else!
Edit: It's entirely possible that you have a really stupid opposing attorney that took this case on a "long shot," just based on the value of the asset alone, and will give up pretty quickly. It doesn't sound like a situation where the plaintiff has a lot of cash. Hell, if they did they probably wouldn't be suing over an ER bill! Here's hoping the gods of law and reason smile upon you. - 8yLinda WeygantPro MemberInvestor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
This is a topic that I am sorry to say I can contribute to.
I had 4 legal issues over the same thing.
Had tenants that I decided not to renew their lease. They responded with a request for disability accommodation that we must rent to them due to their disability. Literally, the accommodation request was "renew our lease"
Um, what?
Various issues were at play here which I won't get into, but we filed for eviction. Pick one of 3 or 4 reasons, they'd each be valid.
They countersued for discrimination on their disability and claimed that their damages would be more than $10,000 so it was removed to District Court rather than County Court (sigh....)
During the course of this process, I had to file for a Restraining Order on one of the parties due to multiple threats of violence, death, suicide and intimidation.
They also filed a discrimination complaint with Colorado's Department of Regulatory Affairs.
So, that's 4 legal issues, same problem tenants. We have:
1. My original eviction lawsuit
2. Their discrimination countersuit
3. My request for a restraining order
4. Their state complaint (the way this works here is that if the state investigator finds cause for possible/probably discrimination, they will then assign a lawyer to the case and effectively sue you on behalf of the tenant. Tenant gets free and very competent legal representation).
#3 was resolved first as the tenant skipped out on service for the restraining order. I could no longer drive an hour each way out to the court house every two weeks to keep renewing the temporary order, so I let it drop but was really freaked out over my safety for a very long time.
#1 was resolved in that we went to court and I received possession. Before I could call the sheriff, the tenants moved out (but not before trashing the place). The damages from them trashing the place went into the eviction/countersuit case.
Several months to a year later, the tenant was still petitioning the court to vacate the eviction case and to this day, because of the outcome of #2, thinks that the eviction will be removed from her record. (heh) More on that below.
#2 and #4 became tied together. The state initiated an investigation (#4), but then essentially put it on hold pending the outcome of #2
#2 dragged out for about a year because the tenants were pro se in the court and the judge gave them A LOT of latitude. They'd show up for court unprepared and the judge would just reschedule and then advise them on what they needed to do and the whole thing was really just a long issue of delay because the tenants kept motioning to vacate the eviction (#1) - even though it was already done and over - but because it had the same case number as #2, the courts would get confused and my lawyer would have to keep setting everything straight.
Final outcome is that the tenants could never really present their argument (because they had no proof), but kept demanding the following (some of these will make you giggle):
* remove the eviction from their record
* pay for all of the housing expenses they incurred in the year after we evicted them including a purchase of a travel trailer (because no landlord would rent to them with an eviction on their record), the gas, the camping fees, their camping club memberships and all of their doctor bills because evicting them stressed them out. Also, the deterioration of their marriage was also thrown in as a "damage" because they couldn't get privacy from their 2 kids in a 200 sq ft travel trailer.
* allow them to move back into our condo or another property
* provide housing to them for the rest of their lives, rent free.
We were finally in a status hearing 4 days before the trial when my lawyer indicated the following:
- My lawyer still had no real complaint to defend against. The tenants kept saying "discrimination", but would not give any proof to my lawyer who could then fight it. They kept thinking they could just come to trial and spring all of this surprise documentation on it.
- The tenants were refusing depositions and interrogatories and the judge (for whatever reason) was not enforcing the orders for either one.
- My lawyer stated that his legal fees were already very high and trying to prepare for a court case that was still not defined and then attending the court date was just adding additional fees onto the case for no good reason since the tenants still weren't cooperating with their own countersuit.
So my lawyer moved to dismiss the case. The judge agreed. Their side was dismissed and they are not permitted to bring any further complaints against me for the same topic. In return, my lawyer dismissed, but we can choose to bring it up again if we want in the future (I think these are With Prejudice and Without Prejudice, but I always get them confused, so don't quote me there).
The judge also awarded attorney fees to the tune of something over $20,000, so while I won't get my damages, my attorney has his fees.
Once #2 was dismissed, my lawyer informed the state that there was no finding of discrimination and provided the court records and transcripts to the state. Less than 2 weeks later, the state found no cause for further investigation and closed the case.
This property was held in an LLC. I have no idea whether or not, if they had won their case, I'd have had personal liability or not. Probably, due to the "personal" nature of my alleged infraction.
I never brought my insurance into this, but I'd love to hear opinions as to whether or not I should have.
Also, I will warn you all ahead of time and put @Mindy Jensen and @Craig Curelop on notice. Any time I have mentioned this case on Bigger Pockets, the tenant has eventually discovered the post and starts stirring up a storm on it. BP has blocked her several times, but email accounts are a dime a dozen.
- Rental Property Investor · Westport, CT · Member since 2017 · 176 posts · 183 votes8y
Originally posted by @Jeff Greenberg:
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. It seems that it is being inferred that by buying the property, not only did I buy the asset, but also the liability.
If you purchased the entity with all its assets and liabilities, then you therefore purchased the historical insurance coverage as well. I would go back to the seller and ask who the insurance carrier was in that particular year. It is this insurer who should be covering this claim.
If the seller won't cooperate, use you attorney to get the policy info.
- Rental Property Investor · Westport, CT · Member since 2017 · 176 posts · 183 votes8y
Originally posted by @Mary Browder:
@Jeff Greenberg
I'm sorry you had to learn the hard way about insurance being useless for asset protection. I feel like I say some version of the sentence "Insurance is not a substitute for asset protection" about eight times daily.
It's not that insurance doesn't cover this, it's that he went to the wrong insurer. Like I said in my prior post, get the insurer details for the year the shooting occurred.
In my mind, this is another example of how forming a company DOESN'T protect you and only makes it so you take on prior year liabilities. If this property was bought as an individual and not bought as a company then there would be no transfer of old liabilities.
- Specialist · Austin, TX · Member since 2018 · 18 posts · 6 votes8y
How do you figure? I'm curious about your line of reasoning. Great point about wrong insurer--sorry, I didn't see your earlier post so I just now caught up.
One could always buy in their own name and transfer to something like a Land Trust for additional asset protection. But I'd like to check with my boss @Scott Smith--is Michael correct that purchasing the property as an LLC actually exposed him to greater liabilities? I've never seen case law to this effect. When in doubt, Michael, I ask an expert. Thanks for sharing your perspective and reminding me to read back through your post. Your knowledge of insurance clearly exceeds my own--admittedly not my area of expertise. I'm a big believer we should all have insurance, but just that it usually isn't enough for investors with multiple properties on its own. Company structures set up AHEAD of time generally do prevent suits, but of course, asset protection isn't one-size-fits-all. Only a qualified AP attorney can tell a given investor what set-up is best for them (assuming said attorney is familiar with the investor's situation, goals, and plans). Thanks for shedding some light on the subject! - Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes8y
Originally posted by @Mary Browder:
is Michael correct that purchasing the property as an LLC actually exposed him to greater liabilities?
My understanding is that if you bought the LLC that owned the property, you inherit all the prior liability of the LLC.
However, if you bought the property in the LLC, I don't see any difference regarding prior liability compared to buying in your own name.
That is why, when you sell a property that is in an LLC, some buyers would prefer to buy the property directly to put in their own LLC than buying the existing LLC with its possible prior liability, even if it is more expensive (broker fee, deed and tax stamp).
In the same token, when you sell a property out of your LLC, it may also be better to dissolve the LLC than to reuse it for another property later on.
- Attorney · Fort Worth, TX · Member since 2015 · 372 posts · 176 votes7y
Originally posted by @Account Closed:
Originally posted by @Jay Hinrichs:
Originally posted by @Vaibhav Puranik:
@Account Closed Can you please elaborate more about your experience? Did you have a LLC structure in place when you got sued. How did such a structure helped you when you got sued?
if you make it to the ninth circuit court you just spent 100k plus in attorneys fee's and LLC structure has no bearing.. and he won.. so end of that discussion.. believe me when I tell you if you are going to get sued you are going to get named personally.. no one sues just the entitiy they ALWAYS sue you personally.. does not mean they win.. but you will get sued..
@Jay Hinrichs is absolutely right. No LLC is going to matter for a small investor. You will be named personally. The original Complaint (that is the term they use for the initial filing of the paperwork) had something like 12 names and entities they were suing. If you had "touched" the property in anyway or benefited from the transaction in anyway, you were added, just in case.
Some entities get removed along the way, but it takes a court order. And just because someone was named doesn't mean they did anything wrong. Generally it takes a "finder of fact", that means a Judge or a Jury to decide who is right and who is wrong. Sometimes the Judge will dismiss based on a Motion for Summary Judgement, sometimes he wont. I've read that about 90% of cases get settled just before trial. I'm a fighter. I was in the right. I wasn't going to settle.
My attorney(s) were able to get mine dismissed by the Judge(s) (this happened a couple of times) only to have the other side appeal. What is supposed to occur is when a Judge misuses the law, the other side can appeal. There was no misuse of the law here. In my case, they simple found something entirely new to throw against the wall to see if it would stick. It never did stick, but as a point of the law, the appeal(s) went forward and we litigated those as well.
One of the pros of a TX LLC is that it's against the LLC statute to sue both the LLC and the LLC member(s) in the same lawsuit, leading to many LLC members never being sued, even in single-member TX LLCs. It also gives me the option to file a motion for sanctions against the plaintiff attorney if the plaintiff attorney does so, which can aid settlement.
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