LLC Headaches

14 Replies

The pros and cons of running a real estate business through an LLC and using LLCs to hold properties have been discussed at length on BP. My question is about what LLC users do to avoid some of the headaches of using an LLC. The specific issues I am thinking of are:

1. As I understand it, an LLC must hire an attorney for any legal work and evictions.

2. To keep the LLC protection it must have it's own bank account, if you put each property in it's own LLC, do you need to maintain that many accounts? Do you have another LLC that collects rents and pays for expenses?

3. Getting loans when a property is owned by an LLC seems to be very difficult. Is there any way to get around the issue?

Any other LLC headaches you have come across and solutions would be greatly appreciated. I am trying to expand my rental property business and want to be sure I have the structure set up properly before I get it too big.

I do plan to talk to an attorney about this, but wanted some input from BP first so I know what kinds of things to ask the attorney.

Kyle -

#3: It's been my experience as well - impossible to get financing for an LLC - i've called over a dozen banks. Most on here say finance under your name, pay a few months, then tranfer to an LLC - you will probably get issued a "DUE BILL" meaing the mortgage is now due in whole - but they probably won't act on it...I have not tried that so not sure

I purchased my first property (a multi-family) in february of this year and I purchased it under an LLC. I used a mortgage broker who was able to find a bank willing to do this transaction (US Bank). I asked my broker about a month ago what the rates were for purchasing a similar property like I did in february, again under an LLC, and he was having a difficult time finding any bank willing to do so.

I've talked to my lawywer who also owns rental properties and he agreed that any eviction proceedings need to be handled by a lawyer. He has also stated that you could have each property in an LLC or multiple properties in one LLC, or one LLC to handle the rental aspect while the other holds the property. He has stressed that the most important thing is to show separation of your private/personal accounts from your business accounts/transactions, and use your LLC to pay for any personal expense.

#1 You may perform evictions for your LLC, at least that's the case in Texas.

Originally posted by Kyle Meyers:
1. As I understand it, an LLC must hire an attorney for any legal work and evictions.

Ummm, I believe it's a good idea to hire an attorney for legal work and evictions however you hold the property.

Originally posted by Jon Klaus:
#1 You may perform evictions for your LLC, at least that's the case in Texas.

I don't believe this is really the case in TX. You may have gone to court to evict a tenant and never had your standing challenged; but, unless you are an attorney, representing your LLC in court is the unlicensed practice of law.

You may want to confirm this with a TX attorney before you go to court for your next eviction.

Originally posted by Kyle Meyers:
2. To keep the LLC protection it must have it's own bank account, if you put each property in it's own LLC, do you need to maintain that many accounts?

Since many states require you to hold the security deposit separately in it's own dedicated account (apart from rents and expenses), I think you technically need 2 bank accounts per LLC.

You could probably get away with putting the security deposits for that LLC's property/properties in the same account as the LLC's rent/expenses account, but if you ever had a tenant dispute go to court the tenant might push the issue that you didn't follow state law.

Dave T: I disagree. Any designated agent can act in court. As the LLC member, your it's designated agent. As long as you are in authorized capacity to act on behalf of the entity, you may do so in court.

What are you really referring to is dispensing legal advice or acting on behalf another entity without designated authorization, or holding yourself out as a attorney will is considered practicing without a license.

Do you really think only attorneys can act in court? It's just that they know rules and hence, folks hire them. So if you are the sole member of the LLC and get sued, you can ligitate the matter yourself in court without an attorney (of course, it's foolish). Likewise, as a member, you can bind the LLC to contacts and so forth; and therefore, likewise, you can act on it's behalf.

Max: Yes, your attorney may agreed because if it's not done property, things can go awry quickly. Go back and ask the attorney that if under an LLC is the attorney the only person can commence eviction? I wager a $2 bill he'll say no. However, he would strong recommend it, however.

Any BP attorneys out there care to weight in?

Unless you need to control costs because you own dozens of units and have to evict frequently, I don't know why you wouldn't hire an attorney.

Remember that some states have easier eviction rules than other states. So yes in a state that has better safeguards and protections for tenants, then yes.

Just like divorces; some states require that the parties be separated for a least a year before filing or the divorce degree is final and some states allow no fault filing. Remember that state laws do vary and if you reside in a state where eviction laws are tougher to decipher or nagivate, by all means hire an attorney.

And yes, you can hire an attorney for eviction (or even small claims court), but since court filing fees can cost $300 or $400 and attorney's fees per hour, some folks are intellient enough to figure out the eviction rules for states that do not have tough eviction rules.

Originally posted by anthony c:
Kyle -

#3: It's been my experience as well - impossible to get financing for an LLC - i've called over a dozen banks. Most on here say finance under your name, pay a few months, then tranfer to an LLC - you will probably get issued a "DUE BILL" meaing the mortgage is now due in whole - but they probably won't act on it...I have not tried that so not sure

I did this with 2 properties several years ago and did not get any DUE BILL. One property has a conventional mortgage, the other a HELOC, with 2 different banks.

Georgia is pro-landlord.Once you get the process down here you do not need an attorney.

There are also eviction companies that will file the paperwork for cheaper than attorney.

D.D., here in Connecticut only an attorney can act on behalf of an LLC for purposes of filing an appearance and bringing an eviction action. This same rule applies to things like filing an action to discharge a mechanic's lien or any other type of litigation. With that said, there are many things that you (as agent) can do such as send the initial notice to quit. As everyone above has mentioned, it looks like it depends on the state to determine the pros/cons of an LLC entity structure.

William, Dave T., and D.D. are all correct. It really depends on the court system. Some will allow the members of an LLC to conduct an eviction, some require an attorney. I personally prefer to simply pay the attorney fees and get a professional to execute the eviction. In California, a "professional" tenant can make life a living hell for a landlord unless they have somebody equally experienced to combat them.

Never bring a knife to a gun fight.

1. As I understand it, an LLC must hire an attorney for any legal work and evictions......Not in PA. I have several units and find that most attorneys are actually not any more familiar with the process than I am. Also, i have only had one tenant that has showed up at the hearings. bottom line is if they dont pay they are going to lose. So for me why pay for an attorney.

2. To keep the LLC protection it must have it's own bank account, if you put each property in it's own LLC, do you need to maintain that many accounts? Do you have another LLC that collects rents and pays for expenses?..............I have two, one for multi-family's and one for comercial properies. I have heard the arguments about liability, however two tax returns and two bank accounts are enough for me. I have an umbrella insurance policy to cover liability.

3. Getting loans when a property is owned by an LLC seems to be very difficult. Is there any way to get around the issue?..........I have NEVER had a problem getting loans with an LLC. Bottom line is that you have to personally gaurantee the loans anyway, although lately i havent even needed to do that. I guess we have been lucky...actually closing on a loan this week on a small commercial property and will also upgrade my line of credit to $250K, all in the name of the LLC.

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