Getting sued! Is it common in real estate?

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Getting sued! Is it common in real estate?

Rahul Handa
Bolingbrook IL 路 Member since 2018 路 57 posts 路 13 votes

Is it really common as a real estate investor to get sued? If yes then how can you minimize the risk for getting sued. Have you ever been sued or know someone who has?

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Tom S.
Real Estate Investor 路 Burlington, VT 路 Member since 2010 路 2k+ posts 路 1k+ votes
7y

@Rahul Handa I've been in the rental business for 15 years + now and probably had 200 individuals living in my properties.  Not once have I even been threatened to be sued.  

I run it as a business, and document everything.  For example in VT, when purchasing a properties it has to be inspected by the state fire marshal.  They'll issue a list of items (hard wired smoke det., fire rated doors, etc) and I'll make those items are addressed.  My insurance companies will inspect every few years and I'll also make sure all items are addressed promptly.

Beyond that, any requests over safely issues are quickly fixed.  

Hope that helps,

- Tom

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  • Leah Stuever
    Realtor 路 Dallas, TX 路 Member since 2019 路 194 posts 路 164 votes
    7y

    Depends on what you are being sued for. Minimizing risk involves being honest and using attorneys to draft contracts

    2Reply
  • Rahul Handa
    OP
    Bolingbrook IL 路 Member since 2018 路 57 posts 路 13 votes
    7y
    Originally posted by @Leah Stuever:

    Depends on what you are being sued for. Minimizing risk involves being honest and using attorneys to draft contracts

     Hiring property managers? Does this help or no?

    1Reply
  • Tom S.
    Real Estate Investor 路 Burlington, VT 路 Member since 2010 路 2k+ posts 路 1k+ votes
    7y

    @Rahul Handa I've been in the rental business for 15 years + now and probably had 200 individuals living in my properties.  Not once have I even been threatened to be sued.  

    I run it as a business, and document everything.  For example in VT, when purchasing a properties it has to be inspected by the state fire marshal.  They'll issue a list of items (hard wired smoke det., fire rated doors, etc) and I'll make those items are addressed.  My insurance companies will inspect every few years and I'll also make sure all items are addressed promptly.

    Beyond that, any requests over safely issues are quickly fixed.  

    Hope that helps,

    - Tom

    12Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    7y

    @Tom S.  like tom been doing it a few years had hundreds of tenants as well..  only thing we ever have problems with are fights over deposits.. my version of broom clean usually does not match the tenants  LOL.

    you need to make sure you are not a slumlord like Morris invest.. a lot of those properties have some serious potential blow back to the buyers who did not realize they were buying a slum house. 

    good insurance good umbrella and be a good landlord dont be a slum lord and its much like the chances of a water landing in a modern jet liner..   Well An American Piloted jet liner and some of the better european ones and Quantas and Singapore airlines along with Cathey.. :)  you get the point though.. not common. tenants have no money to sue you generally speaking

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    8Reply
  • Megan Day
    Attorney 路 Cincinnati, OH 路 Member since 2016 路 13 posts 路 3 votes
    7y

    I'm not sure about commonality, but your best form of protection is to run your business/property through a limited liability company (LLC). This provides both liability protection and tax benefits. An LLC can hold title to one or multiple properties, or can serve as your management company. They are typically easy to set up and fairly inexpensive to maintain throughout the year, but you should contact an attorney in your area to make sure it's done correctly and that you follow the required formalities.

    Next -- good insurance that is proper for your type of property/activity!

    Finally -- a good attorney!

    2Reply
  • Rahul Handa
    OP
    Bolingbrook IL 路 Member since 2018 路 57 posts 路 13 votes
    7y
    Originally posted by @Megan Day:

    I'm not sure about commonality, but your best form of protection is to run your business/property through a limited liability company (LLC). This provides both liability protection and tax benefits. An LLC can hold title to one or multiple properties, or can serve as your management company. They are typically easy to set up and fairly inexpensive to maintain throughout the year, but you should contact an attorney in your area to make sure it's done correctly and that you follow the required formalities.

    Next -- good insurance that is proper for your type of property/activity!

    Finally -- a good attorney!

     Thank you

    0Reply
  • Rahul Handa
    OP
    Bolingbrook IL 路 Member since 2018 路 57 posts 路 13 votes
    7y
    Originally posted by @Tom S.:

    @Rahul Handa I've been in the rental business for 15 years + now and probably had 200 individuals living in my properties.  Not once have I even been threatened to be sued.  

    I run it as a business, and document everything.  For example in VT, when purchasing a properties it has to be inspected by the state fire marshal.  They'll issue a list of items (hard wired smoke det., fire rated doors, etc) and I'll make those items are addressed.  My insurance companies will inspect every few years and I'll also make sure all items are addressed promptly.

    Beyond that, any requests over safely issues are quickly fixed.  

    Hope that helps,

    - Tom

     So people don鈥檛 sue you just because you are rich? Thats a relief 馃ぃ馃ぃ

    1Reply
  • Michael Noto
    Real Estate Agent 路 Southington, CT 路 Member since 2008 路 5k+ posts 路 3k+ votes
    7y

    If you are the type of person who is going to worry about getting sued then a business where you have liability like real estate is probably not for you, and there is nothing wrong with that by the way. It is actually good to know that about yourself.

    1Reply
  • Thomas S.
    Member since 2016 路 13k+ posts 路 12k+ votes
    7y

    Provided you properly maintain your properties law suits are extremely rare. If you are unfortunate to have someone file your insurance should protect you.

    As long as you are a responsible landlord you should not be stressing over the worries of a suit.

    0Reply
  • Josh C.Pro Member
    Property Manager 路 Indianapolis, IN 路 Member since 2010 路 1k+ posts 路 1k+ votes
    7y

    @Rahul Handa

    Suits do happen. Unfortunately, we鈥檝e been sued by crazy tenants a few times. We won them all, or settled for a very small amount. A couple grand in attorney fees and move on. Comes with the territory managing hundred of properties. Just quickly respond to issues and use licensed and professional people. That helps a lot. But sometimes mold or bugs or whatever happens and tenants get upset. Or security deposit disagreements as Jay mentioned.

    Good luck.

    0Reply
  • Steve K.
    Realtor 路 Boulder, CO 路 Member since 2016 路 3k+ posts 路 5k+ votes
    7y

    @Rahul Handa Our 8 plex got sued last year (slip and fall on ice in the parking lot, broken hip). Tenant was successful in the suit and awarded $100k to cover her medical expenses. HOA got dropped by insurance, had to find new insurance and fees went up $100/mo because of it. It does happen which is why we carry insurance.

    0Reply
  • Evan Wiesner
    Flipper/Rehabber 路 Portland, OR 路 Member since 2014 路 120 posts 路 80 votes
    7y

    Depending on the type of real estate investing you're doing then the risks change. If you're only in long term holds than follow the advice of most of these posts. Talk to an attorney first about setting up an LLC or Scorp structure that fits your goals and make sure you have a big umbrella liability policy for you personally. Then do everything above board, document it, and don't try to cut corners.

    If you're flipping, it's like breathing, it's going to happen eventually if you keep at it. However, if you document everything, do it all right, be open and honest and operate with integrity, then the result will usually be just someone trying to get some money out of you. My companies I've worked for have been sued for some really petty things and usually the easy answer is to just treat them with respect and give them options to find a solution. 

    If you're doing the right thing then it's nothing to be afraid of. 

    4Reply
  • Leah Stuever
    Realtor 路 Dallas, TX 路 Member since 2019 路 194 posts 路 164 votes
    7y
    Originally posted by @Rahul Handa:

     Hiring property managers? Does this help or no?

    It depends on the contract with your PM. Some do cover some liability/law suits. If you hire a crappy PM, then you are running a higher risk of getting sued, in my opinion. You are still liable for their actions since they are acting as your agent. So if you are going that route, hire a good company with good references. 

    0Reply
  • Taylor Chiu
    Real Estate Agent 路 Salt Lake City, UT 路 Member since 2014 路 473 posts 路 230 votes
    7y

    @Rahul Handa

    I鈥檝e never been sued, but we have had to go to court a few times for eviction proceedings. Do what the others mentioned though and you should be sitting in a good place.

    1Reply
  • Linda S.
    Investor 路 Richmond, VA 路 Member since 2016 路 1k+ posts 路 2k+ votes
    7y

    @Rahul Handa,

    As long as you are a great landlord-- most tenants aren't out to sue you.     Most people fight over the security deposit, so just be mindful of your state laws.

    The people I worry about are contractors/workers getting injured somehow, which is why we have ample insurance (workers comp/business owners/umbrella/etc).    If you are concerned, just mitigate your risk with insurance.  

    Doing the right, honest, ethical thing will keep you out of most trouble!   If you self-manage, consider it a job, and understand the responsibilities and risks!

    1Reply
  • Justin Kane
    Specialist 路 San Antonio, TX 路 Member since 2015 路 909 posts 路 297 votes
    7y

    done hundreds of deals and hundreds of tenants, only been "attempted" to sue twice and I have successfully sued others twice.. its not common but do expect it, have all of your policies laid out clearly and signed by the responsible parties, follow your rules and policies like religion. 

    0Reply
  • Levi T.Pro Member
    Rental Property Investor 路 Tucson AZ / Nice FR / Washington DC 路 Member since 2016 路 1k+ posts 路 1k+ votes
    7y

    @Rahul Handa Unless your defrauding people of some serious cheddar, I would not worry about it. 

    Tenants threaten to sue as much as weather men say it鈥檚 going to rain, vary few follow through with it.  If they do, just pay before court, or fight it.

    Out of thousands of tenants, I鈥檝e been sued maybe three times that I recall. Two where by free attorneys for deposits, I just paid the deposit and moved on as my attorney cost more per hour than the deposit they where complaining about... I had one tenant sue for deposit herself, but she sued me and not my management company for some reason, so I self represented and mopped the courtroom floor, counter sued, and won in less than 2 minutes of the judge hearing the case.

    The overall amount for all cases combined was less than 3k, which is potatoes!

    2Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor 路 Sioux Falls, SD 路 Member since 2015 路 9k+ posts 路 18k+ votes
    7y
    Originally posted by @Rahul Handa:
    Originally posted by @Tom S.:

    @Rahul Handa I've been in the rental business for 15 years + now and probably had 200 individuals living in my properties.  Not once have I even been threatened to be sued.  

    I run it as a business, and document everything.  For example in VT, when purchasing a properties it has to be inspected by the state fire marshal.  They'll issue a list of items (hard wired smoke det., fire rated doors, etc) and I'll make those items are addressed.  My insurance companies will inspect every few years and I'll also make sure all items are addressed promptly.

    Beyond that, any requests over safely issues are quickly fixed.  

    Hope that helps,

    - Tom

     So people don鈥檛 sue you just because you are rich? Thats a relief 馃ぃ馃ぃ

    People definitely get sued with more frequency when they are rich or someone perceives they are rich. Very often they are baseless lawsuits, but attorneys are attracted to money. 

    The other way you get sued is negligence. People talk about LLC and insurance, but the first priority should be running your business responsibly. Treat people fair, focus on safety and reducing risk. There is a thousand ways you do this, so I can't list them all, but here are a couple examples:

    - Tenant reports loose railing in stair well, icy side walk, unstable deck, fire hazard, etc. Landlord should have it repaired that day. Confirm in writing to the tenant that you addressed their issue.

    - Enact policies to reduce risk (no trampolines, no day cares in rental, no viscous breed dogs). Look at your insurance policy for guidance. Insurance companies are great at evaluating risk, so if they don't allow it, I don't.

    - I even have policies like no candles, no open grease cooking, no fire pits within 20 feet of house, etc. I provide smoke detectors in every bedroom and hall way. I install a fire extinguisher in the kitchen. 

    Do these policies guarantee there is no problem? Not at all, but it shows as a landlord that I have a pattern of acting responsibly. I NEVER put off dealing with a problem. 

    1Reply
  • Matt P.
    Investor 路 Columbus, OH 路 Member since 2015 路 625 posts 路 601 votes
    7y

    @Levi T. "So I self represented and mopped the court room floor" had me cracking up. Nice job man!

    0Reply
  • Nate Fanara
    Phoenix, AZ 路 Member since 2019 路 33 posts 路 12 votes
    7y
    Originally posted by @Steve K.:

    @Rahul Handa Our 8 plex got sued last year (slip and fall on ice in the parking lot, broken hip). Tenant was successful in the suit and awarded $100k to cover her medical expenses. HOA got dropped by insurance, had to find new insurance and fees went up $100/mo because of it. It does happen which is why we carry insurance.

     Can you tell me more about how the tenant won the case? Was there a known issue that would have prevented the fall if it were addressed before hand?

    I only ask because i do not fully understand how someone is liable for someone else falling unless there was a known issue that wasn't taken care of. That being said, i am clearly not familiar in the laws regarding this :)

    0Reply
  • Steve K.
    Realtor 路 Boulder, CO 路 Member since 2016 路 3k+ posts 路 5k+ votes
    7y
    Originally posted by @Nate Fanara:
    Originally posted by @Steve K.:

    @Rahul Handa Our 8 plex got sued last year (slip and fall on ice in the parking lot, broken hip). Tenant was successful in the suit and awarded $100k to cover her medical expenses. HOA got dropped by insurance, had to find new insurance and fees went up $100/mo because of it. It does happen which is why we carry insurance.

     Can you tell me more about how the tenant won the case? Was there a known issue that would have prevented the fall if it were addressed before hand?

    I only ask because i do not fully understand how someone is liable for someone else falling unless there was a known issue that wasn't taken care of. That being said, i am clearly not familiar in the laws regarding this :)

    I was surprised she won and honestly I wasn't very involved because the HOA insurance company dealt with it, I just got updates from the woman who manages the HOA (it's a complex of 5 buildings and we own one of them). The plaintiff just slipped on some ice in a shaded part of the parking lot and busted her hip. It's icy fairly often in CO in the winter, nothing out of the ordinary and our plow guys are pretty good, so no negligence on our end, but she was still awarded some money. You'd think it would be common sense to step carefully when it's snowing in the winter time in CO, so I'm not sure how she won but she did. That area is still often icy, and we can't do much because it's shaded by a building next door, so we have some signs up and a bucket of salt there and the groundskeeper salts it as much as possible, not much else we can do. Our layers of protection were an LLC and the HOA, everything was handled by the insurance we have for the HOA, which resulted in getting dropped by that insurance company.

    0Reply
  • Suly B.
    Rental Property Investor 路 Denver, CO 路 Member since 2018 路 81 posts 路 62 votes
    7y

    @Rahul Handa I read somewhere and maybe it was here on BP that it's not about IF you'll be sued but WHEN.

    Have a top notch lawyer handy and keep increasing your knowledge by asking questions. To your success,

    1Reply
  • Suly B.
    Rental Property Investor 路 Denver, CO 路 Member since 2018 路 81 posts 路 62 votes
    7y

    @Steve K. Yikes! Thanks for sharing. As a landlord, snow makes me cringe.

    0Reply
  • Rahul Handa
    OP
    Bolingbrook IL 路 Member since 2018 路 57 posts 路 13 votes
    7y
    Originally posted by @Suly B.:

    @Rahul Handa I read somewhere and maybe it was here on BP that it's not about IF you'll be sued but WHEN.

    Have a top notch lawyer handy and keep increasing your knowledge by asking questions. To your success,

    Makes sense. Thats exactly what I鈥檓 gonna do. Thank you 

    0Reply
  • Mike Roy
    Rental Property Investor 路 Bath, ME 路 Member since 2014 路 220 posts 路 288 votes
    7y

     Don't ever let your tenants think you're rich, period.

    0Reply
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