How are you organized to protect against lawsuits?

5 Replies

Obviously, no one plans to get sued, and you want to avoid it happening at all times if possible, but if it does happen it's smart to be ready, I'm curious how you all approach this because after all, all someone has to do is trip and fall and blame you, then find an attorney willing to take on the case. You still lose big even if you win the case because of legal costs.

I keep my properties safe and treat all my tenants with respect and care.  Besides that, I have a good insurance policy, as well as umbrella insurance. This would take care of most lawsuits that come up.  

How about lawsuits for things that aren't in direct relation to the property, but the property is brought into it to pay for damages. A personal injury lawsuit for example that came from a car accident you caused?

I protect myself in 3 ways.  I feel the most important to protect from suits it to know the law and follow it.  Security deposits can't be comingled, know what you can and cannot ask, when rejecting applicants say as little as possible, and just generally don't be a bad person who discriminates and violates fair housing.  For deposits be reasonable in your charges and really weigh if a deduction could be considered wear and tear vs. the damage I feel like it is.  As for as my properties I keep them in good shape and fix damages as they incur and make sure they are fixed correctly.  I ensure there no preventable hazards in the property and tenants are aware they need renters insurance in the event something happens to the property I do not cover lodging or their possessions and have them sign off on that in the lease.  If these 2 things don't work I have a 2M liability insurance umbrella, if I go over that plus the 300k my policy covers I am in a world of hurt but I feel if I follow my first 2 rules this is extremely unlikely.  

1. Treat people honestly and fairly.

2. Obey the law.

3. Maintain the property.

Those will prevent 99.9% of all lawsuits. For the next layer of protection, you can put your property in an LLC so it protects your personal assets. Or you can get an umbrella insurance policy that provides $1 - $2 million in protection above and beyond what your insurance company provides.

The truth is, most lawsuits are security deposit disputes. The big lawsuits are for injuries like falling down the stairs and injuring their back so they're unable to work. Even then, if you lose, your insurance company should cover the cost. If the insurance doesn't cover the cost, then they would come after the equity in that rental, followed by any other assets you've got. Do you know how often that happens? It's probably more rare than someone getting struck by lightning twice. Most the injury lawsuits you hear about are at work, in a car, or while visiting a business.