LLC and Eviction in Chicago

12 Replies

Ignore the title of the post, please. I can't change it. 

Hi, 

As I research structuring, I have a few questions.   Any help is greatly appreciated.  

Assume a sole prop Owner moving property management to member managed LCC in Chicago. My wife and I will be the LLC member managers and property Owners. I'm not interested in discussing "liability protections" offered by LLCs, this is related to attorney involvement. 

I can manage my own properties as sole prop, but what happens when the LLC is established in Illinois?

*  Do I need  a licence to manage my properties if I move management to my own LCC in Chicago, Illinois?   If so, it seems I would need additional business insurance  My  personal umbrella may not cover a business. 

* If I receive a city violation and want to contest it, can I attend the hearing or do I need to hire a lawyer? 

* What if I face an eviction, do I need to hire a lawyer to represent me or can I do so? 

* Are there any other hidden expenses related to management by having the LLC vs. sole prop? 

Thanks, 

Frank

Corporations and LLCs cannot represent themselves in legal proceedings, unlike individuals. Corporations and LLCs must engage lawyers for any legal proceedings.

I sincerely doubt that your personal umbrella covers your apartment management now, since every personal umbrella policy I've ever had always excluded business pursuits. Review your policies.

Dunno about licenses and stuff. Ask the City maybe? or a lawyer?

Originally posted by @John Clark :

Corporations and LLCs cannot represent themselves in legal proceedings, unlike individuals. Corporations and LLCs must engage lawyers for any legal proceedings.

I sincerely doubt that your personal umbrella covers your apartment management now, since every personal umbrella policy I've ever had always excluded business pursuits. Review your policies.

Dunno about licenses and stuff. Ask the City maybe? or a lawyer?

I may not understand your comment regarding managing my rentals.  My umbrella covers the process because I the umbrella covers me.  Is there something I am missing?  If so, what insurance is needed.

https://www.geico.com/information/aboutinsurance/u..

 Yes, I will consult with an attorney, eventually.  This is preliminary research.

Thanks, 

Frank 

"My umbrella covers the process because I the umbrella covers me. Is there something I am missing?"

My umbrella policies have always covered me, too, but they exclude my business pursuits. That's why your car insurance doesn't cover you while you're out delivering pizza. Pizza delivery boy is a business pursuit. 

Read your policy. Figure out what it excludes. I'm not going to read it for you.

Got it.  The business pursuit conundrum.  This is going to be fun. 

I will call my underwriter to see if there are any activities that may be currently excluded from self-managing my units. I carry insurance based on rental, tenants have insurance, and a personal umbrella on top of that.

Business pursuits or business property of an insured unless covered by primary insurance described in the declarations. Our coverage is no broader than the primary insurance except for our liability limit.

I I see your point. The pizza guy is screwed, as it is the uber kid, etc.

Will driving back from home depot with parts for a repair be consider "business pursuit"?  I don't know.

Will a lawsuit related to making calls to possible tenants be covered? I don't know.

The list goes on and I don't have all the instances.  A health check is in order.

"see if there are any activities that may be currently excluded from self-managing my units."

FORGET the "self-managing" aspect. This is NOT about you. It is about your business pursuits. You may or may not have sufficient primary insurance, but I highly doubt your PERSONAL umbrella policy covers business pursuits, no matter how hands on you are.

Your "PERSONAL" Liability Umbrella is just that "PERSONAL" It only covers you and your properties and vehicles insured by coverage underlying to the Umbrella. (auto, homeowners, boat and in some instances rental properties owned and managed in your own name. It does not cover the LLC or any actions you take as a managing member of the LLC. You need a "COMMERCIAL" Liability Umbrella for that.

An LLC is a business entity not a real person. As such it cannot appear in court to represent itself. Find a good attorney. Can't find one let me know.

Avoid the scams of getting a Nevada or Delaware business entity. You will need to pay the annual registration, Registered Agent in those states and then file a tax return in Illinois as a Foreign Business Entity which pretty much blows away all the privacy and no taxes due in Nevada or wherever these folks use to sell their snake oil.

When you start an LLC the tax filing date is MARCH 15th not April. The late filing fee is $195.00 per month per member. File even though you made no money or next year that penalty will be a little over $4,000.00 or so.

90 Day selection date. When you start an LLC you only have 90 days to decide how you want to be taxed. Partnership or corporation? Fail to file on time the Feds will make that decision for you.

What to do today. For those properties purchased in Illinois you should take title as an Illinois Land Trust. Do not put them all in the same Land Trust. Do not name the trust after yourself or put your social security number on the title in any way. A business you control can be the trustee. It could be a sole proprietorship, LLC, S Corp or C Corp. Just make sure you set it up legally.

Hi Frank,

Yes, if you have a LLC, that is treated as a separate "person" and therefore the LLC needs an attorney to represent it in court, be it eviction or defending itself. If YOU present yourself as that representation, its not allowed as you'd personally be practicing law on behalf of the LLC without a license since you aren't an attorney.

Same thing goes for administrative actions with the city like building violations, the LLC needs its own attorney.

In both cases, you'll usually get a "freebie" court date - IE you show up, tell the judge you are the owner, didn't realize you need an attorney, they'll give you time to get one (a month-ish). Maybe you'll be able to negotiate a settlement with the other party at that point. But neither is guaranteed. In both cases, its a good business practice to have an attorney represent you and not go pro se. I know it can burn when you have a totally baseless case filed against your llc, because you'll obviously have to shell out the $$ for your attorney to defend the llc, money that you'll never recoup, but its necessary and really shines light on the ability of your operation to scale itself.

As to needing to be licensed - I know W-2 employees don't need a license for brokerage activities concerning properties owned by their employer. If I recall correctly (although I can't find that citation), that exemption also applies to officers of a corporation. However, again, consider the ability of your LLC to scale by taking on those functions which should be taken care of (on the P&L) by a management company. If the management expenses and legal fees don't pencil out, you've simply bought yourself a job, like we see many contractors doing on fix-n-flips. At the very least compensate yourself accordingly.

All, 

Thanks for the great information. 

I got answers to my questions, I truly appreciate your help.  If I go the LLC route, there are more costs:  yearly filing (a few hundred),  commercial insurance, and attorney representation (even for code violations).

The new research is related to "business pursuit" and my umbrella without the LLC structure. I assumed I was fully covered as I discussed this with the underwriters.  A few calls are in order.

Thanks a lot, 

Frank

@George Skidis and @John Clark

Thanks again for the info and feedback.

I double checked the "business pursuit" comment above with my insurance underwriter. I don't have a LLC and likely will not get one. (It doesn't seem to be worth the effort as one considers attorney fees, maintenance, and higher insurance costs for a veil that can be easily "pierced"). The land trust, it's a good way to avoid probate and hinder a bit the attorney research.

Regardless, per my discussion with the insurance underwriter (Allstate), based on the number of properties I have, their current use, and my involvement managing them, my current situationdoes not create a condition where it pushes me to the "business" category and I do not need commercial insurance. The property rental insurance (landlord insurance) and my personal umbrella policy cover me for my current involvement in my properties.

We discussed liability, slander, libel, broken legs, dog bites, defamation, etc., as it applies to being a landlord. We talked about going to home depot to get parts, driving over to show units,  and getting into an accident  while managing my units  - this is not comparable to the Uber or the pizza delivery boy above. I am covered under my particular situation, others may have a different insurance and different needs. 

Now, as we purchase more units and add them to my current policies, they will reevaluate the units use, location, condition (they visit the units), and risk. At some point, I they will require a commercial umbrella insurance, however, this is not the time. They do not consider I am in "business pursuit" and that's why they accepted to protect my units with the associated liability under my current policies. 

Here is another thing to consider, even with an LLC you can be personal liable to a lawsuit as the LLC is your personal interest. A subpoena to the LLC will disclose ownership. Just like they take away your assets, they can take away your LLC and whatever it's holding. (NOLO, Form Your Own Limited Liability Company, Anthony Mancuso). An umbrella is a must, and it's too cheap to skip.

Thanks,

Frank

Originally posted by @Matthew Olszak :

Hi Frank,

Yes, if you have a LLC, that is treated as a separate "person" and therefore the LLC needs an attorney to represent it in court, be it eviction or defending itself. If YOU present yourself as that representation, its not allowed as you'd personally be practicing law on behalf of the LLC without a license since you aren't an attorney.

Same thing goes for administrative actions with the city like building violations, the LLC needs its own attorney.

In both cases, you'll usually get a "freebie" court date - IE you show up, tell the judge you are the owner, didn't realize you need an attorney, they'll give you time to get one (a month-ish). Maybe you'll be able to negotiate a settlement with the other party at that point. But neither is guaranteed. In both cases, its a good business practice to have an attorney represent you and not go pro se. I know it can burn when you have a totally baseless case filed against your llc, because you'll obviously have to shell out the $$ for your attorney to defend the llc, money that you'll never recoup, but its necessary and really shines light on the ability of your operation to scale itself.

As to needing to be licensed - I know W-2 employees don't need a license for brokerage activities concerning properties owned by their employer. If I recall correctly (although I can't find that citation), that exemption also applies to officers of a corporation. However, again, consider the ability of your LLC to scale by taking on those functions which should be taken care of (on the P&L) by a management company. If the management expenses and legal fees don't pencil out, you've simply bought yourself a job, like we see many contractors doing on fix-n-flips. At the very least compensate yourself accordingly.

 Great information.  Thanks alot gain!

Frank

"Regardless, per my discussion with the insurance underwriter (Allstate), based on the number of properties I have, their current use, and my involvement managing them, my current situationdoes not create a condition where it pushes me to the "business" category and I do not need commercial insurance. The property rental insurance (landlord insurance) and my personal umbrella policy cover me for my current involvement in my properties."

I hope you got that in writng, especially the part about your personal umbrella covering rental activities liability.

Originally posted by @John Clark :

"Regardless, per my discussion with the insurance underwriter (Allstate), based on the number of properties I have, their current use, and my involvement managing them, my current situationdoes not create a condition where it pushes me to the "business" category and I do not need commercial insurance. The property rental insurance (landlord insurance) and my personal umbrella policy cover me for my current involvement in my properties."

I hope you got that in writng, especially the part about your personal umbrella covering rental activities liability.

I appreciate the  question about business pursuit,  for it made me double check my previous information and assumptions. However,  as noted  above this is not a business from my underwriter's perspective. 

Honestly,  please go ahead and talk to your own agent. Without an specific example regarding how my issurance is voided, this discussion is over.

For kicks,  I may check with another of the brand name underwriters. It wouldn't hurt. 

Good luck, 

Frank