Goodmorning,

We have a somewhat unique situation, and we find it difficult to accurately assess our potential liability risks.

We are dual citizens living in Europe, and we file tax returns in both Europe and the United States. We own two rental properties in Florida, both of which are nice single-family homes.

Due to differences and potential conflicts between the tax systems in both countries, holding these properties through an LLC or another legal entity is not financially advantageous for us. As a result, both properties are held in our personal names.

We are currently considering paying down a substantial portion of the mortgage on one of the properties and potentially recasting the mortgage to reduce our monthly payments. Alternatively, we may decide to pay off the mortgage entirely.

Both properties are insured with homeowners/landlord insurance covering their respective property values, and we also carry $1 million in liability coverage.

Our main concern is whether building up significant equity in a rental property held in our personal names exposes us to greater financial risk in the event of a tenant-related lawsuit or liability claim.

Specifically, does paying down or completely paying off a mortgage materially increase our exposure to potential liability claims? Would having substantial equity in a personally owned rental property make us more vulnerable in the event of a lawsuit, or does the amount of equity have little practical impact on our actual liability risk?

We respond promptly to all tenant maintenance requests and strive to be responsible and attentive landlords. Both properties are well maintained, and we make every effort to address any issues as quickly as possible.

We would greatly appreciate your perspective on how significant this risk is in practice and whether there are any additional measures we should consider to protect ourselves while maintaining personal ownership of the properties.

Regards Petronella