Posted by John Merchant on August 27, 2008 at 18:38:28:
My “Doing Business” comments were confined to foreign LLC or corp legally “DB” as that is defined by TX law…in this case by being in the rental business which has been ruled to be “DB” as per TX law.
Any trust would have to be represented by its trustee and trustee’s lawyer would normally represent that trust.
LLC for Rental Property - Posted by Scott
Posted by Scott on August 27, 2008 at 08:40:23:
My question is simple…when do you create an LLC to support your rental properties? I have four now and in Texas I have 1/2 and 1/2 saying do it now and at least one, do it now and one for each, don’t do it and just get a big Umbrella policy.
"Doing Business"legal issue - Posted by John Merchant
Posted by John Merchant on August 27, 2008 at 16:38:55:
Some items to consider that you may not have thought about:
First, on the Umbrella Ins. coverage…just be aware that when ANY P & C liab. coverage ins. co. can find a way" to NOT pay, they’ll pull a “policy defense” on you and not cover you or pay or even pay for your legal defense.
I’ve seen this a lot over the years and it’s usually caused by the insured’s failure to notify the ins. co. of a claim or insurable incident having occurred until long after the incident.
When it does happen, that ins.co. to whom you/they’ve paid big bucks over the years in ins. premiums gives you/their insured written notice that they are going to assert a “policy defense” and will not, voluntarily, be paying any claims arising from that incident.
So just because you might buy such and pay for it is NOT an iron-clad guarantee that it’s going to fully defend you, pay that big claim or judgment, etc.
Secondly, TX LLCs are about as expensive to form and annually re-register as any, so forming and keeping 2 or 3 TX LLCs would not be cheap.
You might use out-of-state LLCs, but being in the rental business, the law would require the foreign LLC to register annually in TX in order to retain the right to sue and be sued in name of that LLC.
i.e. you formed and operated your TX rentals in the name of a NV LLC but didn’t register it in TX…then you get sued, and the claimant sues the LLC because its name is on the deed.
TX law would NOT let that LLC of yours come into court and file ANY defense pleadings in that lawsuit, so it’d be a sitting duck for big damages, etc.
And if a bad tenant trashed your rental, that un-registered NV LLC could NOT sue that bad tenant in TX court because the LLC would not have TX legal standing.
Ergo your decision isn’t any easy one here re LLC vs. Ins. coverage and I’m thinking I’d do both, for anonymity and liability insulation.
Depends - Posted by Rich-CA
Posted by Rich-CA on August 27, 2008 at 10:59:59:
If the mortgage has the LLC name on it, then of course you will need an LLC.
I had started out with an LLC per property and another to manage the rentals. I have now changed to a Land Trust per property still using an LLC as manager in the state where the properties are located. These Land Trusts are owned by our parent holding company and a sizable umbrella policy.
The problem with an LLC is that its usefulness depends on the court cases in the state where it operates (notice I did not say the state where it was formed, you are most likely to have a lawsuit filed where the property is located and not where the LLC is unless you live in the same state and form the LLC locally. Regardless, you will have to defend your LLC wherever the lawsuit is filed.
If you want to use the LLC to hide ownership, then using a Land Trust with a name such as the property address will do the same thing, BUT your trust deed has your name on it if you used conventional financing and they will still be able to locate you. Its all on the web in TX and its easy to do the searches.
The liability insurance is what pays for your lawyer (or the LLC’s lawyer if it is sued) so you require it in any case. It should be large enough to make sure the insurance company does not just settle and drop you or jack up your rates. They do a cost benefit analysis on every lawsuit to see if its worth it to fight and the amount they have on the table weights that in your favor.
Re: LLC for Rental Property - Posted by Scott
Posted by Scott on August 27, 2008 at 10:18:49:
To clarify:
Re: "Doing Business"legal issue - Posted by Scott
Posted by Scott on August 27, 2008 at 21:24:47:
I have four rental properties which are in my name…I just formed an LLC. Is there a way to bring them all under the LLC without having to go through the issues of more or less selling to properties to the LLC / closing / closing fees etc? Any thoughts on that?
Re: "Doing Business"legal issue - Posted by Rich-CA
Posted by Rich-CA on August 27, 2008 at 17:08:01:
I would think that the entity doing business inside TX would require an operating agreement if it were not the owner and that under those circumstances the owner neither need be in TX nor be registered to do business in TX since their operating company meets those requirements.
To take your example further, if I took out the LLC and substituted a Land Trust instead, am I correct in assuming that I would have standing to file in TX courts since it would be an individual rather than a company? Also, would my operating company, which is based in TX, have standing to do this? Finally, since I use a PM, would they have standing per our agreement to handle the lawsuit on my behalf?
Thanks
You file a Quit Claim deed - Posted by Rich-CA
Posted by Rich-CA on August 28, 2008 at 15:49:08:
which transfers Title from the person filing the Q/C to the person (or company) named on the the same Q/C.
Or you could form a living trust to hold each property and name the LLC as Beneficiary for the Trust. This means the banks will not get the transfer from the public record showing that the loan can now be called due as a result of one of the prohibited transfers of ownership known loosely as the “due on sale” clause.