what do you think is best? - Posted by completenewbie

Real Estate Investing Real Estate Law
1

Posted by John Merchant on March 03, 2009 at 19:37:57:

Rich I think answer to your question would vary, state to state.

But hard fact is that if some 3d party is wanting to sue the owner of the LLC and reach his indiv. assets such an answer would deter most lawyers from getting into the merits without a sizeable legal fee.

And that very fact would wash out 90% of such claims.

Also of course if owner of LLC had P&C insurance and owned nothing in his name, that’d be further discouraging and that’s to the good.

I remember Wade Cook, a big proponent of the LLC’s anonymity, saying he’d been chasing a debtor against whom WC had a judgment; but that individual had also taken WC’s advice and personally owned nothing so WC was having to give up the pursuit.

Ironic justice huh?

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what do you think is best? - Posted by completenewbie

Posted by completenewbie on February 19, 2009 at 20:08:28:

Hi,
I searched the archives but couldn’t quite find an answer. I am trying to decide between setting up an LLC to hold real estate or owning real estate as a sole proprietor w/insurance + umbrella. It would be a single member LLC and I would be personally managing the property…if I get sued, they’d be able to sue me personally (since I managed the property, right?) and a charging order(?) wouldn’t help me much b/c it’s a single member LLC…so wouldn’t I be better off as a sole proprietor + insurance + umbrella?

Thanks in advance.

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How LLC can help REI - Posted by John Merchant

Posted by John Merchant on March 03, 2009 at 07:58:40:

I wouldn’t be so quick to toss the LLC as a RE property holder and buyer.

A close friend was sued on a RE deal gone bad and he was pretty shaken as it looked bad to him.

I advised him to hire a local well known local courthouse lawyer which he did, to file an answer for him and that was all it took for him to win the case.

It seems my friend Al had taken my advice and had been smart enough to contract in the name of one of his LLCs, and he’d not signed or agreed to do anything personally and was not really personally involved in the matter.

ALL was done by that LLC.

The Plaintiff’s lawyer took one look at that lawsuit Answer and who had filed it and I’m guessing informed his plaintiff client of the big legal fee he wanted to pursue the case.

That lawsuit was soon dormant and dismissed without further action.

I’ve done the same on more than one RE deal and am a firm believer in protective value of the LLC.

Particularly so in light of all the “don’t wanters” out there who’re desperately motivated to unload their heavily indebted RE onto unsuspecting buyers.

Wade Cook was a genius at using an LLC in such a manner. I went to several of his little cheap half day seminars in WA State and made lots of notes about this and became a firm believer in insulation value of the LLC.

Another local guy here, a real hustler who’d sold WC several real junker properties, was telling me he’d grown frustrated trying to nail Wade Cook on a judgment he’d obtained against Cook.

It turned out WC practiced what he preached and WC owned and did nothing in his own name but had a number of LLCs which he’d used to hold titles, sign notes and make contracts and a judgment against any one of them would have netted the plaintiff nothing.

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Depends on the state - Posted by Rich-CA

Posted by Rich-CA on February 20, 2009 at 09:18:46:

The usefulness of an LLC depends on the state laws and court cases that define how and when a lawsuit can pass through to the owner. In the case of a single member LLC there is a specific case in CO on this subject. In other states, again it depends.

One thing I discovered is this: if you have an LLC it will need its own insurance. You cannot combine this with your personal insurance since the LLC is regarded as a separate entity. That means you will need insurance to protect the LLC (and you) on one side and insurance to protect the LLC from something like an auto accident lawsuit on the other. If you are a SP, you can handle all this with just a single insurance policy.

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Any of those LLCs SM LLCs? - Posted by Rich-CA

Posted by Rich-CA on March 03, 2009 at 19:23:20:

It sounds like you are saying the name of the member was not on any of the contracts and so on. But if you are member and manager for the LLC, would that be a different story (it was in the CO case).

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Re: Depends on the state - Posted by completenewbie

Posted by completenewbie on February 20, 2009 at 21:54:46:

Rich,
Thanks for your advice…I think I will be going with the sole proprietorship + insurance.

Thanks.