Posted by Brad Crouch on January 22, 1999 at 19:06:46:
Jim,
> What is to keep people from coming after this
> ownership position, taking control of the cash flow,
> etc?
An LLC has a “managing” member who is not “required” to distribute the income of an LLC at any particular time. So the income is not distributed while lawsuits are pending. The most the creditor can get is a “charging order” (kinda like a lien). As long as this “charging order” is in effect, the creditor gets to pay taxes on the income earned, even if it is not distributed. So what creditor would want to do that?
> I was thinking of this last month when my wife got in
> a car crash. Everybody was fine, but I started
> wondering about what would happen if everybody wasn’t
> fine, and the other party sued us.
You might be sued anyway. But insurance should take care of that. If your properties are in separate land trusts, your name won’t come up as owning anything. So you appear “broke”.
> Is this why one would put the property into a land
> trust, with the LLC listed as the beneciary?
Sure!
> . . . but I might not have a solid idea of how well
> an LLC or corporation can work to protect you.
Bill Bronchick outlines all this stuff in his courses. It might be a good idea to get some of them to see what you actually have and how to use it effectively.
Lawsuits against property owners - Posted by James Bitakis
Posted by James Bitakis on January 21, 1999 at 19:00:31:
I am wondering, would’nt the homeowners insurance cover a lawsuit from someone against you? And if this happens and the insurance pays the persone suing you, then why should I care about getting the property out of my name?
I am a newbie so any advise on this kind of subject would be helpful.
James B.-Chicago
Posted by Tim Jensen on January 22, 1999 at 08:16:54:
James,
I take a different point of view.
I don’t think it is that important to get the place out of your name, if you do your own work. If something goes wrong on a rental property, any half way decent lawyer is going to sue the property owner, the guy who did the work and maybe even the manufacturer of the product( like a toliet). If you do your own work then you still may be on the hook. If you manage the place you still may be on the hook.
I would just make sure that you have enough insurance with the proper coverage. Just remember that just because the property is not in your name doesn’t mean your off the hook.
Re: Lawsuits against property owners - Posted by Millie I.
Posted by Millie I. on January 22, 1999 at 24:40:25:
James,
Did you go to the Chicago RE Association meeting last week. They had an excellent lecture on ‘Privacy Protection’ that gave all the reasons why you should protect your assets. If you were at the meeting, why do you still want to take the chance of losing everything you got?
If you were not at the meeting, I suggest you join the club ASAP. Chicago is not an investor-friendly place for an uninformed newby to do deals. You could lose your shirt very quickly.
Call Jane at the Chicago Real Estate Association at 630-858-4663 and sign up. They meet every 3rd Sunday evening at the Hillside Holiday Inn.
If you are going to do something, do it the right way, so you won’t regret it later.
Part of the reason that you’d want to get it out of your name is to discourage lawsuits to begin with. If an attorney pulls up your name on the county’s computer system and sees that you own 10 properties he knows either you or your insurance company is going to have deep pockets. Also, if you have the property in your own name and a lawsuit is successful then you are personally responsible for what the insurance didn’t cover. If the property is owned by a corporation or limited liability company - your personal assets would be secure.
Again what happens if someone sues you for something not covered by your policy? You are not covered by insurance and you have to hire a lawyer out of your own pocket and pay all costs of suit and if you lose they could have the property auctioned for pennies on the dollar to pay the judgment.
Are your assets ever REALLY secure? - Posted by Jim Beavens
Posted by Jim Beavens on January 22, 1999 at 16:01:18:
I understand how an LLC or corporation can protect you from losing your assets in a lawsuit. In fact I formed an LLC just a couple weeks ago to take title to my first rental properties.
But isn’t my ownership position in this LLC an asset in itself? (like the stock I hold in a corporation)? What is to keep people from coming after this ownership position, taking control of the cash flow, etc? Are we basically banking on the fact that unlike owning a piece of real estate, which leaves a paper trail a mile wide, that ownership in an LLC or corporation is harder to ascertain?
I was thinking of this last month when my wife got in a car crash. Everybody was fine, but I started wondering about what would happen if everybody wasn’t fine, and the other party sued us.
I realize that if some bozo slips on the sidewalk in front of my building, and decides to sue the owner of the building, he won’t have much luck getting to anything outside of the corporation that owns it.
But let’s say that I accidentally step on this guy’s foot, and he decides to sue ME. How hard will it be for him to find out I hold major ownership positions in several LLCs and Corporations? And if he does find out, can he do anything about it?
Is this why one would put the property into a land trust, with the LLC listed as the beneciary? But wouldn’t the LLC still have value, with cash flow and all that good stuff?
Sorry for the length, but I might not have a solid idea of how well an LLC or corporation can work to protect you. Besides, I think it’s healthy to inject a little paranoia into these discussions to see what ideas people have.
Posted by Bill Gatten on January 22, 1999 at 15:22:35:
Owning anything in as litigious a society as ours is just dumb when you can legally and easily retain and control 100% of an asset’s possession and use, while someone else holds the title and takes the legal exposure … or eliminates it for you.
That’s why we create associations, corporations, LLC’s, amalgamations, limited partnerships, cooperatives, and… LAND TRUSTS!
If your teenager is driving your car and runs over a little old lady in a wheelchair in crosswalk (much less spilling hot coffee in her lap), whose son is an attorney … you’ll get a good feeling of the shortcomings of Homeowner’s Insurance alone.
Owners are a matter of record in MOST but not ALL states. Officers are a matter of record in all states, I believe.
Nevada is one of the few states that do NOT reveal ownership, only officers. Also, they do NOT trade info with ANYONE, IRS included.
Nevada also has what is called “bearer” shares. That means they are issued to bearer. Whoever is holding the shares at the time is deemed to be the owner. This is something you can elect to do as part of your initial corporate set up (bylaws, first meeting, etc.) This means shares could be transfered or passed around like a hot potato if absolutely necessary. They can also be held by another corporation…as collateral for a secured creditor who may repossess all the assets it has a secured interest in, which if set up correctly, leaves nothing left over for the judgement creditor to obtain in order sell off.
And if you wanted, you could have an LLC flow through to a Nevada Corp. The Nevada corp could be a manager of the LLC.