ARE YOU HOLDING YOUR REAL ESTATE THE RIGHT WAY? GARRETT SUTTON
time at no cost to the injured party. When a
payment
is
received,
either
by
a
pre-trial
settlement or a victory in court, they get a
percentage of the payment (usually 33% to 45%).
So on a $100,000 insurance payout the attorney
gets, for example, $35,000. This is not a bad
payday. But, if the contingency attorney loses the
case, they get nothing. This means they have to
be careful about which cases to take, which is
good for the rest of us. As well, these attorneys
have to wisely allocate their time and resources.
If the $100,000 settlement doesn’t fully cover
their clients’ damages will the attorney look to the
In Attack #1, a tenant falls at the property and sues
defendant’s other assets? It depends. If they are
the LLC (which holds the title to the 4 plex on the
easy to reach (as in a sole proprietorship or an
public record). If the LLC owner has insurance for
individually titled situation), perhaps they will. But
such claims (which is always suggested) then per-
if those assets are held in properly structured
haps a settlement is reached. If the insurance
asset protection entities, perhaps they won’t.
doesn’t fully cover the claim or not enough of the
Remember, these lawyers are still mostly on a
claim then the attorney may decide to proceed
contingency fee. They don’t get paid until they
against the LLC. In Attack #1, a claimant can get
collect. Do they want to go after an LLC, get a
what is inside the LLC, the equity in the 4 plex.
charging order and wait for distributions to be
Suppose there is a first deed of trust in favor of the
paid? Probably not. It is not a good use of their
Lender against the 4 plex in the amount of
time. There are too many other cases with new
$200,000 and the fair market value of the property
pots of insurance money to go after.
is $300,000. How much equity do you have in the
property? That’s right, $100,000. (The fair market
The charging order protection is the key to
value of $300,000 subtracted from the $200,000
protecting your assets from attack. It is important for
first deed to the lender leaves $100,000 in equity.)
you to know how it works, and in which cases it
The attorney can’t go after the full $300,000 value
doesn’t work.
of the property because the bank has a prior claim.
They loaned the money and recorded the first
Here is how two different attacks play out with an
deed of trust securing that loan before the tenant’s
LLC structure. (We will use LLC as the example as
accident ever occurred.
the charging order procedure applies to both LLCs
and LPs). Our structure, which involves owning a 4
But, the te