REI Wealth Monthly Issue 12 | Page 14

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