REI Wealth Monthly Issue 12 | Page 15

ARE YOU HOLDING YOUR REAL ESTATE THE RIGHT WAY? GARRETT SUTTON I disagree. owned free and clear. That is a much more inviting target for the attorney. The tenant and Look at our next chart: the attorney have a judgment against the LLC. To satisfy it they get a court order to sell the property. At a swift fire sale price they get $210,000 and the attorney pockets $70,000. That makes some sense for the attorney. What if the tenant and the attorney take over the property themselves? It becomes their rental unit on a 2/3 – 1/3 basis. That also makes sense for both of them. As we are seeing here, debt is a form of asset protection. In the first example, where only All the tenant can get is what is inside the 4 plex $100,000 in equity was available, the target is LLC. That LLC is the one he rented from. He has lessened due to the debt of $200,000 against the no claim against the 8 plex LLC or the other property. But in Attack #1, with a claim against assets. And so you do have asset protection in that the LLC and the LLC holding a free and clear the tenant’s claim is only against the one entity. He property worth $300,000, you have a more cannot get beyond that 4 plex entity to the other inviting asset to target. assets. Please know that a charging order doesn’t apply Will the attorney go after the equity in the LLC? in Attack #1. The Attack #1 claim is an attack Maybe. Remember, the attorney is most likely still against the LLC itself, so we don’t even get to on a contingency fee basis. To force a sale of the the charging order. As well, the Attack #1 claim property, deal with the bank and probably end up plays out the same in every U.S. state. Whether with a discounted sale price, involves a lot of work. you have a weak California LLC or a strong Assume that after commissions and fees and fire Wyoming LLC doesn’t matter. The inside attack sale pricing the $100,000 in equity is brought down is against the entity itself and the claimant can to $30,000. Is the contingency fee attorney going get what’s inside the LLC no matter what the to all that trouble to make one third of that, or state of formation. But again, they can’t get $10,000? Not likely. There are too many other what’s outside the LLC, a beneficial measure of surer cases to pursue. asset protection that’s true in any state. But what if the equity in the house was the full Okay fine, you say. So where does this special market value price of $300,000? In other words, charging order come into play? there was no loan against the property and it was