Liability and asset protection planning are critical for owners of real estate such as homeowners and real estate investors. In my experience, the most vulnerable to lawsuits are owners of real estate because they have failed to adequately protect their real estate from liability exposure.
There are a couple of simple but effective strategies to minimize your liabilities. First, every owner of real estate should set up a Private Land Trust, which is a mechanisms for owning real estate. The basic benefit of a Private Land Trust are judgments and liens do not attach to Private Land Trust. A Private Land Trust is essentially a way to hold or own the title of real estate. A Private Land Trust Company or other strategies may be employed. For example, Susan Smith owns a couple of real estate investment properties and has a judgment from one property. A judgment is a finding of guilt for an amount of money that she owes somebody. A judgment automatically attaches to real estate in Illinois. Thus, after the judgment has been recorded at the Cook or Dupage County Recorder of Deed's Office, Susan Smith cannot sell any of her real estate properties without paying off her judgment. This is a very big deal if Susan Smith is over the age of 50 years old because Susan Smith may only have a certain amount of years left in the workforce. A Private Land Trust can prevent Susan Smith from selling her real estate without satisfying this judgment. For real estate investors, a lien is a big deal.
The second basic strategy is owning your investment properties with an LLC. This is a big deal because an LLC may prevent a creditor from one property attacking your other property with a valid or bogus lawsuit against you. In my experience, most real estate investors own their properties in their personal names despite knowing that this is not smart. Often times, a real estate investor gets smart after the threat of a lawsuit. Insurance is often inadequate because insurance does not cover a lot of types of lawsuits such as creditor problems with a bank loan or mortgage foreclosure.
Sean Robertson is Managing Partner of Robertson Law Group, LLC based in Naperville and downtown Chicago. Sean Robertson can be reached at either (630) 364-2318 or (312) 498-6080 or Sean@RobertsonLawGroup.com.