Are you opening yourself to a lawsuit?

By
Commercial Real Estate Agent

As we move to a more litigious society and people are suing everyone for anything does it hurt to take some precautions?  Of course everyone agrees the answer to this is NO, of course not.  We will mitigate our risk however we can if it doesn't cost alot of money.

As investors to multifamily or commercial properties you could be opening yourself up to a whole host of issues depending on how you take title.  Obviously as agents we are not lawyers and must not try to act as such, but wouldn't we be neglect in our duties if we didn't at least explain some examples to our clients?

There are many issues that can arise with respect to how you take title to property, and especially so in a commercial context. If you take title as an individual, you may be exposing yourself to potential liability exposure that you might want to try to avoid or at least minimize. You take title through a business corporation, but doing this could be disaster from a tax standpoint point. Sometimes, there may be other alternatives such as forming a limited liability company that you would own and control that, in turn, could lease the property to your business entity.

If joint ownership is involved, you should clearly understand the differences between taking title as joint tenants, as tenants in common, as a partnership, or as community property. You should also clearly understand your rights versus the rights of your co-owners. Each and all of these types of ownership have significant ownership implications and rights of survivorship.

It short, there are no universal rules of thumb with respect to how to take title. It's always advisable to seek professional advice, including your lawyer and CPA, to assist you in making a smart decision, but it is extremely important that you are aware of these implications and are informed.

Comments (11)

Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F
For medium to large multi-family and commercial property purchases, both seller and buyer really need to have an attorney representing them.  Our job as a Realtor should be to advise them that once they have found a property that they are interested in that they should have an attorney represent them regarding the contract and the closing. 
Nov 21, 2007 10:34 AM
Abe Do
Olympia, WA

Rob,

I definitely agree, we've found that it is extremely difficult to practice commercial real estate without having real estate attorney cards in our back pockets. 

Nov 21, 2007 10:43 AM
John Walters
Frank Rubi Real Estate - Slidell, LA
Licensed in Louisiana
There is no way I know everything.  I call my broker every time I have a question.  I also carry E and O insurance.
Nov 21, 2007 10:50 AM
Abe Do
Olympia, WA
The problem with E and O insurance is it only protects you, not your client once they are in title......that is why you need to go beyond yourself, beyond your brokerage, to understanding your client's needs in a transaction and then after the transaction.
Nov 21, 2007 10:59 AM
Rebecca Savitski
BSR Real Estate Group - Cary, NC
NC Real Estate Listings

Scary times - I have been threatened with lawsuits throughout all throughout my career. And everytime it scares me.

I actually had one buyer higher an attorney and do an assets search. It immediatly became squashed because I keep all records, I take notes of phone conversations ect.

The main reason I became Incorporated is to lose some of the exposure, plus now I have an attorney on retainer.

Any and every transaction is handled by an attorney, every funky contract I write I recommend both parties have the attorney's review.

I have had a little commercial experience and my experience is that in Commercial Real Estate  - "Anything Goes"

 

Nov 21, 2007 11:03 AM
Abe Do
Olympia, WA

Never hurts to be too safe.  Mitigating risk is what we do, whether we mitigate the amount of risk in a transaction or afterwards that is our job.

Nov 21, 2007 11:10 AM
Todd and Danielle Millar
Glenn Simon Inc. - Edmonton, AB
Nineteen years of excellence!
I can't image doing anything in the investment real estate business without excellent legal advice. It may cost more but you will pay out more if you make one mis-step. 
Nov 21, 2007 12:18 PM
Todd Clark
eXp Realty LLC - Tigard, OR
Principle Broker Oregon
Having had a business with a partner in the past, you are so right, it is very risky and you better consult a lawyer before buying a property with someone else.
Nov 21, 2007 05:06 PM
Dan Forbes
Bradenton, FL

Good advice Ryan.  People do need to consider the consequences of how they take title to a property.  Always think with the end goal in mind.

Thanks so much for reading and commenting on Why I Unsubscribed from Your Blog

Nov 25, 2007 10:49 PM
Ricki Eichler McCallum
CastNet Realty - Corpus Christi, TX
Broker,GRI,ABR, e-Pro, TAHS
Great advice, my friend.  Thanks for the post.
Nov 26, 2007 01:23 AM
Diana Turnbloom
Escrowcoord.com - Martinez, CA
The Leading Expert in TC Services & Education
Ryan, I agree the cost of consulting with an attorney on real estate investments is negligible compared to to costs if title is taken in a certain manner. Thanks for the great post! Welcome to my World! Diana
Dec 11, 2007 05:31 AM