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Asset Investment Trust - Avoiding Liability

By
Services for Real Estate Pros with Writer and Author - Black Friday

The Liability of "Friends"

Imagine you leave for the weekend and a well-deserved vacation. When you return, through no fault of your own, you are embroiled in what you think is a baseless lawsuit? You have insurance, right? Of course you do. The problem is your insurance doesn’t cover All Terrain Vehicles and that is what your neighbor borrowed while you were out of town.

John R. is a Realtor and investor from Charlotte, NC. Last year John became the victim of our litigious society and is realizing the difficulties faced by someone with large assets. John carries a large “Umbrella Insurance Policy” in hopes that no judgment will exceed $5 Million. He’s covered at home, work, the car and everywhere he travels. His home is covered. His rental properties are covered; however, his 4WD ATV is expressly NOT covered by his liability policy and that is what his neighbor was riding when he struck a tree and was paralyzed from the waist down.

John left for Myrtle Beach, SC on Friday May 26, 2006. The neighbor, and friend, agreed to watch the house and feed the dogs. John agreed to let the neighbor and his son borrow his ATV. The neighbor had used the ATV on several other occasions and was an experienced rider; however, at some point on Saturday the neighbor was riding with his son and struck a tree. The neighbor’s son was knocked unconscious and the neighbor broke his spinal cord and became paralyzed from the waist down.

When the family returned from the beach, they were informed on the accident (which didn’t even occur on John’s property) and John visited his friend in the hospital. Within a few weeks an attorney filed suit against John for negligence in the maintenance of his ATV. The suit stated that the neighbor was an experienced rider and would not have struck the tree if the ATV was properly maintained (the ATV was a Christmas present 5 months prior).

John’s insurance company immediately informed him of the clause which specifically excluded motorcycles, scooters, 4-wheelers and ATVs or any kind.

It has taken almost 18 months to reach a conclusion and John has liens against the equity in all his investment property, stocks and other assets, which are owned by him and his wife. The neighbor has begun proceedings to seize the property in order to satisfy the judgments. Not only has John lost the equity of his real estate, he has spent more than $125,000 defending the case.

The bright spot is that John’s personal residence is held in a Land Trust for his children. The family’s home is owned free and clear with no mortgages or liabilities and is the family’s most valuable single asset. The liability of the judgment has not attached to the home. Since the home is held in trust for the benefit is their children, it is no longer titled to John and his wife and may not be seized to satisfy any judgments.

John and I spoke at several REIA meetings over the past few years about the need for him to place the rest of his property in trust. This could have significantly impacted the neighbor’s ability to receive any satisfaction to the judgment, while John could have maintained control and tax benefit from the mortgages on the properties.

Greg Gardner - Director
Asset Investment Trust - www.AssetInvestmentTrust.com
We Buy Houses Internet Trust - www.WeBuyHouses.ME
877-567-2513 (ext 101)

Comments (3)

Lizette Fitzpatrick
Lizette Realty - Richmond KY - Lexington, KY
Lizette Realty, Lexington KY MLS - Kentucky Homes

That's really a wild story! Imagine how quickly a seemly innocent request of loaning something becomes a nightmare!

Jan 11, 2009 03:26 PM
Suzanne Gallegos
Equity Real Estate - Advantage - Salt Lake City, UT
Realtor - Salt Lake City, Utah Homes

Wow! Scary story. Just when you think you've got it all covered......

Jan 11, 2009 03:33 PM
JL Boney, III
Coldwell Banker - Columbia, SC
Columbia, SC Real Estate

That is an insane story, and it reminds me of why I never let anyone including a friend barrow any of my stuff. It's always amazing how quickly a friend can turn into the last guy that sued you. Thank goodness the family home was safe.

Jan 12, 2009 04:29 AM