SDIRA Private Lending Failure

[Michael S.]

I while ago I connected with another investor and they were very good at talking, giving advice, and laying out a long term investing plans. I agreed to provide a loan from my SDIRA LLC to their LLC to put one of the plans in action. This plan was solid with good supporting information that included some flipping and long term rentals in an area that had a good history for supporting this type of plan.

After the loan was in place, the communication started becoming less and less until it was non-existent.  For the first year or so the payments were being paid on time and direct deposited.  When the payments stopped, I tried to reach out and see what was going on and what was the plan to get current and continue with payments with little or no response.  

I know that due to my busy schedule, work, and family, I have let time pass and I should have put more effort into this but now it seems like when the payments stopped, the LLC was already selling all holdings and closing bank accounts associated with this LLC to attempt to get funds to repay other investors (so I am not alone).

Hindsight is always 20/20 and now I require proof that partners have been successful in the role that they are going to fill. This person was clearly good with the planning but severely lacking on execution.

So now the question is can I have my Self Directed IRA LLC that holds the loan pursue legal action against the LLC and the person who signed for the loan or do lick my wounds and consider this tuition for my real live MBA?

[Carl Fischer]

I'm sorry to hear about your troubles, @Michael S.. Due diligence upfront in your investment is very, very important. To fully answer your question, I would need to know if you had a mortgage or deed of trust that was recorded on the property, which would keep them from selling the property with a title policy. The title company normally would contact the LLC or lender for payoff information. Even if you don't have a deed of trust or mortgage, you should have a promissory note. This promissory note was hopefully signed by the LLC and by the individuals. This would allow you to go after the LLC, the individual, or both. I would contact the attorney that helped you come up with the paperwork. If you didn't use an attorney, I would get ahold of a real estate atty and ask them the question you asked at the end of your post. I'm not sure how much money it is, and obviously the more the money, I would go after it. This is something you should consider when deciding if pursuing the LLC or individual is worth attorney fees. If this was a checkbook LLC in your SDIRA, the IRA should pay attorney. If you have further questions, feel free to contact me.