What do you want in your lawyer?

[Jacob Rhein]

Hi, investors! I'm new to BP and am starting some buy-and-hold investment activities in the North Atlanta Metro area. I'm also opening a solo law practice serving real estate investors in Georgia. 

I'd love to hear what kinds of things you use your lawyers for and what qualities you look for in a lawyer. How often do RE deals fall through and result in litigation? Do you do evictions yourself or do you hire a lawyer? Have you ever hired a lawyer to help structure complex transactions or seller financing (e.g., rent to own)? Ever foreclosed on a tax lien? Would you use the same lawyer who set up your LLC to represent you in an RE dispute?

My focus is civil litigation, especially RE contract disputes. Any advice and input would be appreciated. Thanks!

[Denis Monahan]

I am real estate, construction, litigation attorney in Michigan.  Here is copy of a Checklist that I give to real estate investors:

LEGAL CHECKLIST FOR REAL ESTATE INVESTORS AND OPERATORS

GENERAL

□Do you have a business plan for your real estate investment portfolio?

□Does your business plan include plan B and an exit strategy for each property?

□Do you have a team (accountant, attorney, banker, contractor, insurance agent, mortgage broker, property manager, real estate broker, trades) that has experience working with investment real estate?

□Do you account for your time so that you can tell what projects are jobs and what projects are investments?

□Have you recorded the real estate documents (deeds, mortgages and memorandum of land contracts, memorandum of options, etc.) that should be recorded with the register of deeds to protect your real estate interests?

□When you read real estate law materials or take real estate classes and seminars, do you keep in mind that a large part of real estate law is state specific and what your are reading or hearing may or may not be the law in your state?

DEALER VS INVESTOR

□If you buy and sell properties as a business (e.g. fix and flip), do you keep those properties separate from your investment properties legally and for accounting?

INVESTMENTS WITH OTHERS

□A partnership is an association of 2 or more persons, which may consist of husband and wife, to carry on as co-owners a business for profit. Partners exist in partnerships, sometimes referred to as general partnerships. If you have an association of two or more persons to carry on as co-owners a business for profit, you have a partnership unless you have formed a different business entity. Two or more persons may also own investment property as co-tenants and may not be deemed to be partners. Partners have unlimited personal liability for the debts of the partnership and the wrongful acts or omissions of any partner acting in the ordinary course of the business on behalf of the partnership. If you have a co-investor, you should take steps to make sure that you are not a partnership.

□If you have a co-investor, you should probably have a limited liability company as the investment entity. Under some circumstances, a corporation may be appropriate.

□Have you considered “key person” life insurance for you and your co-investor to fund the purchase of the other’s interest in a buy-out following the death of the one of you and avoid a possible forced sale?

INSURANCE

□Do you have adequate property and liability insurance of each property and do you have the correct type of insurance? A standard homeowner’s policy probably does not provide coverage for an investment property, a property that is vacant or a property that is under construction or being renovated.

□If you own property in an entity (LLC or other entity), is the LLC named as the insured and are all of the LLC members listed as additional named insureds?

□Do you have an umbrella liability insurance policy that covers your entities and you individually (either directly or as an additional named insured)?

□Have you considered whether or not you should have workers compensation insurance for persons who may be considered by law to be your employees?

□If you have employees who drive during work, do you require them to have or provide them auto liability insurance in an appropriate amount?

IRA - SELF DIRECTED

□Do you have a self directed IRA that you can utilize for non-traditional IRA investments, including appropriate real estate investments?

LEASES

□Do you have all required certificates of inspection (certificates of occupancy / landlord licenses) required for your property?

□Do your leases name the owner of the real property as the landlord?

□Do you use a lease application and do you verify the information on the application?

□Do you encourage / require tenants to obtain tenant’s insurance, including liability coverage and fire liability coverage?

□Do you have initial inventory checklists signed by the tenant?

□Do you inspect your property on a regular basis so that you are aware of the condition of the property?

□Does your lease form comply with the Landlord And Tenant Relationship Act, the Truth In Renting Act and other State and Federal laws?

□Have you diversified your lease termination dates so that the termination dates are not overly concentrated together and not in the winter?

LEASE / OPTIONS

□If you are leasing property on a lease / option, have you recorded a memorandum of the lease / option with register of deeds to protect your option interest?

LIMITED LIABILITY COMPANIES

□Do you have an operating agreement that defines the relationship between the company and between members and what happens if the arrangement needs additional capital, there is a disagreement between co-investors or one of the co-investors becomes insolvent, goes bankrupt, divorces, becomes incapacitated or dies? Do you have an operating agreement for each LLC?

□Do you keep each LLC's annual reports up to date to avoid dissolution of the LLC?

□Is real property that you consider to be owned by the LLC deeded to the LLC?

□If you deeded a LLC property to yourself to obtain financing, did you deed the property back to the LLC after the finance closing?

□Do you sign all contracts for each LLC only in the name of the LLC?

□Do you keep separate accounting records for each LLC?

□Do you have a separate bank account (check or savings) for each LLC?

□Do you document loans (at least a promissory note) that you make to and from the LLC?

□Have you reviewed your asset allocation (based on current equity values and debts) between individual LLCs so that your investment risk is diversified?

PROPERTY MANAGEMENT

□Have you compared the cost of managing your properties yourself to the cost of contracting with a property manager?

□Do you have a local representative or property manager to assist you with your out-of-area properties?

TAXES

□Have you reviewed your business practices with your tax accountant to see if you are minimizing your taxes and maximizing your benefits for the coming year?

□Are you considering §1031 Tax Deferred Exchanges for any transaction where you would benefit from deferment of the capital gains tax?

TITLE INSURANCE

□Do you obtain title insurance on your transactions (including loans secured by a mortgage)?

□Do you obtain title insurance policies “without general exceptions” when possible?

□Do you consider obtaining an "Additional Named Insured Endorsement" when you transfer property you own to an owned LLC or a land trust?

TRUST - LAND

□If you have a land trust, have you reviewed why you have it and whether or not there may be a better alternative to accomplish your intended purpose? Land trusts provide little, if any asset protection and are probably not valid in Michigan.

□Do you have a third-party trustee for each land trust?

□Is property that you consider to be “owned” by the land trust deeded to the trustee?

□Do you utilize an LLC with your land trust to provide liability protection?

TRUST - LIVING / REVOCABLE

□Do you have a revocable trust (also referred as an estate planning, grantor, living or settlor trust)?

□Do you have a “pour-over” will which provides that the remainder of your assets will go to your revocable trust?

□Have you funded your revocable trust by assigning, deeding or otherwise transferring ownership of the assets that should be in the trust to the trustee of the revocable trust (generally, yourself as trustee)? Real estate must be deeded to the trustee to be covered by the trust. Limited liability company interests need to be assigned to the trustee in writing to be covered by the trust.

□Do you have a successor trustee that will consider your desires, look out for your best interests and can manage (or obtain management) of your real estate investment portfolio if you are incapacitated?

□Have you reviewed your revocable trust within the last two (2) years to see that it is compatible with your current plans and situation (new children, new grandchildren, divorce, remarriage, step children, new assets, etc.)?

□Did you put this Checklist somewhere you will remember to review it in six (6) months?

Checklist for Real Estate Investors 2016