All Forum Posts by: Derek Lacy

@Jade S.

Does this sound similar to the reasons given to set up an LLC with a quit claim?

1. The same person will control the LLC and the individual (since they are one and the same).

2.  You can operate out of your home (same facilities).

3. The contracts of the LLC are executed by the same person as the individual.

4. The LLC will have it's assets moved back to the individual at will (causing under capitalization)

5. The LLC and the individual will share financial obligations (i.e. the mortgage).

That is the 5 pronged question set by Third District Court of Appeals on Ocala Breeders Sales Company v Hialeah, Inc. (5/99). Since that decision that has been the usual test in many jurisdictions. As you can see, just setting up an LLC and pretending that's enough and keeping the mortgage in your personal name and not hiring a separate manager for the LLC and basically just operating like it's individually owned with the mask of an LLC on a quit claim deed, it does absolutely no good. And if you think when a child is legitimately hurt on a property, the court will liberally apply this type of ruling, because in reality it was never really separate and distinct. Setting up the LLC with the mortgage still in the personally name is, in my opinion, almost the definition of a sham corporation, the only reason for it is to avoid liability, which is not a legal reason for setting up an LLC.

When I pulled up that case law it also pulled up a great mini article on how to pierce a corporate veil and as you will see and imagine, many of these quit claim to LLC operate in this manner. Not all. Not all by a long shot, but many.

http://www.lexology.com/library/detail.aspx?g=4ff8ebf0-4bca-426e-8273-758140f6d0eb

And guess what your insurance is not going to fight a piercing argument.  So it's better to just keep it in your personal name and purchase $5,000,000 in umbrella coverage if you cannot afford the payoff on the mortgage.  

Now, you're a cash buyer, capitalize an LLC or willing to take a loan in the LLC's name, purchase away! That's a different animal, no longer are you sharing financial obligations.

@Account Closed

Whoever advised you that about an LLC did not do a good job advising you. What an LLC does well is protect you from catastrophic claims (think $10,000,000 claim). Only have $1,000,000 in liability, well you have your insurance pay $1,000,000 and you bankrupt the LLC to pay the rest of the claim, but of course that means you lose everything inside the LLC. But one quick way for a lawyer to pierce that LLC veil is to state you did not operate your business in a proper manner, and going around work comp law would be pretty good proof that you did not operate your business legally.

Yes, foremost is a specialty (think high risk) insurer, they are expensive, I would suggest many other options before foremost.  Even in Maine.  

While paying insurance might make you feel insurance poor, do remember losing all/most of your assets due to a worker injury or liability suit will really make you feel poor.  Need proof it happens?  It's on biggerpockets.  

Good news is you are in Maine, so the homestead exemption if you are sued is that the courts can only take everything except the portion of your home that is mortgages plus $47,500.  That's much better than Indiana's $6,200.  

http://statelaws.findlaw.com/maine-law/maine-homes...

Jeff Copeland Thank you, thank you, thank you. I cannot tell you how many claims go uninsured because property investors are "smarter" than the system. They do this quit claim to an LLC and keep the mortgage in their personal name. 1. They are commingling monies (it's a personal loan being used by the LLC, and it's not a long arm transaction i.e. It's a sweetheart deal since the LLC owner and mortgagor are one and the same). Therefore any perceived protection from the LLC is gone. 2. The risk of due on sale as you went over perfectly. 3. They don't update their insurance provider on the owner change, so when the claim happens the adjuster denies the claim because there is no insurable interest in the property. Or they do update us but then the bank automatically knows the game is afoot.

Matthew Logan There are certainly owner controlled insurance policies (OCIP). That can pick up all risks for a project. But unless it's a large project, don't bother your priced out of that market. A house flipper needs general liability, work com, and auto liability (if no owned autos then hired and non-owned) on an annual basis. Possible pollution liability. Then on a project basis you need builders risk. Feel free to contact Me directly for specific questions. I'm absolutely positive Jason would feel the same way, so feel free to contact him as well.

Francis Ifeacho Builders risk does not cover that only workers comp covers that.

I'm going to guess he's appalled because that additional policy probably does not cover what you think it does. Usually a $1,000,000 liability add-on excludes worker injury (which would be uninsured contractors).

Ken Min Umbrella will not cover workers injury. Does not matter how BIG the insurance company is. You are well misinformed. The only policy that does is work comp or in tx/ok you could purchase worker indemnity. To protect your project you could purchase an OCIP policy (an ocip can include all parts of the project). But for an inlaw suite probably using too big of a club. So, tell your GC if they want the project they need to have work comp. if they do great, if they don't, next man up.

Patrick Philip Don't go to a lender for insurance advice. Don't go to an insurance agent for tax advice, and never borrow money from an attorney. Your lender is not qualified to make such assertions and is 100% wrong. 1099 has no bearing in work comp. Either you need a work comp policy or your contractors do. This is why generals are hired and cost so much, they take care of these issues. I mean the longest a work comp claim has ever paid out was an Aetna inherited policy which paid for 82 years, your cool paying disability for that long? Right? :)

Lulu Logan Absolutely not. By law the umbrella only covers over the policies you list on the umbrella. Meaning, you forget to tell them about a new purchase, they forget to cover it. Jason Bott is correct, and its best to have all your coverage with one agent, because you add a property, then that agent should also endorse the umbrella. I know Jason Bott or I would talk more on the subject. But no, they only have to cover what is in the policy. Not locations they never had a chance to underwrite. Read the policy, it's all in there. Or just get an agent (you stated you called Travelers directly) we're really helpful and understand insurance.

Lulu Logan Florida is tough. We have a few markets, like Hudson that will look at it. Don't bother calling Hudson directly, they work exclusively with independent brokers. We are one and work nationwide so we can do Hudson for you. But yes if most insurance is water, then Florida is oil. It rarely mixes.