All Forum Posts by: Nancy Truong

How close to medical? A client of mine has a mid-term lease 15 minutes from the medical center. 

Buy and hold. 

I recently posted an article about protecting assets and figured I can share it here as well. Below is the article. Enjoy!

Investing in rental properties has tax and wealth building advantages. Like any other business, mitigating risk is necessary to protect your assets. Oftentimes, individuals believe that forming an entity is enough to protect oneself from legal liability. This is far from the truth. Landlords get sued for various reasons such as poorly maintained property, unpaid mortgages, liens against the property, dispute of landlord responsibilities, the list goes on and on.

To increase asset protection, consider using a multi layer barrier approach that impedes possible claimants from future lawsuits. While this may not be 100% legal liability proof, you’ll greatly reduce your chances. Additionally, insurance companies and entities may not protect landlords who are proven negligent, grossly negligent by acts or omissions, or determined to violate the law.

Below are 8 layers of asset protection.

1. Have the Property Under an Entity

• When an entity is created, it becomes separate from its owner which reduces liability for the landlord.
• Landlords can form a corporation or a limited liability company (LLC). LLCs are more common for their flexibility. Be wary of the corporate veil. Piercing the corporate veil is an equitable remedy under Texas Business Code Section 101 when owners/landlords commingle funds (personal funds are mixed with company funds), do not treat the company as a separate business entity, use the company to commit illegal acts such as actual fraud, personal guarantees, diversion of company profits for individual personal use, inadequate capital, failure of proper legal documents.
• Under Texas Business Code Section 101.114, exceptions to piercing the corporate veil states: “Except as and to the extent the company agreement specifically provides otherwise, a member or manager is not liable for a debt, obligation, or liability of a limited liability company, including a debt, obligation, or liability under a judgment, decree, or order of a court.”
• According to Castleberry v. Branscum Texas Supreme Court established the veil piercing doctrine stating that entities usually protect shareholders, officers, and directors from company liabilities, however if those individuals abuse this privilege, that individual is held liable. Castleberry v. Branscum, 721 S.W.2d 270 (1986). The court specifically lists reasons for disregarding privilege:
• When the fiction is used as a means of perpetrating fraud;Where a corporation is organized and operated as a mere tool or business conduit of another corporation; Where the corporate fiction is resorted to as a means of evading an existing legal obligation; Where the corporate fiction is employed to achieve or perpetuate monopoly; Where the corporate fiction is used to circumvent a statute; and Where the corporate fiction is relied upon as a protection of crime or to justify wrong.

2. Create the Entity with Anonymity

• If people think you’re judgment proof, they’re less likely to sue you because they think that there are no assets to collect on. In other words, you’re less of a target for lawsuits.
• Anonymity reduces the risk of harm or dangers to you.
• Anonymity limits access and knowledge to your financial information.

3. Implement Terms in the Lease that Protect the Landlord

• The Texas Realtors Residential Lease Agreement is commonly used among landlords, however it’s not a catch all agreement for terms that protect the landlord. If there are specific terms, not already in the lease agreement that offer additional protection and that are permitted by the Texas Property Code, add them.While this sounds like common sense, common sense is not always common. Read the entire lease agreement to make sure you understand yours and the tenant’s rights and responsibilities.
• Put your expectations in the lease agreement so in the event that issues arise, those issues are addressed.

4. Purchase an Umbrella Insurance Policy

• Umbrella Insurance Policies are used as additional coverage after landlord liability insurance is reached.
• It’s also used for claims from a tenant, guest, or adverse possessors on vacant property injured on the property. Arguably, adverse possessors have a higher burden to prove the owner’s responsibility of injury.
• Unlike property-specific insurance policies, an umbrella policy can provide coverage for multiple rental properties in different cities and states. It may even cover the landlord’s residence.

5. Require Tenants to Buy Renter’s Insurance

• The benefits of renter’s insurance is that it covers loss of personal property due to theft and negligent destruction from tenant to landlord’s property among other things. This is especially important when tenants are judgment proof and recovery from tenants are unlikely.
• This may reduce landlords from legal liabilities, help reduce insurance premiums for landlords, and help with tenant screening.

6. Understand Landlord Responsibilities & Rights and Tenants Responsibilities & Rights.

• Part of protecting yourself from liabilities requires educating yourself. When leasing space to tenants, you must understand what you can and cannot do as well as what tenants can and cannot do. Landlords that do not know their responsibilities and rights are susceptible to breaking the rules. Ignorance is not a winning defense in court.
• A few of landlord requirements include refunding security deposits when tenants have completed their obligations, respect Tenants’ right to use and enjoyment of the property, and follow the Federal Fair Housing Act.

7. Maintain the Property in Safe Condition.

• Keep the property habitable for tenants. This means landlords should maintain their rental property in a livable condition. It’s generally in the landlord’s best interest to mitigate health and safety issues.
• Keep the property in a reasonably safe condition to minimize personal injuries. Landlords are not required to fix every potential hazard. If the tenant created an unsafe condition, the tenant is likely to be liable. The landlord is not liable for the tenant’s injury to himself/herself. There are limits that protect the landlord from the property’s condition.

8. Follow Proper Eviction Procedure

• Texas Property Code Section 24 and Texas Rules of Civil Procedure 500 lays out rules for tenants to abide by. Courts frown upon landlords that do not follow these rules. Additionally, landlords may be penalized for improper evictions.
• Insurance coverages do not protect landlords from improper evictions.
• Tenants may have viable claims against landlords who do not follow the proper procedure such as locking the tenant from the property, providing the wrong content or incorrect delivery of written notice to vacate.

This can easily be taken care of through a certified check, wire, money order, or cashier's check. etc. If the company is reputable and in good standing, possibly there won't be a problem but most transactions I've dealt with are the certified check, wire, money order, or cashier's check.

Are these meet-ups on a monthly basis? I would love to come to one of these some day. 

I mainly used conventional loan from a private investor. Less regulations.

I often go back and forth with whether creating a series LLC advantageous or not. Any thoughts on this?

I agree with Jeff and Rick. There are several types of seller financing. Another additional tip aside from the above posts, is to not go with contract for deed. Texas has strict compliance for seller's with contract for deed since it caused too many issues. Avoid that type of seller finance if possible. I'm assuming you are the buyer (not enough information above to give you more specifics). For instance, seller gives you possession of property. You fall behind on payment or payment is not accounted for. Seller can either evict you or foreclose on you (depending the amount already invested in the property. 

But even if you're not the buyer and possibly on the seller side, there's strict rules you must apply. Anyway good luck!

Notes here about Seller's and Buyer's right: 

If you violate (breach) any term of the contract and the seller wants you out, the seller must give you written notice by certified or registered mail. The notice must tell you want you can do to remedy the breach. If the breach is for nonpayment, it must state what you owe in principal and interest, additional charges (like late fees), and the date of each missed payment.

• If you’ve paid less than 40% of the total purchase price or made less than 48 payments and have not recorded your contract in the property records, you have the right to cure (catch up on all payments due) within 30 days of the notice. If not, the seller can cancel the contract and file an eviction suit in Justice Court to remove you from the property.
• If you’ve paid more than 40% or made more than 48 payments, or if you recorded your contract in the property records and you defaulted on payment after Sept. 1, 2015, you have the right to cure within 60 days of the notice. If not, the seller can post, file, and serve notice of sale as a foreclosure. After a foreclosure sale, the purchaser can file an eviction suit to have you removed from the property
• Nancy Truong, Texas Attorney at Walter & Truong PLLC. 

I self manage. There are ups and downs. I mainly tell tenants that I'm the property manager to keep anonymity. My law partner also owns property, she has a property manager because she thinks it's more efficient that way.  

Early congrats on purchasing your first!