All Forum Posts by: Christopher Mendoza

@Account Closed 

 Hey Joe. I been out of the country, so I missed your question. Can you elaborate from which stance you are approaching a hedge fund? Example: investor, service provider, etc. There are different ways to vet a fund (depending on your stance) and limitations (depending on your stance). For example, a hedge fund would be strongly discouraged by its attorney to deviate from its private placement memorandum in discussions with investors. So, the vetting process is a bit limited from that stance.

@Joe Santiago I am a hedge fund attorney in Chicago, and I know of a few Chicago RE attorneys that work regularly with investors (dealing in simple and complex matters).  Feel free to send me a message if you want a recommendation.

As general guidance, although attorneys charge for the time spent (normally in 6-minute increments), it is always good to try  to get a flat-rate price for routine items (e.g., entity formation, drafting an operating agreement, etc.).

@Matt Rasich I am going to echo some of the comments and sentiments of over BPers, but (first) I want to provide you with a link to a summary of the "Chicago Landlord Ordinance." http://www.cityofchicago.org/dam/city/depts/dcd/ge...

The first issue is to see whether your landlord's rental is covered by the ordinance. Second, if it is, see what the ordinance says about his and your obligations. If he does not comply with the security deposit requirements and he is subject to the Chicago Landlord Ordinance, you can possibly obtain 2x your rent deposit. If he is not subject to the Chicago Landlord Ordinance, then he is likely subject to Illinois' general landlord laws. 

This advice is general in nature. If you need specific advice, you may want to consult with an attorney. 

@Ryan Dossey Did the seller say that they are signing as "general partner"? An LLC should not have a general partner. As a result, be sure that the signature blocks have the proper title for the individuals signing. Operating agreements will normally set forth the powers that managers (if any) and members may have in dealing on behalf of the LLC. Just because someone is signing, does not mean that they have the authority to act on behalf of the entity.

@Abou C. 

Hi Abou. I didn't realize you posted follow-up questions. There are series LLCs that, for the sake of illustration, are akin to a tree. Each individual series is similar to a branch on a tree. There is some concern in the legal industry, I deal with hedge funds, that the series LLC concept is still untested in the court system. There is a possibility that a court may collapse all the series LLCs into the main LLC for liability purposes. For example, not all states recognize series LLCs, so a court in a state that does not recognize a series LLC may disregard the series concept. I am not sure if series LLCs are recognized in Mass or RI. In addition, because these entities are statutory creations, there is some ambiguity as to whether each series can enter into contracts, or if the Series LLC, itself, needs to enter into the contract. Some states have yet to clarify this issue. As for opening bank accounts, you will need to get an Employer Identification Number (EIN) for your LLC. The banks may want to see your operating agreement and will need the LLC EIN to open the account. The bank will then open up the account on behalf of ABC, LLC.

Based on your initial post, I assume that you are going to hold these properties for a long time. So, you are probably concerned about asset protection (protection from creditors), liability protection (protection of personal assets), and asset segregation (separating your assets). You may not need an individual LLC for each single property. Piercing the corporate veil can be done, but it is extremely difficult. Generally, courts will pierce the veil in issues involving fraud or scenarios involving egregious failures to adhere to entity formalities, e.g., you start using the company funds as your own personal funds without proper documentation, such as a loan. So, you probably don't need to go out and start forming multiple entities or a series LLC. In addition, if your entities are not sufficiently funded, expect counter parties (such as lenders) to obtain personal guarantees from you and your partner.

The biggest part of your plan should be the insurance policy. In my limited experience defending companies with insurance, the lawsuits are aimed at capturing the insurance money. For example, Company A is sued. Company A has insurance coverage that is up to $1 million. The main talking point in settlement in settlement is how much of that $1 million insurance coverage is available and negotiable. So, if you get insurance for $500,000, expect negotiations to center around that $500,000 mark. If you get insurance for $1 million, expect negotiations to center around that $1 million mark.  You should call a few insurance companies and they should provide you with some basic pricing and information. 

Please note that the above is general in nature. If you need detailed advice, you may want to talk with an attorney. In addition, talking with an attorney that you have an attorney-client relationship with will help maintain your conversations privileged. I hope this post has been of some use. 

@Abou C. 

Some of the other BP Members should have some insight about your other questions. I can, however, address your questions regarding LLCs as a form of limiting liability and the complexity and money involved in forming LLCs.

Although, LLCs do limit liability, an important part of reducing your liability is having the proper insurance. Nevertheless, there are some key aspects of an LLC that may be beneficial for you and your partner. While the formation of an LLC is rather simple, most of the work concerns the operating agreement, which establishes the rights, obligations, and duties of the LLC members and managers. In particular, the operating agreement of the LLC can function as the business plan for your venture (profit allocation, distribution, voting rights, etc). For example, something as simple as setting up approval of all members/managers if the LLC is going to make a purchase above a certain monetary threshold can be done through the operating agreement. Further, the LLC will provide you with the flexibility to revise the operating agreement or introduce new LLC members in the future to accommodate the changing landscape. An LLC is not always necessary, but it is always worth it to understand its usefulness.

If you have any particular questions about entities, feel free to ask me. I am comfortable with these entities. 

@Curtis Bidwell Thanks Curtis.

@Tara Piantanida-Kelly Yes, you can proceed with your current business as a DBA and then transition into an LLC. You will, however, have to transfer the assets to an LLC in order to benefit from the LLC. You may want to check the name availability of your prospective LLC name. Sometimes the name is unavailable or it conflicts with the name of a current LLC. You can search the secretary of state's website for this function, although the website may simply do an availability analysis (instead of a conflicts analysis). If you want both, you may want to call the secretary of state and ask whether the prospective name is unavailable or conflicts with another entity. If it is available and does not conflict, you can wait until it is time to form the LLC (risk someone taking the name) or reserve the name (but the period for reservation is generally less than a year).

If you are the sole member of the LLC, then it is a single-member LLC and treated as a disregarded entity (unless you elect to be treated as a corporation). As a disregarded entity, the LLC's activities would be reflected on the owner's federal tax return.

@Chris Stromdahl From a business standpoint, just be sure you feel comfortable with his understanding of the legal aspects of real estate. Forming an entity for you is pretty standard legal work. If you are working on more complex finance matters, then be sure the attorney has dealt with complex RE finance deals. Also, try to get an estimate for a flat fee for each entity formation. That way you know what the cost will be for each state. While the formation in each state is unique, he should be able to provide you with a cost per LLC. Also, be sure it includes an operating agreement as well. He is a part of your business plan, so be sure to ask him questions you may ask of any partner: (1) how many years have you been doing RE law? (2) Have you worked with [describe the type of investor you are]? (3) Can you assist with out of state deals? (see my comments in next paragraph) (4) How does your legal service assist my business?

From a legal standpoint, there are some states where you will need an attorney to assist you with closing. If he isn't licensed in that state requiring an attorney-assisted closing, then you may be required to hire a different attorney. So, you may be asking your Washington attorney for references. 

@Danny Duran 

1. You can definitely put in a sublease provision in your lease agreement with the tenant. If you are comfortable with editing the language or providing the proper language, then you probably don't need an attorney. As an alternative, you can probably insert an early termination fee amount so it provides flexibility for the tenant to leave without having to deal with subleasing issues; however, you'd have to consider worst case scenario: Tenant exercises the early-termination option in December, which places you in a tough situation as a landlord in the Chicago area. 

2.  The reasonableness of the subtenant is a fact-intensive analysis that may change depending on the scenario. It is more of a sliding scale with various metrics, e.g., income, credit score, etc. 

3. As for coaching the tenant, I'd suggest informing them at the initial walk through of the property about their obligations under the lease agreement, including the sublease provision. Let them know that they still have existing contractual obligations with you even though a sublease is executed.