All Forum Posts by: Ryan Seib

Hello and great question. Roughly speaking a DE LLC is used by large corporations because the laws are favorable to large claims there. A WY LLC is used for anonymity and a good charging order law. You would not have to put your name on the public facing side of a WY LLC. A charging order protection means the courts may not require your LLC to satisfy a judgment against a member of the LLC. At least not right away or how the creditor wants it enforced. This can be super helpful for partnerships. Regarding out of state use of either, most lawsuits are going to be in the state where the property is. The in state court may apply out of state law to the LLC though. It is a longer discussion. Glad you are looking into it. (Keep in mind law is a rabbit hole). My best wishes to you on this.

This is almost always doable. Generally the LLC owning property would need to register in the state the property is located if is is doing business there. State laws define what 'doing business in' for this purpose means. So, often enough the LLCs are not registered if they just own property rather than manage or something more involved. But nothing stops an out of state entity from buying in state property in my experience. The laws usually say the LLC owner cannot defend itself in a lawsuit and some other issues if it does not register. Also it would likely need a registered agent in state to properly handle a court process. That could cause issues with a lawsuit though possibly easily remediable ones.

I only have templates from my area. However you could find or make a list of questions to answer with the partner. Then provide that document to your attorney. The attorney should work those matters out in the documents for the partnership. Congratulations on the partnership opportunities.

Yes state law would be important to know here. If you speak to a local real estate attorney they should be able to answer that question briefly enough. Best wishes.

Quote from @Jesse Kindra:

@Ryan Seib - thank you for the extremely detailed response! That is very helpful information.

Thanks to everyone else as well as John @John Warren who gave some great advise offline about the property. John, I appreciate your thoughts and advise!

I hope it is helpful. Best of wishes with this and happy investing.

It is really hard to prognosticate on what may happen, exactly. The contract seems to say anything allowable by law are possibly remedies. Courts in your state may have a particular trend in handling these matters. I never have seen a court use specific performance on a family buying a personal residence. For commercial you are much more likely to be forced to buy, unless you can show some defense against the contract like "frustration of purpose" or lack of "meeting of the minds".

The title commitment is the first document the buyer sees. It shows whether the property has easements or other restrictions. The commitment insures the title is clear other than the exceptions (and fine print of course). Anything on title should show up there--and there may be a lot of things there, too. Sunshine is the best disinfectant for title exceptions. 

And review the personal guarantees and subletting rights. In commercial you want to restrict subletting to businesses competing directly with your other tenants.

This can be a big question actually.

An urgent word of warning is to avoid making a deal with the bankrupt person. When someone files bankruptcy they are giving the "Trustee" the only right to make financial deals for them. That lasts until the bankruptcy "Discharge" is ordered. If you make some sort of deal with a bankrupt tenant, the Trustee can legally go and Claw Back almost anything you received. Yet, the Trustee might be able to keep any benefits of the bargain given the tenant. In any case, you want to avoid getting tangled up in a bankruptcy proceeding like the plague.

This Trustee can usually go back 6 months to capture payment made by the debtor, as happened to Jay. This can include rent or other payments made. Generally, I would not assume having to give 90 days to 6 months of rent is inevitable though. Usually Claw Backs happen if something is considered a Preference payment. In other words, a bankrupt person's financial affairs going back 6 months should be legally divided equally among current creditors, with secured creditors being paid first in line. But payments in the ordinary course of business should not be preference payments. This note describes what makes a preference payment for example: https://www.taftlaw.com/news-e...

Your leases should address bankruptcy. Your partnership agreements (operating agreements, shareholder agreements, etc) should address bankruptcy. What these documents should say is the lease is terminated by a bankruptcy notice. Then you can avoid trying to make a deal with the tenant. For the partnership agreements, they should say the bankruptcy trustee and person loses the ability to be a voting partner any more. It also should say their ownership interest gets paid off according to what works best for the company.

Regarding the original question, I agree that getting the tenant out as soon as possible is necessary. You would never get rent owed from a bankrupt person. The secured creditors get all the money generally. So, as a landlord you are last in line for payment. Cash for keys is a possibility if the lease cannot be terminated with a bankruptcy provision or there is no other way to make them leave. But realize that having the tenant sign a waiver or some document terminating their lease could be considered useless by a court/Trustee. The main benefit is to get them out of the space and out of possession. But you really need a legal basis for terminating the lease to avoid any claims from the Trustee of remaining benefits from it.

If the Trustee comes along asking for past rent money tell them you will get back to them and talk to a lawyer first.

You should not need a deed restriction unless you are talking about subdividing the lot. For example, condos or a lot division where the system end up on one lot, but services others. Most any real estate lawyer in your state should be able to figure that out I would think.