All Forum Posts by: Seth Mosley

Interesting Thread. Agreed that there does seem to be a fear aspect to selling asset protection out there. Tellingly absent from these kinds of approaches is any kind of cost/benefit analysis. I come from a perspective of having both prosecuted and defended debt collection issues over 28 years of practicing law in California.  There is no one correct answer for everyone. From my perspective, a few guiding principals can help one focus on a correct approach:

1)  Asset planning is best implemented as an adjunct to a larger financial, tax, and estate plan, not as a substitute;

2)  It is helpful to objectively assess the level of risk in one’s activities. High liability potential activities will necessitate different approaches than lower liability potential activities. As best you can, define what it is you are seeking protection from. Claims of creditors? What kind of creditors? Employees? Partners? Spouses?

3)  Asset Protection planning works best when implemented before a claim arises, not after;

4)  When properly implemented, used and maintained, entity vehicles such as corporations, limited liability companies or trusts can be useful vehicles that provide important layers of protection. They should not be the only focus though. Insurance, transactions (e.g. secured debt), and retirement plans should also be considered along with other characteristics specific to your situation.

5) The principal of Occam's razor theory of economy generally applies to asset protection planning. As between two solutions to a problem, the simplest and least complicated is usually the best. 

@Seth Mosley 

Evergreen is a term commonaly used in commercial banking .. It refers to a borrower who you give say a 250k LOC to or a 500k or whatever.. either secured or not.. and instead of using it when they need it paying it off occasionally or down occasionally through the term of the note... they just pull 100% of the cash out.. and never make principal reductions throughout the course of the year.. in other words they take all the green out of the LOC>

@Doug Cobb 

have a LOC with a local bank secured by the asset in question.. don't draw on it.. but it you need to draw on it evergreen it...

We are getting off topic, equity stripping was what I was addressing above. I'd stay away from such tactics, there can be legitimate liens.

Lots of gurus talk about there being no due on sale jail, bottom line, it can and is a matter that can really mess up your day, lead to suits and damages and is a concern if you can't meet any demand, if you can meet demands then don't be concerned, if you can't, might think a few times before you ignore the issue.

We have 3 attorneys commenting in this thread, if each were asked to address all the concerns of the DOS I'd bet we'd have 3 different legal opinions, I'd bet I'd be making some other point and you'd have all kinds of public opinion. Best to address the DOS issue locally and specifically as to a lender and the circumstances as to realistic risks. IMO :)

@Seth Mosley  I would consult a TN lawyer. There is always devils in the details. Incorporating in one state for one benefit almost always bring one (or more) detriments in the other state.

@Jeff S.  Not giving legal advice but that approach is sound. But please remember, he is an attorney so threats of litigation are not such a big deal. When I married my wife, I used to tell her ex not to pull any baloney as I heard she was sleeping with her attorney. She never went back to court after we got married.  

To all: this is a vibrant, educated and opinionated group. I like it.

Would anyone be interested in a podcast on due-on-sales clauses? This is an area where I see a lot of bad advice and google educated posts.

@Seth Mosley a reasonable approach might be the one Jeff Bennet, a RE expert and attorney who lectures to the REIA's in Portland OR and who is an investor: For the properties he owns by himself, and has mortgages on, no LLC; on properties he owns with partners he has them in LLC's.

@Bill Gulley has hit the nail on the head.

I am a plaintiff's lawyer here in Texas and I can tell you the issue of asset protection is really, really overblown, at least for the vast majority of SFR investors. The vast majority of personal injury cases (e.g. slip and fall, dog bites, etc.), which is where most claims of liability come from, will never even be close to the standard $1M in liability coverage.

Moreover, here in Texas, most lawyers are smart enough to almost always make a demand within policy limits once enough facts are developed.  (This is true even with wrongful death cases, unless there are extraordinary circumstances.)  The result is that if the insurance company turns down the offer, and the case goes to trial with a verdict in favor of the plaintiff that exceeds policy coverage, it is the insurance company, not the owner, who is on the hook for any excess judgment.  

Another point to consider is that property that is highly mortgaged is worthless to a plaintiff's lawyer.  The mortgage lien trumps an unsecured, judgment creditor's lien.

I also reject the suggestion that an insurance company might not defend an insured based on some nit picky exclusion.  The duty to defend in Texas (and most jurisdictions) is much, much broader than the duty to indemnify, and an insurance company get in big trouble for violating its duty to defend.  I have rarely seen a case where an insurance company has refused to defend if there was any possible basis for coverage.

As a lawyer here in Texas, I can also tell you the bogey man of punitive damages is ridiculously overblown.  They are exceptionally difficult to obtain (there basically has to be overwhelming evidence of an almost evil intent, a paraphrase but that's what it is like in practice).  Moreover, even if you obtain punitive damages, they are very difficult to hold onto on appeal.  (They are often reversed.)  

I also do not understand the claim that Texas has "passed statutes which entice claims that are very lucrative to Plaintiffs."  Texas is one of the most hostile states in the country toward's Plaintiff's claims and has led the way in tort reform.  

I can also say that any decent plaintiff lawyer has zero fear of going against insurance lawyers.  Just as there is a wide variety of talent in the local bar, there is a wide variety of talent in the insurance defense bar.  As far as I'm aware, the insurance defense bar does not hold some vaunted reputation in the legal community.  

I can say with absolute certainty that any decent plaintiff lawyer will prefer to go after an insurance company, not an individual.  It's really hard to collect in Texas and insurance companies at least understand the game of litigation.

Finally, I'm not sure I understand the issue of fraud.  What are you doing to get sued for fraud?  Sure, anyone can sue anyone for "fraud," but in my experience frivolous claims get weeded out relatively quickly and certainly do not expose a defendant to catastrophic liability.

These are just some thoughts off the top of my head.