Legal Question in Credit and Debt Law in California

I am a Mortgage Broker and I have purchased 3 residential properties in addition to my primary residence in my own name. I am concerned about my personal liability in terms of my mortgage practice and rentals since I am a Sole Proprietor and God forbid that I get sued by either a client or a tenant. I want to continue to invest in the purchase of rental properties but I want the peace of mind in knowing that I am protected from such a suit. I currently own my mortgage practice as a sole proprietor and I have no employees and I own my rentals in my own name. I have purchased E&O Insurance for my mortgage business but as far as my rentals I have no coverage. What should I do to protect my interests in my business and rentals?

Asked on 7/16/17, 1:15 am

2 Answers from Attorneys

Charles Perry Law Offices of Charles R. Perry

The two traditional devices for reducing risk are (1) insurance, and (2) forming one or more entities (either corporations or LLCs). The exact balance between the two, the tax implications of any particular strategy involving corporations LLCs, and exactly what should be put into one or more entities, is far beyond what can be accomplished in a public forum. You should talk to both your CPA and an attorney as to how this should be done. The peace of mind alone should be worth the expense.

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Answered on 7/16/17, 3:52 am
Timothy McCormick Haapala, Thompson & Abern, LLP

In my experience as a real estate and construction litigator for thirty years, LLCs and corporations provide far less protection than meets the eye if they are owned by a single person or family and not adequately capitalized and insured. It's pretty easy to pierce the entity and attach personal liability if the owner has left the entity as a mere shell. And conversely if you keep enough assets in the entity, then they are exposed. The real benefits of forming an entity come when you want to bring in investors or expect to want to sell multiple properties together. Otherwise they are not worth the extra taxation and management work. Just insure well. If you are carrying rental property casualty and liability insurance on each property, have your own homeowners insurance with liability coverage, all with adequate policy limits, you are pretty well covered. You may want to add a personal umbrella policy for extra peace of mind.

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Answered on 7/16/17, 12:26 pm

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