DealMakerGH,
Lawsuits are just part of doing business in our screwed up society. If you run a significant business, you WILL be sued sooner or later. Obviously, if you only have one or two properties, your chances of being sued are far less than if you have 30, 50, or 100 properties. This whole thing boils down to the fact that about 25% of our follow citizens are lazy bums who are living on public handouts. Their goal in life is to do nothing (but guzzle beer and smoke cigarettes and dope) and get paid for it. For these low-lifes, the ultimate goal is to become rich by either hitting the lotto or suing someone. This is a VERY UGLY fact of life.
To answer your question, there is NOTHING that you can do to prevent it. These scumbag predators don’t sue you because you did something wrong, they just sue you because you appear to have something that they want. It’s just that simple.
Here are a couple of things that happened to me.
Several years ago, I was a partner in another business. My partner’s wife decided to sleep with everyone in the state and my partner divorced her. She ended up living with a convicted criminal in a rented trailer. They had nothing. So, she decided to sue may partner and I for $500,000 EACH because she had nothing and we were living the good life. After 2 years of legal stupidity and $15,000 out of my pocket, it was finally dropped. We didn’t do anything to get sued. She accused us of stealing company funds; treating her unfairly; illegally firing her; etc. When we finally deposed her, she admitted that she made the whole thing up!
Now to real estate. About 2 months ago, I evicted a tenant for non-payment of rent. He made a lot of threats when I told him that he was being evicted - he was going to get even with us! A few days before the eviction proceedings, he called to say that the ceiling had fallen on his mother and she had a neck injury. Obviously, I knew this was a scam from the very beginning. She wanted the insurance company’s info so that she could file a claim.
Fortunately, I learned a few things from my earlier lawsuit. The property in question is held in a land trust with a local attorney as trustee. The trustee wouldn’t tell the scumbag or her lawyer who the beneficial interest was. The trustee didn’t know who the insurance carrier was. Since I am the property manager, I initiated my own investigation. I discovered that the scumbag was already totally disabled but working for cash at a bar and for another real estate investor. I also discovered that she had tried to sue someone else only a month before! She also had a lengthy criminal record (a mother everyone could love). So, I had the lawyer sent a letter to her lawyer saying that it was apparent that she was trying to extort money from us. We also notified him that she was totally disabled (with a neck injury) and was working under the table for cash. In the event of a lawsuit, we would feel compelled to fully investigate these matters and notify the government of any insurance fraud and tax evasion that we discovered. I also might have mentioned to the other tenants that I intended to see the scumbag in jail for trying to extort money from us via this fraud. (Could this have gotten back to the scumbag)?
I haven’t heard anything else from the scumbag or her lawyer (although she could still rear her ugly head).
So, the lessons learned:
- proper entity structuring is KEY
- don’t own anything - let someone else own it and just be the manager
- be aggressive in dealing with these scumbag predators
- YOU manage the plan and tell your attorney what YOU want
- throw out every obstacle that you can
- have insurance in case everything else fails
Good Luck,
Mike