Kiplinger Business Resource Center recently featured an article concerning auto insurance fraud and its correlation to economic downturns. I immediately saw a frightening correlation to legal problems for real estate investors, and I’d like to bring it to your attention.
As it was used in the Kiplinger article, “Auto Insurance Fraud” refers to the act of purposely staging traffic accidents in such a way that it appears the perpetrator is not legally at fault. The perpetrator’s intention is to collect money from their victim’s insurance coverage, sue their victim for a large judgment, or both.
As real estate investors, this type of thing is particularly significant for us. The reason is this: Even if you’re a brand new investor with only a single property or two “under your belt,” you still have assets exposed to the threat of frivolous litigation.
With a single lawsuit from some nutcase who victimizes you by staging a car wreck, the cash you’ve earned and the equity you’ve built can be ripped away in a second.
This is something that you should be thinking about: What small steps will you take to protect my assets – whether real estate related or otherwise – during this economic downturn?
Your thoughts and comments are welcomed. Thank you for reading RealEstate.BryanEllis.com!
It doesn’t even need to be frivilous. My daughter was in an accident with 5 other girls 4 years ago. This was at the top of our street at 2 AM, and not their fault. The point being that their medical expenses came to “houses” apiece, and you never know what can happen. Thankfully, the guy who hit them had a $milIion dollar umbrella policy.
I have formed an LLC for my properites and have an umbrella policy too. I was told that this is a little over the top, and that you only need one or the other, but I have worked too hard to get where I’m at to lose it to another similar freaky kind of accident.
Kudos to you for taking protective action – you’re far ahead of the game compared to many. Further, I think you’re doing EXACTLY the right thing by having a lot of insurance PLUS legal entities. — Bryan Ellis
All kinds of accident fraud (or even real accidents) are very real threats to everyone, not just investors.
A good bit of advice is to have ownership and management of your assests in two seperate entities. Look at any hotel to see how this is done if you don’t understand.
I am not willing to go into very much detail as I don’t want to be accused of giving legal advice.
As the economy worsens this type of fraud and others, will become more common and harder to avoid. Professional thieves will do research to find the best person to commit crimes against making it harder to avoid becoming a victim without proper assest protection.
If you are invovled in any type of accident, take pictures of everything, use your cell phone if you don’t have a camera just for this.
Get everyone’s name and not just the people that immediately come forward, they may be part of the fraud. Even if they didn’t see all of what happened get their name and address.
An address is more important than a phone number, you want to know where to actually find the person. Take as many pictures of the people as you can also. They may show up to a fraud investigator.
Be aware, your biggest defence is to not let it happen in the first place.
Chris B
Thank you for the info Bryan.
Isn’t true that if you put all your properties into a land trust or LLC with judgment order proof will protect you from getting sued? I think that if we investors have our LLC established properly for asset protection, how can we get sued in an auto accident?
Thank you
Note that I’m not an attorney, and can’t give legal advice. However, I do know this: There is nothing that will completely prevent someone from suing you if they want. Including an LLC and land trusts. The idea of good asset protection is to make it unattractive for people to take legal action against you, and to make sure that you don’t lose your assets in the event that a frivolous judgment is entered against you. — Bryan Ellis
To go a little further on this subject, because the door has been opened a little bit by others and you are good people that won’t get me in trouble right?
When I said look to hotels for an example of what to do to perserve your wealth, you really should if you never have. Think about a hotel for a moment. Here is a building with a shower or tub in every room they rent. Where are more accidents than anywhere else, getting in and out of the shower/tub. How many of you have nearly slipped and fallen yourself?
They have very good protection for themselves and you can too!
Look at who owns the hotel, it is on the front i.e. Marriot, Super 8, Ritz, it doesn’t matter. Then go inside and look around and you will find out who manages the site you are in, it will be on a plague somewhere. It will be someone different than the owner.
To put a finer point on this you want ownership and management are seperate, for example the hotel is a corporation and the management is an LLC. One isn’t responsible for what the other is doing. Makes it very hard to sue either one of the entities.
There are legal reasons for this and it is one of the best ways to set up your holdings. There is a bit more to it like who is the managing partner on the LLC and how you set up the C-Corp but there is some of the bones of it.
What you are looking for is to make it so there is no deep pocket to sue. Some insurance is a good idea but not an absolute. What the insurance is good for is you will have some really means dogs willing to really go after anyone that may be a fraud and you won’t have to pay for that investigation.
While I didn’t advice any one of this you can find most of this by going into a hotel and looking at how they run their business. There is more to it and you can find out more at some good seminars on assest protection.
Very well articulated. I agree completely. Good asset protection is largely about asset separation and distribution. — Bryan Ellis
Years ago, I went through the “ringer” when it comes to getting hit with unjustified lawsuits. When I recovered, I used information from attorney J.J. Childers to secure my business and assets. You might check him out if you aren’t familiar with him.
Bryan, thank you.
William, JJ is also who I have used. There are others but he is one of the easiest to understand your first time through.
Chris B
Even with substantial insurance you can be open to fraud. Several years ago in an auto accident, the force of the impact caused me to pass out. There were no witnesses that came forward. I was the only passenger in my vehicle and the other vehicle only had one passenger. My adjuster kept telling me it was my word against the other victim, who blamed the accident on me. After several long discussions with my adjuster, it became very evident that he was not representing me. I called his supervisor and for over an hour repeatedly asked for another adjuster. She finally gave in to my request and in less than 10 minutes the new adjuster denied the claim and authorized my uninsured motorist claim too be paid. The other party lied about having insurance.
I was so thankful that my asset protection plan had been completed before this occurred. My insurance was moved and since then I diligently check out any claims filed with my insurance. Don’t be afraid to stand up for yourself and question all the information in a claim. You never know where the thief is hiding.
Chris’ comments and advice about taking pictures at an accident are exactly correct. If you witness an accident stop and offer your information to the victim’s. Please don’t just drive on by if it appears no one is injured. When you get an address check it out. When I checked the address of the person I was in the accident with, it was a burned out house. The neighbors told me no one had live there in years.
Put all the protection in place you can, but be prepared to be vigilant and determined to defend yourself.
Hi everyone -
When I saw William’s comment, I got on the phone with J.J. Childers. He’s actually a pretty good friend of mine and I wanted to see what info he could share with us to make sure we can protect ourselves.
I’m *THRILLED* to say he’s going to share some great information with us this week:
http://realestate.bryanellis.com/protect-your-family/
Bryan,
J.J. is a pretty good guy and while I can’t really say he is my friend, he has always done me right and that is what counts. Also the people he has around him are some of the easiest to actually understand.
I am a wholesaler. Meaning I get a house under contract and pass it to another investor for a fee. What kind of protection should I be thinking about as this type of investor? Also I have some owner financed properties and some subject to properties.
Thanks