Did You Know Selling Your Property 'As Is' Can Get You Sued?

You might think selling your property “as is” means you're covered if something goes wrong. The reality is that selling a property "as-is" can get you sued. A property with undeclared flaws can land you in hot water for a variety of reasons, including:

Why the As-Is Clause Alone Doesn't Truly Protect You

It doesn’t matter if you were unaware of the defect(s) that later become issues. The buyer decides whether or not to bring a claim, and if they do, you’ll need to defend yourself in court. The mere allegation of fraud can be enough to warrant a trial by jury.

Don’t assume you can automatically settle out of court. Due to the courts' stance on property fraud, litigators incentivize the plaintiff to drag you through litigation.

The True Cost Of 'As Is Property' Fraud

When it comes to lawsuits, the losers pay for everything. The first expense is your attorney’s fees (~$10,000), followed by the plaintiff’s legal fees (~$10,000). Finally, there are the damages, which tend to range between $5,000 – $15,000 based on average claim costs.

In other words, a run-of-the-mill lawsuit costs up to $35,000. However, a few states allow plaintiffs to take triple damages.

Protect Yourself By Beefing Up Your 'As Is' Contracts

This is why a professional asset protection plan makes economic sense. Attorney’s fees from a single lawsuit can offset the cost of your plan.

If you want to take your chances without a plan, then you need to upgrade your “as is” clause. I add the following text to my contracts. It provides several additional layers of protection against claims of property fraud.

My Bulletproof Protection Clause

THE PROPERTY IS CONVEYED AND ACCEPTED “AS IS,” IN ITS PRESENT PHYSICAL CONDITION, WITH ALL FAULTS AND DEFECTS OF WHATEVER KIND, LATENT OR PATENT, KNOWN OR UNKNOWN, AND WITHOUT REPRESENTATION OR WARRANTIES, EXPRESS OR IMPLIED, EXCEPT FOR WARRANTIES OF TITLE AS MAY BE SET FORTH AND LIMITED HEREIN.

GRANTOR MAKES NO REPRESENTATIONS AS TO THE PRESENT OR FUTURE VALUE OF THE PROPERTY OR ITS PRESENT OR FUTURE SUITABILITY FOR ANY PARTICULAR PURPOSE. FURTHER, GRANTOR HAS NOT MADE, DOES NOT MAKE, AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS REGARDING THE ENVIRONMENTAL CONDITION OF THE PROPERTY OR ITS COMPLIANCE WITH ANY ENVIRONMENTAL, POLLUTION, OR LAND USE LAWS AND REGULATIONS, WHETHER FEDERAL, STATE, OR LOCAL. ANY AND ALL PRIOR ORAL OR WRITTEN STATEMENTS CONCERNING THE CONDITION OF THE PROPERTY, WHETHER MADE BY GRANTOR, GRANTOR’S AGENTS, OR THIRD PARTIES, ARE EXPRESSLY DISCLAIMED.

GRANTEE ACCEPTS THIS CONVEYANCE SOLELY ON THE BASIS OF GRANTEE’S DUE DILIGENCE AND EXAMINATION OF THE PROPERTY. THE CONSIDERATION PAID FOR THE PROPERTY REFLECTS THE “AS IS” NATURE OF THIS CONVEYANCE. THIS “AS IS” PROVISION IS A MATERIAL TERM THAT HAS RESULTED FROM SPECIFIC NEGOTIATIONS BETWEEN THE PARTIES. GRANTOR WOULD NOT HAVE BEEN WILLING TO SELL AND CONVEY THE PROPERTY TO GRANTEE UNLESS THE DEED CONTAINED THIS “AS IS” PROVISION. PROVISIONS OF THIS “AS IS” CLAUSE SHALL INDEFINITELY SURVIVE CLOSING AND SHALL NOT MERGE.

IF GRANTEE IS UNCERTAIN ABOUT THE MEANING AND EFFECT OF THIS “AS IS” CLAUSE, THEN GRANTEE SHOULD CONSULT AN ATTORNEY. BUYER’S INITIALS AS TO THIS “AS IS” PROVISION_______

Using this type of language may destroy good will with your buyer, but the alternative is far worse. You shouldn't leave yourself open to a devastating lawsuit just to close a deal. The risk simply isn't worth it.

One of the reasons you want to have an attorney on your side is because you can send tough contract terms and blame it on a third party, leaving your relationship with the buyer in the clear. Don't put your reputation on the line unnecessarily: take action today. Contact us and set up your consultation before you sell your property as-is.

Interested in learning more? Check out our articles, Selling Property? Protect Yourself With A Robust ‘As-Is’ Clause and Selling Real Estate ‘As Is’: Guide For Investors.

How to Control Property Without Owning It: 3 Simple Methods

We often emphasize that fabulously wealthy folks don’t own assets, they control them. It’s something we point out often at Royal Legal Solutions, because you don’t have to be rich (yet) to borrow a few things out of the Fabulously Wealthy Playbook.

Let’s do a quick crash course in the top legal ways to control property without owning it for asset protection purposes. 

Method #1: Use Land Trusts

The handy anonymous land trust is one of the easiest methods of controlling property without owning. The trust simply holds title to the property for you, removing your name from any public record. You get anonymity, become tougher to attack legally, and are legally separate from the asset but reap its rewards as the beneficiary of your land trust.

Method #2: Use Liability-Limiting Entities Like LLCs and Series LLCs

Another great way to control an asset is with an entity. We like those that limit liability, because they help protect your assets in the event of a lawsuit or threat. 

Examples of the kinds of companies we’re talking about include:

Each of these entities offers liability limitations inherently. You’re separated from your assets and any claims around your real estate can’t affect your personally. So say a tenant goes careening through your deck and hurts himself. He may try to sue for your property. 

Depending how you set up these entities, you can either stop the suit before it starts or make it a complete waste of the tenant’s (and more importantly, his attorney’s) time. Entities can be structured to separate assets from each other, limiting how much anyone can receive by court judgment. If you set up your companies with an attorney’s help, you can own them completely anonymously, making a lawsuit nearly impossible to file. Either way, companies are much tougher to sue than people and one of the smartest ways to control property.

Method #3: Use a Shell Corporation for Property Ownership

Why should you risk exposing your personal self or assets to the world? A shell corporation can do this for you and streamline your real estate investments, too. Most investors will find the Traditional LLC works just fine for a shell corp. If you already have one and it has never held your assets, you may consider using it.

Otherwise, you can easily form your LLC; property ownership and ALL of your other real estate investing operations can be performed from there: collecting rent, paying property management, etc. 

Next, you’ll need an asset-holding company for your properties. We recommend the Series LLC if you’ve got more than one property or ever plan to, because the Series LLC is a cost-effective, scalable entity option. 

All this company ever does is hang onto your assets for you. NEVER do business from your asset-holding company: that’s your shell company’s job. With this kind of structure, your two companies exist to handle assets and operations 100% separately and independently of one another. 

For a deeper look at all this stuff, check out our article, Control Without Ownership: The Smart Way Real Estate Investors Own Property.

How Title Insurance Works

 

How Title Insurance Works

Anytime you transfer property, you must consider the title insurance implications. Title Insurance will generally being validated upon the transfer of the property. However, title insurance isn't invalidated. If you transfer the property to a wholly owned LLC, that is an LLC that is completely owned by you, the person that also own the property, will also will invalidate it.

If you add your spouse to title for example, that'd be a transfer. But in that circumstance they're not going to invalidate. You also can transfer the property to an inter vivos trust where you are in the settler of that trust. This is the type of strategy that we'll be using with inside of our anonymity land trust and we start transferring properly.

My name is Scott Smith. I'm an asset protection attorney. I'm a real estate investor and I want to help. Click here to set up a consultation today!

Can Title Insurance Be Transferred? How To Preserve Title Insurance When Transferring Property

Are you in the process of transferring property? Or maybe you're planning to transfer a property, or even multiple properties in the near future. If the answer is no, let’s just hypothetically say you’re looking to transfer your properties into a legal structure as part of your new asset protection plan. Can title insurance be transferred?

Ultimately, this is something most real estate investors will have to deal with at some point in their investing careers. Get this information now so you can stay on top of your business and be prepared when the time comes.

Let's talk about how to preserve your title insurance when transferring, step-by-step.

How Title Insurance Works

Any time you transfer property, you must consider the title insurance implications. Title insurance will generally being invalidated upon the transfer of the property. However, title insurance isn't invalidated if you transfer the property to a wholly owned LLC (an LLC that is completely owned by you, the person that also owns the property).

It also won't invalidate it if you add your spouse to title.

You may also transfer the property to an inter vivos trust where you are the settlor of that trust. This is the type of strategy that we'll be using with our anonymity land trust and we start transferring property.

Property Transfers and Title Insurance

As a real estate investor, you’re painfully aware of the cost of insurance for a property. The last thing you want to do is pay more money than is absolutely necessary for insurance.

Usually when you transfer a property, your hazard and title insurance expire. This typically happens because insurance companies are pretty good at looking out for their own best interests, and have the legal personnel to make sure these stipulations are made in your insurance contract. I know nobody enjoys reading contracts, but go ahead and check if you don't believe me. The vast majority of the time, property transfer means expiration for those types of insurance.

Preserve Title Insurance With a Land Trust

But never fear, smart investor friends: there is a way around this!  You can use the oh-so-useful money-saving and anonymity-preserving land trust, a tool I've written about before here on Bigger Pockets, to preserve your title insurance as well. Here's how it works:  if you transfer your properties into a land trust you’ll be able to preserve both your hazard and title insurance. This in addition any other insurances you might have for the property.

Land trusts are a common component of many asset protection plans because of their ability to give you total anonymity. And as a small bonus, you won’t have to worry about violating the due on sale clause when you transfer your property to a trust. Follow the link in the previous paragraph for much, much more information on these other uses of the land trust.

You might be thinking it sounds too good to be true. The skeptical among you may already be wondering what kind of legal backbends you'll have to do, and if there's a catch here.

Is It Shady To Use a Land Trust? What's the Catch?

Not at all. This is perfectly legal and honest tool, and something that investors can always take advantage of. If you're holding your breath waiting for a surprise gut-punch in the fine print, exhale. You aren't going to find it.

That said, you do need to have your ducks in a row regarding both the property and the trust. First, you must be the settlor of the property you’re transferring to preserve your insurance. You must also be the beneficiary of the trust you’re transferring the property in question into.

Before transferring any property, it's definitely a good idea to review any insurance policy you have. While you're doing this, pay special attention to your title insurance policy. It shouldn’t be too hard to find the part of your insurance contract dealing with this issue. If you're having issues with this, consult with an attorney. A business-savvy professional who deals with contracts regularly, such as an insurance agent, CPA, or other legal professional can also help in a pinch.

Usually, the land trust you want to transfer property to must meet your insurance policy’s criteria for transfer eligibility.  If you’ve looked over the policy and you're still uncertain whether this is the case for you, it's time to check with your agent.

Land Trusts Preserve Title Insurance and Protect Your Assets

The good news is there’s a guaranteed way to make this transfer will work for you.

The most reliable method is fairly straightforward. All you need to do is add the land trust you plan to use as the beneficiary of your insurance policies. Adding your land trust as a beneficiary essentially guarantees that you'll get to keep your insurance.

This method is leaps and bounds better for you than getting a new insurance policy. Why, you ask? Because, as I’m sure you know, a new insurance policy would have to use the current value of the property. And thanks to a little thing called appreciation, which is usually a good thing for investors, the current value is almost certainly higher than it was when you bought it. And while that's good news if you plan to sell it, it's bad news if you're having to get a new insurance policy. It means you’d actually end up having to pay more, perhaps a lot more,  than before. So you want to hold your policy to the last minute before being forced to renew.

First you’d have to pay to re-issue the policy, and since your property has probably appreciated in value, your policy will be more expensive. Second, if you're policy isn't already near its expiration date, you're unnecessarily costing yourself extra money. Extra money which could be used for much more pleasant things than insurance. This is why it's worth the effort to use the land trust method to avoid triggering the expiration clause in that crafty insurance contract.

 

What's The Due On Sale Clause and How Do I Avoid It With A Land Trust?

Despite what you might read on the Internet, you shouldn't worry about the due on sale clause.

Banks are in the business of making loans and collecting mortgage payments. It's true that the due on sale clause would allow them to foreclose on a property, but why would they do that? This could only hurt their interest. They can't collect on payments if there isn't a borrower to pay them.

The fact is, since before 1960 we haven't seen any banks foreclose based upon a violation of the due on sale clause while the borrower was making payments on time.

When Do Banks Invoke The Due On Sale Clause?

I've seen a couple instances where a bank did decide to invoke the due on sale clause. But in all of those situations the mortgage wasn't getting paid. The property was going to get foreclosed on anyway.

These days interest rates are at an all time low. This makes banks unlikely to invoke the due on sale clause. However, if interest rates were to go back up to the standard 6%, then they might change their minds. What exactly do I mean by that?

Let's say you're behind in payments on a 30 year mortgage with a 3.5% interest rate in a market where the prime rate is 6%. If the bank invokes the due on sale clause on your property and resells it, they'll be able to make more money. This is because the property will be re-sold with a 6% interest rate instead of a measly 3.5%.

How Do I Avoid the Due On Sale Clause?

It's important to remember that tens of thousands of real estate investors violate their loan covenants everyday. Yet the banks don't invoke the due on sale clause. But if the banks really wanted to, they could.

Instead of gambling with your properties, what you should do is use a land trust. By using a land trust, you'll be able to transfer your property without angering the bank.

For this method you'll need an LLC and a land trust. So first you'll create a anonymous land trust and place the property(s) into the land trust. Then you'll make your LLC a beneficiary of the land trust. Problem solved!

Not only will a land trust help you avoid triggering the due on sale, but it also helps with transfer taxes and keeping your real estate holdings private.

Get Help With Your Land Trust and Asset Protection Needs

If you have any more questions about asset protection or the due on sale clause, I'd be happy to answer them for you in the comments below.

Also, while we're on the subject of transferring property, you may be interested in our free educational resource on  how to transfer your property and keep your old insurance. We offer these to all of our prospective clients and fellow investors to empower you to make the best choice for your real estate business.

Did You Know Selling Your Property "As Is" Can Get You Sued?

You might think selling your property “as is” offers all-inclusive protection, but it actually fails to dispose several potential legal claims. The reality is that selling a property "as-is" can get you sued. A property with undeclared flaws can land you in hot water for a variety of reasons, including:

Why the As-Is Clause Alone Doesn't Truly Protect You

It doesn’t matter if you were unaware of the defect(s) that later become issues. The buyer decides whether or not to bring a claim, and if they do, you’ll need to defend yourself in court. The mere allegation of fraud can be enough to warrant a trial by jury.

Don’t assume you can automatically settle out of court. Due to the courts' stance on property fraud, litigators incentivize the plaintiff to drag you through litigation.

The True Cost Of 'As Is Property' Fraud

Expect to spend $5,000 – $10,000 minimum in the event of a lawsuit. This is just the cost required to reach a trial: there’s no guarantee you will win. Think of it as a chance, and only a chance, to defend your honor.

When it comes to lawsuits, the losers pay for everything. The first expense is your attorney’s feels (~$10,000). This is followed by the plaintiff’s legal fees (~$10,000). Finally, there are the damages, which tend to range between $5,000 – $15,000 based on average claim costs.

In other words, a run-of-the-mill lawsuit costs up to $35,000. However, a few states allow plaintiffs to take triple damages.

Protect Yourself By Beefing Up Your “As Is” Contracts

This is why a professional asset protection plan makes economic sense. Attorney’s fees from a single lawsuit can offset the cost of your plan.

If you want to take your chances without a plan, then you need to upgrade your “as is” clause. I add the following text to my contracts. It provides several additional layers of protection against claims of property fraud.

My Bulletproof Protection Clause

THE PROPERTY IS CONVEYED AND ACCEPTED “AS IS,” IN ITS PRESENT PHYSICAL CONDITION, WITH ALL FAULTS AND DEFECTS OF WHATEVER KIND, LATENT OR PATENT, KNOWN OR UNKNOWN, AND WITHOUT REPRESENTATION OR WARRANTIES, EXPRESS OR IMPLIED, EXCEPT FOR WARRANTIES OF TITLE AS MAY BE SET FORTH AND LIMITED HEREIN.
GRANTOR MAKES NO REPRESENTATIONS AS TO THE PRESENT OR FUTURE VALUE OF THE PROPERTY OR ITS PRESENT OR FUTURE SUITABILITY FOR ANY PARTICULAR PURPOSE. FURTHER, GRANTOR HAS NOT MADE, DOES NOT MAKE, AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS REGARDING THE ENVIRONMENTAL CONDITION OF THE PROPERTY OR ITS COMPLIANCE WITH ANY ENVIRONMENTAL, POLLUTION, OR LAND USE LAWS AND REGULATIONS, WHETHER FEDERAL, STATE, OR LOCAL. ANY AND ALL PRIOR ORAL OR WRITTEN STATEMENTS CONCERNING THE CONDITION OF THE PROPERTY, WHETHER MADE BY GRANTOR, GRANTOR’S AGENTS, OR THIRD PARTIES, ARE EXPRESSLY DISCLAIMED.
GRANTEE ACCEPTS THIS CONVEYANCE SOLELY ON THE BASIS OF GRANTEE’S DUE DILIGENCE AND EXAMINATION OF THE PROPERTY. THE CONSIDERATION PAID FOR THE PROPERTY REFLECTS THE “AS IS” NATURE OF THIS CONVEYANCE. THIS “AS IS” PROVISION IS A MATERIAL TERM THAT HAS RESULTED FROM SPECIFIC NEGOTIATIONS BETWEEN THE PARTIES. GRANTOR WOULD NOT HAVE BEEN WILLING TO SELL AND CONVEY THE PROPERTY TO GRANTEE UNLESS THE DEED CONTAINED THIS “AS IS” PROVISION. PROVISIONS OF THIS “AS IS” CLAUSE SHALL INDEFINITELY SURVIVE CLOSING AND SHALL NOT MERGE.
IF GRANTEE IS UNCERTAIN ABOUT THE MEANING AND EFFECT OF THIS “AS IS” CLAUSE, THEN GRANTEE SHOULD CONSULT AN ATTORNEY. BUYER’S INITIALS AS TO THIS “AS IS” PROVISION_______

Using this type of language may destroy good will with your buyer, but the alternative is far worse. You shouldn't leave yourself open to a devastating lawsuit just to close a deal. The risk simply isn't worth it.

One of the reasons you want to have an attorney on your side is because you can send tough contract terms and blame it on a third party, leaving your relationship with the buyer in the clear. Don't put your reputation on the line unnecessarily: take action today. Contact us and set up your consultation before you sell your property as-is.