Protecting Your Real Estate: How to Better Protect Your Real Property Assets from Unrelated Creditors

Protecting Your Real EstateIt is common for doctors and any other party who invests in real estate whether for a commercial medical building or other commercial/residential rental property, to lump all of their buildings into one entity. Each piece of real property, however, should be titled in a separate business entity, typically an LLC. LLCs provide benefits for real property holdings that other entities may not.

The separate entity provides specific protection against outside claims. However, if multiple properties are held under one entity, then any liability that arises with respect to one property can also expose the other properties to a creditor’s claims and the assets of the entire entity would be exposed. For example, in the event of a tenant lawsuit, a slip and fall, or some other kind of claim against one property, the creditor or plaintiff could reach everything within that entity since it is also the legal owner of other properties.

Additionally, titling the properties in the same entity could also give rise to problems during a sale when the purchaser is obtaining title insurance. Any kind of outstanding claim, violation or assessment against one of the properties held by the entity, will show up on the title search as a debt against the entity and be recorded against the entity as a whole, even if it has nothing to do with the other properties. Due to this, many title companies will not insure the transaction, preventing a sale, unless these liens against other properties are resolved.

Properties are often bundled together for ease of accounting and management, however, proper structuring which takes into account the protection of assets can just as easily be implemented to create a centralized management and accounting strategy. This can involve anything from creating a central ownership entity with interest in the other entities that hold the real property to the assignment of rents, dependent on your individual needs.

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