Are Your Properties In An LLC? Evicting A Tenant? Read This First

Many of us landlords hold their rental properties in a Limited Liability Company (LLC). Doing so can make very good business sense as a landlord can separate their business property (rentals) from their personal property (home, cash, stocks, cars, etc). This separation can significantly reduce a landlord’s personal risk if you get sued by a tenant. Plus it can be a great estate planning tool.

How?

An LLC is legally a separate entity from you. You can actually think of your LLC as separate person from you. It has (or it should) have separate bank accounts, separate credit cards, separate loans and even a separate address. The LLC therefore actually owns your rental properties, you do not. You just control and direct the LLC. Thus, if a tenant or anyone else for that matter falls on a property owned by an LLC you control, they can only sue the LLC, not you. This is what is known as the “corporate shield” between you and the LLC (This shield can get pierced if you are not careful, but that is a post for another day).

Unfortunately, even the best landlords with the best screening techniques will have to evict one of their tenants at some point. Tenants sometimes just go bad for reasons beyond your control. If you happen to hold your rental properties in an LLC, you personally cannot represent your LLC in court during the eviction process. You must have a lawyer represent your LLC during the eviction process.

Why?

It is not because it is difficult or complicated to file an eviction or to go in front of a judge.   In fact, with a little coaching, almost anyone can do it. The problem stems from the fact that the LLC is legally a separate entity from you. It is legally another person. So if you file for eviction and go to court to represent “your” LLC, you are technically representing someone else in court. By representing someone else, you are practicing law without a license.

Judges generally do not like folks in their courtrooms practicing law without a license. When they realize that you are, they will throw your case out. That may have been just an honest mistake on your part, but if you thought you were going to save money you were wrong. You are now actually even deeper in the hole because you have lost even more rent. Plus you have lost time. And as they say, time is money.

I know, I know, all of this may seem like splitting hairs and technicalities. Lawyers are also costly and evictions are generally pretty easy to do. But lawyers live for technicalities and this component of the Lawyer Employment Protection Act is just something you have to follow if you hold your properties in an LLC.

Kevin Perk is the founder and publisher of Smarterlandlording.com.  He is the author of Advice From Experience To New Real Estate Investors.  Contact Kevin here.