A common scenario in my legal practice:
Investor purchases property in an LLC. Investor locates a tenant. Tenant falls behind in rent. Investor hires attorney to evict Tenant.
Why hold real estate in an LLC?
Most of my investor clients own investment real estate in a Limited Liability Company.
This is for liability protection.
Once a limited liability company comes into existence, limited liability applies, and a member or manager is not liable for the acts, debts, or obligations of the company. “Duray Dev., LLC v. Perrin, 288 Mich. App. 143, 151 (2010).
Why not hold real estate in an LLC?
Some investment property owners decide not to do so. The primary driving reason from my experience is cost.
Cost associated with setting up the LLC; and
Cost associated with hiring an attorney and evicting non-paying tenants.
Some landlords don’t want to hire an attorney to evict a tenant.
Under current Michigan law, since an LLC is a separate legal person independent of the actual owners of the LLC, unless such owner is a licensed attorney, an owner of an LLC cannot file a lawsuit on behalf of the LLC.
To do so would be the unauthorized practice of law.
You can practice law on your own behalf – just not on behalf of someone else.
Although, the saying goes – he who is his own lawyer has a fool for a client.
UPDATE ON PROPOSED House Bill 4463 – Would Allow LLCs to Evict without Legal Representation.
House Bill 4463 was introduced in March and referred to the committee on law and justice.
The Bill would allow owners of a single-member LLC (or a married couple under certain conditions) to file their own eviction actions on behalf of the LLC without the need for legal representation.
If the Landlord is seeking money damages, the amount, not including taxable costs, must be under the small claims Court maximum.
I commented that I would be surprised if this bill passes, although other states have similar laws.
Call me surprised.
The Bill recently came out of the committee on law and justice and a substitute bill was referred for a second reading.
The Major Difference in the Substitute Bill
The major revision that came out of the committee affects property managers.
The Bill as introduced would have allowed property managers or agents to represent the LLC under certain circumstances – e.g. – having personal knowledge of the relevant facts related to the Property and tenancy.
That language was removed from the first version of the bill.
Under the substitute bill, Property Managers or other Agents would not be allowed to represent the LLC.
Further, this is a “burden shifting” mechanism in the substitute bill – the law would place the burden on the LLC owner to prove he or she is in compliance with the statute. That makes sense – since the legislature would be creating an exception to the rule – only lawyers practice law.
To Hire an Attorney or Not?
As I stated in my last post, this makes sense for Landlords who want quick and cost-effective resolutions. I understand that an Investor who is not making money on a tenant also doesn’t want to expend additional legal fees to evict a Tenant. This is particularly true since the most attorney fees that a Landlord can recover against a residential tenant is limited to the statutory amount (currently $75).
All business owners make this same business decision –
at what point can I handle a legal matter myself and at what point do I pick up the phone and call my lawyer?
However, I will refer readers back to the lawyer who has a fool for a client…
Questions? Comments?
e-mail: Jeshua@dwlawpc.com
Twitter: @JeshuaTLauka
Jeshua Lauka's Business and Real Estate Law Blog 