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 Post subject: Primary home in an LLC?
PostPosted: Mon Sep 03, 2012 5:02 pm 

Joined: Mon May 16, 2011 3:36 pm
Posts: 120
Hello,

I am finally (possibly) taking the big dive into purchasing my first house. As anyone that has bought a home knows, there is mountains of stuff you need to know, and am researching as much as I can ahead of time.

Among these many things is the question "should i put my house in an LLC?" Now I have done a little research on this, but I have found mixed feelings on this. My question in short, is there any reason to put my house in an LLC in my case? (And just to get rid of the question i saw on some other forums i read, I am not worth millions, the house will be in the 100k-200k range, and I am not a lawyer/doctor.)

Is there other methods besides a LLC to protect my house in the case of someone coming after me?

Thanks in advance, I always appreciate this board for its responses (it's why iv been hanging out here for years before joining, and try to add what I can when I can.)


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 Post subject: Re: Primary home in an LLC?
PostPosted: Mon Sep 03, 2012 6:52 pm 

Joined: Mon Feb 07, 2011 6:33 pm
Posts: 1146
Location: Illinois
I can't think of any really good reasons to do so.

Besides, owning the home in the LLC won't protect you from someone coming after you. You will, presumably, own all the interest in the LLC which would be still be attachable by creditors. It actually might be easier for creditors to kick you out of the house if it is owned by an LLC you also own, but I'm not positive on that. You also might miss out on some state and federal tax exemptions/deductions. For instance, in Illinois you would lose out on the homestead exemption for state property tax.

Edit: Just saw your other thread and noted you'd have roommates. Then there might be an argument to own it in a LLC. If one of the roommates sues you for an injury, for example, the LLC could protect your other assets (not owned by the LLC). It would not protect the house, though. You also should talk to a lawyer in your area to make sure you follow all the required formalities so a potential judgment creditor can't "pierce the veil" of the LLC, which would mean the law disregards the LLC as an entity and allows the creditor to come after your other assets.


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 Post subject: Re: Primary home in an LLC?
PostPosted: Mon Sep 03, 2012 7:52 pm 

Joined: Mon Nov 01, 2010 5:15 pm
Posts: 1152
bpgui wrote:
I can't think of any really good reasons to do so.

Besides, owning the home in the LLC won't protect you from someone coming after you. You will, presumably, own all the interest in the LLC which would be still be attachable by creditors. It actually might be easier for creditors to kick you out of the house if it is owned by an LLC you also own, but I'm not positive on that. You also might miss out on some state and federal tax exemptions/deductions. For instance, in Illinois you would lose out on the homestead exemption for state property tax.

Edit: Just saw your other thread and noted you'd have roommates. Then there might be an argument to own it in a LLC. If one of the roommates sues you for an injury, for example, the LLC could protect your other assets (not owned by the LLC). It would not protect the house, though. You also should talk to a lawyer in your area to make sure you follow all the required formalities so a potential judgment creditor can't "pierce the veil" of the LLC, which would mean the law disregards the LLC as an entity and allows the creditor to come after your other assets.

I can't think of a good reason to put the home in an LLC either.

As bpgui stated, all assets owned by the LLC would be attachable by creditors. The only way I'm aware of that members of an LLC can be personally liable for debt would be if they signed a personal guaranty for the debts of the LLC, cosigned as a responsible party for the debt, or signed individually for the debt of the LLC.


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 Post subject: Re: Primary home in an LLC?
PostPosted: Tue Sep 04, 2012 6:59 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
Personally, if I was worried someone was going to sue me, I would up my insurance instead of going through the headache of incorporating (which I have found to be difficult as a DIY project, both in the initial setup and the upkeep).

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"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Primary home in an LLC?
PostPosted: Tue Sep 04, 2012 7:18 am 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5357
A properly operated LLC would likely offer the protection you desire to some extent but it is highly unlikely you will be able to get a mortgage if the house is owned by an LLC. So if you plan to pay cash then this might be an option.

I suggest you talk with an insurance agent. You can probably pick up a landlord's policy as a rider on your homeowner's insurance policy as well as an umbrella liability policy to cover the risk you foresee. The total cost should be less than $1000 per year.

The trouble with an LLC is that, since the house is not moveable, it is very simple for a judgement creditor to access it regardless of how it is owned, unless you don't control or benefit from the LLC. It is true that a judge might only be able to order the LLC to pay up but he can put you as a manager into jail until the LLC complies so it is hardly an attractive option for real property.

Usually when people want to protect real property from creditors they simply use a strategy called "equity stripping" where the house is always kept in debt. That way a creditor can only get an asset with a lien. That's not very enticing so most creditors will pass on suing for it.

Overall though, just be an adult, carry adequate insurance, and you'll be fine. Don't do anything to get yourself sued and you won't have to worry about it.


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 Post subject: Re: Primary home in an LLC?
PostPosted: Tue Sep 04, 2012 8:17 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
also, state homestead laws can also protect an individual. Most states I have lived in, protect their primary residence.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Primary home in an LLC?
PostPosted: Tue Sep 04, 2012 8:43 am 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5357
Bichon Frise wrote:
also, state homestead laws can also protect an individual. Most states I have lived in, protect their primary residence.


True, but homestead exemptions are often of order $25000. That's not entirely helpful in protecting an expensive house these days. Although I realize it is much higher in some states. It's just something else to research and be familiar with.


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