I meet a lot of real estate investors, and most are thrilled to take my card, even if they have no pressing need for an attorney. Smart investors know that real estate investing often carries with it a significant risk of running into some sort of legal difficulty. As one investor told me, “It’s not a matter of if I’ll need you at some point, but when.”
So under what circumstances should a real estate investor talk to an attorney? Why might an investor need an attorney’s help? The list of potential reasons is essentially limitless, but here are five common issues real estate investors come across for which they may wish to talk with a property attorney.
Ensuring Clean Title
A critical first step in evaluating whether or not to invest in a particular property is to take a look at the title report and determine if there are any red flags that would make the property a greater risk or a bad deal. But those title reports aren’t always perfectly clear. Is that loan going to be senior to your interest? Is that mechanic’s lien something to worry about? Is that easement going to affect what you plan to do with the property? Maybe you don’t have access to a title insurer’s preliminary report and want to know if there is anything on the recorded title that you should be concerned about.
It’s easy to skim the title report and quickly conclude that you’ll “probably be fine.” But a problematic document on the public record can turn that great deal into a complete loss. An attorney, at relatively low cost, can help you interpret some of those more confusing entries, and can help you perform your due diligence by investigating deeper into any concerning entries, and can help reduce the risk of the investment.
Wrongful Foreclosure and/or Wrongful Eviction Lawsuits
If you’re investing in distressed properties or properties already occupied by tenants, you can bet that some of those prior homeowners or occupants might not be too pleased about the change in circumstances. There’s usually nothing stopping an individual in such a situation from filing a lawsuit, and even the most cautious and law-abiding investor can find themselves being served with a meritless lawsuit.
Being a defendant in a lawsuit is never fun, but having an attorney who you trust and has extensive experience defending Wrongful Foreclosure and Unlawful Eviction lawsuits can make it a lot less painful. Once you’ve been served with the papers, the time to respond is relatively short, usually within 30 days, so it’s important to have an attorney in your corner who can respond quickly. Often such lawsuits can be dismissed at an early stage in the litigation, but the attorney must be experienced with the arguments the homeowner or tenant is making and the most recent developments in the law in order to increase your odds of a favorable outcome.
Evicting a Tenant or Prior Occupant
Every investor who has to manage occupied properties needs a thoughtful, like-minded attorney who can assist with tenant issues. Many attorneys in San Diego handle unlawful detainer matters and evictions, but few understand the particular issues confronted by investors. For example, post-foreclosure evictions are, by statute, held to a more stringent and difficult standard from run-of-the-mill landlord/tenant evictions. Having an attorney who has experience in these areas is critical to getting as positive and quick an outcome as possible.
Many landlords and investors attempt to perform evictions on their own, or at least start the process prior to involving an attorney, but this practice often turns out to be “penny wise but pound foolish.” It is important to remember that the eviction statutes must be strictly followed. Even the smallest, most seemingly inconsequential slip-up can lead to major costly delays. Every investor who has to deal with properties occupied by tenants or prior owners should have a trusted attorney on their team.
Forming a Security
Are you working with other investors in a joint venture? Have you received funding from other, mutually-interested investors? Under certain circumstances, investors engaging in such activities may inadvertently create a “Security” subject to antitrust laws.
The law defines a “security” relatively broadly, and it can be surprisingly easy to create a security without intending to. Federal antitrust litigation can be extraordinarily costly and time-consuming, and should be avoided if at all possible. And nobody wants to be at the wrong end of an SEC investigation. If you have any questions at all about how to structure your investment, it can be well worth the time to discuss it with an attorney first to go over your options. That way, you can avoid unintentionally creating a Security at all, or, if it is unavoidable, structure the Security in the right way and make the appropriate filings.
As an investor, you know that insurance is a huge part of the overhead and carrying costs of any investment property. But what happens when the worst transpires and you have to submit a claim against a title or liability policy? I have often said that insurance companies are not in the business of insuring against loss, they are in the business of denying claims. That is simply how they make money.
If your insurance company (or a third party’s) has denied your claim, and you believe that denial is wrongful and/or in bad faith, it is likely a good time to discuss this with an attorney. Negotiating with an insurance company can be a frustrating process, and insurance companies can be dismissive and reproachful of individuals attempting to negotiate on their own. However, a letter from an attorney often escalates the matter to the company’s legal department, where matters can be resolved more efficiently, and often without the necessity of litigation.
Being a successful investor doesn’t necessarily mean you always know everything about everything. Often, success depends on having a good team in place that works efficiently and whom you trust. Having a reliable, experienced attorney who knows your particular needs and is readily familiar with the applicable area of law as a member of your team can be priceless. You might be surprised just how reasonable consulting with an attorney can be, particularly with pre-litigation matters or disputes. Don’t make an expensive mistake trying to go it alone.