How to avoid a Real Estate lawsuit
by James Miller
I have been investing in real estate for 13 years and have not yet been taken to court. I have had to sue and evict tenants that didn’t pay, but I have never been to court as a defendant over a Real Estate deal.
I have gotten in a “discussion” on a Real Estate Bulletin board where there seems to be some strong feelings as whether or not to use a purchase and sale agreement when taking over a property “subject to”.
I have an attorney who adheres to the KISS principal and that any time you can get by without using a piece of paper, you do so. He feels this way as any document you create or sign can be construed two ways, for you, or against you. As I understand it, the court looks more critically upon the person who provided or drafted a document.
It occurred to me that the reason that people feel so strongly about their need for legal documents is that they want to feel protected. They are afraid that if they don’t have the right piece of paper someone will get them.
It is my contention that if you focus on helping people, treating people fair and honestly and if you don’t try to take advantage of them then you could get by with very little documentation. If they are in agreement with what you are doing, there is no reason for them to sue.
Here are the things I try to do to keep that from ending up in court:
1) I don’t make promises I can’t keep.
I certainly don’t sign any agreement where I am agreeing to do something that I don’t think I can do. I tell people where I sit with regard to the deal and make sure that
2) I make sure my intent is clear.
If I ever end up in court and there is an issue over a series of events, I want everyone to know what I was trying to do. If possession is nine tenths of the law then intent has to be the other tenth. It is awfully hard to misinterpret events if the intent was clear. I will often times use a non-committal letter of intent to fill in the blanks on any understanding that I have with someone on a Real Estate deal.
3) I don’t piss people off.
I don’t get in arguments on a $100,000 Real Estate deal over a few hundred dollars.
I seek first to understand what they want to tell me, and then let them know my position.
I try to sandwich bad news with two positive things.
I let them know that we are in it together and I am doing what I can and that I am always going to be fair honest and open with them.
I feel that the main reason that people end up in court is that they get upset because they feel that hey have been taken advantage of, or wronged in some way where the other party will not make it right.
4) If I wrong someone, I make it right.
Often times I will go above and beyond to make it right. I believe that there is a certain inertia or stickiness to the way a person feels about you. If they like you it takes a lot for them to not like you, if they don’t like you it takes a greater effort to make them like you again. By doing more than what is expected to make something right, you can overcome the inertia of dislike.
5) I keep my properties in LLC’s and Hire out much of the work I need done.
In order to be sued, you either need to do something, or have something. By keeping the properties in separate LLC’s or land trusts I limit the amount of exposure that any one property has. By having others do the work, I limit my own personal exposure to lawsuits, by not creating damages or negligence through my actions.
While nothing can keep you completely safe from getting sued, I think these things have helped to keep me on the plaintiff side of the courtroom.