How Anonymous L.L.C.s are Exploited to Escape Liability in the Housing Market
By Maggie Wilson @ Real Estate Daily
May 4, 2018

Real estate investors and property owners are abusing L.L.C.s to hide their identity and escape liability in the housing market. While it is perfectly legal to protect your personal liability through an L.L.C., some investors are taking advantage of that anonymity to walk away from properties.

The increasingly widespread use of L.L.C.s to purchase property has created visible problems in communities across the country. Many tenants have no idea whom they are renting from, and cities are finding it near impossible to identify the most problematic owners who finance separate L.L.C.s for each property they own.

Key Takeaways

  • Real estate investors are exploiting anonymous L.L.C.s to escape liability for remarkably problematic behavior
  • In 2015, about 15% of all rental properties were owned by L.L.C.s, and only 74% of rental properties were held by named individual owners
  • Often, investors finance separate L.L.C.s for each property, and some exploit this to walk away from properties without jeopardizing their other investments

Excerpt

When Sean Hannity, the popular Fox News host, was revealed this month to be a property owner and landlord of considerable scale, it highlighted how opaque the housing market has become.

L.L.C.s shield property owners from personal liability while obscuring their identities. In some cases, so much anonymity also enables money laundering, and it can mean that tenants struggle to hold landlords accountable, that cities fail to fix blight and that researchers can’t answer basic questions about the housing market.

As much as people may want to keep their financial dealings private, the housing market has long been an unusually transparent place.

L.L.C.s have eroded that expectation. There is little good national data tracking the rise of L.L.C.s. But in 2015, according to the Rental Housing Finance Survey from the Census Bureau and the Department of Housing and Urban Development, about 15 percent of all rental properties were owned by L.L.C.s, limited liability partnerships or limited partnerships. That represented one-third of all rental units, and that can include single-family houses or apartment buildings.

Put another way: 92 percent of rental properties in America back in 1991 were held by individual owners whose names tenants could easily know. By 2015, that number had fallen to 74 percent, driven largely by the growth of L.L.C.s, although the market today includes other kinds of institutional investors as well.

In his own research, Mr. Immergluck tried to identify the largest buyers of foreclosed properties in the Atlanta area. But because one unidentified buyer could be behind many L.L.C.s, it’s hard to know who is acquiring the most property, or which property owners are behind the most code violations or the most evictions.

Because the stakes are so high and the spillovers significant, there has always been a public element to private property, said Susan Pace Hamill, a law professor at the University of Alabama who has written about L.L.C.s since the late 1980s.

L.L.C.s today hide what should be public information, she argues.

“I am quite disturbed by that,” she said. “Having participated in the evolution of L.L.C.s from their early days, I feel like they’re being abused.”

The downsides of all of this have become clear, at both high and low ends of the market. In expensive cities like New York and Miami, L.L.C.s have helped foreign investors launder money through luxury condo purchases. In poorer cities like Memphis and Milwaukee, they have enabled investors to walk away from vacant properties and tax bills.

In Memphis, parcel surveys of the city have revealed that a majority of the most blighted properties belong to L.L.C.s. Many have effectively gone out of business without selling the homes, leaving their ownership in limbo. When the city has tried to hold some responsible, there is no one to contact — the duties of those listed as registered agents having expired along with the companies.

View the original article at the New York Times