Stopping Frivolous Lawsuits BEFORE They Happen?

[Tick]

My company has been inundated with frivolous lawsuits and governmental complaints. We own a property management company and really try to do good things. We work with the VA homeless veterans program, mental health services, youth homeless shelter, and United way to help people in need find clean, safe, and affordable housing. This helps us fill low rent units that would otherwise be filled with dirtbags and drugdealers. We really go out of our way to make our company's presence a positive for the city.

The challenge is that these people are for the most part full blown sidewalkers and when they don't get what they want, they sue. Or in one case we're dealing with, complain to the commission for human rights. This one is complaining that we're racist because we won't turn up her heat and it's only because she's of a particular race. (The reality is that her unit is 85 degrees, she's mentally ill, and to top it off my maintenance guy who's telling me her heat works fine is of the same race!!) I've even got a State senators chief of staff suing me because I charged them less than $60 from their security deposit!!

Here's my question: What is a good big picture strategy as a company to stop these BS lawsuits and complaints BEFORE they happen. Yes, we're an LLC. Yes, I have a bullet proof lease drawn up by an attorney. Yes, we work on building relationships with the tenants so they like us. But how do I make it so terrifying to sue me they never try. I've even gone to these organizations and told them that our relationship with them was in jeopardy if they weren't willing to back us up when this stuff happens. There's a lot out there in regards to insurance and asset protection that helps AFTER the suit, but what are some ideas for stopping them before lawyers get involved.

Idea #1. Take the Wal-Mart strategy and NEVER settle. Fight everything tooth and nail till word gets around that we are not to be F*cked with. You sue us? We countersue for more. Pretty soon the lawsuits go away.

Idea #2. We stop helping people all together. I send a letter and tell these organizations that we will no longer be taking risks with their clients, we're very sorry, but we are a small company and can't handle the legal costs. Then we dump all our low end properties back into the arms of the slum lord type operations here in town and just say F-'em.

Idea #3. Stay the course and just insure the hell out of ourselves. Forward anyone to our attorney(s) and eat the cost but let the attorneys deal with the stress.

EDIT: For clarification. I'm not nearly as worried about losing money as I am about the stress and loss of time/productivity that comes with these suits & complaints

 

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[Iwokeup]

My company has been inundated with frivolous lawsuits and governmental complaints. We own a property management company and really try to do good things. We work with the VA homeless veterans program, mental health services, youth homeless shelter, and United way to help people in need find clean, safe, and affordable housing. This helps us fill low rent units that would otherwise be filled with dirtbags and drugdealers. We really go out of our way to make our company's presence a positive for the city.

The challenge is that these people are for the most part full blown sidewalkers and when they don't get what they want, they sue. Or in one case we're dealing with, complain to the commission for human rights. This one is complaining that we're racist because we won't turn up her heat and it's only because she's of a particular race. (The reality is that her unit is 85 degrees, she's mentally ill, and to top it off my maintenance guy who's telling me her heat works fine is of the same race!!) I've even got a State senators chief of staff suing me because I charged them less than $60 from their security deposit!!

Here's my question: What is a good big picture strategy as a company to stop these BS lawsuits and complaints BEFORE they happen. Yes, we're an LLC. Yes, I have a bullet proof lease drawn up by an attorney. Yes, we work on building relationships with the tenants so they like us. But how do I make it so terrifying to sue me they never try. I've even gone to these organizations and told them that our relationship with them was in jeopardy if they weren't willing to back us up when this stuff happens. There's a lot out there in regards to insurance and asset protection that helps AFTER the suit, but what are some ideas for stopping them before lawyers get involved.

Idea #1. Take the Wal-Mart strategy and NEVER settle. Fight everything tooth and nail till word gets around that we are not to be F*cked with. You sue us? We countersue for more. Pretty soon the lawsuits go away.

Idea #2. We stop helping people all together. I send a letter and tell these organizations that we will no longer be taking risks with their clients, we're very sorry, but we are a small company and can't handle the legal costs. Then we dump all our low end properties back into the arms of the slum lord type operations here in town and just say F-'em.

Idea #3. Stay the course and just insure the hell out of ourselves. Forward anyone to our attorney(s) and eat the cost but let the attorneys deal with the stress.

EDIT: For clarification. I'm not nearly as worried about losing money as I am about the stress and loss of time/productivity that comes with these suits & complaints

You know, the Bigger Pockets forums will probably have the answer to this question. They talk about this stuff all the time. Sorry that I can't help otherwise!

 

[DreamsCameTrue]

i'd suggest you figure out what you're doing that's pissing people off and stop doing those things. You seem to be nickel and diming people for $60 and that creates huge anger, while not bringing in very much money. I'd say if you try to charge them 60 on the security and they get pissed, just give them back the money, you've already made a ton of cash off them in rent. For a company who seems to really care about the less fortunate, you sure are stingy and petty. If the crazy lady wants the heat up, turn the heat up. What's the difference? A few bucks in utility bills here and there? It's better than having all this negativity. Your company is creating anger and negativity with your superior "we're always right" attitude. This is common among landlords and property managers, who for some reason seem to see their tenants as inferior humans. Start saying YES to people, and stop pissing them off.

 

[Esquire]

Idea #1. Take the Wal-Mart strategy and NEVER settle. Fight everything tooth and nail till word gets around that we are not to be F*cked with. You sue us? We countersue for more. Pretty soon the lawsuits go away.

Idea #2. We stop helping people all together. I send a letter and tell these organizations that we will no longer be taking risks with their clients, we're very sorry, but we are a small company and can't handle the legal costs. Then we dump all our low end properties back into the arms of the slum lord type operations here in town and just say F-'em.

Idea #3. Stay the course and just insure the hell out of ourselves. Forward anyone to our attorney(s) and eat the cost but let the attorneys deal with the stress.

EDIT: For clarification. I'm not nearly as worried about losing money as I am about the stress and loss of time/productivity that comes with these suits & complaints

As a trial lawyer ... who used to file suits like this ... my advice would be Option #2.

Find a better class of clients.

The Wal-Mart approach will not work. You will drive yourself to the poor house employing those tactics. You don't have those kind of deep pockets. And (more importantly) ... who on Earth do you intend to "countersue" ...?

A bunch of broke folks living in government housing ...?

You've got to be F*cking kidding me.

You could never ... in your life ... collect a single dime.

What are you going to do ...? Repossess their used clothing from Goodwill ...?

Got news for you ...? Everything they own is exempt from execution ... including their Social Security checks.

And for about a grand ... any one of them could file for Chapter 7 bankruptcy ... and you'd be terminally F*cked.

So you would pay to take your cases to trial ... win some ... lose others ... pay your lawyers in every instance ... and their lawyers in some ...?

The ONLY people getting rich on this one is the lawyers. The only going broke is YOU.

In 99% of the consumer cases ... the legal fees are far more destructive than the actual award of damages.

If a broke person sees you as a (potential) free paycheck ... they will F*ck you over hard and fast.

They've got everything to gain ... and nothing to lose.

And if a under-employed lawyer thinks he or she can milk a settlement (or, better yet, win) ... guess what is going to happen ...?

Yep.

And unlike your lawyer ... they will often work on a contingency.

Underemployed and unemployed lawyers have little to lose too ... aside from their time ... which they have plenty of.

And most all consumer protection statutes provide for fee shifting if the consumer wins.

(whereas if you win ... you're just F*cked. The fee shifting is a one-way street).

So my vote would be for Number Two.

Start doing business ... with people ... who have something to lose.

Then ... if you want to do something to help people ... pocket the profits ... and write a check to your favorite charity.

Otherwise ... Option #3.

 

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[jon.a]

I went through this, this past year. (still working through it) Pay attention to this advice.

As a trial lawyer ... who used to file suits like this ... my advice would be Option #2.

Find a better class of clients.

The Wal-Mart approach will not work. You will drive yourself to the poor house employing those tactics. You don't have those kind of deep pockets. And (more importantly) ... who on Earth do you intend to "countersue" ...?

A bunch of broke folks living in government housing ...?

You've got to be F*cking kidding me.

You could never ... in your life ... collect a single dime.

What are you going to do ...? Repossess their used clothing from Goodwill ...?

Got news for you ...? Everything they own is exempt from execution ... including their Social Security checks.

And for about a grand ... any one of them could file for Chapter 7 bankruptcy ... and you'd be terminally F*cked.

So you would pay to take your cases to trial ... win some ... lose others ... pay your lawyers in every instance ... and their lawyers in some ...?

The ONLY people getting rich on this one is the lawyers. The only going broke is YOU.

In 99% of the consumer cases ... the legal fees are far more destructive than the actual award of damages.

If a broke person sees you as a (potential) free paycheck ... they will F*ck you over hard and fast.

They've got everything to gain ... and nothing to lose.

And if a under-employed lawyer thinks he or she can milk a settlement (or, better yet, win) ... guess what is going to happen ...?

Yep.

And unlike your lawyer ... they will often work on a contingency.

Underemployed and unemployed lawyers have little to lose too ... aside from their time ... which they have plenty of.

And most all consumer protection statutes provide for fee shifting if the consumer wins.

(whereas if you win ... you're just F*cked. The fee shifting is a one-way street).

So my vote would be for Number Two.

Start doing business ... with people ... who have something to lose.

Then ... if you want to do something to help people ... pocket the profits ... and write a check to your favorite charity.

Otherwise ... Option #3.

 

[collegeweb]

Esquire summed it up nicely. It didn't take me long in business to figure out to avoid catering to low income clientele or business. Its that group who wants the most, will pay you the least, and cause you the most headache to milk you.

 

[Red]

I can also vouch that this line of thinking/experience crosses into other areas of business:

Hardest escrow I've ever handled? a $62k house in Buckeye, Arizona. Every step was a fight & I would have gladly paid my abysmal commission to have made it just. go. away.

Easiest? yep, you know where this is going: $2.25M. Was a breeze, amazing client, amazing builder, all issues addressed before asked & completed ahead of close.

Your issue is a collective mindset that's manifesting itself in legal woes. Get yourself away from the problematic mindsets & the woes will disappear in like fashion.

 

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[jlwilliams]

Poor people make terrible customers. They are not and never will be happy. They think that suing is a ticket out of poverty. They have been filled for years with drivel about their nobility and your evil oppression of them, you rich heartless prick. In their minds, you owe them and it's is their right to get what's theirs from you.

Rich people make great customers.

One of the many hard lessons I learned from my glorious failure in land lording was that lowlife tenants will drag you down and cost you money. Never, ever own a rental property that you yourself wouldn't be thrilled to live in. Never rent to anybody who doesn't have more than enough income to afford the luxury you offer; and never ever offer anything less than luxury.

Sell it off and buy luxury condos and town houses.

 

[Kak]

I thought something was interesting the other day....

Behind a truck at a stoplight it has a sign on the back "keep back 200 feet, not responsible for broken windshields"

First of all the sign was so small you had to be about 15 feet away to read it in the first place.

Second of all... The hell they aren't responsible for crap that falls off of their truck on a public highway. I didn't agree to the terms of that sign.

Third of all... I bet a ton of people get broken windsheilds and then see that sign and never do anything about it.

I thought that was a pretty good preventative measure on the part of the trucking company.

 

[DreamsCameTrue]

I think all this advice about "find more high end renters" is a short sighted. There are business models in real estate that work well, and cater to lower income renters. Lots of people have gotten rich of renting to low income renters. There are those who say looking for section 8 renters is a great business model. Cap rates are higher on low end properties and the pool of renters is very large.

This stuff about "poor people wanting to sue their way out of poverty" is also hogwash. Poor people looking to sue are few and far between. IMO a lot of poor people fear rich people and do not want to mess with their landlord in any way. Most poor people don't even know their rights as it pertains to tenant-landlord laws. They often think the landlord can just throw them out whenever he feels like it. Also, you have poor people who are proud blue collar types and wouldn't take a handout if you offered them one.

Here's a new suggestion that's not on your list- get some kind of mediator or arbitrator to handle all the disputes by talking to the person who wants to sue you. Talk with them and solve it before they ever go out looking for a lawyer. When a dispute comes in, send it to a mediator right away and then just come to some kind of agreement. You mention "making people so terrified that they don't want to sue me" and I think that is the wrong attitude.

 

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[jazb]

Don't deal with sidewalkers. The irony is that they call everyone greedy yet they are probably more greedy than anyone. I know its a horrible thing to say but theres a lot of truth to it.

not long ago, one of the guys on dragons den who owns 60 gyms in the UK.... He lowered his prices and what do you think happened? attracted a load of sidewalkers who tried to get in for free, kept complaining, tried to steal, lawsuits appearing from no where.

 

[jlwilliams]

This stuff about "poor people wanting to sue their way out of poverty" is also hogwash. Poor people looking to sue are few and far between. IMO a lot of poor people fear rich people and do not want to mess with their landlord in any way. Most poor people don't even know their rights as it pertains to tenant-landlord laws. They often think the landlord can just throw them out whenever he feels like it. Also, you have poor people who are proud blue collar types and wouldn't take a handout if you offered them one.

....

Just sharing my experiences. I didn't make it up. It's a lesson I paid full price for.

Sure, you will run into the proud types who wouldn't take anything they don't deserve. I'm sure they are out there. I know with great certainty that there are a great many people who live what they see as a good life by gaming "the system' and getting whatever they can and that there exists legal assistance for them at no charge provided by lawyers and paralegals who deeply believe in "social justice" and that you got what you have at the expense of the down trodden. Not everybody knows how to access that system, but enough do that if you are in the low rent business, you will encounter them. They will pee in your cheerios.

Call it "hogwash" if you want, but I have the paid lawyer's bills and lost revenue and a long list of experiences to convince me.

 

[DreamsCameTrue]

Yes Im sure they're out there, but it also depends how you treat people. I manage a $2M RE portfolio and I've never been sued. I've had mentally ill people and drug addicts as renters and although it poses some problems I have not been sued.

Don't deal with sidewalkers???? That's like 98% of the population! There's loads of money to be made off sidewalkers. I'll take sidewalker money as fast as they are willing to throw it at me.

 

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[Guest3722A]

I once signed a lease on a commercial building with a landlord that I didn't fully research, and unknown to me he and his sister/silent partner (an attorney) had a history of signing businesses and taking them to court when the businesses started making lease obligation requests that they didn't fulfill. I was definitely naive when I stepped into this one and definitely learned some lessons I will NEVER forget. I further compounded this already brewing issue by bringing in a partner with deep pockets who was sue happy, and well experienced in the court process. He had a list of attorneys and alot of business experience and at the time I was just a guy who was sold on the Think And Grow Rich principles that blindly guided me to building a business that had huge fastlane potential in a monthly rental business with what some of you here would consider to be low level tenants but I had no legal know-how or a fastlane forum at the time to where I could ask questions.

Needless to say, this ended ugly for me even though I was the one who won that court case as my partner didn't have a clue about any of the details but ultimately it destroyed me.

My advice relating to my experience -

Research the people you sign contracts with, don't let anyone else take control of what you put your heart and soul into and avoid court if at all possible.

 

[biophase]

For REI, I don't like buying properties that I would not live in. I've had Section 8 tenants before and they actually weren't bad. But in general, I'm not looking to buy under $100k properties for my portfolio. I like to stick in the $100k-$250k range, just because they get higher rents and generally they get better tenants.

In business, dealing with high end clients are waaaaaaaaay better. I don't need someone asking for a "friend" discount when I'm trying to sell them something. I know there's nothing wrong with asking. But in my experience, that customer who asks in the beginning becomes a headache a few months later.

 

[DreamsCameTrue]

Interesting info. Gratitude and respect to all the posters.

My advice to anyone wanting to get started in RE is do what makes money, and that varies depending on what area you are in. If renting to S8 makes money, DO IT. If renting to rich people makes money, DO IT! Find out what the market wants, and do that. Also, don't be a dick to your tenants. You're making loads of money in the long haul, you don't have to "win every battle" with every tenant.

 

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[GlobalWealth]

Idea #2. We stop helping people all together. I send a letter and tell these organizations that we will no longer be taking risks with their clients, we're very sorry, but we are a small company and can't handle the legal costs. Then we dump all our low end properties back into the arms of the slum lord type operations here in town and just say F-'em.

I tend to lean this way as well. Mostly from the personal health perspective. You clearly seem bothered by the stress this gives you. You only live once, why do something for a living you don't enjoy?

There are multiple ways to earn money in RE - you don't need to just pursue one source.

If you choose to keep on this path, you need to shield yourself using proper asset protection strategies. This is a defensive technique used to discourage would-be litigants.

if your asset protection strategy is good enough, then most claimants' attorneys will not take frivolous lawsuits without a large retainer. And I doubt many of your tenants have the $25k retainer on hand.

(and no, just using an LLC is not enough)