LLCs Allow Landlords to Hide
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UPDATED: May 16, 2018
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A limited liability company (LLC) is a form of private limited company that provides certain limited liability protection to its owners and may have tax benefits.
If a business is a sole proprietorship, then the owner and the business are the same legal “person.” The debts of the business are individual debts, and when the business is sued the person who owns the business can be held liable.
Forming an LLC can have a number of benefits:
- It limits the owner’s personal liability, because the LLC is a separate legal entity. Thus, the owner’s personal assets can’t usually be seized to pay the LLC’s obligations.
- LLCs require less paperwork than other limited liability entities like corporations.
- LLCs don’t need to have a formal board of directors like corporations do.
However, LLCs can also be misused.
As the New York Times reported,
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.
Most US states require real property ownership to be registered in with the local county government offices. When property changes hands, those transactions are also recorded.
However, LLCs can mask who the actual owner of property is. LLCs must list a registered agent that can receive legal and government documents, but LLCs are usually not required to identify the humans or corporations that own them.
As the Times notes, about 9% of home sales in 2018 were to LLCs. About 36% of rental properties in the US are held by LLCs and institutional investors, compared to 74% for individual owners whose names can easily be determined.
The Times reports that
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, for example, most of the blighted properties belong to LLCs. Many LLCs have gone out of business, leaving the ownership of these properties unclear. The city has been unable to contact anyone responsible for the properties in order to improve the situation.
As The Guardian and Times reported, the scope of Fox New host Sean Hannity’s real estate ownership came to light when it was revealed he was also a client of Donald Trump’s lawyer, Michael Cohen.
The records link Hannity to a group of shell companies that spent at least $90m on more than 870 homes in seven states over the past decade. The properties range from luxurious mansions to rentals for low-income families. Hannity is the hidden owner behind some of the shell companies and his attorney did not dispute that he owns all of them.
Hannity’s real estate holdings “are spread across more than 20 shell companies formed in Georgia.” Each company uses a variant of the same name based on the initials of Hannity’s children.
As The Guardian notes,
The shell companies used to buy the properties are limited liability companies (LLCs). Like in most states, they are not required to disclose their owners to Georgia regulators. LLCs are popular among well-known figures such as Hannity who wish to keep their business arrangements private.