How One Lawsuit Can Destroy a Real Estate Portfolio Without Proper Asset Protection

Joseph Michael Dickerson (00:00)
Buy property in your name or in the name of a human. ⁓

Cody Crabb (00:05)
That seems like a

very common one, would guess, and that’s terrifying that you would say that.

Joseph Michael Dickerson (00:08)
Yeah, and so, so

if it’s your homestead, you’re in Texas, you’re covered. Texas Homestead Law is very strong and nobody except your lender or the taxes can take away your property. But everybody else, if you get a judgment against you, if there, if you own any other property in your name, they can get

Cody Crabb (02:05)
Welcome back to the Real Estate Pros podcast. I’m Cody Crabb with Investor Fuel. Today we’ve got Joseph Michael Dickerson, asset protection attorney out of central and south Texas.

He’s helping real estate investors protect what they’re building and now expanding into title services. We’re gonna break down what investors get wrong legally and how to actually structure deals the right way. Thank you so much for joining us today, Mike. I can already tell this is gonna be great episode.

Joseph Michael Dickerson (02:29)
I’m looking forward to it.

Cody Crabb (02:31)
So give me a quick little ⁓ background about you. What’s your history? How did you get into this industry?

Joseph Michael Dickerson (02:39)
So I’m a recovering real estate-aholic. So at one point ⁓ I owned 158 doors with partners and otherwise. And so slowly other things happened that kind of, ⁓ you know, another wife, another life. ⁓ But anyway, so that’s really where I’ve got my feet wet in ⁓ the real estate investing. My first ⁓ real estate venture was buying a no-money

and we closed in October and I had structured it to where I wound up walking out of the closing with $3,000 and the property. So it was like, thought I was good. That’s a dangerous thing. You think you’re good when you get lucky with time. ⁓ But anyway, so that’s kind of where the investor side came in. And I think that’s really important for ⁓ professionals advising clients

Cody Crabb (03:22)
Wow.

Joseph Michael Dickerson (03:40)
is having gone through those experiences, you see both sides of the equation. You see the side of, I’m doing the deal, this is my money, this is my investment, this is how I see it, and analyzing that. And as the attorney, it’s also looking at, okay, well, these are the things you need to make sure are lined up because bad things can happen here, here, and here. And so having that real life experience helps.

I’ve seen too many clients wind up being upset with their deals not happening because the attorney they had was too conservative and there’s nothing wrong with being conservative, but to the point that that person had never done a real estate transaction for themselves. So they really didn’t understand anything other than the textbook process and understand how, well, you’ve got to understand certain nuance.

about making a deal happen. And so having that experience I think helps a lot.

Cody Crabb (04:42)
Yeah.

Yeah, so I’d be curious to know, you said that you have to understand certain nuances. So what nuances are there, would you say, that are better understood by someone who’s actually got some stake in real estate and kind of has been through the process before?

Joseph Michael Dickerson (05:48)
Right, so some of those nuances are like when you’re doing a creative transaction. So like for example, right now I’m working with a ⁓ quasi wholesaler to get rid of a property that I’ve got that I’m trying to offload. If it was ⁓ a client and they didn’t understand that, look, this is gonna be a short window and this is not a contract that you can just go to the bank and start spending the money.

knowing that it’s gonna close and it’s, it’s a, they’re gonna shop it around and they have a limited time to get that done. If you don’t understand that nuance, you’re gonna be very frustrated. ⁓ Or if that’s not the deal you wanna get into, you don’t wanna tie up your property, just keep waiting till you find the deal that’s gonna fit what you need. So it’s kind of understanding who you’re dealing with and what their framework is.

⁓ Understanding kind of the financing side of it a lot of times people when you’re a seller You want to get paid as quickly as possible But if there’s financing involved, especially if it’s a bank and you think you’re gonna be able to close in two weeks I mean you’re just dooming yourself to frustration because It’s not gonna happen. It’s they’ve got to get the appraisal done. They’ve got to get the underwriting, you know 30 to 45 days ⁓ Is is more reasonable and sometimes that can go longer

if it’s a commercial property or something like that. So understanding some of that helps to get the client in the right framework and have the right expectations. ⁓ Not to think, well, we’re supposed to close on this day and so I’m going to get there and I’m going to get a check. It’s kind of helping them understand the expectations and saying, look, we can push to an earlier close, but that may not be in anybody’s control and we may need to amend and extend.

So just kind of getting them comfortable with being a little bit flexible Because you know things things are evolving and some title issue could come up also Hey, it turns out that your great-grandmother Forgot to do this and so even though you think you own it There’s your long long long long lost cousin that they need to come sign off on it because they have a 1 % interest and they’re gonna get $10 out of this deal so

you gotta get you gotta deal with that and so so it’s it’s kind of being being flexible and understanding what these different things that can come up.

Cody Crabb (08:28)
For sure. as

⁓ a, you obviously deal with a lot of, you have an idea of things that could come up in a situation like this. So I’d be curious, what are some of the big legal mistakes you see investors making? Because like you mentioned earlier too, like structuring, how you structure things is extremely important and can get you in trouble. So what are some of the things that you see people doing that like they should stop doing right now? It’s a big red flag.

Joseph Michael Dickerson (08:57)
Buy property in your name or in the name of a human. ⁓

Cody Crabb (09:03)
That seems like a

very common one, would guess, and that’s terrifying that you would say that.

Joseph Michael Dickerson (09:06)
Yeah, and so, so

if it’s your homestead, you’re in Texas, you’re covered. Texas Homestead Law is very strong and nobody except your lender or the taxes can take away your property. But everybody else, if you get a judgment against you, if there, if you own any other property in your name, they can get

So mistake number one is buying it in your name.

⁓ Mistake number two, which is an even bigger mistake is buying it in somebody else’s name. We just had our staff meeting this morning and we were talking about ⁓ an intake, a prospect that came in and basically he bought the property but he bought it under his brother’s name.

And so it’s really mine, but he’s holding it because if I have any problems, they can’t touch me. And I’m like, the problem, the problem there is now you’re you have somebody you don’t control

has full control of the property. If they decide to sell it and pocket the money, there’s no there’s nobody who’s going to do anything for you. You’re to have to a lawsuit and pray that you win. Secondly, what if that person gets divorced and and they’re able to access that because they bought it? Then it’s

Cody Crabb (10:55)
Yeah.

Joseph Michael Dickerson (10:58)
community property. now half of that now belongs to the spouse of the person that you put up to to to buy this property. Or if they’re in a car accident they get sued that property could potentially be up for grabs if it’s not their homestead. So there’s a lot of bad things because humans cause problems.

⁓ But creating an entity from the beginning don’t have your name ever appear on title or in the contract have it under a company ⁓ My recommendation LLC is is the best way to go have the LLC Enter into the agreement have the LLC buy and close the property That’s that

Cody Crabb (11:41)
That’s just on paper like really

I mean you’re not that’s like most of the most of the stuff that you’re dealing with It will not change. It’s just a on paper thing, but it’s so much safer

Joseph Michael Dickerson (11:49)
Yeah,

yeah, yeah. Now there is one time when I understand that they’re not gonna wanna do it. It’s because commercial lending and residential lending have different interest rates. So residential rates are much better. So in those cases, I say, okay, 30 days after closing, you transfer it into your LLC. ⁓

Freddie Mac has come up with some guidance that they’re not going to ⁓ exercise a due on sale clause for those transactions. In the 30 plus years that I’ve been practicing law, I have never seen any financial institution or lender exercise a due on sale clause just because they moved it into an LLC that they controlled.

I’ve seen it because they did that and didn’t pay taxes or didn’t pay insurance, but not just for that. if you’re doing that, we’ve done that. You have to understand there is a remote possibility that they could exercise a due on sale clause. I wish I could tell you I have a for sure solution because we’ve tested it. But I had another friend of mine who had a similar situation and I said, was this the way they solved

it and he goes, yeah, that’s exactly what they did. now to set it up for the answer. You get the do on sale clause notice saying, hey, in 30 days you have to cure this or else we’re going to foreclose. You say, ⁓ my bad. Let me title it back in my name. Boom, cured. And goes away. So, so.

Cody Crabb (13:33)
Yeah, and like I said,

just on paper, it’s not like you have to change a lot about what you’re doing. So I know real estate people, and I know that real estate people, it’s a very people-y business. Everybody is very friendly and they make connections, and I can just hear so many people I know in this industry saying, oh, come on, I trust my partner, I trust my friend here, he’s not gonna do anything.

What would you say to those people specifically? Because I’m just hearing, like, can just, it’s in the comments already, like, I can just sense it.

Joseph Michael Dickerson (14:03)
Yeah, yeah.

So I’ll give you a little story about a doctor client of mine when we’re doing an estate plan for him. He says, Mike.

Why are you doing, why is everything so complicated that you’re giving me? Can’t I just put everything in my wife’s name? And I said, like, I commend your, the confidence you have in your relationship, but if you’re gonna do that, you can’t let your wife drive, you can’t let your wife talk to people because if she drives, she could be in an accident and they could take all your stuff. If she talks to other people, she could offend somebody, she could do something that causes them to sue her, in which case all of your stuff is there.

exposed.

Translating it to what you’re talking about. Yeah, you can trust this person, but you can’t control ⁓ Accidents that can happen you can’t control what their relationship can be like so they may seem very happily married

and The other spouse doesn’t agree that they’re happily married and as soon as now ⁓ now we have this property that if I cash out I can go and start I don’t have to be stuck here ⁓ and usually where the last

to know that that’s gonna happen. So because you don’t know what other people can do to this person that you trust and have confidence in,

You don’t want to risk it especially when it’s so easy to create an entity that you control and it is apart separate from you To the extent that if something happens to you to you they can’t go after this ⁓ asset and If something happens in the asset, it doesn’t expand to anything else that you own That’s the other important yeah

Cody Crabb (16:29)
So it goes the other way too. Yeah.

See, and I think the point I was trying to get across is it’s not just somebody trying to scam you or take advantage of you. This can just be situations that are completely out of people’s control that, you know, it can just be a total freak accident that is, you know. So my point is, he’s got a point, even if you trust people, it’s fine to have legal terms in place. That’s probably a good thing. ⁓ So, okay, if you… ⁓

Joseph Michael Dickerson (16:42)
Mm-hmm.

Cody Crabb (16:57)
What’s the best way to, like in a partnership, ⁓ what’s the best place to, you said an LLC is typically what you’d recommend for a situation like that. ⁓ So what else needs to be in place to actually protect you in one of these types of situations, especially with a partner or where you’re working with someone else?

Joseph Michael Dickerson (17:16)
Right, so one of the key things is number one, having the right finances involved. In other words, what you don’t want is two broke people trying to buy a property, and especially when they don’t know what they’re doing. I mean, there are people who don’t have cash but have invested in ⁓ learning, watching podcasts like yours, to educate themselves on how to structure these deals, and you always are gonna have the first one, and you don’t always have

money. So you need to make sure somebody has the capital or you have access to the capital to make some of these things work. And a lot of times some partnerships are, hey, look, I have the deal. You have the money and this is how we’re going to going to divvy things up. You need to have an exit strategy. How is this going to end? Because at some point it’s going to end. Whether one of you dies or

You guys decide you’re going to sell the property or one of you is going to just step out of the equation. But you have to have that conversation beforehand. How are we going to how are we going to split things up when it’s over? That’s that’s one of the keys. And if one is bringing in money and one is bringing in time and energy, we need to document how are we going to compensate for those disparities. So it’s it’s having those details outlined up

front and in the document ⁓ before you you ⁓ start buying and and and really getting into the nitty-gritty because sometimes somebody can put in cash and and say look you handle it all and I’m okay with 50-50 and then the person who’s doing the the work realizes well I’m not actually getting paid I’m working for my half of the business and this is a lot more work than I thought it was gonna be and I still need to eat so all of a sudden

there’s that imbalance and and and it starts becoming resentment. Hey, I’m doing all the work and you still get half of the rent. And then the other the other guy is like, man, I put on all the money and you just answer calls whenever there’s a problem and just go collect rent, you know, so, you know, the grass is always greener. And so making sure everybody’s very clear on the different responsibilities, that’s something that’s super important.

⁓ to have and have it documented. We have a saying in Spanish, las palabras en el aire se desaparecen. That means words in the air will disappear. So if you write it down, tell my class, look, I know you guys are friends. I know that you guys ⁓ have already talked about how you’re gonna do things. If it’s not in writing.

People forget. People don’t remember things the same way. But if you write it down and you both sign it, now you know, hey, this was what the deal was. Now…

Can we change the deal? Well, yeah, but we can’t invent a different past. So, hey, look, I was supposed to do this ⁓ for my half, but you know what? If I can just get 500 bucks out of the, on a monthly so I can be able to survive, ⁓ that will help me make sense of the project. Okay, well, let’s make that adjustment. You know what? does make sense, because I haven’t even set foot on the property, so I don’t know anything.

I don’t need to know anything. If you keep me out of the loop, yeah, take another 500. But we have ⁓ a baseline where we’re starting the discussion and the agreement.

Cody Crabb (21:03)
Yeah, think putting it in writing seems so basic, but you’re right. That saying is gonna stick with me too, because how many times have you said something to your wife or your friend, and you just do not remember it the same way? And this is business. We’re talking about people’s livelihood and their retirement and their investments. So this is a big deal. This can cause major rifts. So I think you’re right. Even just something as simple as, let’s just write it down,

Joseph Michael Dickerson (21:23)
Yeah.

Cody Crabb (21:31)
could save so many issues ⁓ going down the road. ⁓ So ⁓ how are you currently getting in front of investors who kind of need this type of ⁓ help? Where is it that they’re finding you and how?

Joseph Michael Dickerson (21:46)
Right. So I’ve got a TikTok channel where we post regularly on the different social medias. ⁓ We also have a podcast called The Solution Point where we talk to different people from different industries and finding solutions to problems. ⁓ Some of those can be real estate related and all kinds of different things. ⁓ And we kind of wrap it back to how that applies in the law. But that

That’s one of the things that we get out there. ⁓ the other is our website, ⁓ thedickersonlawfirm.com (thedickersonlaw.com). ⁓ And so that’s kind of where we bring in our clients. also have, ⁓ right now we’re doing a ⁓ monthly webinar series on estate planning. And ⁓ estate planning basically is the second step. Like first you acquire the assets, you build the,

Real estate portfolio, but you’ve got to figure out how are you gonna get it to the next generation? If if that in fact is what you want to do is give them the land or are you gonna want to liquidate and then have them divide cash What would we what is the plan? Let’s get that going so that if you become incapacitated That property can support you and be focused on taking care of you in your current situation

Cody Crabb (23:14)
Yeah, I think a lot of investors are hearing this and thinking, I gotta do some paperwork and call some people. So if someone is hearing this and realizing that, and they wanna work with you, where do they need to live, who do they need to be, and how can they get in touch with you?

Joseph Michael Dickerson (23:27)
So.

Yeah, so right now we have clients all over the state of Texas, especially with ⁓ remote ⁓ communications. We’re able to handle a ⁓ lot of things ⁓ by Zoom. We’re more than happy to sit down and meet with clients ⁓ in our New Braunfels office or in our Laredo office. And we do house calls if the project makes sense

us to do that. We’ve traveled all the way to far west Texas or Dallas area and we have some clients in Houston. So we’re able to serve the whole state. We also have a lot of clients in the Rio Grande Valley.

Cody Crabb (24:17)
So if somebody’s hearing you and going, oh man, I wanted to give them some business. How would you recommend someone find an attorney or an office like yours that can handle similar things? What should they be looking for if you’re a real estate investor?

Joseph Michael Dickerson (24:32)
So if you’re a real estate investor, want somebody who’s either board certified in real estate or in estate planning.

Real estate investors are gonna know a lot about the real estate side of the equation. I’m board certified in the estate planning. That’s more on the asset protection side of it and passing it on. So ⁓ it’s just having somebody who has experience in real estate. And you wanna interview people. Don’t just go to the first person that you talk to just because they have good reviews. Make sure they’ve got the experience in doing deals.

Like I said at the beginning, I’ve seen more deals fail because of attorneys than deals work out because of attorneys.

Cody Crabb (25:19)
Yeah,

that’s good way to put it. Yeah, yeah. ⁓

Joseph Michael Dickerson (25:21)
Because our

job is to protect our clients from bad things. The thing is, everything can turn bad. Just doing a real estate transaction.

all these things can go wrong. ⁓ You could be defrauded. There could be wire fraud to the title company. Like the title company could get defrauded and then the whole deal turns bad. ⁓ The other person may not be telling you everything about the property. But if all we do is focus on why you can’t do it, well, that’s easy. The thing is to focus on…

how you can do it and what steps you can take to mitigate those issues. Deal with a reputable title company. We provide title services. We work with Texas Lone Star Title. We’re a fee attorney for them. So that means that we are the escrow agent. We close, we do the legal documents. Everything gets taken care of within our office. So we’re able to help people throughout the state of Texas close on real estate deals. ⁓

Unfortunately or unfortunately because of because I’m an attorney the cases the the title closing fluid get are usually complicated ones It’s usually hey, we have a probate issue. Hey, we have this other kind of funky title situation and so there’s a lot more legal work and The typical title company is gonna punt they’re gonna say hey, we can’t close it ⁓ Because they don’t make any money on fixing all these legal things, but they have to quarterback the deal

So they usually will punt and I don’t know if you’ve had that experience in trying to close a deal and the title company says, yeah, we can insure title on this one.

Cody Crabb (27:10)
Definitely familiar with the situation, yeah. So, yeah, it’s good to know that there’s a way to kind of get through that. ⁓ Well, thank you so much, Mike, for all your time today. This has been really helpful. I think a lot of people are kind of double checking in their mind some of the things that they’ve got set up. ⁓ So, like I said, we’re gonna have all your information linked in the description there. if you wanna work with him or someone similar, can give you some resources there, as well as your podcast.

All sorts of things there. ⁓ thanks so much again for joining us and thank you listeners for joining us as well. If you got something out of today’s episode, please give us a like, subscribe, comment, all the things and make sure you follow us so that you don’t miss any more cool conversations with people like Mike. Thanks one more time for joining us. It’s been a real pleasure.

Joseph Michael Dickerson (28:01)
All right, thank you, Cody.