Failure to Maintain LLC Can Cost You Your Property
A recent case, CF SBC Pledgor 1 2012-1 Trust v. Clark/School, LLC, 2016 IL App (4th) 150568 (September 8, 2016) Vermilion Co., demonstrates just how dangerous it can be to let your limited liability company or other entity lapse when you own real estate you have a mortgage on.
Ten years ago, the defendant borrowed money from plaintiff’s predecessor-in-interest, secured by an apartment complex in Danville, Illinois. Among other things, the terms of the loan required the defendant to keep the property in good repair, and to maintain the borrower (the limited liability company) in good standing. Failure to do these items was an event of default under the loan. In December of 2013, the lender filed suit to foreclose the defendant, citing failure to maintain and failure to keep the company in good standing. In January of 2014, defendant countered, stating the emergency maintenance situation at the property was cured, and that the LLC had been reinstated. Eventually, the trial court found in favor of the plaintiff. The defendant appealed.
Based on prior case law regarding entities that had been dissolved and reinstated, the appellate court also found in favor of the plaintiff. As a result, the defendant lost the apartment complex.
Moral of the story: Don’t ignore or delay processing the mail the Secretary of State sends you! It could cost you your property!