Not sure if these are legitimate issues, but it seems to me:

– If the LLC owns real estate in California and is doing anything with that real estate (e.g. renting it to you) it is conducting business in California.

– If the LLC owns the real estate and lets you live in it rent free, it is not an arms length relationship.

– If the LLC exists for the purpose of protecting personal assets (i.e. has no or little business other than letting its owner live for free in the real estate it owns), then the courts might not provide protection of the company’s assets from the owner’s liabilities. The company is set up for little purpose other than acting as a shield, so the company’s function in that regard can be ignored. See “piercing the corporate veil”.

– Finally, I know well about companies being created to shield the owner’s assets from liability for the company’s actions, but not the other way around. If you own a company, and creditors come after you, the company (and its assets) are part of the pool of assets the creditors come after. The only thing I can think of is you hold a minority interest in the LLC, and so the majority’s interests are protected. So you have, say, 20% ownership of the LLC, which means you have 20% ownership of the house via the LLC … why not just give 80% of the house to someone else in the first place?

The whole thing sounds implausible to me, but I am no authority. Please, if you get an expert opinion on this, I would love to hear it.