Tuesday, October 9, 2018
Congrats, You’ve Inherited a Mess
By Jason McGrath
You’ve just inherited the family home, where you’ve not lived for many years, after the unfortunate but inevitable passing of your last living parent. You know there is a mortgage loan for the property. You have many questions, which may generally be summarized “What are my options, how does this work, and what happens now?” The primary focus of this article is to explore the legal and practical factors which play key roles when heirs attempt to deal with the mortgage loan and the mortgage loan servicer.
Daughter finds a mortgage loan statement from Questionable Loan Servicing, LLC. It appears that Mom had not paid the mortgage for the last few months before her death; the loan statement lists the account as delinquent to the tune of $5,000.00, with an overall unpaid balance of $225,000.00. A week later, Daughter calls Questionable Loan Servicing, LLC, who won’t speak to her without Mom’s authorization. The fact that Mom isn’t alive to give that permission doesn’t seem to have the impact it should with Questionable’s customer service representative. However, good news! Since Daughter says she inherited the house, she must be the Executor; if the Executor provides certain formal documents, Questionable will speak to the Executor about the mortgage loan status, options, and any other relevant issues. “No, I’m not Executor, but I’ve been told by the attorney that I own the property and should be able to deal with the mortgage loan.”
Questionable’s earnest and well-intentioned customer service representative promises to look into the situation and send written information which will clarify if and how Daughter may be able to deal with the mortgage loan and get access to the loan account. Daughter confirms her own mailing address and says she’ll wait for the documents. Three weeks later, Daughter finds five different letters from Questionable, all sent to the family home; they are:
1. a letter to Mom which says that $232,500.00 is now due and that the matter has been referred to an attorney to initiate foreclosure proceedings;
2. a letter to Mom which says that Questionable may be able to assist with foreclosure-avoidance options;
3. a letter to Daughter which says Questionable cannot talk to her until she provides proper legal authorization;
4. a letter to the Executor which says that the Executor should provide Questionable with Mom’s death certificate, a copy of the trust (but there was no trust!), and the property deed which shows who the new owner is (but there is no such deed!); and
5. a letter to Mom’s Estate which reminds everyone that the loan has a “due upon conveyance” clause, and that if ownership of the home is transferred without the mortgage loan note-holder’s permission, the loan could be accelerated and be called due in full.
Daughter, now completely discouraged, begins to slowly knock her head against the nearest wall and contemplates opening another bottle of Mom’s scotch. What can she do? What should she do? Will they ever talk to her? Can they foreclose? Does she need to refinance? Does she really own the home? Can they sue her over the unpaid mortgage? What a mess.
(a) Reasonable policies and procedures. A servicer shall maintain policies and procedures that are reasonably designed to achieve the objectives set forth in paragraph (b) of this section.
(b) Objectives. (1) Accessing and providing timely and accurate information. The policies and procedures required by paragraph (a) of this section shall be reasonably designed to ensure that the servicer can:
(vi) Upon notification of the death of a borrower, promptly identify and facilitate communication with the successor in interest of the deceased borrower with respect to the property secured by the deceased borrower’s mortgage loan.
The Consumer Financial Protection Bureau (the “CFPB”) has defined “successor in interest” in this context to mean “the spouse, child, or heir of a deceased borrower or other party with an interest in the property.” The CFPB requires loan servicers to follow the requirements as explained in the above-referenced CFR, and has formally observed that the existence of and compliance with such policies and procedures in scenarios involving transfer of ownership due to death is important to “reduce the number of unnecessary defaults and foreclosures….”
Congrats
The same CFPB bulletin provides practical examples of actions the loan servicer should take to be in compliance, thus also providing successors in interest like Daughter insight into what can be done from the other side of the equation. In summary, Daughter should at a minimum provide a copy of the death certificate, any and all documents which evidence her as the heir / new owner (no, in North Carolina this would not include a deed in her name, which shouldn’t exist), and even copies of the CFR and CFPB items cited herein.
Daughter needs to be persistent, be patient (to a certain extent), to maintain good documentation, and to try to make sure the loan servicer’s various departments are appropriately communicating with each other and with external parties (such as any substitute trustee and/or law firm retained to handle a foreclosure of the family home). If the loan servicer fails to effectively cooperate, Daughter should consider filing a complaint with the CFPB and perhaps the North Carolina Commissioner of Banks. The bureaucratic roadblocks are often formidably Byzantine, and I can personally vouch for some of the horror stories which arise from dealing with loan servicers.
Independent of any due on conveyance clause, the heir’s ownership of the property does not in any way need to be approved by the mortgage loan creditor or anyone else in relation to the loan or the deed of trust. The rights to own real property and to pass it down to subsequent generations are very strongly protected ones.
So the bad news is that the loan does need to be paid if Daughter wants to keep the property. However, unless Daughter has formally agreed to become personally liable for the loan, the creditor cannot pursue her personally for money or any other damages if the loan is not paid as agreed.
One somewhat miscellaneous factor to consider is that a foreclosure case may contain the Daughter as a respondent, and if a foreclosure occurred it is at least possible that her credit report (arguably incorrectly / illegally) would reflect a “foreclosure.”
In our scenario, the mortgage loan is delinquent and a foreclosure case appears to be in the works. Daughter’s right to refinance the family home is not restricted due to the mortgage loan being delinquent, and even the existence of a foreclosure case would not restrict said rights. She, as owner of the property, is free to refinance the property by seeking a new loan which would pay off the pre-existing loan and result in the pre-existing deed of trust being canceled. This new loan would presumably have Daughter as the borrower and the fact that she inherited the property would be of little to no relevance.
With regard to modifying the loan Mom had on the property, yes, Daughter can try to negotiate a modification of the same. In almost every instance in which Daughter seeks a modification of the loan, the creditor will require her to personally become an obligor on the loan in exchange for offering modification terms. We might normally say the creditor would require her to “assume” the loan, but word choice matters in this context, as explained in a following section.
Daughter can sell the property whether the loan is current or not, but the loan will need to be paid off as part of the sale (barring some other agreement). Daughter also has the power to enter into other types of transactions, such as a discounted payoff (“DPO”) of the loan which allows her to own the property free and clear, or a deedin-lieu (“DIL”) of foreclosure which transfers ownership of the property to the mortgage loan creditor. In some instances, Daughter may not bother negotiating a DIL, as the primary advantage of that resolution compared to a foreclosure is usually the waiver of the creditor’s right to seek damages from the borrower, something Daughter would not need to worry about as long as she had not formally agreed to become personally obligated on the loan.
Of course, any real property-related transaction an heir considers entering into must take into account whether there is a risk of the real property being pulled into the estate to be liquidated to obtain cash to pay creditors besides the mortgage loan creditor. In our example scenario, Mom has no other creditors and thus Daughter is not concerned with this issue.
If Daughter needs to modify the loan and the creditor will allow that without requiring her to become personally obligated on the loan, great -- but there is almost no chance of that happening. The creditor will almost certainly require her to become personally obligated in exchange for that modification.
I have been involved in cases in which the creditor would not commit to a loan modification before the heir agreed to become personally obligated. In other words, the loan servicer said “If Daughter formally agrees to become personally obligated on the loan, we will then *consider* a modification.” My response included indignant laughter and (with client’s approval) a professional commentary similar in theme to “When pigs fly.” Under almost no circumstances would I advise a client to become personally obligated on a loan unless that came along with a guaranteed outcome which suited the client’s wants and needs.
If Daughter wanted to modify the loan, and Questionable Loan Servicing, LLC (acting on behalf of the loan note-holder) wanted her to become obligated as a borrower on the loan in exchange for modified loan terms and the loan being considered back in good standing, the ATR rule need not be considered and need not serve as an obstacle. Daughter would not be “assuming” the loan for purposes of the ATR rule, although what she would be doing very much looks, sounds, and smells like an assumption and would be considered one in almost any other context.
Jason McGrath of Charlotte is licensed in three states, and his law firm McGrath and Spielberger, PLLC focuses on real property and business law matters in the Carolinas.
Published by the Real Property Section of the North Carolina Bar Association • May 2018 • www.ncbar.org
You’ve just inherited the family home, where you’ve not lived for many years, after the unfortunate but inevitable passing of your last living parent. You know there is a mortgage loan for the property. You have many questions, which may generally be summarized “What are my options, how does this work, and what happens now?” The primary focus of this article is to explore the legal and practical factors which play key roles when heirs attempt to deal with the mortgage loan and the mortgage loan servicer.
A Commonplace Scenario
Dad passed years ago, and Mom inherited his interests in the family home. Mom just passed away, and Daughter has inherited all interests in the family home, although she has not lived there for 20 years. Mom was debt free except for the mortgage loan on the family home. Daughter knows of the existence of the mortgage loan, with an associated lien on the family home, but she doesn’t know much more and doesn’t have any specialized knowledge or experience with mortgage loans, deeds of trust, or similar issues. Daughter never wanted to be the executor, so Cousin Sally is performing that role.Daughter finds a mortgage loan statement from Questionable Loan Servicing, LLC. It appears that Mom had not paid the mortgage for the last few months before her death; the loan statement lists the account as delinquent to the tune of $5,000.00, with an overall unpaid balance of $225,000.00. A week later, Daughter calls Questionable Loan Servicing, LLC, who won’t speak to her without Mom’s authorization. The fact that Mom isn’t alive to give that permission doesn’t seem to have the impact it should with Questionable’s customer service representative. However, good news! Since Daughter says she inherited the house, she must be the Executor; if the Executor provides certain formal documents, Questionable will speak to the Executor about the mortgage loan status, options, and any other relevant issues. “No, I’m not Executor, but I’ve been told by the attorney that I own the property and should be able to deal with the mortgage loan.”
Questionable’s earnest and well-intentioned customer service representative promises to look into the situation and send written information which will clarify if and how Daughter may be able to deal with the mortgage loan and get access to the loan account. Daughter confirms her own mailing address and says she’ll wait for the documents. Three weeks later, Daughter finds five different letters from Questionable, all sent to the family home; they are:
1. a letter to Mom which says that $232,500.00 is now due and that the matter has been referred to an attorney to initiate foreclosure proceedings;
2. a letter to Mom which says that Questionable may be able to assist with foreclosure-avoidance options;
3. a letter to Daughter which says Questionable cannot talk to her until she provides proper legal authorization;
4. a letter to the Executor which says that the Executor should provide Questionable with Mom’s death certificate, a copy of the trust (but there was no trust!), and the property deed which shows who the new owner is (but there is no such deed!); and
5. a letter to Mom’s Estate which reminds everyone that the loan has a “due upon conveyance” clause, and that if ownership of the home is transferred without the mortgage loan note-holder’s permission, the loan could be accelerated and be called due in full.
Daughter, now completely discouraged, begins to slowly knock her head against the nearest wall and contemplates opening another bottle of Mom’s scotch. What can she do? What should she do? Will they ever talk to her? Can they foreclose? Does she need to refinance? Does she really own the home? Can they sue her over the unpaid mortgage? What a mess.
Heirs Interacting with the Mortgage Loan Servicer
It’s almost impossible to figure any of this out if the mortgage loan servicer won’t provide information and recognize you as the owner, or at least as an individual authorized to have access to the loan account, so getting that access almost always needs to be the first step. Here is the most relevant part of the Code of Federal Regulations on the issue of a mortgage loan servicer’s duties in such scenarios:(a) Reasonable policies and procedures. A servicer shall maintain policies and procedures that are reasonably designed to achieve the objectives set forth in paragraph (b) of this section.
(b) Objectives. (1) Accessing and providing timely and accurate information. The policies and procedures required by paragraph (a) of this section shall be reasonably designed to ensure that the servicer can:
(vi) Upon notification of the death of a borrower, promptly identify and facilitate communication with the successor in interest of the deceased borrower with respect to the property secured by the deceased borrower’s mortgage loan.
The Consumer Financial Protection Bureau (the “CFPB”) has defined “successor in interest” in this context to mean “the spouse, child, or heir of a deceased borrower or other party with an interest in the property.” The CFPB requires loan servicers to follow the requirements as explained in the above-referenced CFR, and has formally observed that the existence of and compliance with such policies and procedures in scenarios involving transfer of ownership due to death is important to “reduce the number of unnecessary defaults and foreclosures….”
Congrats
The same CFPB bulletin provides practical examples of actions the loan servicer should take to be in compliance, thus also providing successors in interest like Daughter insight into what can be done from the other side of the equation. In summary, Daughter should at a minimum provide a copy of the death certificate, any and all documents which evidence her as the heir / new owner (no, in North Carolina this would not include a deed in her name, which shouldn’t exist), and even copies of the CFR and CFPB items cited herein.
Daughter needs to be persistent, be patient (to a certain extent), to maintain good documentation, and to try to make sure the loan servicer’s various departments are appropriately communicating with each other and with external parties (such as any substitute trustee and/or law firm retained to handle a foreclosure of the family home). If the loan servicer fails to effectively cooperate, Daughter should consider filing a complaint with the CFPB and perhaps the North Carolina Commissioner of Banks. The bureaucratic roadblocks are often formidably Byzantine, and I can personally vouch for some of the horror stories which arise from dealing with loan servicers.
Does the Heir, as new Owner, Need to be “Approved” by the Creditor in Order to Avoid Foreclosure?
Most people don’t realize that mortgage loan agreements and/or deeds of trust often have a “due upon conveyance” clause (often called a “due on sale” clause, with such description being an incomplete one). These contractual clauses, in essence, allow the creditor to call the mortgage loan due if ownership of the associated real property is conveyed to someone else without creditor’s permission. There are good and understandable reasons for such clauses. However, for your typical residential property, these clauses are not enforceable when the conveyance occurred due to death of the previous owner and the resulting conveyance was to a relative. In our scenario, the creditor cannot call the loan due and/or foreclose merely because Daughter is now the owner, with the creditor not having approved her ownership.Independent of any due on conveyance clause, the heir’s ownership of the property does not in any way need to be approved by the mortgage loan creditor or anyone else in relation to the loan or the deed of trust. The rights to own real property and to pass it down to subsequent generations are very strongly protected ones.
Must the Heir Pay the Mortgage Loan?
In our scenario, Daughter may wonder if, merely by becoming the owner, she has now somehow become obligated to pay the mortgage loan. The answer is no, but barring some other agreement, if the loan isn’t paid in accordance with the contractual loan terms, the creditor can accelerate the loan and foreclose via the deed of trust just as if Mom was still alive and still the owner. Unfortunately, mortgage loan agreements typically don’t contain any type of “grace period” which allows for missed payments during times of confusion and transition such as the death of the borrower.So the bad news is that the loan does need to be paid if Daughter wants to keep the property. However, unless Daughter has formally agreed to become personally liable for the loan, the creditor cannot pursue her personally for money or any other damages if the loan is not paid as agreed.
One somewhat miscellaneous factor to consider is that a foreclosure case may contain the Daughter as a respondent, and if a foreclosure occurred it is at least possible that her credit report (arguably incorrectly / illegally) would reflect a “foreclosure.”
Can the Heir Refinance or Modify the Loan? Can the Heir Sell the Property or Otherwise Dispose of it?
Although most people seem to think of refinancing as just restructuring the loan, of course a refinance is an entirely new loan, even if it’s with the same lender. By contrast, a modification is an amendment of the current loan terms. Refinances are treated very differently as compared to modifications in the context of inherited properties.In our scenario, the mortgage loan is delinquent and a foreclosure case appears to be in the works. Daughter’s right to refinance the family home is not restricted due to the mortgage loan being delinquent, and even the existence of a foreclosure case would not restrict said rights. She, as owner of the property, is free to refinance the property by seeking a new loan which would pay off the pre-existing loan and result in the pre-existing deed of trust being canceled. This new loan would presumably have Daughter as the borrower and the fact that she inherited the property would be of little to no relevance.
With regard to modifying the loan Mom had on the property, yes, Daughter can try to negotiate a modification of the same. In almost every instance in which Daughter seeks a modification of the loan, the creditor will require her to personally become an obligor on the loan in exchange for offering modification terms. We might normally say the creditor would require her to “assume” the loan, but word choice matters in this context, as explained in a following section.
Daughter can sell the property whether the loan is current or not, but the loan will need to be paid off as part of the sale (barring some other agreement). Daughter also has the power to enter into other types of transactions, such as a discounted payoff (“DPO”) of the loan which allows her to own the property free and clear, or a deedin-lieu (“DIL”) of foreclosure which transfers ownership of the property to the mortgage loan creditor. In some instances, Daughter may not bother negotiating a DIL, as the primary advantage of that resolution compared to a foreclosure is usually the waiver of the creditor’s right to seek damages from the borrower, something Daughter would not need to worry about as long as she had not formally agreed to become personally obligated on the loan.
Of course, any real property-related transaction an heir considers entering into must take into account whether there is a risk of the real property being pulled into the estate to be liquidated to obtain cash to pay creditors besides the mortgage loan creditor. In our example scenario, Mom has no other creditors and thus Daughter is not concerned with this issue.
Should the Heir Agree to Become Personally Obligated on the Mortgage Loan?
Obviously, what someone in Daughter’s situation “should” do depends on many factors. Let’s assume Daughter wants to maintain ownership of the family home. If she can reinstate the loan directly, typically by paying the entire amount the servicer quotes for reinstatement, she will then avoid having to consider a modification and the personal liability on the loan which would likely be required. She would then have the benefits of ownership without some of the potential negatives of having a mortgage loan.If Daughter needs to modify the loan and the creditor will allow that without requiring her to become personally obligated on the loan, great -- but there is almost no chance of that happening. The creditor will almost certainly require her to become personally obligated in exchange for that modification.
I have been involved in cases in which the creditor would not commit to a loan modification before the heir agreed to become personally obligated. In other words, the loan servicer said “If Daughter formally agrees to become personally obligated on the loan, we will then *consider* a modification.” My response included indignant laughter and (with client’s approval) a professional commentary similar in theme to “When pigs fly.” Under almost no circumstances would I advise a client to become personally obligated on a loan unless that came along with a guaranteed outcome which suited the client’s wants and needs.
Does the Creditor have to Evaluate the Heir’s Ability to Repay the Loan?>
In general, mortgage lenders are required to evaluate someone’s ability to repay (“ATR”) the loan in determining whether to allow that person to assume the mortgage loan, similar to the evaluation a loan applicant would be put through when seeking a loan to purchase real property. However, because many new owner heirs have traditionally failed such evaluations, and at least certain aspects of the federal government wanted to change that, the CFPB has formally distinguished an heir becoming obligated on the mortgage loan versus an assumption of the loan by someone in a different scenario. Heirs who come to own real property due to death of the previous owner and then seek to modify a loan are not subject to the ATR rule.If Daughter wanted to modify the loan, and Questionable Loan Servicing, LLC (acting on behalf of the loan note-holder) wanted her to become obligated as a borrower on the loan in exchange for modified loan terms and the loan being considered back in good standing, the ATR rule need not be considered and need not serve as an obstacle. Daughter would not be “assuming” the loan for purposes of the ATR rule, although what she would be doing very much looks, sounds, and smells like an assumption and would be considered one in almost any other context.
Best Practices for Heirs (and their Representatives)
Heirs should act assertively and persistently when dealing with mortgage loan servicers and other creditor-side entities instead of passively waiting for the servicer to guide the heir forward. The more information the heir can obtain about the status of the mortgage loan and related options, and the more quickly the heir can obtain this information, the better-positioned the heir is to make decisions. If the overall circumstances indicate that the heir can’t afford the loan (perhaps even as potentially modified or refinanced) and/or if the heir doesn’t want to keep the property, it may be best to sell it “now” – before making payments toward the loan or at least before a delinquency eats further away at any equity.Jason McGrath of Charlotte is licensed in three states, and his law firm McGrath and Spielberger, PLLC focuses on real property and business law matters in the Carolinas.
Published by the Real Property Section of the North Carolina Bar Association • May 2018 • www.ncbar.org
Wednesday, September 26, 2018
Private Mortgage Insurance (PMI) – What is the Borrower Really Paying for?
As contract attorneys who provide a variety of real estate and mortgage related legal services, including real estate closings and handling real estate disputes, we know that many (most?) borrowers really don’t understand private mortgage insurance. Known as PMI, private mortgage insurance is to benefit the lender, not the borrower – even though the borrower is paying for it.
We’ve advised borrowers about this in various contexts, including when a mortgage insurance company sues the borrower to recover monies the insurance company paid out pursuant to the policy. For more about mortgage insurance companies suing borrowers, including in post-foreclosure situations, click here.
PMI is typically required if the circumstances include a private mortgage loan in which less than 20% of the sales price / appraised value is put down up front. From the lender standpoint, PMI is a very good thing – the borrower has to pay for an insurance policy which names the lender as the beneficiary, with the lender (or whomever ends up owning the loan) potentially being able to make a claim on the policy if the borrower defaults on the loan, and that default results in the lender not being paid back in full.
In most situations, the premium payments the borrower has to make for private mortgage insurance are rolled into the borrower’s monthly “mortgage payment”. The details regarding the original PMI agreement, including the payment amount, are known in advance of the real estate closing. Borrowers / buyers should be asking questions about PMI before closing as compared to after (although better to ask afterwards and know than to not ask at all).
It’s also extremely important to know when you might be able to cancel your PMI – and the related payments, thus decreasing your monthly payment by hundreds of dollars. This sentence will link to our blog on canceling PMI once that is published in the near future; you should subscribe to our blog (see the upper right side of this page to do so) if you’d like to receive that update.
We encourage all of our real estate Charlotte clients to be or become informed ones, and we assist in that process. After all, knowledge is power.
We’ve advised borrowers about this in various contexts, including when a mortgage insurance company sues the borrower to recover monies the insurance company paid out pursuant to the policy. For more about mortgage insurance companies suing borrowers, including in post-foreclosure situations, click here.
In most situations, the premium payments the borrower has to make for private mortgage insurance are rolled into the borrower’s monthly “mortgage payment”. The details regarding the original PMI agreement, including the payment amount, are known in advance of the real estate closing. Borrowers / buyers should be asking questions about PMI before closing as compared to after (although better to ask afterwards and know than to not ask at all).
We encourage all of our real estate Charlotte clients to be or become informed ones, and we assist in that process. After all, knowledge is power.
Wednesday, August 29, 2018
Legal Judgments - Can They Be Negotiated
In this video attorney Jason McGrath discusses some options when negotiating legal judgments between opposing parties in a lawsuit.
https://youtu.be/JruiKGTNbts
If you are in need of legal assistance with a Legal Judgment in North Carolina, South Carolina, Tennessee, Georgia or Florida please fill out our confidential client intake form.
Friday, July 20, 2018
Mediation
Click the link to view this video on YoutTube:
https://youtu.be/TiNYEiqgB4Y
https://youtu.be/TiNYEiqgB4Y
If you are facing a lawsuit in North Carolina please fill out our confidential client intake form for legal assistance.
Thursday, June 21, 2018
Negotiating with a Bank: Why do I have to Provide My Financials?
ME: In order to consider a settlement offer, the bank is requiring you to fill out this financial worksheet return it and to provide records such as your most recent 2 months of bank statements – complete, every single page, even the very last page of the bank statement which essentially says nothing.
CLIENT: Well, I don’t want to do that.
ME: I don’t blame you, I wouldn’t want to do it either.
CLIENT: So I don’t have to do it?
ME: Well, you don’t have to do anything – at least not unless there’s a court order or similar that says you have to do it. There’s no court order here which says you have to provide your financials.
CLIENT: Well that’s good.
ME: I agree.
CLIENT: Why does the bank want this stuff?
ME: Mostly so it can make an informed decision as to whether it makes sense to settle – and at what amount – versus pursuing you through the legal system for the full amount. Also, these creditors want to know if you can pay but don’t want to, or truly cannot pay, at least not right now. Of course, they can come after you for years, sometimes even decades. Also, if no settlement is reached, they want a head start on knowing what there might be for them to collect and where it is.
CLIENT: So if I provide my financials, they might use that information against me.
ME: This is true. I hope it doesn’t come to that, and we’re going to work hard to avoid that.
CLIENT: So what happens if I don’t provide my financials?
ME: If you don’t provide them, the bank is not going to consider any settlement offer and/or will assume that you have plenty of money and can pay the entire amount claimed.
CLIENT: Yes but how can the bank make me provide the financials?
ME: Again, at this stage they can’t “make” you – it’s up to you, you can decide what to provide and what not to provide. This is a voluntary negotiation, and each side can more or less choose to do – or not do – what it wants. That means you can decide not to provide your financials, but the bank can then decide not to negotiate with you.
CLIENT: I need to settle this case.
ME: Unfortunately, then, you probably need to provide your financials.
CLIENT: <sigh> Ok.
ME: Don’t worry, we’ll take a look at everything first, analyze how it may impact the settlement negotiations, and bring you up to speed on that before anything gets sent out – for now it’s confidential and privileged between you and us until and unless you direct us to share it with the bank or anyone else.
Also, we’ll make sure that what we are send to the other side is done so as part of confidential, privileged, and non-admissible settlement negotiations. That will make it harder for the bank to use it against you later, or limit the ways the bank can use it, if a settlement can’t be reached.
CLIENT: This kind of sucks, but I guess I feel a little bit better about it than I did a few minutes ago.
ME: I wish you weren’t in this situation, but we’ll do what we can do. We can never guarantee how a case will go or what the end result will be – nobody can, and we’re not allowed to do that anyhow – but it’s pretty rare that we can’t get something worked out on behalf of a client.
CLIENT: Ok, I’ll get this financial data back to you later this week.
ME: Great, thanks. We’ll look it over and get back to you with further advice within a few days of you providing that to us. Hang in there.
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McGrath & Spielberger, PLLC provides legal services in Florida, Georgia, North Carolina, Ohio, South Carolina, and Tennessee, as well as in some Federal courts. The Firm offers full scale representation, as well as limited scope services, as appropriate for the situation. Please be advised that the content on this website is not legal advice, but rather informational, and no attorney-client relationship is formed without the express agreement of this law firm. Thank you.
To learn more about McGrath & Spielberger PLLC Attorneys At Law, please visit our website McGrathSpielberger.com
To learn more about McGrath & Spielberger PLLC Attorneys At Law, please visit our website McGrathSpielberger.com
Monday, May 28, 2018
Being Sued by a Mortgage Insurance Company for an Insurance Policy you Paid for?
As attorneys who provide a variety of real estate and mortgage related services, including foreclosures and post-foreclosure disputes, we know that many (most?) borrowers really don’t understand private mortgage insurance. Known as PMI, private mortgage insurance is to benefit the lender, not the borrower – even though the borrower is paying for it.
What makes it worse from the borrower’s perspective is that, in addition to being foreclosed on, a borrower can end up being sued by the mortgage insurance company in relation to the very same policy the borrower paid for. The highly technical terms we use to describe this include:
We’ve advised and defended borrowers in these cases. The most common fact scenario is this one:
We’ve seen cases in which the mortgage insurance company may not actually have paid out the money it was seeking to recover, in which the mortgage insurance company was unable to even produce the insurance policy at issue, and in which the borrower has been assured by the persons involved in the deal (before our involvement) that the borrower was going to be “free and clear” after a foreclosure, short sale, or deed-in-lieu. However, we’ve also seen cases in which the borrower did appear to legally owe the monies being sought by the insurance company.
These cases usually – in our experience and based on our assistance – go away without the borrower having to pay what the mortgage insurance company is seeking. However, each case and each client is different, and no guarantees or predictions can be made. The bottom line is that anyone wanting to reach a settlement with the lender / note holder before the property is disposed of and anyone who has been notified of a claim against them related to PMI should be educated and informed and perhaps seek professional assistance.
What makes it worse from the borrower’s perspective is that, in addition to being foreclosed on, a borrower can end up being sued by the mortgage insurance company in relation to the very same policy the borrower paid for. The highly technical terms we use to describe this include:
We’ve advised and defended borrowers in these cases. The most common fact scenario is this one:
- a foreclosure takes place (or sometimes even a short sale or a deed-in-lieu of foreclosure);
- the loan is not paid off in full;
- the creditor (lender / loan note holder) makes a claim against the private mortgage insurance policy;
- the mortgage insurance company pays the creditor to reimburse it for its losses on the loan;
- the mortgage insurance company sues the borrower / former homeowner, under the theory of “We only had to pay out on this policy because you didn’t pay the loan off in full, so you owe us”; and
- the borrower is shocked, comes to us for help.
We’ve seen cases in which the mortgage insurance company may not actually have paid out the money it was seeking to recover, in which the mortgage insurance company was unable to even produce the insurance policy at issue, and in which the borrower has been assured by the persons involved in the deal (before our involvement) that the borrower was going to be “free and clear” after a foreclosure, short sale, or deed-in-lieu. However, we’ve also seen cases in which the borrower did appear to legally owe the monies being sought by the insurance company.
These cases usually – in our experience and based on our assistance – go away without the borrower having to pay what the mortgage insurance company is seeking. However, each case and each client is different, and no guarantees or predictions can be made. The bottom line is that anyone wanting to reach a settlement with the lender / note holder before the property is disposed of and anyone who has been notified of a claim against them related to PMI should be educated and informed and perhaps seek professional assistance.
McGrath & Spielberger, PLLC provides legal services in Florida, Georgia, North Carolina, Ohio, South Carolina, and Tennessee, as well as in some Federal courts. The Firm offers full scale representation, as well as limited scope services, as appropriate for the situation. Please be advised that the content on this website is not legal advice, but rather informational, and no attorney-client relationship is formed without the express agreement of this law firm. Thank you.
Thursday, April 19, 2018
Comparison of Subchapter K v. Subchapter S
Subchapter S places very strict restrictions on the ownership and capital structure for S corporations. S corporations are limited to 100 shareholders (although members of a "family," broadly defined, are counted as one shareholder), and they may not have more than one class of stock. Additionally, all shareholders much be individual U.S. citizens or residents and other corporations or partnerships cannot be shareholders of the company. Anyone can be a member or partner of an entity taxed under Subchapter K.
Partnerships and LLCs taxed under Subchapter K may make special allocations of income and deduction items, while shareholders of an S corporation must include corporate income and loss on a pro rata share basis. Thus, partners/members may agree to share certain income or deductions disproportionately, and the agreement will be respected for tax purposes if it reflects their economic business deal. Additionally, in most cases, partnerships and LLCs taxed under Subchapter K, can distribute appreciated property in kind without immediate recognition of taxable gain.
In a business with only a few owners, an S corporation may be the entity of choice because the flexibility of Subchapter K is not needed. S corporations are often used by owners that prefer to conduct their business as a state law corporation instead of a partnership or limited liability company because they are more comfortable with the corporate governance structure. S corporations are also often used by service providers to minimize their exposure to employment taxes. S corporations are not viable options in many situations - a business with foreign investors would not be able to make the S corporation election because foreign investors are not permissible S corporation shareholders. Additionally, many institutional investors (e.g., tax-exempt pension funds and charitable organizations) are discouraged by the tax system from investing in any type of active business that is operated as a pass-through entity. Venture capital funds, which provide a large source of capital for start-up companies, appear to be more comfortable using the familiar C corporation capitalized with several classes of stock, a structure not available in an S corporation.
McGrath and Spielberger, PLLC assists clients with all sorts of tax matters, both federal and state (including but not limited to North Carolina and South Carolina). Click here to contact an attorney about your tax matter.
Wednesday, March 7, 2018
What Factors Should You Consider When Starting a Business?
When you decide to start a business venture, there are a myriad of things to consider. You have possibly already chosen the purpose of your venture and what it is you are going to make, do, or sell. You have probably also played around with what to name your business. Now what? Where do you go from here?
We regularly assist small business owners, especially start-up businesses, walking them through the steps that need to be taken in order to make the business official and legal. There are many ways a business can be organized and there are non-tax factors, tax factors, and state statutory requirements that need to be taken into consideration when embarking on this exciting journey of starting a business.
This article focuses on a few of the non-tax factors that need to be considered. A follow-up article will discuss the tax factors of organizing your business. Much of the information in this article relates to the laws in a majority of jurisdictions along with examples of specific instances where North Carolina law is different from the majority of jurisdictions. The statutory requirements of starting a business are state specific, therefore it is important to seek the assistance of a professional who knows the law in your jurisdiction. There are also state and local licensing as well as registration requirements that will need to be met depending on the jurisdiction your business will be located in.
In the tables below the entities are listed from the broadest/most flexible to the most restrictive.
Limited liability is probably the most sought after attribute of business owners forming a new business venture. New business owners wish to protect their personal assets from the claims of business creditors. This can usually be achieved by organizing the venture under a state law that limits the owners' liability to the amount of capital the owner has invested in the entity. Be very careful when capitalizing the business and applying for loans. Some lenders may require that the owner(s) of the business provide a personal guarantee for the business obligations, thereby making the owner liable to those creditors of the business and defeating the purpose of the limitation of liability.
The business lawyers McGrath & Spielberger, PLLC assists clients with all sorts of tax, business, and estate planning matters in North Carolina. Click here to contact us about your tax, business, or estate planning matter today.
We regularly assist small business owners, especially start-up businesses, walking them through the steps that need to be taken in order to make the business official and legal. There are many ways a business can be organized and there are non-tax factors, tax factors, and state statutory requirements that need to be taken into consideration when embarking on this exciting journey of starting a business.
This article focuses on a few of the non-tax factors that need to be considered. A follow-up article will discuss the tax factors of organizing your business. Much of the information in this article relates to the laws in a majority of jurisdictions along with examples of specific instances where North Carolina law is different from the majority of jurisdictions. The statutory requirements of starting a business are state specific, therefore it is important to seek the assistance of a professional who knows the law in your jurisdiction. There are also state and local licensing as well as registration requirements that will need to be met depending on the jurisdiction your business will be located in.
In the tables below the entities are listed from the broadest/most flexible to the most restrictive.
Limited liability is probably the most sought after attribute of business owners forming a new business venture. New business owners wish to protect their personal assets from the claims of business creditors. This can usually be achieved by organizing the venture under a state law that limits the owners' liability to the amount of capital the owner has invested in the entity. Be very careful when capitalizing the business and applying for loans. Some lenders may require that the owner(s) of the business provide a personal guarantee for the business obligations, thereby making the owner liable to those creditors of the business and defeating the purpose of the limitation of liability.
The business lawyers McGrath & Spielberger, PLLC assists clients with all sorts of tax, business, and estate planning matters in North Carolina. Click here to contact us about your tax, business, or estate planning matter today.
Friday, February 16, 2018
Arbitration: How Do You Choose The Arbitrator?
Attorney Jason McGrath explains some things to consider when choosing the arbitrator during a lawsuit in this short video.
If you need legal services in North Carolina, South Carolina, Georgia, Florida, Ohio, or Tennessee we invite you to fill out our confidential client form for possible legal assistance.
Here are some of the key points contained in the video:
- If using a panel of 3 arbitrators: each party picks an arbitrator and then those two arbitrators pick the third one.
- If using only 1 arbitrator: one side presents a list of possible arbitrators to the other side and the other side picks from the list.
- You go back and forth and negotiate between the parties until a decision is made.
- You may wish to avoid attempting private conversations with potential arbitrators in order to avoid the appearance of impropriety.
- Consider all the information available to you to make an informed decision about your arbitrator.
- Arbitrators may also be appointed by the court.
If you need legal services in North Carolina, South Carolina, Georgia, Florida, Ohio, or Tennessee we invite you to fill out our confidential client form for possible legal assistance.
Wednesday, January 10, 2018
S-Corp Tax Election for LLC
S-Corp Tax Election: Is it Right for Your LLC?
As an attorney who happens to have an MBA and some specific tax law knowledge, and one who advises businesses on both day to day issues and tax matters, I know that if you’ve chosen (or will choose) an LLC as your business structure, it’s likely due to some combination of the liability protection an LLC offers, the operations and internal organization flexibility it allows, and the tax advantages which can accompany it. One of those tax advantages of an LLC can be the election to be taxed as an “S-corp.”
Keep in mind that, as we’ve previously discussed, one does not really “form an S-corp.” – this a tax classification, not a type of business organization. Once a corporation is formed, the shareholders can unanimously elect to “become” an S-corporation by filing Form 2253 with the IRS. The resulting S-corp. is a corporation that’s status is governed by Subchapter S of the Internal Revenue Code. If no election is made, then the corporation defaults to a “C-corporation” for tax purposes and is governed by Subchapter C of the Internal Revenue Code.
The traditional C-corporation’s net income is subject to a double tax at the entity level and individual level, while partnerships, LLC’s, sole proprietorships and S-corporations enjoy a pass-through status for income earned by the business. However, partnerships and sole proprietorships typically do not provide the limited liability protection desired by most small business owners. Based on these combined factors, the LLC with an S-corp. tax election is often a wise choice for business owners.
The IRS automatically treats any LLC with two or more members as a partnership and any sole member LLC as an entity disregarded as separate from its owner for federal income tax purposes. Either default treatment will provide pass through benefits to the owners of the LLC, while providing the limited liability protection. However, an LLC is allowed to make an election to be treated as an S-corporation for federal income tax purposes.
Why would an LLC want to choose to be taxed as an S-corp. rather than a partnership? There are numerous reasons for an LLC to choose to be taxed as an S-corp., including being able to pay wages and salaries to owners (which are taxed similar to wages paid to non-owner employees) but also allowing owners to be paid distributions / profits and the LLC not being federally taxed on those monies. Most experts state that the election to be taxed as an S-corp. allows the avoidance of “double taxation” as to the distributions / profit distributions. While the greatest tax benefits are typically by being an S-corp. which pays a higher proportion of monies to owners as distributions, owners who do work for the company are supposed to be paid a “reasonable salary” so that at least some payroll taxes are being paid for that individual and his/her work.
In addition to the impact that a parent – subsidiary LLC relationship can have on the possibility of selecting S-corp. tax status (see further down), an S-corp. election does allow less flexibility as far as distributions paid to owners. Typically, distributions paid to an owner must be proportional with that person’s ownership share; in other words, if Sally owns 60% of the LLC and John owns 40%, Sally should be receiving 60% of the distributions (but their salaries need not match up that same way).
If you are an existing LLC which is considering changing its tax classification, please keep in mind that, according to the IRS, an entity usually can only make such a change once every five (5) years. Be aware that some states do not recognize the S-corp. status / election and business income could be subject to double taxation at the state level.
If an LLC elects to be treated as an S-corp. for tax purposes, the LLC must comply with the same rigid ownership requirements applicable to qualifying for S-corporation tax status. This becomes an issue for the parent-subsidiary LLC relationship, as a subsidiary LLC that is wholly owned by the parent LLC cannot make the S-corp. election. One must be careful to avoid committing this error in electing tax treatment for any subsidiary LLC’s.
This is merely a starting point for a discussion of these issues, and the devil is certainly in the details as far as both the law and taxes. If you need advice regarding a tax situation, a distressed mortgage loan, or something similar, please don’t hesitate to request a consultation with a lawyer. The tax consequences of forming a business and electing tax treatment can be complicated and it is always best to contact a tax professional to address your specific situation.
Wednesday, December 20, 2017
Top 5 Reasons to Change Your Will
Below we list the top five reasons to update your legal will, or at least consider changes. If you are unsure about will or estate planning process, you can consult with one of our law firm's experienced attorneys to help.
- You don’t have a will. (So having one would be a change!)
- Your marital status has changed. (Do you really still want your ex getting all your stuff?)
- You have moved to a new state. (It’s possible that not every part of your New York will would be enforceable once you get old & cranky, move to Florida, start playing golf 5 times a week and eat dinner at 4:30 p.m.)
- Your family has grown. (I’m mainly referring to having a child, not the 25 pounds you may have packed on.)
- You don’t like your family any longer. (Unfortunately, ill will – pun intended - within families is one of the primary motivators for will changes.)
McGrath & Spielberger, PLLC provides will services in North Carolina, South Carolina, Georgia, Florida, Tennessee and Ohio: McGrathSpielberger.com.
Wednesday, November 8, 2017
Foreclosure Hearing - Mecklenburg County NC - Wells Fargo
The following is a summary of a foreclosure hearing that McGrath & Spielberger assisted a borrower with, and is provided for informational purposes only. Each case, each client, each situation is different, and each matter may have a different outcome.
Mortgage Loan Servicer / Foreclosing Bank: Wells Fargo; Wells Fargo Bank NA
Prosecuting Trustee / Law Firm: Shapiro & Ingle, LLP
Property Location: Charlotte, Mecklenburg County, North Carolina
Property Type: Primary Residence
Borrower’s Attorney: Jason McGrath, Esq.
Hearing Date: 11/2017
Actions Taken by McGrath & Spielberger on Behalf of Client in Relation to the Foreclosure Hearing: Mr. McGrath attended the foreclosure hearing with the client and negotiated a Motion to Continue to the court in order to help client avoid foreclosure.
Foreclosure Hearing Outcome: Mr. McGrath successfully moved to continue the hearing; foreclosure avoided.
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If you are facing home foreclosure Charlotte NC or Mt Pleasant SC, seek assistance from McGrath & Spielberger today. Many homeowners do not know that foreclosures can often be avoided. Our attorneys are here to be your advocate through these tough times and will work to get you the best possible outcome.
Find related helpful resources on our website at
McGrathSpielberger.com/online-resources/helpful-resources/mortgage-loan-and-real-estate-related-resources/
Tuesday, November 7, 2017
Arbitration Provisions: Law & Venue Video
Arbitration is sometimes referred to as ADR, which stands for alternative dispute resolution. Simply put, it is a legal procedure in which an unbiased third-party attempts to settle a dispute outside of court. In this two minute video, Attorney Jason A. McGrath of the McGrath & Spielberger law firm discusses the logistics of an arbitration proceeding.
2. What state's laws apply?
Make sure that the arbitration clause in your contract provides that the arbitration will take place in a specified geographical area (city, county, even state). You'll also want to have the arbitration clause specifically provide that the laws of a certain state will be applied.
Be careful to protect your interests when drafting the arbitration provisions in your contracts.
Arbitration Provisions: Law & Venue
1. Where is the arbitration to take place?2. What state's laws apply?
Make sure that the arbitration clause in your contract provides that the arbitration will take place in a specified geographical area (city, county, even state). You'll also want to have the arbitration clause specifically provide that the laws of a certain state will be applied.
Be careful to protect your interests when drafting the arbitration provisions in your contracts.
Tuesday, October 10, 2017
Business Contracts: What Should Yours Say Regarding Recovering Attorneys’ Fees in Case of Dispute? (Part 2)
As a business law attorney who handles business contract issues on the front end (business contract drafting, analyzing, etc.) and the back end (business law disputes), I’m always mindful how a legal agreement addresses the possibility of the “prevailing party” recovering attorneys’ fees and other legal type costs. This Part 2 addresses some of the factors and strategies which should be considered in deciding which option may be best for your situation. Part 1 addressed four (4) different ways to approach the costs and fees issue in a business to business contract.
1. The “prevailing party” in the business to business contract dispute can recover legal costs and fees, including attorneys’ fees. Why might – or might not – you want this in your company’s contracts?
One perspective is that the business more likely to sue would prefer that its business contracts specifically state the prevailing party can recover legal costs and fees. This potential outcome aligns with the likelihood of being the aggrieved party, or even just being the more legally aggressive party.
Another consideration is whether a party with lesser economic means is more able to obtain an attorney to work the case if recovering legal costs and fees is possible. The thoughts here are at least twofold: a) perhaps an attorney will take the case on contingency or at least partial contingency; and/or b) the party may be able to commit to paying for the case up front (non-contingency fee agreement with attorney) if the party believes that expenditure will be temporary and will be recovered, whereas the party wouldn’t or couldn’t justify the expense if recovering those legal costs and fees was impossible.
2. Each party will bear its own legal costs and fees, including attorneys’ fees, regardless of who prevails in the business to business contract dispute. Why might – or might not – you want this in your company’s contracts?
The business less likely to sue may prefer that each contractual party bear its own legal costs and fees, so as to perhaps discourage litigation by another party.
The ‘smaller fish’ in a business to business contract may be concerned that the parties paying their own legal costs and fees, regardless of case outcome, may increase the chances of the ‘bigger fish’ using its presumably greater economic power to drown the smaller fish in litigation costs and fees. The thought here is that the smaller fish will give in more easily, as it knows it cannot recover legal costs and fees even if it prevails, and because it needs to stop the financial bleeding that a lawsuit has come to represent.
3. A hybrid clause in a business to business contract which allows a prevailing party to recover legal costs and fees, including attorneys’ fees, in specified situations. Why might – or might not – you want this in your company’s contracts?
Let’s say that you generally like the concept of each business having to bear their own legal costs and fees, but there is a particular scenario which may reasonably occur, and if that is the scenario, then you want the prevailing party to be able to recover legal costs and fees from another party. A practical example might be a business which is a service provider and who doesn’t usually have legal disputes, but when it does, the disputes are most commonly that it has not been paid for its services. That company’s business to business contract might state that each party bears its own legal costs and fees, unless the dispute is regarding payments for services rendered, in which case the prevailing party may recover its legal costs and fees (and costs of collection), including attorneys’ fees, from the non-prevailing party.
Keep in mind that this is a much less “tried and true” (less common) option and might be more subject to challenge.
4. Intentionally failing to address the issue of legal costs and fees in relation to a dispute between the parties in a business to business contract. Why might – or might not – you want this in your company’s contracts?
Failing to address this issue in a business to business contract doesn’t necessarily end up harming (or helping) one business vs. another – or at least that issue cannot be completely predicted and will vary from circumstance to circumstance. There are occasions in which a party (or the party’s attorney) may receive a contract from another party for consideration, note that it does not address this issue of legal costs / attorneys’ fees, and a conscious decision might be made not to interject that issue into the agreement or the contract negotiations.
The choice not to raise this topic might be to avoid dealing with a contentious issue, to not risk slowing down the negotiation process, and/or to not risk interfering with the actual joint work moving forward. Also, the smaller fish may be concerned that if this issue is raised, the other business may use its (probable) superior leverage to force an agreement on legal costs and fees to favor it, meaning perhaps better not to raise it at all.
If the contract between the businesses does not address this issue, then the default law on the award and recovery of legal costs and attorneys’ fees should apply.
Cautionary consideration. Please also note that the default laws and rules which apply to the recovery of legal costs and fees, including attorneys’ fees, can sometimes overrule contractual agreements on these issues. Even when that is possible, it’s obviously still better to customize your business law contract to suit your preferences.
One perspective is that the business more likely to sue would prefer that its business contracts specifically state the prevailing party can recover legal costs and fees. This potential outcome aligns with the likelihood of being the aggrieved party, or even just being the more legally aggressive party.
Another consideration is whether a party with lesser economic means is more able to obtain an attorney to work the case if recovering legal costs and fees is possible. The thoughts here are at least twofold: a) perhaps an attorney will take the case on contingency or at least partial contingency; and/or b) the party may be able to commit to paying for the case up front (non-contingency fee agreement with attorney) if the party believes that expenditure will be temporary and will be recovered, whereas the party wouldn’t or couldn’t justify the expense if recovering those legal costs and fees was impossible.
2. Each party will bear its own legal costs and fees, including attorneys’ fees, regardless of who prevails in the business to business contract dispute. Why might – or might not – you want this in your company’s contracts?
The business less likely to sue may prefer that each contractual party bear its own legal costs and fees, so as to perhaps discourage litigation by another party.
The ‘smaller fish’ in a business to business contract may be concerned that the parties paying their own legal costs and fees, regardless of case outcome, may increase the chances of the ‘bigger fish’ using its presumably greater economic power to drown the smaller fish in litigation costs and fees. The thought here is that the smaller fish will give in more easily, as it knows it cannot recover legal costs and fees even if it prevails, and because it needs to stop the financial bleeding that a lawsuit has come to represent.
3. A hybrid clause in a business to business contract which allows a prevailing party to recover legal costs and fees, including attorneys’ fees, in specified situations. Why might – or might not – you want this in your company’s contracts?
Let’s say that you generally like the concept of each business having to bear their own legal costs and fees, but there is a particular scenario which may reasonably occur, and if that is the scenario, then you want the prevailing party to be able to recover legal costs and fees from another party. A practical example might be a business which is a service provider and who doesn’t usually have legal disputes, but when it does, the disputes are most commonly that it has not been paid for its services. That company’s business to business contract might state that each party bears its own legal costs and fees, unless the dispute is regarding payments for services rendered, in which case the prevailing party may recover its legal costs and fees (and costs of collection), including attorneys’ fees, from the non-prevailing party.
Keep in mind that this is a much less “tried and true” (less common) option and might be more subject to challenge.
4. Intentionally failing to address the issue of legal costs and fees in relation to a dispute between the parties in a business to business contract. Why might – or might not – you want this in your company’s contracts?
Failing to address this issue in a business to business contract doesn’t necessarily end up harming (or helping) one business vs. another – or at least that issue cannot be completely predicted and will vary from circumstance to circumstance. There are occasions in which a party (or the party’s attorney) may receive a contract from another party for consideration, note that it does not address this issue of legal costs / attorneys’ fees, and a conscious decision might be made not to interject that issue into the agreement or the contract negotiations.
The choice not to raise this topic might be to avoid dealing with a contentious issue, to not risk slowing down the negotiation process, and/or to not risk interfering with the actual joint work moving forward. Also, the smaller fish may be concerned that if this issue is raised, the other business may use its (probable) superior leverage to force an agreement on legal costs and fees to favor it, meaning perhaps better not to raise it at all.
If the contract between the businesses does not address this issue, then the default law on the award and recovery of legal costs and attorneys’ fees should apply.
Cautionary consideration. Please also note that the default laws and rules which apply to the recovery of legal costs and fees, including attorneys’ fees, can sometimes overrule contractual agreements on these issues. Even when that is possible, it’s obviously still better to customize your business law contract to suit your preferences.
Monday, September 25, 2017
Business Contracts: What Should Yours Say Regarding Recovering Attorneys’ Fees in Case of Dispute? (Part 1)
As a business law attorney who handles business contract issues on the front end (business contract drafting, analyzing, etc.) and the back end (business law disputes), I’m always mindful how a legal agreement addresses the possibility of the “prevailing party” recovering attorneys’ fees and other legal type costs. Below I list four (4) different options; the second part of this article will address some of the factors and strategies which should be considered in deciding which option may be best for your situation.
1. The “prevailing party” in the business to business contract dispute can recover legal costs and fees, including attorneys’ fees. This concept is pretty straightforward. However, when put into actual practice, identifying the “prevailing party” can be complicated. Further, the costs and fees at issue have to be tied to the claim(s) that said party prevailed on. Even if you clearly “win” on Count 1 of the lawsuit, what if you lose on Count 2? It’s nearly impossible to clearly distinguish, in detail, exactly what time, costs, fees, were devoted to working on Count 1 vs. Count 2 throughout the course of a case.
2. Each party will bear its own legal costs and fees, including attorneys’ fees, regardless of who prevails in the business to business contract dispute. This is the least complicated option. It also discourages lawsuits in many situations; more on that concept is covered in Part 2 of this article.
3. A hybrid clause in a business to business contract which allows a prevailing party to recover legal costs and fees, including attorneys’ fees, in specified situations. I am not sure I’ve ever seen this outside of contracts that I / my firm have drafted or edited – I’m confident others have done this, I just haven’t seen it. Here is an example, shortened and simplified just for example purposes here in this article:
4. Intentionally failing to address the issue of legal costs and fees in relation to a dispute between the parties in a business to business contract. If a business contract fails to address the recovery of legal costs and fees, then that issue is typically governed exclusively by the default laws and rules which apply to that contract. These laws and rules are more nuanced than many realize, and this issue can get particularly complicated if the parties are not located in the same U.S. state.
Please also note that the default laws and rules which apply to the recovery of legal costs and fees, including attorneys’ fees, can sometimes overrule contractual agreements on these issues. Even when that is possible, it’s obviously still better to customize your business law contract to suit your preferences.
These types of contractual clauses can apply to both formal lawsuits and to arbitrations. However, the contract lawyer writing or editing the agreement should be careful to use language precisely, such that the intent is clear and covers both formal lawsuits and alternative dispute resolutions such as via arbitration. With arbitrations in particular, close attention should be paid to the issue of the cost of the arbitrator and items such as securing space for the arbitration hearing versus the costs and fees that each party incurs for actual work performed and advancing or defending the claims.
1. The “prevailing party” in the business to business contract dispute can recover legal costs and fees, including attorneys’ fees. This concept is pretty straightforward. However, when put into actual practice, identifying the “prevailing party” can be complicated. Further, the costs and fees at issue have to be tied to the claim(s) that said party prevailed on. Even if you clearly “win” on Count 1 of the lawsuit, what if you lose on Count 2? It’s nearly impossible to clearly distinguish, in detail, exactly what time, costs, fees, were devoted to working on Count 1 vs. Count 2 throughout the course of a case.
2. Each party will bear its own legal costs and fees, including attorneys’ fees, regardless of who prevails in the business to business contract dispute. This is the least complicated option. It also discourages lawsuits in many situations; more on that concept is covered in Part 2 of this article.
3. A hybrid clause in a business to business contract which allows a prevailing party to recover legal costs and fees, including attorneys’ fees, in specified situations. I am not sure I’ve ever seen this outside of contracts that I / my firm have drafted or edited – I’m confident others have done this, I just haven’t seen it. Here is an example, shortened and simplified just for example purposes here in this article:
“In case of a legal dispute over this Agreement or its subject matter, each Party shall bear its own costs and fees, including but not limited to attorneys’ fees, except to the extent the dispute is over Company’s payments to Contractor for Contractor’s Services, in which case the prevailing Party may recover those costs and fees from the non-prevailing Party.”
4. Intentionally failing to address the issue of legal costs and fees in relation to a dispute between the parties in a business to business contract. If a business contract fails to address the recovery of legal costs and fees, then that issue is typically governed exclusively by the default laws and rules which apply to that contract. These laws and rules are more nuanced than many realize, and this issue can get particularly complicated if the parties are not located in the same U.S. state.
These types of contractual clauses can apply to both formal lawsuits and to arbitrations. However, the contract lawyer writing or editing the agreement should be careful to use language precisely, such that the intent is clear and covers both formal lawsuits and alternative dispute resolutions such as via arbitration. With arbitrations in particular, close attention should be paid to the issue of the cost of the arbitrator and items such as securing space for the arbitration hearing versus the costs and fees that each party incurs for actual work performed and advancing or defending the claims.
Monday, July 24, 2017
North Carolina – A tax friendly place to live and work
(1) Personal Income Tax Rate
The personal income tax rate will drop to 5.25% for a taxpayer’s North Carolina taxable income. The 2017 personal income tax rate is 5.499%.(2) Corporate Income Tax Rate
The corporate income tax rate will drop to 3% for every C corporation doing business in the State, effective as of January 1, 2017. The corporate income tax rate will drop even further to 2.5% for taxable years beginning January 1, 2019. The current corporate income tax rate is 4%. |
| New corporate tax rates may bring about a spring of new business in North Carolina. |
(3) Standard Deduction Increased
Additionally, each filing status will see an increase in the standard deduction.- Married, filing jointly/surviving spouse $20,000 (currently $17,500)
- Head of Household $15,000 (currently $14,000)
- Single $10,000 (currently $8,750)
- Married, filing separately $10,000 (currently $8,750)
Kelly J. Brown is licensed to practice law in North Carolina, South Carolina, and U.S. Tax Court. Her areas of practice include business law, tax, real estate, and mortgage disputes. She also uses her Master’s in Tax Law and Master’s in Business Administration to assist her clients.
For more information on Attorney Kelly J. Brown, or the other business & contract lawyers at McGrath and Spielberger, PLLC, please visit McGrathSpielberger.com.
Friday, June 16, 2017
Does an Airline have the Right to Kick Overweight Passengers out of Exit Rows?
The answer, generally, is yes. Within certain parameters, individual airlines have the right to design their own rules with regard to passenger safety and fairness. Interestingly, one of the most successful airlines in American history - Southwest Airlines - is also one of the most controversial in this area. It, as well as AirTran and Alaska Airways, now have policies which ban the largest passengers from sitting in exit rows. Passengers on Southwest flights in recent weeks needing seat belt extenders have been told they are not qualified to sit in exit row seats. Since Southwest does not have assigned seating, it doesn't know who is going to sit - or attempt to sit - in exit rows on its flights until the passengers are already on board.
As many of you know, the minimum requirements for sitting in an exit row, per Federal Aviation Administration regulation, are:
1) to be at least 15 years old;
2) to be able to follow directions[1]; and
3) to be capable of opening the door, including lifting up to 50 pounds.
These are minimum requirements, and airlines have the right to add their own additional - and presumably reasonable - requirements. Southwest is now enforcing a policy that prevents passengers who need seat belt extenders from sitting in exit rows, with the justification being that seat belts with extenders attached reach down to and across the floor, creating a tripping hazard for persons attempting to exit the airplane in an emergency. (Although not mentioned by Southwest in its public statement, it's also easy to envision an unfastened end of a seat belt extender flying back and forth through the air if a plane is in trouble, easily injuring or even disabling someone attempting to pass through the exit row and out of the plane.)
In 2009, the Society of Aerospace Engineers (many of its members are experts on aviation safety) authored a position paper which concluded that exit row seating requirements and regulations are not strict enough. It pointed out that, based on studying past airline disasters, an exit row obstacle causing mere seconds of delay could mean the difference between life and death.
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I am not obese, and have never been, and thus cannot credibly put myself in the place of those passengers needing seat belt extenders. However, for years I traveled frequently all over the United States, often sitting in exit rows, and often on flights in or out of south Florida. As such, I'd often look at the partially disabled senior citizens sitting right next to the exit door and wonder how in the world such a physically weakened individual was allowed to sit there. In fact, on more than one occasion, I actually had very brief conversations with other able-bodied passengers nearby, wherein we agreed that, in case of emergency, I would handle one of the doors and they the other, as clearly the passengers closest to the doors were going to be a hindrance and not a help.
The bottom line, to me, is that safety is paramount. If there is even a small chance that a reasonable change in exit row seating requirements will make my loved ones safer as they fly the not-always-so-friendly-skies, I approve of that change. An exit row seat is not a right, it's a duty.
[1] Following directions on a US flight typically includes being able to understand and speak English. This is why good flight attendants, before take off, ensure that each exit row passenger verbally responds in English when agreeing to perform duties required of exit row passengers.
Learn about McGrath & Spielberger, PLLC by visiting http://mcgrathspielberger.com/
As many of you know, the minimum requirements for sitting in an exit row, per Federal Aviation Administration regulation, are:
1) to be at least 15 years old;
2) to be able to follow directions[1]; and
3) to be capable of opening the door, including lifting up to 50 pounds.
These are minimum requirements, and airlines have the right to add their own additional - and presumably reasonable - requirements. Southwest is now enforcing a policy that prevents passengers who need seat belt extenders from sitting in exit rows, with the justification being that seat belts with extenders attached reach down to and across the floor, creating a tripping hazard for persons attempting to exit the airplane in an emergency. (Although not mentioned by Southwest in its public statement, it's also easy to envision an unfastened end of a seat belt extender flying back and forth through the air if a plane is in trouble, easily injuring or even disabling someone attempting to pass through the exit row and out of the plane.)
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I am not obese, and have never been, and thus cannot credibly put myself in the place of those passengers needing seat belt extenders. However, for years I traveled frequently all over the United States, often sitting in exit rows, and often on flights in or out of south Florida. As such, I'd often look at the partially disabled senior citizens sitting right next to the exit door and wonder how in the world such a physically weakened individual was allowed to sit there. In fact, on more than one occasion, I actually had very brief conversations with other able-bodied passengers nearby, wherein we agreed that, in case of emergency, I would handle one of the doors and they the other, as clearly the passengers closest to the doors were going to be a hindrance and not a help.
The bottom line, to me, is that safety is paramount. If there is even a small chance that a reasonable change in exit row seating requirements will make my loved ones safer as they fly the not-always-so-friendly-skies, I approve of that change. An exit row seat is not a right, it's a duty.
[1] Following directions on a US flight typically includes being able to understand and speak English. This is why good flight attendants, before take off, ensure that each exit row passenger verbally responds in English when agreeing to perform duties required of exit row passengers.
Learn about McGrath & Spielberger, PLLC by visiting http://mcgrathspielberger.com/
Monday, May 15, 2017
Arbitration: setting the rules and identifying which arbitration organization will be used
When it comes time to go to arbitration for commercial disputes, there can be a whole lot of questions that need answering. Those primary questions usually extend to which organization will conduct the arbitration and which rules will be used. It is important to understand these issues before including this in an arbitration agreement and before moving forward toward arbitration.
One of the most essential components of this process is the arbitration clause in your contract. This is where the name of the arbitration organization can be included and there is also the option to include a set of arbitration rules. Doing so will help to speed up the process and avoid additional legal fees arguing about such things later.
Setting rules may be the most integral part of arbitration as it establishes the guidelines that will be used. Many arbitration hearings use rules set forth by the American Arbitration Association (AAA). The AAA has a set of streamlined rules for business cases, which are commonly used. It is important to note that not all contracts include AAA or similar rules. In arbitration proceedings that do not specify AAA or similar rules, there can be uncertainty regarding the process. Individuals could find themselves bound by rules that they may not be comfortable with. That is why setting rules in an arbitration clause is extremely beneficial.
On the other hand, there is less flexibility when arbitration clauses are overly specific. So it may be better to leave room in your business contracts, which can demand a bit of a balancing act. When there are discrepancies regarding rules or the arbitration organization, the process of ironing out those details can take up lots of time and money.
Which arbitration organization you choose is an important component to consider. Some arbitration organizations have track records of ruling in favor of certain clients, which could make for an uphill and seemingly unfair battle.
Overall, it’s simply better to cut down on possible disagreements about the logistics or arbitration; reducing the issues to argue over will save time and money. Establishing the rules and the arbitration organization, business lawyer, well before an arbitration is ever needed is advantageous and recommended.
One of the most essential components of this process is the arbitration clause in your contract. This is where the name of the arbitration organization can be included and there is also the option to include a set of arbitration rules. Doing so will help to speed up the process and avoid additional legal fees arguing about such things later.
On the other hand, there is less flexibility when arbitration clauses are overly specific. So it may be better to leave room in your business contracts, which can demand a bit of a balancing act. When there are discrepancies regarding rules or the arbitration organization, the process of ironing out those details can take up lots of time and money.
Which arbitration organization you choose is an important component to consider. Some arbitration organizations have track records of ruling in favor of certain clients, which could make for an uphill and seemingly unfair battle.
Overall, it’s simply better to cut down on possible disagreements about the logistics or arbitration; reducing the issues to argue over will save time and money. Establishing the rules and the arbitration organization, business lawyer, well before an arbitration is ever needed is advantageous and recommended.
Monday, April 3, 2017
Necessary Knowledge: March Edition
McGrath & Spielberger, PLLC publishes a newsletter periodically where we share relevant blog posts and firm news. Our latest newsletter was published recently at no cost to subscribers. The March newsletter was all about our business clients and featured helpful articles by our partners Jason McGrath and James Spielberger.
Your New LLC: Maintaining Your Limited Liability Protection is part of a continuing series of articles by Attorney James Spielberger to assist you with your LLC needs. This series of blog posts is all about your New LLC and some tips for managing it's legal needs.
The Number One Problem for Small Limited Liability Companies is a blog post by Attorney Jason McGrath that sheds light on a common business problem often encountered in our practice and how you can protect your small business.
Why Does Your Corporation or Limited Liability Company need a Registered Agent? is a video blog by Attorney Jason McGrath. You can find more video blogs on Contract Law and Arbitration on our website.
You can become a subscriber before our next newsletter publishes - it's free!
Friday, March 31, 2017
Recently engaged? 5 reasons why you should consider a prenup
Here are my top 5 reasons for signing a prenup.
- A prenup promotes communication between future spouses so they are fully aware of the other’s financial situation and other issues prior to marriage. In North Carolina and South Carolina, each party must voluntarily provide a full and fair financial disclosure about his or her property and financial obligations (unless waived in writing).
- A prenup can establish how property matters will be handled in the future. If you are a person who has substantial individual or family assets, a prenuptial agreement may be a great way to specify how debt and other financial issues will be handled during the marriage.
- A prenup can determine the rights and obligations of each party with regard to the right to buy, sell, use, transfer, exchange, abandon, lease, or otherwise dispose of, control, or manage certain property. In North Carolina and South Carolina, property obtained during the marriage is generally treated as marital or joint property, but a prenup can change the general rule for property acquired during the marriage.
- A prenup can protect a person that has a professional practice or other service business. For all the entrepreneurs out there, this is a great way to protect your hard work, while still being able to provide for your new family.
- A prenup can be viewed as a proactive dispute resolution system, as it can simplify the divorce process. A prenup may reduce the chance of litigation upon divorce and, in addition, reduce those litigation costs. This may be beneficial for a party that is entering into a second marriage or those who have children from previous relationships.
Contact us today to get started on your prenuptial agreement.
Wednesday, March 22, 2017
Arbitration Fees - How Much do Arbitrators Cost?
Business law Attorney Jason McGrath shares some information about how much you should expect to pay in fees to an Arbitrator in this short video.
https://youtu.be/_mJseLaXzM0
Here are some of the key points contained in this informational video:
You should get advice from an attorney to assist in handling litigation issues like arbitration.
This is part of a continuing series of video blogs on contract law and arbitration - you can find the first part of this series on our blog or on our YouTube Channel.
If you need legal services in North Carolina, South Carolina, Georgia, Florida, Ohio, or Tennessee we invite you to fill out our confidential client form for possible legal assistance.
https://youtu.be/_mJseLaXzM0
Here are some of the key points contained in this informational video:
- Arbitrators typically charge fees similar to what lawyers charge.
- Does the Arbitrator require a minimum amount when the arbitration is scheduled? This may be called a cancellation fee or a retainer fee. The arbitrator may require this to offset a loss if the arbitration cancels.
- Arbitrators can sometimes be bargained with to lower fees but normally these are set fees.
- Arbitration fees (which are mostly made up of the Arbitrator’s fees) are often split evenly between the parties, but this can be altered by contract, law, or court order.
You should get advice from an attorney to assist in handling litigation issues like arbitration.
This is part of a continuing series of video blogs on contract law and arbitration - you can find the first part of this series on our blog or on our YouTube Channel.
If you need legal services in North Carolina, South Carolina, Georgia, Florida, Ohio, or Tennessee we invite you to fill out our confidential client form for possible legal assistance.
Tuesday, March 14, 2017
Substitute Trustee Services Inc. - Foreclosure Hearing Result
The following is a summary of a foreclosure hearing that McGrath & Spielberger assisted a borrower with, and is provided for informational purposes only. Each case, each client, each situation is different, and each matter may have a different outcome.
Mortgage Loan Servicer / Foreclosing Bank: RoundPoint Mortgage Servicing Corporation
Prosecuting Trustee / Law Firm: Substitute Trustee Services, Inc. and Hutchens Law Firm
Property Location: Charlotte, Mecklenburg County, North Carolina
Property Type: Primary residence
Borrower’s Attorney: Jason A. McGrath, Esq.
Hearing Date: December 2016
Actions Taken by McGrath & Spielberger on Behalf of Client in Relation to the Foreclosure Hearing: Mr. McGrath attended the foreclosure hearing with the client and argued a Motion to Continue to the court in order to help client avoid foreclosure.
Foreclosure Hearing Outcome: Mr. McGrath successfully moved to continue the hearing; foreclosure avoided.
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