Friday, July 20, 2018


mediation works
Whether mediation is court ordered, required by some prior contract/agreement, or occurs as a result of parties to a lawsuit agreeing to mediate, mediation is often an excellent opportunity to resolve a lawsuit. In his 19 years as trial lawyer, Jason McGrath has mediated many cases and in this video he explains how mediation works.

Click the link to view this video on YoutTube:

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?

The attorneys in my Law Firm represent clients against banks and other creditors on a regular basis. Whether it’s in a civil lawsuit, a foreclosure case, a situation which has not yet reached the litigation stage, or a post-judgment matter, negotiations just about always take place. In most all of these cases, we have a conversation with our client like the one below when the time comes to discuss the settlement offer I’m going to make on behalf of the client.

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.

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

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:

The Gut Punch, Geting Hit Below the Belt, The Double Whammy

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

business taxes, subchapter K versus subchapter S taxes, IRS
Both Subchapter K and S of the Internal Revenue Code (IRC) are pass-through tax structures in which the members of the entity are taxed for the entity's income, gains, losses, and expenses on their individual tax returns. That is where the similarities end. There are several differences discussed below that make Subchapter K seem more taxpayer friendly than Subchapter S. Much of the popularity of the LLC is attributable to the fact that LLCs offer limited liability to all investors combined with the more flexible partnership tax regime. In some situations, however, the goals of the business owners may be better achieved with an S corporation.

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.

business entities, business structuring, subchapter k, subchapter s, LLC, business partnership
For a complete analysis of the tax implications of C Corporations, Partnerships, and S Corporations click here for the Joint Committee on Taxation's publication entitled "Choice of Business Entity: Present Law and Data Relating to C Corporations, Partnerships, and S Corporations."

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.

Limit Liability for Business Entities

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.

Business Entity Management and Control Comparison Chart
Business Entity Capital Structure
Transferability of Business Interests chart
Duration of the Business Entity chart

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.

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.”

business financial decision, finances, taxes, tax election

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.