11.25.09
Posted in Constitutional and Civil Rights Law at 10:28 by Administrator
Thanksgiving did not become a federally recognized holiday until 1863, almost 250 years after the “first Thanksgiving celebration [which was] held by the Pilgrims,” when President Abraham Lincoln declared a national day of Thanksgiving.
However, according to the United States Supreme Court, it was George Washington, who in 1789, was the first American president to proclaim a national day of Thanksgiving.
“On the day after the House of Representatives voted to adopt the form of the First Amendment Religion Clauses which was ultimately proposed and ratified, Representative Elias Boudinot proposed a resolution asking President George Washington to issue a Thanksgiving Day Proclamation. Boudinot said he ‘could not think of letting the session pass over without offering an opportunity to all the citizens of the United States of joining with one voice, in returning to Almighty God their sincere thanks for the many blessings he had poured down upon them.’” Wallace v. Jaffree, 472 U.S. 38, 100-101 (1985), citing 1 Annals of Cong. 914 (1789), Justice Rehnquist dissenting.
“Boudinot’s resolution was carried in the affirmative on September 25, 1789.” FN 1. Wallace v. Jaffree, 472 U.S. at 101.
FN 1. Wallace v. Jaffree was a case in which the United States Supreme Court held that an Alabama statute which authorized a daily period of silence in public schools for meditation or voluntary prayer was an endorsement of religion lacking any clearly secular purpose, and thus was a law respecting the establishment of religion in violation of First Amendment.
“Within two weeks of this action by the House, George Washington responded to the Joint Resolution which by now had been changed to include the language that the President ‘recommend to the people of the United States a day of public thanksgiving and prayer, to be observed by acknowledging with grateful hearts the many and signal favors of Almighty God, especially by affording them an opportunity peaceably to establish a form of government for their safety and happiness.’ 1 J. Richardson, Messages and Papers of the Presidents, 1789-1897, p. 64 (1897). The Presidential Proclamation was couched in these words:
“Now, therefore, I do recommend and assign Thursday, the 26th day of November next, to be devoted by the people of these States to the service of that great and glorious Being who is the beneficent author of all the good that was, that is, or that will be; that we may then all unite in rendering unto Him our sincere and humble thanks for His kind care and protection of the people of this country previous to their becoming a nation; for the signal and manifold mercies and the favorable interpositions of His providence in the course and conclusion of the late war; for the great degree of tranquillity, union, and plenty which we have since enjoyed; for the peaceable and rational manner in which we have been enabled to establish constitutions of government for our safety and happiness, and particularly the national one now lately instituted; for the civil and religious liberty with which we are blessed, and the means we have of acquiring and diffusing useful knowledge; and, in general, for all the great and various favors which He has been pleased to confer upon us.
And also that we may then unite in most humbly offering our prayers and supplications to the great Lord and Ruler of Nations, and beseech Him to pardon our national and other transgressions; to enable us all, whether in public or private stations, to perform our several and relative duties properly and punctually; to render our National Government a blessing to all the people by constantly being a Government of wise, just, and constitutional laws, discreetly and faithfully executed and obeyed; to protect and guide all sovereigns and nations (especially such as have shown kindness to us), and to bless them with good governments, peace, and concord; to promote the knowledge and practice of true religion and virtue, and the increase of science among them and us; and, generally, to grant unto all mankind such a degree of temporal prosperity as He alone knows to be best.” Ibid.
Joseph Story, a Member of [the United States Supreme] Court from 1811 to 1845, and during much of that time a professor at the Harvard Law School, published by far the most comprehensive treatise on the United States Constitution that had then appeared. Volume 2 of Story’s Commentaries on the Constitution of the United States 630-632 (5th ed. 1891) discussed the meaning of the Establishment Clause of the First Amendment this way:
Probably at the time of the adoption of the Constitution, and of the amendment to it now under consideration [First Amendment], the general if not the universal sentiment in America was, that Christianity ought to receive encouragement from the State so far as was not incompatible with the private rights of conscience and the freedom of religious worship. An attempt to level all religions, and to make it a matter of state policy to hold all in utter indifference, would have created universal disapprobation, if not universal indignation.
* * *
The real object of the [First] [A]mendment was not to countenance, much less to advance, Mahometanism, or Judaism, or infidelity, by prostrating Christianity; but to exclude all rivalry among Christian sects, and to prevent any national ecclesiastical establishment which should give to a hierarchy the exclusive patronage of the national government. It thus cut off the means of religious persecution (the vice and pest of former ages), and of the subversion of the rights of conscience in matters of religion, which had been trampled upon almost from the days of the Apostles to the present age. . . . (Footnotes omitted; italics added.)
Thomas Cooley’s eminence as a legal authority rivaled that of Story. Cooley stated in his treatise entitled Constitutional Limitations that aid to a particular religious sect was prohibited by the United States Constitution, but he went on to say:
But while thus careful to establish, protect, and defend religious freedom and equality, the American constitutions contain no provisions which prohibit the authorities from such solemn recognition of a superintending Providence in public transactions and exercises as the general religious sentiment of mankind inspires, and as seems meet and proper in finite and dependent beings. Whatever may be the shades of religious belief, all must acknowledge the fitness of recognizing in important human affairs the superintending care and control of the Great Governor of the Universe, and of acknowledging with thanksgiving his boundless favors, or bowing in contrition when visited with the penalties of his broken laws. No principle of constitutional law is violated when thanksgiving or fast days are appointed; when chaplains are designated for the army and navy; when legislative sessions are opened with prayer or the reading of the Scriptures, or when religious teaching is encouraged by a general exemption of the houses of religious worship from taxation for the support of State government. Undoubtedly the spirit of the Constitution will require, in all these cases, that care be taken to avoid discrimination in favor of or against any one religious denomination or sect; but the power to do any of these things does not become unconstitutional simply because of its susceptibility to abuse. . . .
Cooley added that:
[t]his public recognition of religious worship, however, is not based entirely, perhaps not even mainly, upon a sense of what is due to the Supreme Being himself as the author of all good and of all law; but the same reasons of state policy which induce the government to aid institutions of charity and seminaries of instruction will incline it also to foster religious worship and religious institutions, as conservators of the public morals and valuable, if not indispensable, assistants to the preservation of the public order. Wallace v. Jaffree, 472 U.S. at 104-106 (internal citations and italics omitted).
In 1947, “in Everson v. Board of Education, . . . [the United States Supreme Court] summarized its exegesis of Establishment Clause doctrine thus:
In the words of Jefferson, the clause against establishment of religion by law was intended to erect ‘a wall of separation between church and State.’ Reynolds v. United States, [98 U.S. 145, 164, 25 L.Ed. 244 (1879) ].
This language from Reynolds, a case involving the Free Exercise Clause of the First Amendment rather than the Establishment Clause, quoted from Thomas Jefferson’s letter to the Danbury Baptist Association the phrase ‘I contemplate with sovereign reverence that act of the whole American people which declared that their legislature should ‘make no law respecting an establishment of religion, or prohibiting the free exercise thereof,’ thus building a wall of separation between church and State. 8 Writings of Thomas Jefferson 113 (H. Washington ed. 1861). [FN1]
FN1. Reynolds is the only authority cited as direct precedent for the ‘wall of separation theory.’ 330 U.S., at 16, 67 S.Ct., at 512. Reynolds is truly inapt; it dealt with a Mormon’s Free Exercise Clause challenge to a federal polygamy law.
It is impossible to build sound constitutional doctrine upon a mistaken understanding of constitutional history, but unfortunately the Establishment Clause has been expressly freighted with Jefferson’s misleading metaphor. . . . Thomas Jefferson was of course in France at the time the constitutional Amendments known as the Bill of Rights were passed by Congress and ratified by the States. His letter to the Danbury Baptist Association was a short note of courtesy, written 14 years after the Amendments were passed by Congress. He would seem to any detached observer as a less than ideal source of contemporary history as to the meaning of the Religion Clauses of the First Amendment.
Jefferson’s fellow Virginian, James Madison, with whom he was joined in the battle for the enactment of the Virginia Statute of Religious Liberty of 1786, did play as large a part as anyone in the drafting of the Bill of Rights. He had two advantages over Jefferson in this regard: he was present in the United States, and he was a leading Member of the First Congress. But when we turn to the record of the proceedings in the First Congress leading up to the adoption of the Establishment Clause of the Constitution, including Madison’s significant contributions thereto, we see a far different picture of its purpose than the highly simplified ‘wall of separation between church and State.” Wallace v. Jaffree, 472 U.S. at 91-93 (internal citations and italics omitted).
“It would seem from this evidence that the Establishment Clause of the First Amendment had acquired a well-accepted meaning: it forbade establishment of a national religion, and forbade preference among religious sects or denominations. Indeed, the first American dictionary defined the word ‘establishment’ as ‘the act of establishing, founding, ratifying or ordaining,’ such as in ‘[t]he episcopal form of religion, so called, in England.’ 1 N. Webster, American Dictionary of the English Language (1st ed. 1828). The Establishment Clause did not require government neutrality between religion and irreligion nor did it prohibit the Federal Government from providing nondiscriminatory aid to religion. There is simply no historical foundation for the proposition that the Framers intended to build the ‘wall of separation’ that was constitutionalized in Everson.” Wallace v. Jaffree, 472 U.S. at 104-106 (internal citations omitted).
Happy Thanksgiving!
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11.22.09
Posted in Real Estate Law at 19:43 by Administrator
Due to the general decline in residential housing prices, many people now owe substantially more on a loan secured by a residential property than the amount they can obtain by selling the property. The lender refuses, or is unlikely, to renegotiate the terms of the loan and is also unwilling, or unlikely, to forgive a portion of the secured debt so that the property can be sold for an amount equal to the balance owed on the loan. Bankruptcy is not a viable – or desirable – option. What should the homeowner do?
When, as the popular hit single suggests, should the homeowner just “walk away and close the door”?
According to The Wall Street Journal, “[f]ear, shame, and guilt” are preventing Americans from walking away from homes when their mortgages are underwater, even when walking away is the best decision, says a University of Arizona professor of law who studied the issue and wrote a paper on managing the crisis.
“Home owners should be walking away in droves,” writes Brent T. White, an associate professor of law at the University of Arizona.
“The real mystery is not – as media coverage has suggested – why large numbers of home owners are walking away, but why, given the percentage of underwater mortgages, more home owners are not,” said the professor.
“It is time to put to rest the assumption that a borrower who exercises the option to default is somehow immoral or irresponsible,” wrote White.
According to USA Today, some homeowners appear, albeit perhaps unwittingly, to be taking Professor White’s advice. “About 588,000 borrowers walked away in 2008, [which is] twice the number [who walked away] in 2007, according to a study by [the] credit management firm Experian and management consultants Oliver Wyman. Many more are expected to walk away, hampering the real estate recovery, economists say.
The mortgage unit of Citigroup says one in five borrowers default willingly, even though they’re able to pay the mortgage.
‘It’s increasingly a more important factor driving the foreclosure crisis,’ says Mark Zandi, of Moody’s Economy.com. ‘As we move forward, the job market will stabilize, and the big thing will be strategic defaults. People are going to determine it doesn’t make financial sense to hold on to their homes. That’s going to be a significant problem. Strategic defaults mean foreclosures could be high for a long time.’”
Please contact Earle Law Offices today if you would like to schedule an Attorney-Client privileged consultation to assist you in determining whether you should “Just Walk Away”.
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Posted in Litigation, Real Estate Law at 19:39 by Administrator
You are in a difficult situation: The home you purchased several years ago has declined in value and, in accordance with the terms of the “teaser-rate” loan you obtained to purchase or refinance the property, your monthly mortgage payments have increased dramatically. To make matters worse, you are all but certain that your income will not increase in the foreseeable future; furthermore, your spouse’s income has actually declined slightly, due to an involuntarily-reduced work schedule. You know you will not be able to continue making monthly mortgage payments on your home.
You have heard about other people who were in a similar situation. You are not certain of the details, but you remember someone mentioning the term “short sale”. You are not exactly sure what a short sale is, but reluctantly, and with more than just a little bit of embarrassment, you muster the courage to call a real estate broker whose name and number someone had given you.
The real estate broker assures you that your situation is not unlike that of many other of the broker’s clients and explains that a “short sale” is simply an agreement by the lender to accept less than the full amount owed on a mortgage loan. The broker tells you that many lenders, recognizing the realities of the current economic recession, understand that the fair market value of many residential properties is now less than the face amount of the loans which are secured by those properties and that because of this situation, lenders sometimes agree to accept in full satisfaction of a loan, less than the amount owed on the loan.
Not quite believing what the broker is saying, you ask “Are you telling me that even though I owe $600,000 on my house, the lender may accept $400,000, as payment in full, if $400,000 is the most that someone will pay for my house?” The broker responds, “That’s exactly what I am telling you!”
Thinking this is too good to be true, you ask the broker, “What about the $200,000 difference between what I owe on the house and the sale price of the house?” The broker says the lender would rather write-off a $200,000 loss than foreclose on the house and then be responsible for reselling the property.
Still not quite convinced, you ask the broker whether you will experience any adverse consequence as a result of a short sale. The broker explains that the negative effect of a short sale on your credit rating will be less than that of a foreclosure or bankruptcy. The broker also explains that although forgiven debt is usually considered income for tax purposes, there is a special federal law, called the Mortgage Forgiveness Debt Relief Act of 2007, which will allow you to exclude from your income the $200,000 of forgiven mortgage debt.
Feeling better about the idea of a short sale, you and your spouse decide to list your home for sale and see if a successful short sale transaction can be completed. Several months pass. Finally, you receive a short sale purchase offer from a qualified buyer. You accept the offer, subject to the approval of your lender. Over the month or so that follows, you respond to your lender’s many requests for documents, requests which concern every aspect imaginable about your financial situation. Finally, after many sleepless nights and a few tense moments with your spouse, a notification from your lender arrives which communicates your lender’s agreement to the proposed short sale.
You are filled with anxiety as you wait for escrow to close. Finally, the broker calls and tells you that escrow has closed and that you no longer own the house – and that you just “saved” $200,000.
You breathe a sigh of relief. You no longer own a home you cannot afford and which was starting to ruin you financially. No longer having to worry about making a mortgage payment every month, you are confident that you can now maintain a balanced budget.
Several months pass. Life is proceeding normally and you have almost forgotten about the short sale. Then, one day, you go to the mailbox and, mixed in with the usual assortment of envelopes is one which looks very formal: the return address is that of the law firm Dewy, Cheatem & Howe.
Your level of anxiety builds as you open the envelope. You read the letter from the law firm and are shocked; you can barely believe what you are reading. The letter informs you that the law firm has been retained by your now former mortgage lender to collect from you the $200,000 you supposedly owe the lender as a result of the short sale.
You are stunned. You refuse to pay the $200,000 demanded by your former lender. A few weeks later, a process server appears at your front door and serves you with a lawsuit which seeks a judgment against you in the amount of $200,000, plus interest and attorney fees.
Cases in which lenders have inserted repayment clauses in what borrowers understood were short sale agreements which amounted to loan forgiveness, are becoming more prevalent. Although each case is different and thus must be resolved on its own facts, there may be many claims and defenses a borrower might be able to successful assert in defeating such claims.
Earle Law Offices is available to assist borrowers in negotiating short sale transactions and, where legal representation was not obtained prior to concluding a short sale transaction, to defend borrowers in the subsequent litigation of cases in which a lender seeks to recover short sale losses from borrowers.
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Posted in Real Estate Law at 19:36 by Administrator
Real Estate Loans
* Mortgage Fraud Becomes a State Crime: As of January 1, 2010, anyone who deliberately makes any misrepresentation or omission during the mortgage lending process with the intent of influencing that process will be guilty of mortgage fraud under California law. A violation of this law is a crime punishable by one-year imprisonment. Under existing federal law, loan fraud against a federally-insured lender is a crime punishable by a $1 million fine, plus one-year imprisonment (18 U.S.C. section 1014). Senate Bill 239.
* No Advance Fee Loan Modifications: Starting October 11, 2009, a new law prohibits anyone from claiming any compensation for negotiating or arranging a loan modification until after that person fully performs each and every service as promised. Aimed at combating loan modification scams, this ban applies to advance fees collected by real estate agents and attorneys. The ban expires on January 1, 2013. Also effective immediately, anyone who negotiates or arranges a loan modification must give the borrower a specified notice that paying a third-party for loan modification services is unnecessary. These new requirements apply to mortgage loans secured by residential property up to four units, with certain exceptions for lenders and loan servicers acting on their own behalf. Violations can be penalized by, among other things, a $10,000 fine plus one-year imprisonment for individuals, or a $50,000 fine for businesses. Real estate brokers with existing Advance Fee Loan Modification Agreements reviewed by the Department of Real Estate can no longer, as of October 11, 2009, enter into these agreements or collect advance fees. Agreements entered into and advance fees collected before October 11, 2009 are not affected. For the DRE announcement, go to http://www.dre.ca.gov/pdf_docs/SB94WebAnnouncement(brokers).pdf. Senate Bill 94.
* Advance Fee Redefined: Aside from loan modifications discussed above, Senate Bill 94 also broadens the definition of an advance fee which must be specially handled by real estate agents, such as by submitting an advance fee agreement for Department of Real Estate review and placing funds received into a broker’s trust account. Under the new definition that took effect on October 11, 2009, agents cannot separate advance fees or services into components to avoid the advance fee requirements. More specifically, an advance fee is now defined as “a fee, regardless of the form, claimed, demanded, charged, received, or collected by a licensee from a principal before fully completing each and every service the licensee contracted to perform, or represented would be performed.” Exceptions include advertisements in newspapers of general circulation, tenant prescreening fees, and tenant security deposits. Senate Bill 94.
* Mortgage Loan Originators Regulated: Beginning in December 2010, a real estate licensee acting as mortgage loan originator must obtain a license endorsement, which entails education, written testing, and reporting requirements. A mortgage loan originator is anyone who, for compensation or gain, takes a mortgage loan application or offers or negotiates terms of a mortgage loan for residential property containing one-to-four units. Exemptions include real estate agents who only engage in selling, buying, or leasing activities, unless compensated by a lender or mortgage loan originator. This license endorsement requirement comports with the creation of a Nationwide Mortgage Licensing System and Registry under recent federal law. Finance lenders and residential mortgage lenders under the Department of Corporation must also register in the nationwide system. Additionally, if a real estate broker or the broker’s salesperson makes, arranges, or services loans secured by residential property containing one-to-four units, the broker must notify the Department of Real Estate by January 31, 2010 or within 30 days of commencing such loan activity, whichever is later. Senate Bill 36.
* Mortgage Broker Activities Restricted: Commencing January 1, 2010, a mortgage broker will be deemed a fiduciary with a duty to place the borrower’s economic interest above his or her own. This fiduciary duty pertains to a mortgage broker who makes loans secured by residential property of one-to-four units. Also starting January 1, 2010, the law will strictly regulate higher-priced mortgage loans, as defined, including requiring upfront disclosure if a mortgage broker only arranges higher-priced mortgage loans, restricting prepayment penalties and yield spread premiums, prohibiting negative amortization, and prohibiting mortgage brokers from steering borrowers to higher-cost loans. Assembly Bill 260.
* Reverse Mortgages: Provides new disclosure and other requirements under the Reverse Mortgage Elder Protection Act (Assembly Bill 329).
Appraisal
* Appraisal Industry Oversight: The Office of Real Estate Appraisers (OREA) will have regulatory oversight of appraisal management companies, which gained prominence after Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC). Starting January 1, 2010, the OREA must implement a registration system for appraisal management companies, including fingerprinting and background checks for persons with operational authority, as defined. On a separate note, this law clarifies what conduct constitutes improperly influencing the appraisal process by anyone with an interest in a real estate transaction. Such prohibited conduct includes withholding or threatening to withhold an appraisal fee, withholding or threatening to withhold future appraisal business, and promising future business, promotions, or compensation. Senate Bill 237.
Title and Escrow
* REO Buyer Can Select Escrow and Title: Effective October 11, 2009, the Buyer’s Choice Act prohibits an REO lender selling residential property up to four units from directly or indirectly requiring the buyer to purchase escrow services or title insurance from any particular company. However, a buyer who has received written notice of the right to make an independent selection, may agree to the REO lender’s escrow or title recommendations. An REO lender that violates this law can be held liable for three times the charges the buyer incurred, whereas a violation by the seller’s agent may be subject to license disciplinary action. This law expires on January 1, 2015. Assembly Bill 957.
Landlord-Tenant
* 60-Day Notice to Terminate Tenants Extended: Existing law generally requiring a 60-day notice to terminate a month-to-month residential tenant, which was originally slated to sunset on January 1, 2010, has been extended indefinitely. A 30-day notice to terminate is sufficient if the tenant has lived in the property for less than one year, or if the landlord has sold the property and certain requirements are met as specified in our standard-form Notice of Termination of Tenancy (C.A.R. Form NTT). The 60-day notice requirement does not apply to fixed-term leases, such as a one-year lease. Other laws address tenants in properties foreclosed upon. Senate Bill 290.
* Landlord Utilities: Requires certain utility companies to notify residential tenants of landlord’s past due accounts and upcoming shutoffs, and allows tenants to begin service in their own names and deduct payment from rent (Senate Bill 120).
* Disposal of Records: Shields from liability businesses that dispose of abandoned records containing personal information by shredding or erasing, and gives a legal presumption that a tenant owns records remaining on the premises after tenancy termination (Assembly Bill 1094).
* Mobilehome Parks: Prohibits management from requiring a homeowner to use a specific broker or dealer when replacing a mobilehome or manufactured home on a space in a mobilehome park (Senate Bill 804).
Premises Liability and Asset Protection
* Swimming Pools: Requires anti-entrapment devices for owners of apartment buildings, condominium complexes, and others, including the filing of compliance statements (Assembly Bill 1020).
* Increase in Homestead Exemptions: Effective January 1, 2010, the homestead exemption protecting a homeowner’s equity from judgment creditors has been increased by $25,000 across the board to $75,000 for individuals, $100,000 for married couples or family units, as specified, and $175,000 for persons over 65 years, disabled, or over 55 years with limited income as specified. Assembly Bill 1046.
Construction and Contracting
* Mechanic’s Liens: Provides new procedures, including service of a Notice of Mechanic’s Lien to the owner and mandatory recording of a lis pendens when enforcing a mechanic’s lien (Assembly Bill 457).
* Plumbing Fixtures: Provides new disclosure and other requirements for water-conserving plumbing fixtures effective on or after January 1, 2014 (Senate Bill 407).
* Low Water-Using Plants: Renders unenforceable any HOA provision prohibiting landscaping with water-efficient plants in common interest developments (Assembly Bill 1061).
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Posted in Real Estate Law, Taxation Law at 19:31 by Administrator
Real estate investors have various “tools” in their investment “toolboxes” which can be used to increase both the net value and diversity of a real estate portfolio. One powerful “tool” is the Like-Kind Exchange, also known as Section 1031 of the Internal Revenue Code or the “1031 Exchange”.
Tax obligations are a major obstacle to the creation and retention of wealth, as most real estate transactions have tax consequences. The Internal Revenue Code (IRC) requires a taxpayer to pay tax on a real estate transaction where the fair market value (FMV) of property received (e.g., cash) is greater than the adjusted basis of a property given up (i.e., investment real property). In other words, if a real estate investor sells an investment property for an amount greater than its adjusted basis, the difference between the sale price of the property and the property’s adjusted basis will be subject to capital gains tax. (The “basis” of an asset is generally its cost. However, basis may be adjusted over the course of time due to various events. The basis of property must be increased by capital expenditures and decreased by capital returns. Increases in basis have the effect of reducing the amount of gain realized or increasing the amount of realized loss. Decreases in basis have the effect of increasing the amount of realized gain or decreasing the amount of loss.)
Although the general rule is that a real estate investor must recognize a capital gain on the sale of investment real property where the FMV of the property sold is greater than the property’s adjusted basis, IRC section 1031 provides taxpayers with a mechanism to defer recognition of the gain to the extent that the investment property which is given up is exchanged for a property of “like-kind”.
Like-kind property is alike in nature or character, but not necessarily in grade or quality. Real property is of like-kind to all other real property, except for foreign real property. Examples include single family residence for apartment building, or commercial building for parking lot. A lease of real property for 30 or more years is treated as real property.
“Boot” is all property which does not qualify for Section 1031 treatment. Boot includes cash received, net liability (e.g., mortgage) relief, and the FMV of other non-qualified property received.
The basis in property acquired in a like-kind exchange is equal to: adjusted basis of property given + gain recognized + boot given (cash, liability incurred, other property) – boot received (cash, liability relief, other property).
An exchange of like-kind properties must be completed within the earlier of 180 days after the transfer of the exchanged property or the due date (including extensions) of the transferor’s tax return for the taxable year in which the exchange occurred. Also, the replacement property must be identified as such not later than 45 days after the date on which the transferor transfers the property. The identification of multiple replacement properties is permitted. Special rules apply to exchanges between “related” parties.
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Posted in Litigation, Taxation Law at 19:28 by Administrator
Every year, the Internal Revenue Service (IRS) sends millions of letters and notices to taxpayers. Many of these letter and notices are sent during the late summer and fall. Here are eight things you should know about IRS notices – just in case one shows up in your mailbox.
1. Don’t panic. Many of these letters can be handled with relative simplicity.
2. There are number of reasons the IRS sends notices to taxpayers. Notices may request payment of taxes, notify you of a change to your account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
3. Each letter or notice contains specific instructions on what the IRS would like you to do to satisfy the inquiry.
4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
6. If you do not agree with a correction made by the IRS, it is important to respond to the letter or notice.
7. The IRS has lawyers and other tax professionals which represent it in collections matters; you should have a professional representing you, too.
8. If you receive a letter or notice from the IRS with which you disagree, call Earle Law Offices for a free attorney-client privileged telephone consultation.
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Posted in Business Law, Taxation Law at 19:27 by Administrator
If you own a small business, whether your business hires workers as independent contractors or as employees will determine how the financial resources the business has available to it for labor are apportioned.
Following are eight considerations for business owners who must decide whether to classify workers as independent contractors or as employees.
1. The three characteristics used by the IRS to determine the relationship between businesses and workers are: Behavioral Control, Financial Control, and the Type of Relationship.
2. “Behavioral Control” refers to facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
3. “Financial Control” refers to facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
4. “Type of Relationship” refers to how the workers and the business owner perceive their relationship.
5. If your business has the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
6. If your business can direct or control only the result of the work done – and not the means and methods of accomplishing the result – then your workers may be independent contractors.
7. Employers who mis-classify workers as independent contractors can end up with substantial tax bills, penalties for failing to pay employment taxes and file required returns, as well as non-tax penalties, such as those imposed pursuant to the California Labor Code and liability which mae arise from the failure to provide workers’ compensation coverage.
8. Employers can become the subject of an IRS inquiry following a request by a worker for a determination of whether the worker should by classified as an employee or as an independent contractor. More likely, however, workers indirectly seek such a determination by filing a claim for unemployment compensation benefits or a complaint with the California Labor Board.
Please contact Earle Law Offices today if you are an employer who needs legal advice or representation concerning the classification of a worker.
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Posted in Criminal Law, Litigation, Real Estate Law at 19:24 by Administrator
Several months ago, the resident manager of an apartment complex (“Manager”) contacted Earle Law Offices and requested representation after having been notified by the Santa Clara (CA) District Attorney’s Office that criminal charges had been filed against him.
During an initial meeting with him at the law office, Manager related the following facts and events: Manager had been employed as an apartment manager for more than 20 years. Manager had never been arrested and does not have a criminal record.
Manager, on a recent evening, received a report from a tenant that the odor of burning marijuana was emanating from one of several closely-situated units in a two-story apartment building. In response to the complaint, Manager initiated an investigation in order to determine whether it would be appropriate to summon police.
In order to visually monitor the area of the apartment building from which marijuana smoking reportedly was emanating, Manager walked to a park-like common area in the apartment complex, adjacent to both a swimming pool and the first-floor patios and second-floor balconies, where Manager conducted a brief period of surveillance. It was early evening and although the sun was setting, it was not yet dark.
Unfortunately, Manager’s presence was detected by a male tenant who mistook Manger for a Peeping Tom.
Police responded to the apartment complex, not to investigate illegal drug use, but to investigate whether Manager had broken any laws. During the course of the police investigation, officers took statements from two adult females who were inside an apartment near the location where Manager had been conducting his investigation. The women had not been aware of Manager’s presence outside of their apartment, but said they did not approve of any unlawful conduct in which Manager might have engaged.
The police investigation was documented in a written report, which was then forwarded to the District Attorney’s Office. Significantly, the police did not arrest Manager.
The District Attorney’s Office, based solely on a review of the police report, filed a criminal complaint against Manager, charging Manager with two (2) separate crimes of disorderly conduct: Count I charged Manager with “Prowling”, in violation of California Penal Code § 647(h). Count II charged Manager with “Peeping”, in violation of section 647(i).
“Prowling” is defined by California law as conduct by a person “[w]ho loiters, prowls, or wanders upon the private property of another, at any time, without visible or lawful business with the owner or occupant. . . .” P.C. § 647(h) (underline added).
“Peeping” is conduct by a person “[w]ho, while loitering, prowling, or wandering upon the private property of another, at any time, peeks in the door or window of any inhabited building or structure, without visible or lawful business with the owner or occupant. P.C. § 647(i) (underline added).
An element of each of the two criminal laws with which Manager was accused of violating is that each offense must have been committed “upon the private property of another”.
Furthermore, Manager resided at the apartment complex and was engaging in the lawful conduct of investigating a tenant complaint at the time the alleged offenses occurred.
After Manager’s “not guilty” plea was entered, Earle Law Offices initiated its own investigation, which revealed serious deficiencies in the prosecution’s case. Approximately 70 photographs were taken of the apartment complex and adjacent grounds, which clearly depict that the location where Manager had conducted his surveillance for evidence of possible illegal drug use is located in the park-like common area of the complex, which does not constitute any part of the premises which are rented to any tenant.
After concluding its own investigation, Earle Law Offices was convinced that Manager had committed no crime.
At a pretrial conference, dialog was initiated with the female deputy district attorney who had been assigned to prosecute Manager. The prosecutor was shown (1) a copy of the statutes she had charged Manager with violating; (2) photographs taken by Earle Law Offices of the apartment complex, including the common area where the alleged offenses had occurred; and (3) the portion of the police report in which the investigating officer had written that, at the time the alleged offense was committed, Manager “was in a place [Manager] was lawfully allowed to be.”
Although it apparently was clear to the investigating police officer that Manager had not committed any crime, the investigating police officer presumably thought it less hazardous to that officer’s career to refer the matter to the District Attorney’s office and allow prosecutors to decline to file charges against Manager, rather than to risk being the subject of a citizen/personnel complaint and subsequent internal affairs investigation for (properly) exercising discretion by declining to take any enforcement action.
After being confronted with the actual language of each statute Manager was accused of violating, along with evidence, in the form of photographs and likely testimony of a prosecution witness which would support the defense rather than the prosecution (the police report), the prosecutor responded by asking, “what would you like me to do?” Of course, the response was that all charges against Manager should be dismissed, as Manager had not committed a crime.
The female prosecutor then responded that although Manager’s conduct may not have been illegal, the conduct nevertheless was “creepy”.
Fortunately for Manager, not all conduct that a government prosecutor may consider “creepy” is illegal. Earle Law Offices encouraged the prosecutor to consult with her superiors before a trial of this matter was commenced, which, to her credit, she did. At the next court hearing, the prosecutor informed Earle Law Offices that all charges against Manager would be dismissed.
All criminal charges against Manager have now been dismissed; Manager continues to perform his duties at the apartment complex.
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Posted in Real Estate Law, Taxation Law at 19:21 by Administrator
The Internal Revenue Service (IRS) announced on July 29, 2009, its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.
On Thursday July 23, 2009, a Jacksonville, Florida tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.
To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.
“We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,” said Eileen Mayer, Chief, IRS Criminal Investigation. “The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.”
Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.
First-Time Homebuyer Credit: The First-Time Homebuyer Credit, originally passed in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse. The home purchase must close before Dec. 1, 2009, to qualify, and the credit may not be claimed on the purchaser’s tax return until after the taxpayer closes and has purchased the home.
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Posted in Litigation, Real Estate Law at 19:17 by Administrator
Several recent postings have discussed the Home Equity Sales Contract Purchase Act (HESCPA), California Civil Code § 1695 et. seq., which imposes certain requirements on purchasers of residential real property in foreclosure. This posting revisits the HESCPA in light of the recent Ninth Circuit Court of Appeals decision in Hoffman v. Lloyd, 2009 WL 2138982 (C.A.9 (Cal.)), which upheld rescission of a grant deed which transferred title of a residence in foreclosure.
In a pattern which, at least in court opinions, appears to be repeating itself, the buyer (Hoffman) negotiated a deal with the seller (Lloyd) which involved three contracts: (1) a contract for the sale/purchase of the distressed property, (2) a contract for the leaseback of the subject property to the seller, and (3) and a contract giving the seller the option to repurchase the subject property.
Hoffman purchased the subject property and leased it back to Lloyd, during August 2003. Thereafter, Lloyd failed to make lease payments, which resulted in Hoffman filing an unlawful detainer (eviction) action against Lloyd, during June 2004. In the course of resolving the unlawful detainer action, Hoffman and Lloyd negotiated a settlement agreement (Settlement Agreement) which contained, among other things, a general release of all known and unknown claims (General Release). The General Release which was included in the Settlement Agreement is codified in California statutory law and is a common term in settlement agreements which resolve California lawsuits.
The Settlement Agreement gave Lloyd 90 days to either: (1) find a buyer for the subject property, or (2) repurchase the property. Lloyd ultimately was unable to do either, and filed for bankruptcy.
Lloyd also recorded a Notice of Rescission, which asserted Lloyd’s rights under the HESCPA. Hoffman challenged the Notice of Rescission by filing a California state court action against Lloyd which sought cancellation of the Notice of Rescission and damages resulting from the slander of title created by the Notice of Rescission.
Hoffman’s state court action was removed to federal court and consolidated with Lloyd’s bankruptcy case.
The bankruptcy court refused to enforce the General Release in the unlawful detainer Settlement Agreement and ruled in favor of Lloyd by rescinding the deed to Hoffman on the ground that Hoffman had not complied with the provisions of the HESCPA.
Hoffman appealed to the United States District Court for the Northern District of California, which affirmed the Bankruptcy Court, and then to the Ninth Circuit Court of Appeals, which affirmed the District Court.
As demonstrated by Hoffman and other cases interpreting the provisions of California’s HESCPA, compliance with the HESCPA can be somewhat technical, while noncompliance can result in serious consequences.
Please contact Earle Law Offices today for a free consultation if you have sold a California residence during the foreclosure process (after the filing of a Notice of Default), as you may have legal rights under the HESCPA.
If you are a real estate investor who will be purchasing California residential foreclosure properties, Earle Law Offices can assist you in complying with the requirements of the HESCPA.
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