07.30.10
Posted in Litigation, Real Estate Law at 10:43 by Administrator
Q. I own a home which has declined in value so much that I now owe more on the mortgage loan than the amount for which I can sell the property. In my search for alternatives to foreclosure or bankruptcy, I have been told to beware of various fraudulent schemes that are being perpetrated against homeowners in my situation. What, specifically, should I look for to protect myself?
A. Your are wise to be wary of schemes which are designed to separate you from your money, or to otherwise take advantage of your situation. Here is a brief description of a few of the more prevalent scams:
1. Short Sales Scams
Lenders sometimes agree to accept less than the balance due on a mortgage loan, usually where the fair market value of the property has declined substantially below that which is owed on the mortgage loan. The borrower agrees to the short sale, unaware that the lender has included in the short sale agreement a provision which requires the borrower to repay, at some future date after the short sale has been completed, the difference between the amount owed on the mortgage loan and the sale price of the property.
The Bottom Line: What occurs in this situation is that the lender, by way of a short sale agreement, converts what is often a worthless secured note into a potentially valuable unsecured note which, unless the homeowner/borrow subsequently files bankruptcy, can be sued upon in the future.
2. Short Sale Scams – Continued
Lenders are not the only participants in short sale scams. Borrowers who owe more than the current value on their homes sometimes fake financial hardship and no longer make their mortgage payments. An accomplice of the borrower then submits a low offer to purchase the property in a short sale agreement. The lender agrees to the short sale, unaware of the fraud which is being perpetrated. The property, after being purchased at the reduced price, is then resold at the home’s actual value. The profit is then divided between the former homeowner/borrower and the accomplice.
The Bottom Line: If detected, homeowner/borrower (and accomplice) may be subject to criminal and/or civil penalties.
3. The Foreclosure Rescue Scam
“Rescuers” promise cash-strapped home owners that they can save their home from foreclosure. The rescue, which usually involves paying up-front fees, can take multiple forms, such as the perpetrator obtaining a new loan on behalf of the owner or by having the owner sign over the home’s deed and then renting the home from the perpetrator until the homeowner/borrower can repurchase the property. Eventually, the homeowner loses the home, either to foreclosure or to the fictitious rescue company.
The Bottom Line: Beware of any proposal which requires you to sign over the title of your house to a third party, become a tenant in your own home, not contact your lender, or send mortgage payments to a third party.
Before entering into any transaction which is offered as an alternative to foreclosure or bankruptcy, you should consult with an attorney who is familiar with the legal issues involved, and with the scams which might be perpetrated against you. The old saying that, “an ounce of prevention is worth a pound of cure” is one which is particularly relevant to your situation.
*Anthony F. Earle, Esquire is a California attorney who practices in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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07.24.10
Posted in Constitutional and Civil Rights Law, Litigation at 08:24 by Administrator
Q. The U.S. Supreme Court recently concluded its October 2009 Term. What cases did the Court decide this Term that are (or should be) of particular interest to the general public?
A. Although some in the general public may find a different selection of this past Term’s cases of particular interest, two cases topping almost any list would be Citizens United v. Federal Election Commission and McDonald v. Chicago. Citizens United raised issues concerning the First Amendment; McDonald involved the Second and Fourteenth Amendments. The last of the top three cases this Term – and one which has received less media attention – is Free Enterprise Fund v. Public Company Accounting Oversight Board, which concerns separation of powers among the three branches of government.
Citizens United challenged a section of the McCain-Feingold Bipartisan Campaign Reform Act of 2002 (”BCRA”), which made it illegal for corporations and labor unions to use their general funds for political advocacy, that is, to pay for advertisements and other materials which are political in nature or content. Contrary to some news stories, the portion of the BCRA which was at issue in Citizens United did not involve direct contributions to political candidates or their campaigns.
Citizens United brought suit because the BCRA made it illegal for it to distribute during the 2008 presidential election season a movie critical of then-presidential candidate Hillary Clinton. During oral argument before the Supreme Court, Solicitor General Elena Kagan (the government’s lawyer who was defending the constitutionality of the BCRA and whose own nomination to become a Justice of the Supreme Court is now pending in Congress), informed the Court that the BCRA would allow the government to ban books.
In striking down the section of the BCRA which was at issue, Justice Kennedy, writing for the Court’s 5-4 majority, said, “If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.” So, “when government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought. This is unlawful. The First Amendment confirms the freedom to think for ourselves.”
McDonald v. Chicago was the second of two recent Supreme Court cases dealing with the Second Amendment’s “right to keep and bear arms.” The first case, District of Columbia v. Heller, decided in 2008 (5-4), held that the Second Amendment secures an individual, rather than a collective, right to keep and bear arms. McDonald, also 5-4, held that the Second Amendment applies to the States as well as to the federal government. The issue of whether the Second Amendment applies to the States did not arise in Heller, as the District of Columbia is a federal enclave.
Free Enterprise Fund concerned a provision of the Sarbanes-Oxley Act that protects members of the Public Company Accounting Oversight Board (”Board”) from removal except for good cause. The Court held, 5-4, that the section at issue violates Article II of the Constitution because members of the Board, which is overseen by the Securities and Exchange Commission and whose members are removable only for cause, also are removable only for cause. The Court said “such multilevel protection from [Presidential removal] power is contrary to Article II’s vesting of the executive power in the President.” The Court noted that the Constitution gives the President the responsibility to ensure that the laws are faithfully executed and that, in fulfilling this responsibility, the President must be empowered to select and remove inferior government officials. This case is important because it reaffirms that the President, who always can be voted out of office at the next election, must have the ability to direct and control the actions of bureaucrats for whom voters can hold the President to account.
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07.16.10
Posted in Litigation at 07:46 by Administrator
Q. I have a modest sized case and am trying to decide whether to hire a lawyer or represent myself. What should I consider when making this decision?
A. Whether you should hire a lawyer will depend on a number of factors. First, it should be determined whether your case is criminal or civil, and if it is civil, whether your case nevertheless presents the possibility that you may, in the future, be prosecuted for a crime. If you have been charged with a crime or if there is the potential for future criminal prosecution, you should retain a lawyer. If you have been charged with a crime and cannot afford to hire a lawyer, the court will appoint a lawyer to represent you.
Although it sometimes can be difficult to identify civil cases which present the possibility of future criminal prosecution, it is imperative this type of case be identified as early in the process as possible, as you very likely will want to handle this type of case much differently than you would a civil case which does not have criminal law implications.
Assuming your case is purely a civil one, in other words, a case in which there is not the possibility of criminal sanctions, the next determination to be made is the value of the case. The value of a case generally is defined as the amount of money the other party may be ordered to pay you if you win, or the amount of money you may be ordered to pay the other party if you lose. In addition to the value of the case, don’t forget to consider whether the court will be able to order one party to pay all or part of the other party’s attorney fees and costs – which in certain cases may far exceed the value of the case.
If the value of the case is modest enough to fall within the monetary jurisdiction of the small claims court in your locale, the law makes the decision for you of whether to retain a lawyer: lawyers are not allowed to represent clients in small claims court. However, consulting with a lawyer before you file court papers or go to court may still be helpful, as a lawyer will be able to assist you in preparing both your written case filings and oral presentation.
If your civil case is one which exceeds the monetary jurisdiction of small claims court, a determination should be made regarding whether you are covered for the loss at issue by a policy of insurance. If you do have insurance coverage for the loss, the insurance company may be required to retain a lawyer for you. If your insurance company contends that the loss is not covered by the insurance policy – and you disagree with this contention – you may need a lawyer to assist you with a separate lawsuit against the insurance company.
If an insurance company will not be retaining a lawyer on your behalf, you should estimate the cost of hiring a lawyer and weigh and consider that cost against the likely cost of losing the case. Furthermore, even if a cost-benefit analysis suggests you should act as your own lawyer, it is also important to consider whether you have the knowledge and skill to competently represent yourself and, even if you do, whether you would be better-served – both financially and emotionally – by simply turning the case over to a lawyer and going about your daily business while the case is being resolved.
Lastly, when considering whether to hire a lawyer, it is always good to remember the age-old adage, “He who is his own lawyer has a fool for a client.”
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07.10.10
Posted in Business Law at 20:42 by Administrator
Q. I am planning to start a small business next year. Do I need to consult with an attorney before establishing a corporation? What kind of corporation do you recommend that I form?
A. Congratulations on your decision to become an entrepreneur! There are several ways in which you might be able to structure your business. Possible options include: sole proprietorship, partnership, limited liability company (LLC), or corporation. Some of the factors that will need to be considered when choosing a business structure include: the number and identities of owners; the type of business (e.g., type of services or products); whether the business will have employees; and how the business will be capitalized.
If, operating alone, you do not affirmatively select a business structure, your business will, by default, be a sole proprietorship. If, operating with one or more persons (other than your spouse), you do not affirmatively select a business structure, your business will, by default, be a general partnership.
Sole proprietorships and general partnerships do not shield their owners from personal liability for debts and obligations of the business. In the case of partnerships, each partner has the legal ability to incur obligations for which each other partner may be personally liable. Thus, in many instances, it probably is not a good idea to operate a business as a sole proprietorship for more than a short period of time. In almost all instances, it probably is not a good idea to operate a business as a general partnership for any period of time.
Businesses may, however, be structured in a manner which will provide its owners with limited liability in certain circumstances, as well as provide its owners with certain other advantages. The business entity which traditionally has been used to obtain these benefits is the corporation. More recently, Limited Liability Companies (LLCs) have been available as an alternative to the corporation.
LLCs have become popular with some businesses because LLCs typically offer more operational flexibility than corporations, and also because they reduce the amount of certain day-to-day record keeping formalities required of corporations. There are, however, some restrictions on the type of business that can be operated through an LLC. For example, some states do not allow certain professionals to conduct business through an LLC. Professionals may, however, be able to structure their practices as professional corporations, limited liability partnerships, or similar entities.
Sources of funding for your new business should also be considered. Although beyond the scope of this article, a determination must be made regarding whether the method used to capitalize your business will subject the business to various federal and state securities laws.
Finally, as with other business decisions, tax law and consequences should be considered when selecting a structure for your business. Although corporations and LLCs are created pursuant to state law, tax law, at least in the first instance, is governed by federal law. For example, if your business is structured as a corporation, a determination should be made regarding whether the corporation is eligible for classification, for federal tax purposes, as an “S corporation” and, if it is eligible for such classification, whether the business should elect to be taxed in this manner, rather than as a “C corporation.”
Although it certainly is lawful for you to start a business without the assistance of a lawyer, doing so likely is imprudent. As a business owner and entrepreneur, you need not personally possess all the knowledge and skills necessary to make your business successful; however, you should recognize the need for – and obtain – the assistance of professionals who do possess the needed knowledge and skills.
*Anthony F. Earle, Esquire is a California attorney who practices in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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07.05.10
Posted in Trusts and Estates at 09:29 by Administrator
Q. My wife and I have been married several years. We have a fast-paced California lifestyle, which, unfortunately has resulted in us having not yet put together a will. Can a will guarantee that our wishes will be carried out when we are no longer here? Is there a better alternative?
A. As the saying goes, nothing is certain except death and taxes. A good estate plan can help you prepare for both.
Any estate plan should, of course, provide for the distribution of your assets after your death. Other goals which can be accomplished with a good estate plan include, for example, designation of an executor for your will or trustee for your trust; nomination of a guardian(s) for your minor child(ren); tax planning; and certain pre-death matters.
Formally stating one’s desires for post-death division and distribution of one’s assets is probably the most recognized and understood purpose of an estate plan. People often, if not usually, want their property divided and distributed in a manner which deviates, in at least some respect, from the division and distribution which would be made pursuant to intestacy laws, the “default” laws which apply when a person does not have an estate plan. Perhaps a person creating an estate plan wants to provide for a distribution to someone who would not be a beneficiary under the intestacy laws or, alternatively, wants to prevent distribution to someone who otherwise would receive a distribution under the intestacy laws. Or, perhaps a beneficiary should receive a distribution in the form of payments over time, rather than as a lump sum. The estate plan is the place where these, and other, deviations from intestacy laws can be accomplished.
If you have a child(ren), chances are that you would prefer to state your preference and order of preference of guardians, rather than leaving that choice to a judge. An estate plan is the place for you to nominate guardians for your minor children so that if necessary, a court can be guided by your wishes. In the absence of such nomination, the court will have no choice but to use its own discretion in determining the “best interests” of your child(ren).
Tax law is complicated and ever-changing. However, with certain trusts, and depending on the value of your estate, certain tax planning strategies can be employed which often will result in significant tax savings. For this reason alone, you should review your estate plan with your attorney anytime there is a significant change in your personal situation, as well as when significant changes occur in tax law.
Although usually not a primary purpose in creating an estate plan, planning for pre-death issues can sometimes be just as important – if not more important – than planning for post-death matters. Pre-death issues include giving decision-making authority to someone – usually one’s spouse, if married – over health care issues (Advance Health Care Directive) and/or over the handling and management of property (Durable Power of Attorney). Such authorizations to make health care decisions or to manage property become effective only when the person who grants those powers becomes incapacitated, for example, in the event of a serious illness.
A comprehensive California estate plan – one that includes a trust, pour-over will, Advance Health Care Directive (ACHD), and durable power of attorney will give most people all the flexibility they need to accomplish their estate planing goals. A trust provides for private (with certain limited exceptions) and efficient handling of one’s affairs; a pour-over will provides for the transfer into the trust of any assets which inadvertently were not placed into the trust before death, and the ACHD and durable power of attorney will provide guidance for decisions relating to medical treatment and management of property, respectively, during periods of incapacity.
You and your spouse should obtain the assistance of an attorney who will help the two of you create, implement, and maintain an estate plan that will best meet each of your individual and joint needs. Doing so will lessen the burden your loved ones will have to endure when the inevitable occurs.
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