The Legal Play is a show that takes on todays' tough legal challenge and talks though the law. The topics covered include business law, tax law, real estate law, probate as well as other topics that are relevant in today's society. This is not a legal advise show and should not be perceived as such but rather an open discussion on the law and its applications. Hap May is the owner of the May Firm if Houston Texas
Episode 106: What is Escrow?
Earnest money contracts to buy real estate are something every buyer and seller should be familiar with. Although most are familiar with a one to four-family residential contract, there are those that can also be put together for farms, ranches, commercial office buildings, commercial properties, and industrial properties. Regardless of the type of property, it can be advantageous to enlist the help of a reputable and knowledgeable real estate attorney to assist with the different components of earnest money contracts.
How Earnest Money Works
Earnest money is typically put down in the form of a check that is paid to the title company to hold on to until the transaction terminates or is fulfilled. However, it is worth noting that there are forfeiture provisions that can go into effect if certain things do not happen. If the property is not closed upon, the buyer is at risk of losing their earnest money. A real estate attorney may be helpful in dealing with a more complex escrow situation.
More recently, a termination option has become available in which a buyer will pay a fixed amount of money in markets that are considered a buyer’s market, in which there is a great deal of product available. These options are usually low numbers of approximately $100, $200, or $500 and allow the buyer the option to terminate if they see something they do not like or for no particular reason. In this case, the buyer forfeits their termination fee which the seller keeps, but the buyer typically wants the rest of their earnest money back.
However, at present, there is a much tighter market with not a lot of product, so some of these termination provisions are at a much higher number that buyers are putting up in order to more effectively attract a seller. It may even be possible for the buyer to waive their termination option entirely to make themselves more competitive in attracting a seller. A buyer’s higher termination option number or waiver may make them stand out from all the other bidders and make a seller more likely to accept their contract.
The Role the Title Company Plays in Earnest Money Contracts
Most of the time the title insurance company gets involved in the process. The purpose of a title insurance company is:
* To go through the process to make sure that the seller has a good title
* To ensure there are no liens
* To determine that the borders are properly defined
* To make certain there are no easements or judgments that affect the property
This process is in place so that a buyer knows that they actually are buying the property and there are not expected to be any legal problems that come up afterward. However, should there be legal problems that crop up afterward, there is an insurance policy that will help pay the cost of fixing that property or paying the damages caused by the title problem. The seller typically pays for the title policy, but it is an option for the buyer to pay for it.
The title company generally takes over the process of closing. They will get a title report out showing liens, easements, problems that exist, and whether or not they get eliminated or it is just something the buyer has to understand.
The title company will provide that report and work out whatever needs to be worked out regarding that and makes sure that any liens, taxes, or homeowners association dues that are outstanding are paid at closing.
Usually, the buyer’s money (or lender’s money) goes to the title company who will then pay the taxes and the former mortgage company and any other liens necessary to clean it up and then disperse the excess monies (if any) to the seller.
Surveys and Inspections as Related to Earnest Money Contracts
Typically, when buying a home,
The Real Estate Blender of Investment and Bankrupcy
Straight from the files of a Houston real estate attorney focusing on bankruptcy, and investment, we want to share an interesting personal story about a recent undertaking that blended all three of these areas. Our hope in sharing this story is that it will shed some light on the process for others aspiring to have similar endeavors. The process is not without risk, but if done right, the payoff can be big.
Finding the Property
Late last year, we were contacted by a bankruptcy lawyer who was representing a bank trying to foreclose on a specific piece of property where the borrower was in default. The borrower had gone through several bankruptcy tactics and was now delaying foreclosure. Our acquaintance was about to have the stay lifted so they could foreclose on behalf of her small out of town bank. The bank had asked the attorney to find someone who would buy the note and just take over the foreclosure and repossession process for the property.
Getting the Property
In the end, there was an arrangement put in place for a company we owned to buy the note from the bank and take over the bankruptcy process. Although the process was complicated and at times drawn out, we got the automatic stay in bankruptcy which then prevents foreclosures from occurring while someone is in bankruptcy. The automatic stay prevents foreclosures until such a time as the judge allows it. We went through the process, got the judge to approve it, and then received the right to foreclose.
Although the debtor did try to do several things to stop the foreclosure, they were unable to do so. We then got the order to lift the stay and then posted the property for foreclosure. We then conducted a foreclosure sale, where as the holder of the note, we were allowed to credit bids. This enabled us to bid up to the amount of the debt including:
* Unpaid interest
* Attorney’s fees
* Related costs
By that time, with the attorney’s fees, because of the bankruptcy and interest running at a default rate, the balance owed was enough that nobody else bid and we were able to bid and eventually became owners of the property.
As new owners of the property, we had to go through the process of evicting the occupant. The next step was to hire eviction counsel, file the papers and serve them on the property. By having a process server tape the papers to the wall and also send letters to the debtor and the property, it then triggered a thirty-day clock where the occupant had thirty days to leave the property. Fortunately, the occupant called us on the thirtieth day and said they were turning over the property.
Had the occupants not turned over the property within the thirty-day time period, we would have had to go to court and either have them evicted or get a judgement saying the occupant had no right to be on the property. Then, if necessary, a constable would have gone out to the property and physically removed the occupant. Luckily it did not come to that.
Renovating and Selling the Property for Profit
The property was not horrible, but it was definitely not clean either, so we spent several days hauling out trash and then began painting and cleaning and getting ready to put in new floors so the property could go on the market soon.
The project became a family affair as my wife is a real estate agent and helped take on many of the responsibilities of improving the property and staging it in a way that makes it more marketable.
The property is now awaiting a few final touches and inspections before it goes on the market. The endeavor has been a mixture of bankruptcy, real estate law, real estate investment, and real estate marketing. It is an adventure that we are glad we signed on for because although we have helped with legalities of situations like this before,
Fraudulent Conveyance or Fraudulent Transfers Suicide
Suicide is never an easy topic to discuss, especially as it relates to legal matters such as fraudulent conveyance. Taking one’s own life is a decidedly tragic event that adversely impacts the deceased’s family, friends, and even community. In addition to the heartache of losing someone to suicide, those survived by the individual often do not realize that the legal consequences related to the act can go on long after.
Learning more about a fraudulent transfer and how it relates to the Uniform Fraudulent Transfer Act may help survivors better understand the legal processes that can follow a suicide.
Understanding Fraudulent Transfers
A fraudulent transfer happens when an individual that has money or property and is about to lose that property due to some sort of judgment or creditor then transfers said property to another party. This may be done so that if a judgment or creditor tries to collect from the transferor, there is no property left to collect on.
The law recognizes this act as unjust and generally allows a creditor to proceed against the recipient of a fraudulent transfer to recover one of two things:
* The property that was transferred
* Judgment for the value of the property
Uniform Fraudulent Transfer Act
As many other states do, the state of Texas follows the Uniform Fraudulent Transfer Act. This act sets forth the circumstances and establishes the rules to be followed when analyzing if a transfer of money or property is subject to it.
There are two prongs to the Uniform Fraudulent Transfer Act including:
* Actual Intent
* Constructive Fraud
Breaking Down Actual Intent as It Relates to the Uniform Fraudulent Transfer Act
For the actual intent prong of the act, if a transferor transfers property to another individual with the express intent to hinder, delay, or defraud the transferor’s creditors it is typically considered to be a fraudulent transfer.
Actual intent may be hard for a creditor to prove as the circumstances might or might not permit a jury or judge to determine that the transferor had such intent. Factors that can be taken into consideration in determining intent are:
* A transfer was made to an insider or related party
* The debtor or transferor retains possession or control of the property after the transfer
* A transfer or obligation was concealed in what is viewed as a secret manner
* An obligation by the transferor was incurred or the transferor had been sued or threatened with a lawsuit before a transfer was made
* The transfer was substantially all of the debtor or transferor’s assets
* The debtor or transferor removed or concealed assets
* The amount of consideration received by the transferor was not of reasonable equivalent value
* The transferor was insolvent or became insolvent as a result of the transfer
Constructive Fraud and the Uniform Fraudulent Transfer Act
In the event that a creditor cannot establish the actual intent prong of the act, the constructive fraud prong of the act comes into play. Of the two prongs, constructive fraud is usually easier to prove as all that is necessary is to show the following:
* There was a transfer
* The transfer was made at the time that the debtor or transferor was insolvent
* The transfer was for less than an equivalent value in exchange for the transfer
Fraudulent Transfer Act and Suicide Case Study #1
With the knowledge of what a fraudulent transfer is and how the Fraudulent Transfer Act would come into play, it may be easier to understand how the unfortunate incident of suicide might invoke the act.
The following case study may help the reader to make better sense of this connection, however, please be forewarned that the following is tragic and somewhat grueso...
Ep 103: When Should You Hire A Real Estate Attorney?
When it comes to commercial or residential real estate, most people readily understand that a real estate agent’s services will be required, but in many cases it may also require those of a lawyer. When it comes to the basic building blocks of buying or selling a property as set forth by the Texas Real Estate Commission, agents are well positioned to care for clients. However, in the event that a unique circumstance should arise such as a dispute, title issue or easement, a real estate attorney can be an individual’s best bet.
Why People Need a Real Estate Attorney?
In many cases, a real estate agent will help a party look for property and communicate and negotiate an offer on that property. From there, on the buyer’s behalf, a title company will examine real property records to ensure the seller indeed does own the property and that there are no liens, judgments, or clouds to the title on the property lasting after the close of the transaction. A lender also normally becomes involved and will draft the appropriate documents.
With a realtor, title company and bank lined up, a real estate deal has most of the right players in place. Still, when what was thought to be a small, standard purchase develops a complication with the transaction or the base use of the property, a lawyer’s knowledge is needed to provide guidance for that real estate deal.
There are three main considerations of real estate that can account for a rather large percentage of real estate deals, including:
* Who is the owner? Who has title to the property? What rights do they have and what type of restrictions are there on those rights?
* Property use. Who uses the property? Is a tenant? Is it somebody who is in possession? Is it someone who has an easement in the property? Is it someone that has no authority to use it but is using it anyway and may have been using it for a long time and have acquired some rights by doing so?
* Are there mortgage liens? Are there tax liens? Are there judgment liens? What is it that would cloud the title and ultimately give someone else the right to foreclose upon the property by having a foreclosure sale?
The 7 Most Common Situations in Which a Real Estate Attorney Is Needed
The real estate industry is vast, and with it can come many issues that require the assistance of a knowledgeable attorney in the industry. The seven most common situations in which a real estate attorney is needed include:
* Title to real estate
* Borrowing of money
* Possession of property
* Border disputes
* Oil and gas issues
* Title/possession/ownership dispute
* Earnest money contract cases
Title to Real Estate
This area of real estate involves who owns the property. A title company can be instrumental in ensuring a buyer, lender, or borrower that is pledging a piece of property as collateral is indeed the right person signing the deed of trust and the note. It is critical to guarantee that the seller is the person who owns the property and has the ability to sell it. Unfortunately, this is not always as clear cut as one would think.
When a title company issues a title commitment or title report, it ensures that the title is claimed to the property in question and that the buyer is getting a good title and the lender is getting a good lien on the property. This is then generally followed by a list of exceptions that may concern city ordinances that could restrict the use of property. It may also include deed restrictions from homeowners’ associations. Sometimes it may be possible to find a lien or someone who has rights to a property because they had a lien on it or a fractional interest.
Without a lawyer to look at easement issues, there may be someone who buys a property who discovers an easement that keeps the...
Ep 102: Capital Gains and Real Estate Tax Law Planning
With a new tax plan from the current White House administration becoming a distinct possibility, it leaves many Americans wondering about capital gains as it applies to real estate transactions. With the plan still in the discussion phase, there are few concrete details about what new capital gains rates could eventually be if it were to go through, but even the likelihood of the plan passing has many people asking what they can do to maximize their investments.
In terms of selling a personal residence or real estate that is held for investment or business use, it is crucial to look at what capital gains rates have been, and what they could be sometime soon.
Capital Gains Rates Now
Until the law concerning capital gains rates is changed, the rates are typically 15 to 20 percent depending upon whether an individual makes more than $250,000 or not. In addition to this, there is 3.8% that gets added to that investment income coming out of Obamacare for people who make more than $250,000.
The capital gains rate is 15% for people who:
* make $400,000 or less if they are single
* make $450,000 or less if they are married
And in addition, an individual making more than $250K a year has a 3.8% Obamacare net investment income tax added to that. Prior to this year, the maximum gain someone would be required to pay on a capital gains transaction is 23.8% which is essentially the 20% plus the 3.8%.
Capital Gains Rates and the Future
During the last year and a half and even prior to that, the government has spent a great deal of money due to COVID and other reasons. Because of this significant uptick in spending, it is not inconceivable that Americans will see a tax increase.
The new administration has already proposed an aggressive tax increase that would raise capital gains rates significantly, to as high as the mid-40s. While this is possible, some consider it even more likely that instead of the rates going from 23.8% to the 44%, the tax hike will instead put the maximum rate at 28%. This rate would only be reached with compromise.
America has had capital gains rates in the past of 28% so it is possible they will see them again if the tax plan passes. In light of this, it could be prudent for investors who are looking at potentially large capital gains transactions to anticipate a 28% rate in the near future.
Realistically, an individual who sells something now will continue to be at the lower tax rate, but if they decide to sell it toward the end of the year or after, it could very well be at a much higher rate.
The Potential Effect of Higher Capital Gains Rates on the Market
The fact that Americans are anticipating higher capital gains rates has had an effect on the market to a certain extent. Most people who are facing capital gains transactions have one of two reactions:
* “I need to do it now while the rates are lower.”
* “I’m not going to sell that stock or real estate ever because I’m not going to pay that kind of tax.”
The second reaction is particularly disheartening because this is not the desired effect. The goal is to still have individuals be able to sell their assets when they can and change their portfolio and doing so without having to play some sort of tax game with the respect to their business and investment decisions.
Personal Residences and Capital Gains Rates
A personal residence is only taxable to the extent that the gain on the house exceeds $250,000 for a single individual or $500,000 for a married couple.
For example, if a person and their spouse bought a house for $400,000 ten years ago and are now selling it for $800,000,
What Happens When a Business Owner Dies
Although it is not a welcome prospect, things to consider before a business owner dies are critical in the here and now. If you are a business owner who has not yet given thought to what will happen to the company you have worked so hard for, you risk losing everything for yourself as well as any potential beneficiaries. Estate planning is not just for individuals, it is essential for business owners as well. To protect all that you have built in assets, relationships, and more, it is advised for you to meet with an estate planning attorney as soon as possible so your legacy does not go unsecured.
What Happens to a Corporation When the Business Owner Dies?
In the unfortunate event that a business owner dies, one of the most frequently asked questions by personnel and relatives is, “What will happen to the business?” To a degree, this depends on how it is classified. For example, a corporation or limited liability company does not die, even if the owner does.
A corporation can live until it is either:
* Voluntarily terminated by filing papers with the state of the corporation
* Terminated by the state for issues with creditors, failure to file the proper forms, or failure to pay a state franchise tax
Aside from the above, a corporation should continue to exist even if the president or sole shareholder of the company dies.
Why Wills Are Important for Corporation Stocks
Corporations have stocks, and if the owner who owned all or even the majority of that stock dies, the stock then becomes an asset that is subject to probate. This means that the person’s will can determine who will get his or her corporation stocks in the event of their death.
In addition to having a will, some owners may choose to put corporate stock into a trust, as in some cases this can avoid probate and keep a business from ceasing to operate. If upon their death an owner wants to give stock to charity, that can be done through a will or a combination of a will and a trust. It is important to discuss this with your lawyers and accountants before taking action as sometimes there can be more advantage to making charitable contributions before death.
Giving advance thought to who will get the corporation stocks if a business owner dies is critical for both the individual’s and company’s wellbeing. Because life is unpredictable and we are not promised tomorrow, it requires both parties to be proactive now, regardless of the age or health of the owner.
The Importance of Securing a Successor Now
Business owners often have strong relationships with employees, customers, suppliers, and government agencies, and in the event that the owner passes, those relationships must be able to be maintained in their absence.
Many companies mistakenly do not consider that it could take some time for the business to recover from the death of an owner because that person may have acted as the primary agent in:
* Bringing in business
* Collecting monies owed
* Fulfilling contracts
The result is that in some cases a business owner can be difficult to replace. At the very least it may require time and money to do so. For this reason, it can be beneficial to have insurance or enough cash stored away that this can be handled without waiting.
For some businesses such as sales, accounting, and such, the owner’s personal relationship with a client or customer base is critical to the company’s success. In situations like these, when an owner passes it is not uncommon for employees or staff to panic and try to grab the business, form their own business, or take the practices and relationships to a new employer who will reward them.
To keep the business from ending up this way after the owner’s death, it is important to make good use of covenants not to compete,