Legal Update New Year 2019
A. Buying/Selling Residential Homes
B. Fraudulent Solicitation of Periodic/Annual Reports
C. The Camera
D. Restrictions on Ownership Interests
E. Personal Guaranties
A. Buying/Selling Residential Homes
I heard a lawyer ask a real estate broker what percentage of the buyers attempt to reduce the sale price of a home after the inspection by a home inspector. The realtor said, “100%”. Having gone through the process recently, it seems ridiculous that homeowners put their homes on the market with mold, electrical issues, siding damage, depreciated roofs, garage doors that don’t open, worn out water heaters, etc.… Usually none of the defects are disclosed, but easily discovered. It would make more economic sense for a homeowner to spend a few thousand dollars to do these repairs before listing the home. Buyers want to feel they are buying a “dream home” that they can move into with as little hassle as possible. The seller will end up paying for most of the problems one way or another. Many sellers will lose contracts to sell if the home inspection is too negative. Why not hire a handy man before listing the house and fix all the major problems up front to speed up the sale? A seller, and potentially their broker, can be subject to liability after the sale for certain environmental issues discovered at a later date that were obvious or known of by the seller. As in all transactions, be fair and honest for the best results. Speaking of home inspectors, hire a good one and read their report. A potential buyer may also need to hire an engineer (structural issues), electrician, and plumber (HVAC) to complete the inspections. This is money well spent before putting the ink on a 30-year deed of trust. When buying a distressed or foreclosed property, inspections are even more important.
B. Fraudulent Solicitation of Periodic/Annual Reports
Business owners are receiving letters that appear to be from government agencies or references government agencies’ contact information, stating that periodic/annual reports must be filed. These solicitors request that you send excessive fees ($200.00 +) immediately. The letter usually contains veiled threats of penalties and fees, and quote several Colorado statutes, to look official. If you believe you have been victimized by such a scam, contact the Secretary of State at https://www.sos.state.co.us/ or the Office of the Attorney General (800-222-4444). Please call the Andersohn Law Office if you are concerned about your compliance with annual/periodic reports or other filings for your corporation or LLC.
C. The Camera
I’m old enough to remember the 110 cameras, polaroid, and disposable cameras. Today, over 90% of people are walking around with a camera in their pocket. A camera is a very important tool for legal disputes. When a tenant moves out, photograph any damage to the property. If you get in an auto accident, photograph both cars. If your house suffers a flood, hail damage, or fire, take a picture to document the damage and conditions. If a person has valuable personal property, take pictures for potential insurance claims, in case of theft or damage. If you deliver construction materials or equipment to a job site, take a picture as proof of delivery. If a contractor installs a new countertop or remodels a bathroom, take a picture to document the condition and quality. If you sign a contract and there isn’t a copy machine nearby, take a picture of the contract. When a person trespasses on your property, take a picture. Insurance companies are brutal, and people sometimes forget the truth. Remember, “a picture is worth a thousand words”.
D. Restrictions on Ownership Interests
Business partners may become best friends and spend their lives together making money, building a business, and socially interacting with each other’s family. Two or more people doing business together refer to each other as “partners”, but general partnerships are a thing of the past due to unlimited liability of each partner for the actions of the other partner. Most “partners” are advised to set up a Corporation or a Limited Liability Company (LLC). Equal ownership of a two (2) person business can have the same issues as a marriage, but many survive just fine. To protect both business owners, a buy/sell agreement is a great way to plan for the future;
Death. Without a written agreement, most spouses will inherit their spouse’s business interests. This may be desirable in some circumstances, but a lot of people don’t necessarily wish that result. Many business owners would prefer buying out their co-owner upon death. By signing an agreement, a deceased business owner can obligate his or her estate to sell their interest in a corporation or LLC to the surviving partner. The terms of the buyout can be included in the agreement, to give the survivor a little breathing room to finance the purchase. An alternative is for the business to acquire insurance policies on the business owner’s interest in case of an untimely death. This is expensive and is beyond the thoughts of many start-up businesses. However, after enjoying a successful decade of business, it should be a requirement of most businesses to plan for the future.
Transfer of Interest. It’s rare for a business owner to be excited by his or her business partner transferring their interest to a complete stranger or competitor. Early in the relationship a written agreement restricting transfer and/or allowing the other owner to have a first right of refusal to acquire the interest, is desirable. Transfer problems arise because of numerous issues from unhappiness with the relationship to retirement, relocation, and health issues. This should not be a controversial matter as the potential issues apply equal to all owners.
Disability. Agreements can be drafted to take into consideration potential disabilities whether physical or mental, that prevent a partner from being able to perform his or her duties.
E. Personal Guaranties
Many of my clients lose money each year because contracts, and open account services and accounts, are sold without personal guaranties from the owners of business entities. Unless a lender or person extending credit can accurately assess the credit worthiness of a customer, a personal guaranty should be mandatory. If a credit manager thinks it’s awkward to ask for a personal guaranty, imagine how awkward it will be to collect a judgment against a company that goes out of business.