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Buying real estate is the single largest investment many people will make. Whether it is a home for their family or commercial property for the operation of a business, the important points to consider are largely the same. Below is a list of the 7 points you should consider before you make that purchase.
- Work with a good Realtor. When you are trying to find real estate to purchase working with a good real estate agent is very important. This is true if you are trying to identify a new home for your family or a new commercial property for your business. Most real estate agents are very good. However, just like any profession, some are not as good. If you have never worked with a real estate agent ask your friends, your co-workers or your attorney for a recommendation. A good real estate agent earns their commission.
- Get an Inspection. Once you identify a property it is important that you get the property inspected to make sure that you are aware of any issues that may go unnoticed by an untrained eye. Is the property structurally sound? How many more years are left before the roof needs replaced? Has there been water damage in the basement? Are the electrical and plumbing systems in good shape? These are questions that you need to have answered before you buy real estate and are all questions that a licensed inspector can help you answer.
- The purchase and sale agreement – read it and understand it! If you put in an offer and it is accepted by the seller, you will need to enter into a purchase and sale agreement. The terms of the purchase and sale agreement are very important because they will control the ultimate transfer of the property from the seller to the buyer. The purchase price is an obvious term that is contained in the purchase and sale agreement but there are many others. When will the transaction close? If the seller wants to take items that may normally stay (e.g. a plant in the yard that has sentimental value) then those items should be in the purchase and sale agreement. Will the seller pay any closing costs for the buyer? It is important that you read the purchase and sale agreement completely and understand it all. If you don’t know what the terms mean and don’t know if there are other terms that are needed to protect your interest you should consult with an attorney.
- What are your escape options? The most important provisions of the purchase and sale agreement are the terms that allow you to walk away from the transaction and get your deposit (which is typically thousands of dollars) back under specific circumstances. If you are not able to get the loan will you be able to get your money back? The answer to this question depends upon the terms of the purchase and sale agreement — that is why you have to read and understand the purchase & sale agreement. If the survey comes back and you find out that your neighbor’s house is one foot on the lot you intend to purchase what happens? Again – the terms of the purchase and sale agreement will control what your rights and obligations are when buying the property.
- How will you take title? If the inspection looks good and the purchase and sale agreement is signed you then have to decide how you will take title at the closing. Simply put, you need to determine whose name will be on the deed. Will it be you and your spouse? Will it be you and your business partner if you are buying this for your business? Should you set up a corporation or limited liability company to own the real estate? If you own property with your sibling or parent and you want the property to go to the survivor automatically on the death of either of you then you need to be careful how the deed is written. There are many issues related to how you will take title and they each have significant implications. If you don’t understand all the implications resulting from how title to the property is held you should discuss this with your attorney.
- Look out for unique issues – e.g. Easements. Does the property you are buying have the benefit of an easement over the neighbor’s property or does your neighbor have an easement over the property you are buying? Easement disputes can be very frustrating to land owners and you need to fully understand the benefits or burdens of any easement BEFORE you own the property. You also need to review the plot plan to make sure the location of the building on the property is acceptable and there are not issues related to parking or traffic (especially for commercial properties) that could be caused if your neighbor put up a fence.
- Are there limitations on future use? If you are buying the property with a specific purpose in mind, make sure you investigate whether that use is possible before you close the purchase. If you want to operate a business on the property make sure the zoning allows for such use. If you want to put in a pool you need to make sure there are no restrictions to prevent you from installing a pool. Do you have enough room to put a pool on the property and comply with any setback requirements? Also, are there any deed restrictions which prevent building a pool? Some golf courses have deed restrictions on the adjacent property that prevent a pool or even a swing set from being placed on the property. The time to learn about any limitations is before you take title to the property.
The above list is not meant to be exhaustive but rather address some of the more important issues to consider when purchasing real estate. You should always work with knowledgeable professionals to protect your interests.
Nobody likes to be the defendant in a lawsuit but sometimes you have no choice. I work with clients who have been sued and who have also filed a lawsuit. Typically, filing a lawsuit means that efforts to resolve the matter outside of court have failed. You may have received a demand in the mail for payment of a past due account or perhaps you were contacted by a prior employer who is unhappy that you now work for the competition. The purpose of this blog post is to provide some guidance on what you should do after the lawsuit has been filed.
- Don’t ignore the summons! When litigation is started the plaintiff will receive a summons from the court and that summons must be served on the defendant. Once the summons has been served, the defendant typically has 20 days to file an answer. If you are the defendant, the answer is your response to the complaint (the allegations against you). Although it is more complicated than this – you basically either admit or deny the allegations. You need to be very careful about what you admit in the answer. If you have an attorney, bring the summons to your attorney right away. Don’t wait until the 19th day after it was received. If you don’t have an attorney and can afford one – this would be a good time to hire an attorney to represent you. If you just ignore the summons it is likely that the plaintiff will move for a default judgment – which means the court will say you lose because you did not defend yourself. Although there are situations when you can try to get a default judgment reversed, it may not be possible and if you can get the default reversed your legal fees to do so will dwarf the fees you would have paid to just file an answer. Don’t ignore the summons!
- Develop a strategy to deal with the situation. A very high percentage of cases that are filed will be settled by agreement between the parties and do not go to trial. However, you should assume that the case will go to trial and prepare accordingly. What are your defenses to the action? Do you have any possible claims against the other side? Do you want to make an offer to settle now? Do you want to send discovery to the other side to get more information about the case before you settle? These are all questions you need to ask in dealing with litigation.
- Your lawyer needs to know all the facts. If you are represented by an attorney you should make sure your attorney knows all the facts about the case. Even if a fact is embarrassing, bad for your case or something you don’t think will be discovered you should let your attorney know. There is absolute confidentiality between you and your attorney and it is important that the lawyer knows all the information so they are not surprised if the fact is revealed during the litigation.
- Check to see if you have insurance coverage. If you carry insurance you should check to see if you have any liability policy that may provide protection. If the lawsuit relates to a car accident then your auto policy should provide coverage and as part of the coverage will likely pay for an attorney to represent you. Many insurance policies require that the insurance company be notified when the claim is made. You should let your insurance company know of a possible claim as soon as it occurs, which may be months before the lawsuit is filed.
- Are there other ways to respond to the litigation. If the lawsuit has been filed by a credit card company to collect a delinquent account you may want to explore the possibility of bankruptcy. Is this the first of many lawsuits that you expect? If you are in a difficult financial situation then you need to explore all the options. Should you liquidate your retirement account, IRA or 401k to pay the amount due? Although liquidating retirement accounts may provide a source of funds, because the early withdrawal penalties are so significant you need to be very cautious in taking this step. Never take money out of your IRA, 401k or retirement account without speaking to a bankruptcy attorney for guidance.
- Explore mediation. If possible you may want to request mediation of the dispute. Although mediation does not work in all situations, it is a step that can be very effective in resolving the matter.
Being the defendant in any litigation is always a stressful situation. The above six steps will help you deal with the litigation and hopefully bring it to an acceptable conclusion.
If you have a Massachusetts corporation or limited liability company (“LLC”) there are certain actions that you need to take on an annual basis to make sure your corporation or LLC is in good standing with the Secretary of State’s office. Why is it important that your corporation or LLC be in good standing? If a corporation or LLC is not in good standing there is a potential argument that the entity does not exist, you are operating as a sole proprietor and there is no protection from personal liability that a corporation or LLC would otherwise provide. To prevent this potential loss of liability protection what should you do?
Annual Reports for Corporations. Corporations need to file an annual return with the Massachusetts’ Secretary of State’s office. This annual return must be filed within two and one half (2 ½ ) months after the close of the fiscal year. If your corporation is a calendar year taxpayer, the annual report must be filed by March 15 of each year. The fee to file the annual report is $125 if you send the form by mail or $100 if you file the form electronically.
What to watch out for? There are companies which send out notices to corporations about the time that the annual report is due at the Secretary of State’s office. The notices are very cleverly written and indicate the for a fee of $125 (the same amount as the annual report fee) the company will provide the required annual meeting minutes. While you should also keep annual minutes for your corporation, many people who respond to this solicitation think that this is the annual filing with the Secretary of State’s office. It is not. Sending in $125 to a private company for your annual meeting minutes (you provide the basic info about who attended, who was elected director, officer, etc.) is not the required filing with the Secretary of State’s office. The next time your corporation receives notice in the mail requesting a $125 fee, be very careful to confirm exactly what you are getting for your money.
Minutes of the Annual Meeting. Corporations should have an annual meeting and should keep minutes of that meeting. The minutes do not need to be elaborate but should say when and where the meeting was held, who attended, who was elected a director or officer of the corporation and what was reviewed. For example, your minutes could say that on May 1, 2010 all three shareholders of the company met to review the financial records and tax returns for the company for the past year. The shareholders moved to issue dividends in a certain amount and also reviewed and approved the summary of financial operations for the last year. Finally the names of the individuals elected as directors and officers of the corporation for the coming year should be stated.
Annual report of LLCs. Just like corporations, LLCs are also required to file an annual report with the Secretary of State’s office. The annual report for LLCs is due before the date of the filing of the LLC’s original certificate of organization. For example, if an LLC filed its certificate of organization with the Secretary of State’s office on December 1, the annual report is due prior to December 1 of each year. The annual report fee for LLCs is currently $500. Although this is much higher than the fee for the corporate annual report, LLCs are not subject to the excise tax that corporations are required to pay. The minimum excise tax is currently $456 per year. Therefore, the combined annual fee for a corporation ($125 + $456) is slightly higher than the $500 annual fee that LLCs must pay.
Filing the annual report for your corporation or LLC is very important to insure that your corporation remains in good standing with the Secretary of State’s office and that you receive the important protections that corporations or LLCs can provide for your personal assets.
Trying to collect money from a client or customer can be one of the most frustrating experiences for any business owner. You do a great job – the customer seems very appreciative but you end up waiting too long to receive the money you are owed. To help insure prompt payment you should consider the following points.
- Get paid up front. This is not rocket science – if you are able to collect the money before you do the work you never have to worry about getting paid. If your customer really wants your service and you require payment in advance you have much more leverage to get those funds in a timely manner. The motivation of your customer to pay in a timely manner once they receive your goods or services can be greatly diminished.
- If you can’t get paid in full up front – make sure you get a significant deposit. If the market or the actions of your competition do allow you to be paid in full up front – try and get as much as you can as early as you can. 1/3 down when you sign the contract, 1/3 when you start the project and 1/3 when you complete the project.
- Part of any discussion with your customer MUST include a discussion about how much the work will cost and when you expect to be paid. The time to have this very specific discussion is before you start work. If you are specific and the customer hesitates or admits they could not pay you for 90 days, then you have to decide if these terms are acceptable to you.
- This next point is very important – and a tough one to realize. You are better off with no customer than with a customer who will not pay! Why? If you spend time providing services to a client that will not pay, you are expending efforts for no benefit. If you were not spending your time providing what may end up being free services, you could have used that time marketing your business to attract customers you want (ones that pay!). You also could have spent your time doing something you enjoy outside of work.
- Have a clear contract or fee agreement with your customer. See my prior blog post on what a customer fee agreement should include: http://boergerlaw.com/archives/297
- Don’t let an outstanding bill get stale. If the bill was due on March 15 and it was not paid by March 16 – give that person a call. There is an old expression that the squeaky wheel gets the grease and to a large extent this is true. If your customer is having financial difficulties and cannot pay several bills, he or she may pay the bill for the person who is squeaking the loudest. Don’t be afraid to squeak!
- Consider the use of a collection agency. You need to be careful with this as there are good and bad collection agencies. However, using an effective collection agency may be an excellent choice for your business.
- Evaluate your business operations. How many time in the past 6 months have you had to send a client to a collection agency, been paid more than 60 days late by a client or had to file a lawsuit to collect money you are owed? If the answer is many times, then you really need to step back and evaluate what you are doing. I had lunch with an attorney friend who commented that they are suing their clients “all the time” to get paid. That person needs to do a better job selecting their clients.
- Be very selective in taking on new clients. A client who does not pay is worse than no client at all. Yes – this is a duplicate of what I said in number 4 above but it is so fundamental it had to be repeated. If you have been in business for several years I suspect you have an inner voice that tells you when someone may be trouble. Be very attentive to that little voice – it is probably right most of the time.
- If you still cannot get paid – small claims court may be a good option. Under recent changes to the Massachusetts’ small claims law, you can sue in small claims court for amounts of up to $7,000. You can handle a small claims matter without the assistance of an attorney and the added pressure of a judgment from the court may be a real benefit in getting your money.
- Consult with an attorney and file a lawsuit. If you get to this point things have gone terribly wrong. Filing a lawsuit to collect money is something that is done on a regular basis but litigation is expense, slow and generally very frustrating to most people involved. You also need to carefully evaluate how much you hope to collect versus the legal expense to collect the funds. Finally, obtaining a judgment does not guarantee you will get paid. There are no debtor prisons in the US and you can’t get blood out of a stone. Spending $10,000 or $15,000 in legal fees to obtain a judgment when the client has no money may do very little to obtain your ultimate goal of getting paid.
- Get paid up front!
On December 16, 2010, the Governor approved significant and very beneficial changes to the Massachusetts Homestead provisions. What does the Massachusetts homestead provision do? The homestead law operates to protect your home from being sold to pay your unsecured creditors. For example, if you were in an auto accident and were left with liability of $200,000 not covered by insurance and the plaintiff in the lawsuit obtained a judgment against you, a properly filed Massachusetts homestead declaration could prevent your home from being sold. If you did not have a declaration of homestead on file with the Registry of Deeds, a judgment creditor could force the sale of your home to pay your liability.
Under the old homestead law there were some significant problems. If you did not file a declaration of homestead with the registry of deeds you had no protection. In addition, if you owned the property under a trust arrangement, you risked losing your homestead protection. In the estate planning area there are significant benefits from holding real property in trust. Unfortunately, if you held your home in trust it meant that you risked the homestead protection that was so beneficial.
The new law goes into effect on March 16, 2011. Please note that the new legislation specifically indicates that declarations of homestead which are in effect on the effective date of the new provisions will remain valid. Therefore, if you have a valid homestead there is no need to record a new homestead. However, if you own your home in a trust, after March 16, 2011 you should file a declaration of homestead with the registry of deeds.
The highlights of the new homestead provisions are as follows:
- There is an automatic homestead exemption that applies to all homes of up to $125,000. You do not have to do anything to benefit from this automatic homestead protection for your primary residence;
- The new homestead provisions apply to primary residences that are held in trust. The declaration of homestead needs to be filed by the trustee of the trust and the homestead protection operates to protect all family members;
- The filing of a written declaration of homestead with the Registry of Deeds increase the equity that is protect up to $500,000 (the current homestead protection);
- If you are elderly (age 62 and over) or disabled, a husband and wife can both claim a homestead amount of $500,000 thereby protecting up to $1,000,000 under the homestead provisions.
- You can only claim a homestead on one primary residence. You cannot have more than one primary residence for homestead purposes;
- The homestead law does not prevent mortgage holders from foreclosing against the property;
- The cost to record a declaration of homestead at the registry of deeds is only $35.00.
- The proceeds from the sale of real property covered by the homestead law are also protected. This means that you can sell your home and the proceeds from the sale of the home (up to $500,000 if you have a written declaration of homestead filed) is free from collection by any creditors.
If you don’t know if you have a homestead filed with the registry of deeds on your primary residence you need to find out! Massachusetts offers one of the most generous homestead provisions in the country. It is a very easy way to help protect one of your main assets and there is no reason why you should not have a homestead filed on your house.
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