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/20.02.17 /By Charles Castellon

Why That Property You Bought at the Tax Deed Sale May Land You in Court

By Charles P. Castellon, Esq. 2017 © All rights reserved. Recognizing the adage that “you make money when you buy,” all real estate investors look for bargains.  A popular place to buy low is the tax deed auction.  Many investors specialize in this area or include tax deeds among other

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Lilli Rodriguez photo

By Charles P. Castellon, Esq. 2017 © All rights reserved.

Recognizing the adage that “you make money when you buy,” all real estate investors look for bargains.  A popular place to buy low is the tax deed auction.  Many investors specialize in this area or include tax deeds among other acquisition strategies.  The main drawback, however, is that when you take title through this auction, issues come with it.  This article will discuss the title issues tax deed investors face and available solutions.

Before a property may be auctioned to pay the tax collector, certain procedures are required.  After a property tax bill goes unpaid, there is a tax lien certificate sale.  The winning bidder pays the taxes and receives a guaranteed return on investment.  After a minimum of two years have passed, the certificate holder may redeem it and have a tax deed sale set.  The sale is announced to the public and anyone can bid on the property.  This sale will wipe out all other liens, including mortgages, with the exception of other government liens.

The winning bidder gets title to the property, in some cases, for little more than the amount of property taxes owed.  Occasionally, if there is good equity, the winning bid will result in a surplus when that amount is greater than the taxes owed.  In most cases, other lien-holders (usually mortgage lenders) claim the surplus funds, but if there are no other liens, the former homeowner may receive the money.

The title problem is effectively a real estate marketability issue.  The title insurance industry, takes the position that tax deed title is risky. A tax deed investor may find a cash buyer willing to take the property without the assurance of a warranty deed and owner’s policy of title insurance, but that’s unlikely.

If the buyer of a property acquired through the tax deed sale uses mortgage financing, that lender will want its own title insurance coverage.  This means the property is not marketable, unless the owner holds it for at least four years, which is the title insurance industry norm for considering that the coast is clear.

The main reason for the nervousness is that the legal process leading to the tax deed sale could be defective.  All parties with an interest in the tax-delinquent property, including title owners, mortgage lenders and lien-holders found in the public record are entitled to notice and an opportunity to pay the tax bill or raise challenges prior to the tax sale.  If the clerk of court makes mistakes and fails to notify interested parties, that could poison the underlying legal process and create a title problem.

The solution is generally found when the new owner files a lawsuit called a quiet title action.  This is a legal action against all other parties who may have a valid claim on the title based on information found in the public records.  These potential claim-holders are named in the suit, served legal papers and given an opportunity to respond.  In the tax deed world, most quiet title actions are won on default because the court system usually gets it right by giving notice to all the proper parties leading up to the tax deed sale and nobody has a defense to raise.

Depending on the issues that may arise in any given case, the quiet title process may be completed within several months.  Perpetual court congestion can cause delay even in the absence of anyone contesting the case.

As an alternative to filing a quiet title suit, some investors pursue an alternate solution.  There are some specialized title insurance underwriters who will, for a higher premium than a usual title policy, take on the risk and insure the title of a tax deed property.  Many real estate attorneys would prefer that investors not know about this option.  In many cases, the cost of the premium will be less than the legal fees and court costs associated with the quiet title suit.

In any given situation, there may be valid considerations aside from costs.  The smart investor should get the advice of counsel, do a cost-benefit analysis and determine which option is right.  The answer may be to hold the property for an extended period to remove the title issue, file the quiet title suit or buy the special title insurance policy.  The main thing is to make a knowing and informed business decision that’s right for the investor in their situation.

 

Charles Castellon has been practicing law since 1992 and is the Founder and Managing Attorney.  Charles is also the principle of Esquire Title Company (“Hard Deals Made Easy”), a member of Common Wealth Land Trust Services and a real estate investor.   For all your legal, title and land trust needs, call 407 851-0201 or email Charles@cpclaw.net

 

Blog /07.02.17 /By Charles Castellon

Why tenant security deposits are a minefield for Florida landlords by Charles P. Castellon, Esq.

All Florida landlords should read and understand the state’s landlord-tenant laws found in Chapter 83 of the Florida Statutes.  A part of the law that contains pitfalls and has historically caused problems for investors is 83.49.  This subsection covers tenant security deposits and the rules governing how landlords may hold

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All Florida landlords should read and understand the state’s landlord-tenant laws found in Chapter 83 of the Florida Statutes.  A part of the law that contains pitfalls and has historically caused problems for investors is 83.49.  This subsection covers tenant security deposits and the rules governing how landlords may hold and refund deposits following the tenancy.  The law contains strict procedural rules to follow, including specific notice language landlords must use to inform tenants of their legal rights regarding deposits.

These legal waters are dangerous to navigate because violations will trigger attorneys’ fees for the winning party in litigation as well as forfeiture of the deposit.  Many savvy tenants and their attorneys have effectively exploited technical violations to their advantage, which can be costly for landlords.

Additionally, investors renting their properties through the popular federal “Section 8” subsidy program administered by the Department of Housing and Urban Development (HUD) should be aware of some differences in the rules governing deposits from what the State of Florida requires.  This article shall discuss these legal issues to give investors the knowledge to comply with the law and avoid the liability and stress resulting from deposit disputes.

Section 83 of the Florida Statutes covers all aspects of landlord-tenant law.  A good place for investors to start understanding the law is Subsection, 83.49-“Deposit money or advance rent; duty of landlord and tenant.”  83.49 (1) and (2) set forth how landlords shall hold deposits  as well as required  notice language they must give tenants.

Landlords may hold their tenant’s deposits in interest-bearing or non-interest bearing accounts.  It is illegal to co-mingle tenant deposit money with other funds of the Landlord.   If held in an interest-bearing account, the tenant is entitled to receive “at least 75% of the annualized average yearly interest rate…or 5% per year, simple interest, whichever the landlord elects.”

Alternatively, the landlord may post a surety bond to secure deposits, as described in 83.49(c).  This bond is posted with the clerk of the circuit court for the county where the property is located.  Choosing this option will trigger payment of 5% simple annual interest to the tenant.  Different rules apply to landlords owning rental properties in five or more counties, including the right to post a bond with the Secretary of State instead of the clerk of court for each county.

Section 83.49(2) requires landlords to give tenants a specific legal notice concerning their deposit rights.  This part of the law does not apply to landlords renting fewer than five individual dwelling units.  Landlords may choose to include this language in the lease or deliver it within 30 days of receipt of the deposit.  The best practice is to include this language, exactly as written in the statute, in all residential leases.

The handling of security deposits is likely the most common landlord-tenant legal dispute.  This is a very dangerous area  because of the strict legal procedural requirements and attorney fees provision allowing the winning party in a lawsuit to collect the fees and costs of the case.  Many attorneys will pursue deposit cases without requiring advance fees from the likely economically-challenged tenant because a winning case will lead to the landlord paying the tenant’s attorney.  The “reasonable” attorney fees a court may award the winning party often far exceed the amount of the deposit at issue.

Section 83.49 states that, if upon the end of the tenancy, the landlord has no claim for any part of the deposit, the landlord must return the money to the tenant within fifteen days of moving out.  If the landlord intends to make a claim on the money, they have thirty days to deliver written notice by certified mail to the tenant’s last known address.  This written notice must include specific language found in the statute.  The landlord shall give the tenant fifteen days to object in writing to the claim on the deposit.  Tenants commonly file legal actions for defective notice based on grounds such as untimely delivery or failure to state the required statutory language.

A more obscure provision of the law states that these deposit requirements don’t apply where the deposit “is regulated by …federally administered or regulated housing programs or [Section] 8 of the National Housing Act…”  Florida Statute 83.49(4).  Considering the popularity of the HUD Section 8 subsidy program, many landlords should be familiar with this exception to the state law.

The Code of Federal Regulations, Title 24, Chapter VIII, Part 891.435 (cited as 24 CFR 891.435) describes federal requirements .  These federal regulations refer back to applicable state or local laws for certain matters.  The federal rules contain some minor differences from the state law, but allow for state statutory provisions to apply in certain circumstances.  Under the federal regulations, the landlord may use the security deposit to cover unpaid rent.

The federal rules require that within thirty days of the tenant’s notification of a new mailing address, the landlord must refund the deposit or provide an itemized list of amounts owed.  In addition, the landlord is required to give the tenant a statement of rights under state law.  This requirement would have the landlord recite the 83.49 deposit rights language referred to above.  If the amount owed the landlord is less than the deposit, the landlord must refund the balance.  If the landlord fails to provide an itemized list of damages, the tenant is entitled to receive the full deposit.

The tenant may present objections to the landlord in an “informal meeting.”  The landlord must keep a record of the tenant’s objections at that meeting for inspection by HUD.  If the parties are unable to resolve the dispute, the tenant may pursue relief under the terms of the state law, 83.49.  If the retained deposit is less than the amount owed, the landlord may apply for HUD reimbursement for the difference.   The landlord may collect the lesser of the balance owed or one month’s rent minus the security deposit balance.

The main take-away for Florida landlords is that the law on tenant deposits is a minefield of legal liability and exposure that must be thoroughly understood.  Section 8 landlords should also be aware of some nuances differing from the applicable state law, though there is some overlap allowing for both state and federal law to apply to deposit issues.  Understanding and following all these rules at the start of a landlord-tenant agreement will greatly reduce the landlord’s exposure and allow buy and hold investors to focus on making money.Lilli Rodriguez photo

Blog /13.04.16 /By Charles Castellon

Understanding HUD’s Attack Against Investors and How to Respond

Recently, the Obama administration and Department of Housing and Urban Development (“HUD”) made a policy announcement of great concern to the real estate investor community.  The government announced that under the federal Fair Housing Act (“the Act”), landlords cannot deny housing based on a prospective tenant’s criminal history. The historical

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Lilli Rodriguez photoRecently, the Obama administration and Department of Housing and Urban Development (“HUD”) made a policy announcement of great concern to the real estate investor community.  The government announced that under the federal Fair Housing Act (“the Act”), landlords cannot deny housing based on a prospective tenant’s criminal history.

The historical legislation was passed in 1968 to combat a long and shameful history of housing discrimination by the private and public sectors.  The law prohibits discrimination in the sale and rental of, and lending for, residential real estate on the basis of membership in protected classes.  These classes predictably include race, color, sex, religion, national origin, familial status and later through an amendment to the law, disability.  Stiff penalties for violations may include fines as high as $70,000 for repeat offenders plus attorney fees.

The list of protected classes does not include convicted criminals.  The government’s argument in support of its broad interpretation of the law is that because the convicted criminal population so disproportionately consists of minorities, discriminating against criminals is effectively the same as racial discrimination.  It’s noteworthy that the Act does allow landlords to exclude convicted drug dealers.  This article shall pick apart the government’s argument and offer practical suggestions for landlords, sellers and private lenders in response to this sweeping government pronouncement.

The extension of the Act’s protection to criminals is not as radical as it may appear at first glance because of a recent U.S. Supreme Court precedent that no doubt inspired the government’s recent policy declaration.  In 2015, the Court ruled in the case of TX Dept. of Housing and Community Affairs vs. The Inclusive Communities Project (in a 5-4 opinion) that evidence of “disparate impact” of housing policies may be used to show a discriminatory effect, regardless of the intent of the actor.

The Court ruled in this case brought under the Act that the actual intent to discriminate against a member of a protected class is not required to prove a violation if a discriminatory impact is found.  Remarkably, throughout the 47-year life of the Act, the issue of the intent, or mental state, needed to make out illegal discrimination had not been decisively resolved.

Fast forward to last week and the government says that the Act protects convicted criminals against discrimination because criminal populations are disproportionately minority.   The courts, not HUD, have the final word on the interpretation of any law.  This policy declaration is a warning that HUD may file legal action for denying housing to criminals.

The main flaw in the government’s argument is that race is not the true correlation to criminal behavior, but rather, poverty.  Take the “live free or die” State of New Hampshire as a case study.  According to U.S. Census Bureau data from 2014, it’s among the whitest of states.  About 94% of the population is white, 1.5% African-American and 3.3% Hispanic.  According to the government’s logic, this lack of minorities should lead to sparsely-populated prisons overseen by the correctional equivalent of the Maytag repairman.

The reality is that New Hampshire’s prison population has grown in recent years at the fastest rate in the nation.  A U.S. Department of Justice study reported an 8.2% increase in 2014 (with another very white state, Nebraska, coming in second at 6.8%).  The NH prisoner population has been increasing since 2005.  If minorities are disproportionately represented in national inmate populations, then who is packing into NH’s prisons?  The answer is poor white people.

Poverty is clearly the most common denominator in relation to crime.  America’s historical disgrace has been that minorities are disproportionately poor and the poor are disproportionately convicted of crimes.  What and who are to blame are subject to debate.  Few would say (at least in polite company) that blacks and Hispanics are more genetically inclined to be criminals.  Some would argue that bad government policies have created these conditions of poverty and incarceration.  What’s undeniable is that the government has failed to cure the problem, regardless of the causes.

Now HUD is passing the problem down to investors and landlords to suffer the cycle of crime and poverty.  The government is effectively requiring landlords to do business with the worst financial risks because convicted criminals (outside of the white collar crime world) are most likely to be financially unstable.  The Act never intended to make poverty a protected class but that’s what HUD is doing now by failing to understand that poverty, not race, is most responsible for criminal behavior.

Of course, personal accountability and character are also important factors.  It would be irresponsible to suggest that poverty alone creates criminals as well as demeaning to the large majority of poor people who don’t commit crimes.  People with free will make bad choices that often lead to criminal records.  To force investors to accept tenants who under the best light, exercise poor judgment, and under the worst, are bad and dangerous people incapable of rehabilitation, is simply wrong and hypocritical.

To make matters worse, HUD has created liability for accepting dangerous tenants to avoid a discrimination action.  Imagine renting to a violent felon, possibly a sex-offender, in a multi-family property and the risk that creates for innocent neighbors, especially children.  There is little doubt that lawsuits will be filed against landlords for creating dangerous living conditions when predators act.

Investors need a game plan in response to the government policy.  It’s uncertain whether the courts will uphold HUD’s interpretation, but unless an investor wants to be a defendant in a test case, avoiding trouble is the safest course of action.

A good place to start is by reviewing tenant screening procedures.   Criminal record should not be an automatic disqualifier.  Landlords should screen prospective tenants based on finances.  Credit rating, rent payment history (including eviction filings), outstanding judgments, income, reserves and other financial data are all appropriate criteria to consider and unrelated to protected class status.  Because of the strong link between criminal history and poverty, applicants with a record are already likely to be financially unstable.  Landlords should avoid accepting a worse financial risk tenant with a clean record over a better one with a rap sheet.

For those who haven’t completely given up on the political process to get things right, lobbying should be done.   Congress can amend the Act to clarify that it does not protect convicted criminals as an extension of the racial protected class status, as HUD has interpreted.  On a more ambitious level, Congress can more broadly overhaul the Act to require the actual intent to discriminate, rather than only “disparate impact.” The Supreme Court was able to render its broad interpretation of the Act in the above-cited case because the law was unclear on the required mental state to discriminate.

National, state and local Real Estate Investor Associations should rally the rank and file to be heard as a unified voice.  On the local level, there is power in the compound effect of individual investors contacting their Congressional Representatives and Senators to demand action.   The investor community should take seriously the duty to speak out in response to this injustice and protect against the recent government attack on its livelihood.

Charles Castellon is the founder and managing attorney of CPC Law as well as a principal in Esquire Title Company and Common Wealth Trust Services.  Charles has been practicing law since 1992 and serves the investor community throughout Florida.

Blog /28.03.16 /By Charles P. Castellon

What is Debt Validation?

In today’s world, there are many instances where a company attempting to collect a debt is not the same one that originated the debt. When a consumer is dealing with such a party, they have a right to dispute owing anything to this third party and to request the third

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7214450550_bd3c1e5db2_oIn today’s world, there are many instances where a company attempting to collect a debt is not the same one that originated the debt. When a consumer is dealing with such a party, they have a right to dispute owing anything to this third party and to request the third party does in fact have a right to collect anything. This is known as “validating” the debt and this consumer right is found at 15 U.S. Code § 1692g – Validation of debts (LINK).

Making sure your creditor can validate the debt and prove they have a right to collect it is an important safeguard if a consumer feels unsure whether they owe a creditor who alleges to own a debt. If you have questions about your rights when it comes to debts, please call John Crone at 407-851-0201 to discuss your case.

 

Blog /15.02.16 /By Charles P. Castellon

Be Careful! Three Practices in the Sale of Used Cars you need to Know About

            Purchasing a car can be a stressful event. Not only is it normally a large expenditure but it also can involve pressure tactics and the filling out of paperwork you’re unfamiliar with. It’s important to know your rights and to protect your interests when spending so much money. The

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            Purchasing a car can be a stressful event. Not only is it normally a large expenditure but it also can involve pressure tactics and the filling out of paperwork you’re unfamiliar with. It’s important to know your rights and to protect your interests when spending so much money. The following are three common practices in the world of used car sales you should know about going in.

Number One: Spot Delivery. This happens when the dealer allows a customer to drive off the lot with the car – “on the spot” – while the agreement is not technically finalized. In some cases, the dealer and the buyer enter into a sales agreement conditioned on some other type of action like securing financing from a third party.

Number Two: Conditional Sales Agreements. Typically in this type of agreement, there is an action that the consumer must take to complete the deal, like arranging financing to purchase the car from a source other than the dealer. In the conditional sales agreement, the buyer knows that he or she is expected to secure financing elsewhere.

Number Three: The Yo-Yo Scam. In a typical yo-yo deal, the dealer cancels the original deal after a few days (or weeks in some cases) and forces the consumer to return to the dealership with the newly purchased car. Often, the dealer states that “the lender” has changed its mind and will not finance the loan at the rate or with other terms promised. When a dealer can unilaterally cancel a transaction, the dealer can offer the consumer any interest rate, even low teaser rates they knowingly may not be willing or able to honor, and do so without any significant risk. Any risk in a yo-yo transaction is instead borne by the consumer

Another common issue is that the dealer may refuse to return the consumer’s trade-in vehicle or the consumer’s down payment. The dealer may also threaten to charge the consumer fees for mileage put on the car, wear and tear, or other items. In some cases, the dealer may threaten to call law enforcement on charges of auto theft if the consumer does not return the vehicle immediately.

What this Means for You

While the practices outlined above aren’t automatically illegal, they can be. If you feel you’ve been wronged in the purchase of a used vehicle, call CPC Law for a free Consultation.

 

 

 

 

 

 

** The information for this article was obtained through our experiences with these matters and via the FTC website and specifically Deal or No Deal: How Yo-Yo Scams Rig the Game against Car Buyers, an article written by Delvin Davis

Blog /07.10.15 /By Charles P. Castellon

Kissimmee/Osceola Chamber Presents: Chamber Business Academy for Business Owners and Operators

Event Description: Business owners and operators can learn how to build and grow their businesses in this five week course taught by experts in the areas of finance & administration, Leadership & management, sales & marketing, and HR & legal.  Course sessions include lunch and a special guest speaker on locally-available business resources.  A

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Event Description:

Business owners and operators can learn how to build and grow their businesses in this five week course taught by experts in the areas of finance & administration, Leadership & management, sales & marketing, and HR & legal.  Course sessions include lunch and a special guest speaker on locally-available business resources.  A $500 Value!!

Participants are required to attend all five classes to receive their certificate of completion and be recognized at the 2015 Osceola Business Awards on November 18th.

Fees/Admission:
$100 – Members
$150 – Non-Members
Fee includes course materials, lunch each session, and graduation certificate.
Contact Information:
Christina Pilkington 407-847-4145 or Send an Email
Date/Time Information:
Intro: Traction – The Entrepreneurial Operating System w/ Chris White
Wednesday, October 14th, 11:30 AM – 1:30 PM
UCF Business Incubator
111 E. Monument Avenue, 4th Floor
Kissimmee, FL 34741
Finance, Administration, & Data w/ Russell Slappey
Thursday, October 22nd, 11:30 AM – 1:30 PM
Kissimmee/Osceola County Chamber of Commerce
1425 E. Vine Street
Kissimmee, FL 34744
Leadership & Management w/ Ray Watson
Thursday, October 29th, 11:30 AM – 1:30 PM
Kissimmee/Osceola County Chamber of Commerce
1425 E. Vine Street
Kissimmee, FL 34744
Sales & Marketing w/ Kelly Trace
Thursday, November 5th, 11:30 AM – 1:30 PM
Kissimmee/Osceola County Chamber of Commerce
1425 E. Vine Street
Kissimmee, FL 34744
HR & Legal w/ Julie Wheeler
Thursday, November 12th, 11:30 AM – 1:30 PM
Kissimmee/Osceola County Chamber of Commerce
1425 E. Vine Street
Kissimmee, FL 34744
Blog /21.09.15 /By Charles P. Castellon

What Real Estate Professionals Should Know About Fair Housing Laws

By Charles P. Castellon, Esq. All real estate professionals should be very much aware of certain legal issues regarding housing discrimination and the federal and state laws that cover them.  Some very important issues involve fair housing laws designed to protect the public from the discriminatory practices that once flourished

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By Charles P. Castellon, Esq.

All real estate professionals should be very much aware of certain legal issues regarding housing discrimination and the federal and state laws that cover them.  Some very important issues involve fair housing laws designed to protect the public from the discriminatory practices that once flourished in the real estate industry.

There are many examples of practices known as “steering,”  “block-busting” and “redlining,” among  others, that prevented racial minorities and other disadvantaged members of the public from buying homes.  The Civil Rights movement that gained momentum in the 50’s and 60’s was the catalyst for the passage of a series of legal reforms to change this history and prohibit housing discrimination.

The long history of discrimination led to the passage of the Fair Housing Act.  Also known as Title VIII of the Civil Rights Act of 1968, the law prohibited discrimination in the sale, rental and financing of home purchases and other housing transactions.

The law established protected classes of consumers and prevents discrimination based on race, color, national origin, religion, gender and familial status.  In later years, disability rights came along to require certain reasonable accommodations in limited circumstances.  Among other violations, it is illegal to refuse to rent or sell, refuse to negotiate, refuse to make housing available, falsely deny availability or set different terms and conditions based on a consumer’s membership in one of the protected classes.

In Florida, we have Chapter 760 of the state statutes, known as the Florida Fair Housing Act.  There is much overlap with the federal law.  Having a state version allows for greater enforcement opportunities by government overseers.  This also creates greater potential for liability to all real estate professionals dealing with the public, including investors, realtors, property managers and mortgage lenders.

It is noteworthy that members of the LGBT community to this day lack protected class status.  As a result, under both federal and Florida state law, it is still legal to discriminate in housing based on sexual orientation.  This may be the next legal battleground in the LGBT civil rights movement.

Why is all of this relevant to good real estate players with no intention to discriminate?  The answer is the penalties for violations may be severe, including fines of many thousands of dollars.  Legal violators may not realize they are engaging in prohibited discrimination.  With the most innocent intentions, many may violate the letter of the law and face serious consequences.

In 2015, the U.S. Supreme Court decided a case with serious consequences for anyone who may be on the receiving end of a Fair Housing discrimination claim.  In TX Dept. of Housing and Community Affairs vs. The Inclusive Communities Project, the high court ruled that indirect evidence, including the use of statistics, may be used to show the impact of discrimination.  This means the actual intent to discriminate need not be proven to make out a Fair Housing claim.  This decision will have a far-reaching  impact for all real estate professionals.

Some may believe the history of housing discrimination is a relic from the past and there is no longer a need for these legal protections.  You may be dry, but is it because it’s not raining or you have an umbrella?

This year,  the Department of Housing and Urban Development (the agency in charge of federal enforcement) reached a huge class action settlement with Associated Bank for its discriminatory lending practices from 2008–2010.  Among the terms of this deal was a requirement that Associated Bank give $200 million in mortgage loans to borrowers in minority areas, among other damages.

State and Federal agencies, including HUD and the Florida Commission on Human Relations, send undercover enforcement agents into the housing market to test many industry players as well as field complaints.  Everyone working with consumers in the real estate industry should be very familiar with Fair Housing laws and what it takes to violate them.  If you don’t want to end up somewhere, it’s useful to know the path to getting there so you can avoid it.

Blog /21.09.15 /By Charles P. Castellon

Playing Well With Others: What Investors Should Understand Before Joining Forces

By Charles P. Castellon, Esq. Both experienced and new real estate investors can benefit from forming alliances to work together in deals.  This article will highlight some of the most important issues investors should consider before joining up to make money. The first question to consider is why investors should

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By Charles P. Castellon, Esq.

Both experienced and new real estate investors can benefit from forming alliances to work together in deals.  This article will highlight some of the most important issues investors should consider before joining up to make money.

The first question to consider is why investors should work together in the first place.  The power of leveraging is the first thing that comes to mind.  Investors can unite to share in or contribute to, the risks, work, capital, rewards, knowledge, experience and leads, among other things.  Spreading the risks of a deal is often called “hedging.”  Sharing the rewards can be a great way to minimize the impact of the many bad things that can happen to an individual investor working alone.

There are some important issues any potential partners should discuss before entering a deal.  One consideration involves the capital contributions each team member will make.  Who will put up cash to buy the property?  Investors can lend money to each other or their company, buy a share of the property or company that owns it or any combination of these options.

Someone can offer his or her credit to qualify for financing.  This can be a dangerous idea, the impact of which is often under-estimated.   When family and close friends decide to do business, one partner can contribute a  good credit rating to for the loan application.  Investors should understand  there is no such thing as being “just a co-signor.”  Whoever signs a promissory note is personally liable and puts personal assets and that excellent credit rating at risk if the deal fails and the debt isn’t paid.

Another important contribution is the work or “sweat equity” put into improving a property.  This is where having a partner who is a contractor otherwise experienced in renovations can be gold.  It’s often more difficult to find good deals than finance them.  This can make the person who finds the deal a valuable contributor entitled to a piece of the action for generating the lead.  Everyone needs a good bird-dog.

Another issue to consider beyond contributions is how the alliance will be structured.  There is a broad array of available options but this article will focus on three of the most common choices.  The first is to join together by forming a corporate entity such as a limited liability company.  LLCs are popular with investors for reasons including the ease of use, flexibility and versatility.  Less corporate formalities are needed compared to other types of companies.  Very importantly, it’s challenging for a creditor to pierce an LLC to pursue corporate assets to satisfy the personal obligations of an LLC member.   A carefully-written operating agreement should clearly spell out all the duties and obligations of the company’s members.

In Florida, a strange legal outcome that may result is the creditor getting a kind of lien, or “charging order” against the LLC without the ability to force distributions of assets.  In some cases, the creditor can end up receiving a tax liability for the profits of the company without reaping any benefits.

There are downsides to using an LLC, including expenses from keeping the company’s books, state government fees and preparing tax returns.   Overall, if the members want the equivalent of a business “marriage,” and expect to do more deals together, an  LLC would likely work well.  If a lesser commitment anticipating  a one-shot deal is desired, there are alternatives.

A Florida land trust is one such alternative.  Land trusts remain very popular among investors for many reasons.  The benefits include the privacy that comes from keeping the true parties in control of the property—the “beneficiaries,” out of the public records.  A land trust can also help prevent liens such as those resulting from code enforcement violations from infecting other properties the investors own.  Another nice benefit is that beneficiaries don’t legally own the real estate.  The beneficial interest in a land trust is generally personal property that can be easily sold from one beneficiary to another without transferring title to the property, which is legally held by the trustee.  This benefit can help avoid a “partition” lawsuit that would force a sale resulting from a dispute where co-owners disagree on what to do with the property.  There are many other benefits to using land trusts.

A third option that would be most appropriate for collaborating on a single deal instead of ongoing business is a joint venture.  A joint venture agreement is created to describe the parties’ contributions and duties as well as their returns and respective shares of the risks.  The joint venture agreement serves a similar role as the operating agreement for an LLC.

There are numerous considerations to be discussed before entering a JV agreement, or for that matter, any of the other alliances described here.  They include but are not limited to, business objectives and goals, the structure of the JV, the respective contributions and duties of the parties, how profits losses and liabilities are to be shared and management or control of the venture.

This is a basic overview of the issues associated with investors doing business together.  Before entering into any entangling arrangement, it would be wise to seek expert legal and tax advice.  As the carpenter says, “measure twice, cut once.”

® all rights reserved, 2015.

Blog /19.07.15 /By Charles P. Castellon

Real Estate Contracts 101

By: Ness Chakir, Esq. Are you buying or selling real estate in Florida? If so, all the terms of deal will be set forth in a written contract governed by Florida law.  Buyers and sellers have the ability to use an already written up contract that has been approved by

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By: Ness Chakir, Esq.Back_to_Back_House

Are you buying or selling real estate in Florida? If so, all the terms of deal will be set forth in a written contract governed by Florida law.  Buyers and sellers have the ability to use an already written up contract that has been approved by the Florida Association of Realtors® and the Florida Bar Association.  In fact such contract is used in all transactions.  In most cases you will use a Realtors® help in assisting you with the sale or purchase of the property nonetheless only attorneys can give you legal advice regarding the contract.

These are the most important terms of the real estate contract:

  • Contract must be in writing: all the essential terms of the contract must be in writing so to reduce vagueness and any potential misunderstanding of the contracts
  • Names & Signatures of all Parties. All the parties of the contract must be listed and sign the contract. If you own a house as a husband and wife then both of you must sign the contract in order to sell your property. Neither husband nor wife can compel the other party to sell the property.
  • Description of the Property. The description of the property must be sufficient to identify the property being purchased. The best way to do that is to put down the legal description of the property which would be listed in the deed of the property or the county’s appraisal website. Mailing address may not be enough to sufficient describe the property because of the location of fences or natural boundaries. That can create confusion regarding the location of the actual property.
  • Purchase Price.  The contract for real estate requires that you input the offered purchase price of the real estate.
  • Earnest Deposit: in order for the seller to hold down the property for you and not sell it to another party, you must provide him with an earnest deposit depending on the purchase price.
  • Closing Date. Finally, to enforce a real estate contract, a closing date stating when the property will be transferred to the new owner must be clearly stated.  Depending on the type of financing, it typically takes 30 days from when the contract is signed to close on the property.
  • Agreement to Buy and Sell. To be enforceable, contracts must include language stating that the buyer intends to buy and the seller intends to unequivocally sell the property. Additionally, most contracts come with certain contingencies that will have to occur in order to close on the property. The most common one is the financing contingency, which you will need to include if you plan on getting a loan from the bank to buy the property.  In most cases, if you are unable to close on the property because of lack of financing then you can walk out of the closing and get your earnest deposit back.

What I have described to you is the essential terms of the real estate contract. Nonetheless, there is more to the contract that you should be made aware of.  As a real estate attorney, I can assist you in drafting the contract and protect your interest.

Blog /18.07.15 /By Charles P. Castellon

The National Will Registry—Help For Families Who Can’t Find The Original Last Will And Testament Following Death

By Mark A. Freeman, Esq. The majority of Americans do not have an estate plan, though they may be aware of the importance of preparing for that one sure thing in life.  For many who have taken the time to deal with such a serious matter and create an estate

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By Mark A. Freeman, Esq.Last Will and Testament

The majority of Americans do not have an estate plan, though they may be aware of the importance of preparing for that one sure thing in life.  For many who have taken the time to deal with such a serious matter and create an estate plan, another problem commonly arises.  The surviving loved ones often cannot find the last will and testament and other important document following death.  The inability to locate a lost will can lead to some serious unintended consequences.

For example, in Florida, having only a copy of a will leads to the same legal result as the deceased never having  prepared one in the first place.  The result would be that the deceased is treated as having died “intestate,” or without a will, and state laws would decide who gets what, regardless of the harm to the family, rather than honoring that person’s wishes.

If the original last will and testament is lost, it can be a very costly problem for the surviving family.  The U.S. Will Registry (www.WillsUS.com) has a way for attorneys and their clients to have access to a national database that can trace information regarding the location and the last known holder of the wills of individuals who register for this program.  The actual will is not in the database but its location may be described.

This registry will not take the place of knowing where the actual original will is kept.  There is no substitute for clear communication and instructions following the preparation of estate planning documents.  Everyone having a will prepared should make sure that their family members know where to find the original will.  Many will keep it in a safe at home or a safety deposit box at a bank.

If an estate planning attorney prepares the will, the attorney may hold the original at the client’s request.  Otherwise, it may be a good idea to share with the attorney where the will is going to kept and have the attorney note this information in the file.  It’s difficult to over-estimate the consequences of losing a will for many families.  For example, in Florida, there is no legal requirements to leave any assets to adult children.  If someone wants to make a gift in a will for adult children,  that desire would likely be voided if there is a surviving spouse standing by to take everything.

Lawyers may not list their clients on the registry without their consent and the service is completely free for attorneys to create a profile page and register their firms and clients with the U.S. Will Registry.  An added feature is that if a Will is not located an email is sent to all attorneys who are registered on the database to alert them to check their files on behalf of the family.

In order of importance, everyone should start with preparing an estate plan.  Once that’s done, if the plan involves a last will and testament (as most plans do), the next important thing to do is make sure it’s kept safe and secure while eliminating the stress for the survivors to have to search for the will.

CPC Law will participate in the U.S. Will Registry program for the benefit of our clients.  Contact us at 407 851-0201 for a complimentary estate planning consult.

Blog /17.07.15 /By Charles P. Castellon

Wa Wa and the Attack on Small Business

By Charles P. Castellon, Esq. © 2015, All Rights Reserved. Small business has long been the heart of our nation’s economy.  For years, however, giant national and global companies have taken a greater market share and made it more difficult for mom and pop businesses to survive.  We’ve all seen

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By Charles P. Castellon, Esq.

© 2015, All Rights Reserved.

Small BusinessSmall business has long been the heart of our nation’s economy.  For years, however, giant national and global companies have taken a greater market share and made it more difficult for mom and pop businesses to survive.  We’ve all seen independent retailers and hardware stores close down following a Wal Mart or Home Depot coming to town and many other similar examples.

In recent years, grass roots movements have gained traction in an effort to reverse the trend.  During the Christmas shopping season, we now have “Small Business Saturday” following “Black Friday.”  Despite these grass roots efforts, it remains a struggle for small business to compete with big money.  There is one recent case that shows how vulnerable the moms and pops are even when they’re not trying to compete with large companies.

Yogi Patel represents the American dream so many hard-working immigrants have come here to follow.  Yogi owns an Indian restaurant located in the tourist corridor of Highway 192 in Kissimmee, near Celebration.  His life story is typical of so many immigrants.  He has a long entrepreneurial history and has been an active member of his church in both New York and Florida.  His current business is the Indian restaurant, called Wa Wa Curry.

Late in 2014, Yogi began his suffering at the hand of big business.  This is when the gas station and convenience store chain called Wa Wa determined that Yogi’s restaurant was a threat.  Wa Wa, the convenience store chain,  has headquarters in Pennsylvania and a strong presence throughout the mid-Atlantic states.  Recently, Wa Wa has established a foothold in Florida and is expanding rapidly.  There was no Wa Wa convenience store in Central Florida when Yogi opened his restaurant, but the larger company has determined that Kissimmee is not big enough for two Wa Was.

Wa Wa the larger began asserting its strength by sending Yogi a “cease and desist” letter directing him to change the name.  This initial demand was soon followed by a federal lawsuit for trademark infringement seeking money damages in addition to the name change.

To defend his rights, Yogi retained the firm of CPC Law and its of-counsel attorney, Cliff Geismar.  Following talks between Yogi’s small firm legal team and Wa Wa’s large national law firm, it became clear that Yogi could not take on this fight.  Yogi soon realized that he didn’t have the guns to take on such a big company and its apparently unlimited resources to litigate the case.  Had Yogi fought back and eventually won, he would have likely found himself many thousands of dollars poorer from years of fighting a federal lawsuit while Wa Wa would have barely seen a dent in its bottom line.  Based on this realization, Yogi settled and agreed to change the name.

Yogi’s case bears some similarity to a recent mayonnaise fight.  Unilever, the multi-national corporate giant who owns the Helman’s brand, challenged a upstart company’s right to use the term “mayonnaise” in a no-egg product called “Just Mayo.”  After a flood of ridicule and negative publicity, Unilever dropped the case.  Unfortunately for Yogi, his case failed to generate enough media interest to convince Wa Wa to back down.

One lesson for small business owners to take away from the Wa Wa case is to get good legal advice on intellectual property issues.  Small businesses tend to overlook the importance of protecting their rights to assets such as business names, logos, slogans and other similar fruits of their labor.  With awareness, due diligence and expert advice, entrepreneurs can use for their benefit all the protections available from patent, trademark and copyright laws as well as take action to protect themselves against legal attacks like the one Yogi suffered.

In Yogi’s case, a trademark search would have revealed that the Wa Wa name was protected, regardless of the reality that he posed absolutely no threat of competition to the Pennsylvania company owning the rights and operated under the name in the local market long before the convenience store muscled in.  Other business owners should properly stake out their claims to all their intellectual property and make sure they aren’t violating any other business’ rights before finding themselves tangled in costly litigation.

Blog /15.07.15 /By Charles P. Castellon

Airbnb — a Threat or Opportunity for Landlords?

By Charles P. Castellon, Esq. © 2015, All Rights Reserved. The law has always struggled to keep up with technology.  Back in the 70’s, the legal system was not ready to address issues stemming “test tube” babies and currently, there are some gray areas involving digital assets in estate planning.

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Airbnb and LandlordsBy Charles P. Castellon, Esq.

© 2015, All Rights Reserved.

The law has always struggled to keep up with technology.  Back in the 70’s, the legal system was not ready to address issues stemming “test tube” babies and currently, there are some gray areas involving digital assets in estate planning. [see our prior article here].  In the still-young internet age, it will continue to be difficult for the legal system to keep up.  An interesting example in the real estate world relates to tenants’ use of Airbnb to earn money from their properties.

Airbnb is a wildly successful web-based company that matches visitors seeking to rent a room with lodging providers.  What Uber is to the taxi industry, Airbnb is to hotels.  Recently, a New York judge ruled to evict a tenant in a rent-controlled apartment for using Airbnb to rent three of the sprawling apartment’s four bedrooms to guests.  The tenant earned an astounding $61,000 in nine months of rental activity.

The judge ruled this subleasing violated the lease and New York’s and rent-controlled housing laws.  Though there are unique facts to this case and New York landlord-tenant laws are very different than Florida’s, all Florida real estate investors should carefully consider how the Airbnb revolution may affect them.

Perhaps the first and most important issue Florida landlords should consider is liability.  The constant “revolving door of strangers” that alarmed the New York tenant’s neighbors should be a real concern to Florida property owners.  As title owner to the home, the landlord is likely to be held liable in court for any harm an Airbnb guest may commit while using the property.  If a guest renting one room were to sexually assault a guest in another room, it is a near certainty the victim would sue everyone–the owner, tenant and perpetrator and try to collect damages against any or all.  Which one is most likely to have assets the victim could pursue?

A similar liability concern involves an injury to the Airbnb guest in the property.  Though it’s not advisable, some investor owners don’t carry hazard insurance on their free and clear properties and instead suggest or require the tenant to get a renter’s policy.  If the owner does have insurance, the next risk is whether the carrier may deny coverage based on the “commercial” use of the home effectively being operated as a hotel, or deny the claim for some other reason.

Fortunately, in our market economy, every problem leads to an opportunity for profit by solving it.  The “sharing” economy has spawned insurance pools to cover this new category of risk.

The next question is whether the landlord wants to allow the tenant to make money off the property.  Some owners may not mind and would feel more secure about collecting the rent if the tenant has an additional income source.  Others may demand a piece of the action if there is extra income to be earned.  Most landlords would likely be swayed by the liability concerns and as a result, try to prevent the sub-leasing.

A landlord may draft a lease clearly prohibiting using the property as a hotel with heavy penalties, but enforcement may be difficult.  Periodically monitoring Arbnb for listings of the investor’s properties may be one answer, but other sites are likely to arise in the wake of Airbnb’s success, just as Lyft came along to compete with Uber for passengers.  With time being the most scares resource for most investors, trying to root out such rentals (that may never occur) on all potential platforms cannot be considered a wise investment.

The best solution to this potential problem is a well-written lease with a heavy hammer of penalties for violations for landlords who don’t want their properties used as hotels.  For landlords who don’t object or want to participate in the money-making opportunity, a different lease can be written.

No matter what, the tenant should sing an air-tight indemnification agreement in favor of the landlord.  This means the tenant would fully cover the landlord in the event of a claim.  Of course, most tenants will not have the money to protect the landlord, so insurance coverage will be essential.

The first step for landlords is to be aware of developments in our society such as Airbnb and how it affects them.  The next is to make a well-considered strategic plan to contain the risk of this web-based platform and either prevent its use or share in the profits.

 

 

Event /13.07.15 /By Charles P. Castellon

Attorney Castellon to Speak at Homebuyers Education “Fast-Track” Workshop Held by Help CDC July 18, 2015

Jul
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HELP CDC (HELP Community Development Corporation) is a Home Buyers Program that provides individuals and families with the resources and knowledge to become homeowners. Attorney Charles Castellon will be speaking at this event on Saturday, July 18, 2015 beginning at 8:30AM, ending at 3:00PM. THIS CLASS IS FREE & WILL FILL UP

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HelpCDCHELP CDC (HELP Community Development Corporation) is a Home Buyers Program that provides individuals and families with the resources and knowledge to become homeowners. Attorney Charles Castellon will be speaking at this event on Saturday, July 18, 2015 beginning at 8:30AM, ending at 3:00PM. THIS CLASS IS FREE & WILL FILL UP QUICKLY!

<< REGISTER NOW! >> <<MORE DETAILS HERE>>

Located at:

PINE HILLS COMMUNITY CENTER

6408 Jennings Road

Orlando, FL 32818

 

Blog /13.07.15 /By Charles P. Castellon

Florida HOA Foreclosure and Surplus Funds Simplified

There has been a lot of media coverage about banks foreclosing on homeowners in recent years.  Another type of foreclosure that hasn’t received as much attention involves homeowner associations (“HOA”) suing property owners for failing to pay their dues. Homeowners can lose their homes, which is clearly a terrible outcome. 

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Florida HOA Foreclosure Surplus FundsThere has been a lot of media coverage about banks foreclosing on homeowners in recent years.  Another type of foreclosure that hasn’t received as much attention involves homeowner associations (“HOA”) suing property owners for failing to pay their dues. Homeowners can lose their homes, which is clearly a terrible outcome.  Unless they know their legal rights, they can also miss out on the chance to recover money through the legal system to soften the blow.

In Florida, HOAs have great legal power.  Their powers include the ability to file foreclosure cases against homeowners very much like lenders may take borrowers to court for failing to pay the mortgage.  During the hard times of a bad economy and unemployment, many homeowners have struggled to pay their HOA dues.  This has resulted in HOAs foreclosing in great numbers.  In recent years, HOAs have struggled financially as more homeowners have failed to pay their dues.  This has caused associations to pursue foreclosures more aggressively.

When an HOA wins a foreclosure case, the judge signs a judgment declaring   the total amount the homeowner owes the association.  This amount usually includes the back dues, interest, penalties and attorney fees.  Next, a court sale is scheduled.  At the court sale, anyone may bid on the property.   Often, the foreclosing HOA itself is the winning bidder and ends up with title to the home.  The HOA goes into the court auction with a credit for its judgment amount.  Thus, if the judgment is ten thousand dollars, the HOA may bid that amount without actually putting up any money.  Quite often, an investor will make the highest bid on the property and become the owner.  This is where a surplus bid will often come into play.

The judgment in an HOA foreclosure case is almost always a much smaller amount than a judgment a foreclosing lender gets in a foreclosure the lender may file.  This is because the amount of money owed on mortgages in foreclosure are usually well over a hundred thousand dollars, if not hundreds of thousands.  The amount typically owed to an HOA is less than ten thousand dollars.

When an investor comes to bid at an HOA foreclosure sale, that person will often gladly bid above the judgment amount.  For example, if a home is worth two hundred thousand dollars and the HOA foreclosure judgment is ten thousand dollars, it can be a smart move to bid above the judgment amount but below the property value.  If there are competing bidders, the winner may get title for twenty thousand dollars and buy a home for a bargain because although that’s more than the judgment, it’s far less than the property value.

If the homeowner who loses title to the property also has a mortgage, the lender holding that mortgage may still foreclose and take title away from the investor later.  In the meantime, the winning bidder can make a return on the investment by renting out the property until the lender forecloses or negotiating a deal with the mortgage lender to buy out the bank’s interest.  The lender may agree to accept a discounted payoff from the new owner to avoid the costs and delay of a foreclosure.

That amount of money between the judgment figure and the court sale winning bid is known as the “surplus.”  This scenario leads to the question of what happens to that surplus money.  The answer is, most likely, the foreclosed former homeowner may claim it.  Florida Statute Section 45.032 says the property owner has first dibs to the surplus, unless a “subordinate lienholder” files a claim for the money within 60 days.  A subordinate lienholder would most likely be a second mortgage lender standing in line behind a first lender.  The law is user-friendly enough to provide the actual language the former owner should use to file a claim with the court.

The law states the former owner is not required to hire an attorney for this legal action.  The process will require some time and effort but will likely be a worthwhile investment.  Although some attorneys would handle the matter and pursue the surplus claim for a contingency fee (a percentage of the money recovered, like in a personal injury case), anyone potentially entitled to the money may take on this task if they have the time and initiative to do so.

Any former homeowner deciding to pursue the surplus without an attorney should be aware that the court personnel in the clerk’s office are not supposed to help them.  Anyone seeking a surplus without legal representation should handle the matter carefully to successfully recover the money.  This right to claim the surplus is not something most homeowners would expect to be available to them.  Although receiving a surplus doesn’t provide a new home, the found money can be a great relief in hard times.

 

Video /10.06.15 /By Charles P. Castellon

Foreclosure Alternatives and their Effect on Credit

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/09.06.15 /By Charles P. Castellon

Real Estate Investor Subscription Services

In every real estate business, legal issues and questions will inevitably arise from time to time. Let CPC Law help you be prepared for those times.

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blog-imgCPC Law is extremely excited to announce our new CPC Real Estate Investor Subscription Services

Benefits include but are not limited to:

  • Having a real estate attorney on call for answers and advice
  • Peace of mind that comes from avoiding liability
  • One-stop shop for all your real estate & title needs
  • Access to legal forms with an attorney’s guidance on how to use them
  • Updates on changes in law that affect your business
  • Avoid consult fees and putting money down for retainer agreements

Explore our 3 Plan Options (View more information by following link above) and see which one best suits your needs!

  • Entry Level Plan
  • Basic Plan
  • Premium Plan

To learn more and schedule a complimentary attorney consultation, CALL 407-851-0201 or email office@cpclaw.net

 

/30.05.15 /By Charles P. Castellon

“Specialty” Credit Reports: The Other Consumer Reporting Agencies Selling your Information

Everyone knows they have a credit score and most have an understanding that there are “major” credit reporting agencies that create credit reports from which these scores are derived. What many do not know is that there are speciality reporting agencies that exist, gathering different types of data and providing

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Everyone knows they have a credit score and most have an understanding that there are “major” credit reporting agencies that create credit reports from which these scores are derived. What many do not know is that there are speciality reporting agencies that exist, gathering different types of data and providing more narrow information. These specialized reports are used in the areas of employment, tenant screening, check/bank screening, medical, utilities, retail and gaming.

An entire list of these “specialty” credit reports can be found on the Consumer Financial Protection Bureau’s website. It’s good practice to look into these specialized reports if you have concerns about prior incidents or if you’re pursuing an important objective that might be influenced by the information one of these companies may have collected. Always keep in mind the fact that these companies are collecting and selling your data but they aren’t always accurate.

Video /21.05.15 /By Charles P. Castellon

What you should know when you fall behind on your mortgage – Florida Foreclosure

Attorney Charles Castellon of CPC Law answers a frequently asked question: What happens when you fall behind on your mortgage in Florida?

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Attorney Charles Castellon of CPC Law answers a frequently asked question: What happens when you fall behind on your mortgage in Florida?

/11.11.14 /By Charles P. Castellon

About Bank of America’s Recent Settlement with the Department of Justice

Much written about the glaring lack of criminal prosecutions against leaders of the lending industry and the titans of Wall Street for their widespread fraud in the selling of mortgage-backed securities.  This wildly lucrative collaboration created the historical financial crisis from which the world is still recovering.  The feds have,

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foreclosure notice 11-11Much written about the glaring lack of criminal prosecutions against leaders of the lending industry and the titans of Wall Street for their widespread fraud in the selling of mortgage-backed securities.  This wildly lucrative collaboration created the historical financial crisis from which the world is still recovering.  The feds have, however, brought some civil actions leading to large settlements.  The most recent major litigation settlement in the news was between the Department of Justice and Bank of America (“BOA”).  The lending giant agreed to a $16.7 billion payout to atone for its sins.

There is a component of this settlement of enormous significance to a great many borrowers.  Justice and BOA agreed to earmark $490 million from the settlement for distressed borrower tax relief.  Though not widely reported by the media considering its staggering widespread financial implications, this tax issue has adversely affected many borrowers and will continue to do so for quite some time unless Congress takes corrective action.

The back story to this tax issue stems from IRS regulations requiring that most forms of debt a creditor forgives (writes-off) for the benefit of a debtor is considered taxable income to the debtor.  In the mortgage industry, especially through the foreclosure crisis, a lender will usually concede that it cannot recoup a portion of the outstanding debt.  For example, a borrower may sell a property through a short sale with the lender collecting sale proceeds amounting to less than the mortgage debt owed.

This difference, known as the “deficiency,” is the amount the lender will write off by filing a 1099-C cancellation of debt form with the IRS.  By doing so, the lender gets the benefit of claiming a loss on its books to offset other taxable income.  In the view of the IRS, wherever there is a loss, there must be a gain.  Accordingly, the lender’s loss as a taxable gain for the borrower.  The IRS taxes the forgiven amount at the debtor’s ordinary income tax rate.

As the floodgates to the real estate collapse began to open in 2007, George W. Bush signed the Mortgage Debt Relief Act.  This federal law modified the general tax regulation described above to allow borrowers, in most circumstances, to avoid being taxed for forgiven mortgage debt used to buy, build or improve their primary residence.  The law has expired and been renewed, most recently in January 2013, retroactively to its sunset at the end of 2012.  As we approach the end of 2014, the least productive Congress in our nation’s history has not voted to extend the law again, though there is a pending bill proposing to extend the tax relief into 2014.  The bill’s sponsors seek to extend the mortgage relief through 2015 and estimate tax savings of approximately $5.4 billion.

It is difficult to overestimate the economic impact of such “phantom” income leading to large tax liabilities in an economy struggling to recover.  When the real estate market crashed, property values plummeted, in many cases, to levels hundreds of thousands of dollars below the inflated appraised purchase or refinance value.  This means borrowers receiving 1099 debt forgiveness will be taxed for the amount forgiven at their ordinary income tax rates for “income” they never received.  When Warren Buffet said nobody ever went broke paying taxes, it’s doubtful he considered this scenario.

There are IRS legal provisions borrowers can pursue to offset or avoid this tax liability in some circumstances.  These options should be discussed with a CPA experienced in real estate matters and include using the decline in value of the property, insolvency or bankruptcy to mitigate the tax damage.

The BOA settlement with the Justice Department provides some hope for relief but it will only cover a portion of the tax bill BOA’s borrowers are facing.  A read between the lines of the settlement reveals a $25,000 cap on compensation that may be used to offset the tax liability.  In states such as Florida, where it’s not unusual to see far more than $100,000 of mortgage debt forgiven following foreclosures or short sales, borrowers will be left scrambling to find Uncle Sam’s cash at tax time.

If Congress fails to pass an extension of the Mortgage Debt Relief Act in the lame duck session, the slowly-recovering economy is likely to suffer another setback from all the upside-down borrowers being burdened by a tax bill for income they never earned.  Unfortunately, calls from the lending lobby are much more likely to get through to Congressional offices than their constituent borrowers’ pleas for relief.

Speakers /11.09.14 /By Charles P. Castellon

“Close More Deals with Alternative Financing” – Attorney Castellon to Speak Sept. 13

Date: Saturday, September 13, 2014 Time: 9:00AM – 4:00PM Location: Bohemian Hotel, 700 Bloom St., Celebration, FL Attorney Charles Castellon will be included amongst the speakers at this event being sponsored by Pact Prosperity. Mr. Castellon will be speaking on the subjects of credit qualification for mortgage lending and factors to

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Date: Saturday, September 13, 2014

Time: 9:00AM – 4:00PM

Location: Bohemian Hotel, 700 Bloom St., Celebration, FL

Attorney Charles Castellon will be included amongst the speakers at this event being sponsored by Pact Prosperity. Mr. Castellon will be speaking on the subjects of credit qualification for mortgage lending and factors to be aware of related to your credit.

Other topics to be discussed include:

  • Creating and closing transactions without bank involvement
  • Selling properties that won’t qualify for conventional financing
  • Buying even when the bank says “no”
  • Leveraging alternatives to banks for helping sellers sell and buyers buy

The prices for this workshop is $79. If you reserve today for two, you’ll receive a special price of $99 for a couple. Reserve your seat today at PACTprosperity.com.

Blog /04.09.14 /By Charles P. Castellon

Indications that Foreclosure Woes are not Over – HELOC Resetting and the Depletion of Savings

Foreclosures down from peak numbers, but there are signs foreclosures may spike again. There is no doubt that foreclosure cases are far down from peak numbers during the crisis.  The economy has improved, although at a painfully slow pace.  The real estate market has rebounded generally and there are even

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ConcernedForeclosures down from peak numbers, but there are signs foreclosures may spike again.

There is no doubt that foreclosure cases are far down from peak numbers during the crisis.  The economy has improved, although at a painfully slow pace.  The real estate market has rebounded generally and there are even hot markets throughout Florida, fueled largely by international cash buyers.  I’ve written about moving ahead and rebuilding but there are some disturbing indicators of another foreclosure setback in the coming years.

Thousands of homeowners suffering through the early years of foreclosure will no doubt begin to rebuild in coming years and many have already rebounded impressively.  Though we can celebrate signs of optimism and success, it’s worth examining some disturbing negative factors pointing to the conclusion that we’re not out of the foreclosure woods just yet.

HELOC resetting and other factors hinting at a new wave of potential foreclosures.

One issue gaining attention in the media concerns the resetting of interest rates many home equity line of credit (HELOC) borrowers will soon encounter.  A major contributor to the real estate crash and corresponding foreclosure crisis was the leveraging of increasing property values for HELOC cash.  These equity lines were used for a variety of purposes ranging from sound fiscal strategy to wildly reckless speculation.  In 2015, we can expect an initial wave of adjustable rate mortgages to reset with higher monthly payments resulting.  From my experience representing hundreds of distressed homeowners, I can testify that significant segments of the population are getting by financially with little to no margin for error or cushion to absorb even minor increases in their payment obligations.

Further compounding the problem is the persistently high unemployment rate.  The Department of Labor, who generates employment data, and economists tell us that the true rate is always higher than the reported rate because the uncounted masses who drop out from job searching.  Many of our long-term foreclosure clients have been unable to successfully complete a loan modification because one or both household contributors remain unemployed or under-employed to consistently make the mortgage payments.

Another segment of the distressed homeowner population is about to join the foreclosure party late.  They have managed to continue paying over several years of economic crisis by a variety of means, including, unfortunately, by tapping into savings and retirement plans.  The widespread depletion of 401K and IRA accounts to pay the mortgage today has only added to another crisis in the making which involves people unable to retire and others outliving their retirement savings.  In recent months, we’ve had a number of new clients who valiantly did all they could to avoid foreclosure  for years before finally breaking down and defaulting.

HAMP and other forms of temporary relief.

A similar problem to the resetting of HELOC rates is the fact that the majority of loan modifications that helped avoid foreclosure were structured as temporary relief.  Through the federal program, HAMP, and other modification plans, we have seen many lender terms with increasing tiered rates of interest, such as a lower rate from years 1-5, higher for 6-10 and so on.  Unfortunately, principal reductions have not been part of the overwhelming majority of loan modifications.

The next wave of foreclosures will come from those who just can’t take it any longer.

Japan lived through a recession lasting more than a decade in which homeowners became prisoners of their castles, unable to sell and move because of their extreme upside down equity.  I have joined the chorus of many voices, including University of Arizona law professor, Brent White, who have advocated for strategic defaults when carefully considered and under the right circumstances.  It seems America
ns from a much more individualized society are more likely to decide to stop paying on horribly upside down properties before running out of money completely while our Japanese counterparts languish for the good of society.

Whether a default is “strategic” or borne of a literal inability to pay, being upside down makes default more likely.  Although property values have rebounded impressively in recent years, there still remain a great many properties lacking any equity with burdensome mortgage payment obligations.  Unless the economy continues to improve significantly and property values increase  further, we should expect continued waves of mortgage delinquencies and the resulting foreclosure filings.  At CPC Law, we stand ready to help the next wave of homeowners and investors, as we have helped hundreds before them.

Blog /03.09.14 /By Charles P. Castellon

Beware of the Zombie Property Apocalypse

By: Charles P. Castellon In recent years, zombie movies and television shows have been a big hit.  I think there’s a certain release that comes from watching gory violence committed by and against the undead.  I’m still unsure of the rules for how to vanquish a zombie, but there’s another

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ZombieBy: Charles P. Castellon

In recent years, zombie movies and television shows have been a big hit.  I think there’s a certain release that comes from watching gory violence committed by and against the undead.  I’m still unsure of the rules for how to vanquish a zombie, but there’s another zombie problem in the real estate world without a solution in sight.  The term “zombie property” has come to refer to the many thousands of properties abandoned by distressed homeowners unable to pay the mortgage.  These homes have become zombies because  the lenders holding the mortgage have declined to step up and foreclose.  As a result, they sit empty and neglected with tall grass and entire neighborhoods suffer.

There are several reasons why lenders choose not to foreclose.  One factor is that because of all the fraud and mismanagement surrounding the housing boom and bust, including the mass-bundling of mortgages into securities sold to unsuspecting investors, many entities “holding the paper” can’t prove their case.  Another motive is financial (isn’t everything for the lenders?).  Many lenders do not want to take on the fiscal responsibility of home ownership.  This includes property taxes, code enforcement fines, HOA dues, utilities and maintenance costs.

In Florida, where I practice and my firm defends homeowners in foreclosure, the problem is chronic.  According to RealtyTrac, there are over 55,000 zombie properties in the Sunshine State, a figure representing one third of the national total.   The ripple effect is unavoidable, as the neighbors’ property values are sure to suffer from their proximity to these neglected eyesores.  In many neighborhoods, the problem has brought an increase in crime and rapid downward spiral causing many innocent bystander homeowners to lose thousands of dollars in their own property values.

In Florida, homeowner associations are very common and generally do a good job of policing its member property owners to abide by the rules of the community and thereby protecting property values.  What has been problematic is that many lenders who have completed foreclosures and taken title have failed to pay the HOA dues which become the responsibility of the title owner.  There have been instances of HOAs foreclosing upon foreclosing lenders in a bizarre ironic twist.

A related issue is known as the “shadow inventory” of properties the lenders have taken through foreclosure but have declined to market as bank-owned homes for sale.  Also known as real estate owned (REO) properties, these  post-foreclosure sales have been a major part of the real estate market for years.  Players in the real estate and banking industries disagree on the volume held in the shadows, but it’s hard to deny the number is significant under any rational analysis.  How and when the banks unload this inventory will affect the continuing but fragile real estate recovery.

It would be nice to believe the worst of the foreclosure crisis is behind us.  This is likely true, but the continued problems the brought on by zombie properties and the shadow industry remind us that we still have a long way to go toward a healthy economy and real estate market with any real staying power.  At CPC Law, we represent distressed homeowners facing foreclosure and slay zombies.

Blog /03.09.14 /By Charles P. Castellon

Debt Relief and Taxes: What Happens to Debt Forgiven by Lender? by Guest Blogger Marian “MJ” Jacklich, CPA

By:  Marian “MJ” Jacklich, CPA (Guest Blogger) You found yourself sliding down a money ramp you never thought was possible.  Whether from a job loss, business problems, health problems, trying to help family members, or a mix of these, you now find yourself stretching every dollar you have that does come

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By:  Marian “MJ” Jacklich, CPA (Guest Blogger)

You found yourself sliding down a money ramp you never thought was possible.  Whether from a job loss, business problems, health problems, trying to help family members, or a mix of these, you now find yourself stretching every dollar you have that does come in and you still find yourself short.  Worse (you think), you keep coming up short.

First, take a deep breath.  Then keep breathing regular breaths.  The good news is, without getting too excited, you may well be able to “come out on the other side” still breathing, definitely feeling better.

Each person’s situation will vary some, but in general there are some real steps you can take to minimize the damage to your credit, reduce or head off taxes, and focus on your ability to recover.

In 99.9% of the cases, it will take some serious work on your part.  Since you are the person that will benefit from the hard work, though, why not? Better yet, find out what to do from a professional so you can focus and make that work count.

You might have heard from a friend, co-worker, or colleague how much they were helped by filing bankruptcy.  The thought has entered your mind more than once.  It sounds good.  Hopefully, you have not begun acting on these well meaning friends and/or family advice, though.  Bankruptcy is not for everyone.  It can make a situation worse, not better, and only a professional can help assist in making that determination.

If you are reading this blog, you have taken the right step in looking for real, professional advice.

“I thought Congress passed a bill so we don’t have to pay tax on debt relief.”

They did. It expired last year, Dec. 31, 2013.  It only applies to certain types of debt.  It’s not there right now in 2014, and with new elected politicians coming into Washington, it may not be there.  Further, you cannot bankrupt out of IRS taxes, so it’s not wise to try to figure it out on your own.

CPC Law and MJ CPA have scheduled a  half-hour workshop on this topic for Thursday, September 4th, 2014 at 6:00 p.m.  You can register (for free) by calling CPC Law at (407) 851-0201 or emailing your RSVP to jessica@cpclaw.net. Space is limited, so RSVP as soon as possible.

Blog /25.08.14 /By Charles P. Castellon

Private Lending Basics – An Introduction by Guest Blogger Augie Byllott

It is said that, “money makes the world go ‘round” whether that is true or not is up to you to decide but in many respects it does make the world of commerce go ‘round!  In the world of investment real estate there are myriad ways to buy, sell and

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It is said that, “money makes the world go ‘round” whether that is true or not is up to you to decide but in many respects it does make the world of commerce go ‘round! 

In the world of investment real estate there are myriad ways to buy, sell and finance real estate.  The following information is about a particular segment of the business, private lending and most specifically targeted toward the financing of non-owner occupied real estate. With the enactment of the Wall street Reform Act more commonly know by the name of its authors, lending to owner occupants has become a potentially hazardous business fraught with,  as of this writing, many unknowns that could negatively impact small lenders.

For many years, private individuals seeking better returns have provided the fuel that keeps investment real estate viable for many small developers, builders and those who buy, fix and sell foreclosures, short sales, probate properties and others that not considered financeable by banks.   Their funds have facilitated the acquisition and renovation of literally millions of single family homes, helped small builders to create new housing stock and kept many trades people employed.  In a nutshell, private money lenders help the economy while earning above market returns on their capital.

During my first 15 years in the banking industry I had never even heard the term private lending let alone know what it was, then, I was approached by a talented young builder who had acquired enough property to build 15 houses but needed capital.  His plan was to build and sell one house at a time and use the proceeds to repay the loan plus interest that was at least 5 percent more than I could earn at my bank.  After reviewing his plan, some of his previous work and the blueprints of what he was going to build I developed a comfort level.  We documented the arrangement and he was off and running.  I am happy to report that a formally vacant piece of dirt now has 15 families living in homes each worth over $500,000 today!  That was about 20 years ago.  Oh, I more than doubled my original investment in a few short years so I was pretty happy too!

Private individuals seeking to avoid the volatility of the stock and bond markets may find the safe haven they are looking for in the world of private lending.  This is sometimes called hard money lending though the two can be somewhat different.  If you are prudent and diligent, you can earn solid returns while minimizing risks as a private lender.

Like any business venture private lending requires specialized knowledge; higher and more predictable returns can result when investing in private money loans but it also requires more effort and patience than that needed to push a button and execute a buy or sell order for a stock.

WHAT’S INVOLVED?

At its core, investing in private loans is a lot like investing in a bond that pays a fixed rate of return and pays off at maturity.  If you make a loan to a borrower for $100,000 at 8% interest, and require interest-only payments, you’ll earn $8,000 income each year.  And if the borrower does not default, the loan will pay off at or before maturity and the original principal will be returned.

Liquidity – Do not consider becoming a private lender if you need the money before the maturity date.  Even though most loans payoff, many do not pay off as expected.   You can sometimes sell loans using an online loan exchange, or broker them to another private investor via a hard money loan broker.  But even performing private money loans are typically sold at a discount.  If you want to sell notes, even if they are performing, be prepared to take a haircut.

Collateral Valuation – The underlying collateral for a private loan is very important to the overall security of the transaction.  Lenders should carefully evaluate the value of the collateral and use several sources to confirm their valuation.   A common practice among private lenders is to “drive the comps yourself.”  That means do not just look at photos on an appraisal and assume you have an accurate value.

With the appraisal in hand get in your car and drive to the subject property as well as each comparable property and confirm for yourself that the property value is realistic.  Consider multiple sources of value.  In addition to an appraisal and driving the comps yourself, consider using an automated valuation model or a Broker Price Opinion (BPO) as well.   Some properties are easier to comp than others.

Advances – On occasion loans require the investor/lender advance additional funds for a variety of reasons.  Advances may be required to cure delinquent property taxes, cure a senior lien position, hire an attorney, pay to defend bankruptcy claims, or even remodel a property if a foreclosure takes place.

Warning !! Do not invest in private loans without leaving yourself a cash cushion.  Be conservative and leave yourself plenty of liquidity in your personal finances to handle unexpected circumstances.

Title –Be sure your borrower obtains a lender’s title policy that will insure your lien position as a lender and offers fraud protection against forgery.   Title insurance is not like homeowners insurance.  If you suffer a loss with your homeowner policy, you submit the claim and get a quick reimbursement.  Title insurance is an indemnity policy and as such you are reimbursed for a proven loss only and not the potential for a loss.   The result may be that even though you will eventually lose money due to a title issue, you may not receive reimbursement for months, or even years later.

Borrower Credit – Carefully reviewing the borrower’s credit application and capacity to make monthly payments is the key to a successful loan investment.  Private money loans are often made based on the collateral, but the best loans are those that give equal weight to the borrower’s past credit track record and capacity to make payments and repay the loan when a balloon payment is due, or when the loan matures.

Private Lender Insurance – You will need to make sure the property owner has appropriate hazard and liability insurance in the amounts you desire as an investor.  The insurance company must also be notified to include the private lender as an additional insured on the policy so in the event of loss, the check is sent to you first.

Documentation – Documenting the loan, creating the appropriate security documents and disclosures to the borrower can be complicated and time consuming.   There are a myriad of state and federal regulations to be followed, and a violation of these regulations could invalidate the loan and result in lost interest and/or fees.  Consulting an attorney or mortgage professional can help you do things right.

LOAN SERVICING

Once a loan has been originated, payments need to be collected from the borrower, and various tax, regulatory and informational statements need to be sent regularly to the borrower. Lenders can do this themselves or hire a loan servicer to collect payments and provide reporting for a fee.

HARD MONEY AND FORECLOSURE

If a borrower fails to pay as agreed, lenders must be prepared to foreclose on their collateral.  This can be an arduous and time-consuming process that requires a significant amount of expertise and expense.

There are also alternatives to a foreclosure; among then are for the lender to accept a deed-in-lieu of foreclosure or a short sale of the property whereby the lender agreed to allow the property to be sold for less than the loan balance.

GETTING STARTED

As you can see, investing in loans is not as easy as it may seem on the surface and certainly more involved than buying a publicly traded security like a stock share or a bond.  So, how to invest in private money loans?  How do you get started?  How do you take the plunge?

The answer is: very carefully.  Learning the private money lending business takes time.  But once you understand the nuances and study the business, it can provide returns substantially greater than the bond markets.

There are professionals in the business of helping investors make loan investments.  In the past, they have been referred to as hard money lenders, loan brokers, or mortgage loan originators.  These are professional business people who are skilled and in most cased licensed by their state at originating private money and conventional loans.

The best part about using one of these sources of assistance to invest in loans is that the fees are typically paid by the borrower and therefore you get the expertise without paying for it directly.  You pay for it because of the additional fees you would likely have collected had you originated the loan yourself.

For example, if the borrower was willing to pay 3 points up front for a $300,000 construction loan, you may earn the entire $9,000 fee up front as the sole investor and originator.   If you use a loan originator instead, you may still get a piece of that commission; typically 1 point they keep the remainder.

If you’re just starting out, the services of a loan originator can be invaluable and they will help walk you through the transaction.  Many investors who are not real estate professionals maintain life-long relationships with their loan originators just as a corporate executive might maintain a relationship with an investment advisor.  Others will learn to work with a core set of borrowers, developers, rehabbers etc.  Many times when this is the case the loan originator may no longer be necessary.

Learn more and register at www.PACTProsperity.com

 

 

Disclaimer

This information is designed to provide accurate and authoritative information in regard to the subject matter covered.  It is provided with the understanding that the author and publisher is not engaged in rendering legal, accounting, or other professional advice.  If legal advice or other expert assistance is required, the services of a competent person should be sought.

 

Blog /09.08.14 /By Charles P. Castellon

If You Are Invited to a Death Dinner, What Should You Bring?

The concept of “Death Dinners” is a growing trend gaining momentum nationwide.  Talking about death over dinner may not seem appetizing, but this idea is the result of the chronic problem of our societal avoidance of the most unpleasant and certain event in life.  There are organizers, both volunteer and

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death-dinnerThe concept of “Death Dinners” is a growing trend gaining momentum nationwide.  Talking about death over dinner may not seem appetizing, but this idea is the result of the chronic problem of our societal avoidance of the most unpleasant and certain event in life.  There are organizers, both volunteer and for profit, facilitating gatherings where family members discuss their desires and concerns surrounding the end of life.

Survey results confirm that as nation, we fail to properly confront and prepare for death and the end-stage conditions that are often much harder on loved ones than death.  This avoidance factor is understandable.  Recently, an elderly mother’s resistance to this discussion inspired the title of her daughter’s memoir called “Can’t We Talk About Something More Pleasant?”  According to the Pew Research Center, about 70% of people lack a living will.  Approximately 20-30% die at home while 70% desire this outcome.  I suspect the understandable human tendency to avoid and put off the scary and disturbing prospect of death is largely to blame for the irrational failure to prepare for the inevitable.  Though we can easily pay lip service to ideas such as “death is part of life,” planning advocates like death dinner organizers will likely need to continue working diligently to get the attention of the majority of the public.

Oddly, the town of La Crosse, WI boasts the astounding distinction of 96% of its residents having advanced health care directives.  This is a document delegating a loved one the authority to make health care decisions on behalf of an incapacitated patient.  The credit for this remarkable rate goes to an influential local hospital official who has persuasively advocated the virtues of advanced health care planning.  As an aside, this community’s average health care costs fall far below the national average.

There is no shortage of cautionary tales stemming from failures to plan.  At our law firm, we have counseled several families suffering from their deceased relative’s negligence.  In one case, a husband died suddenly without a will and without ever having added his wife to the deed of the marital home he purchased before the marriage.   After having lived in the home for several years and contributing to its maintenance, the widow must now sell the home and share the proceeds with her late husband’s daughter from a prior marriage.  We can’t be completely certain of his intentions, but there is much evidence indicating he wanted his wife to inherit the home they shared, rather than the eventual legal outcome, including a writing he signed that does not constitute a valid will and is irrelevant for all intents and purposes.

In another case, a senior Alzheimer’s victim could have delegated to his wife the right to manage his affairs through a power of attorney while he remained competent.  Following the onset of dementia and complete lack of capacity to knowingly sign such a directive, the family must resort to an expensive and lengthy legal guardianship action.  I could go on for pages.

It’s helpful to understand some basics about estate planning.  A last will and testament or simply, a “will,” is the document that sets forth one’s wishes regarding assets and heirs following death.  For those with minor children, a will addresses very important issues including the naming of a guardian to raise the kids and a trustee to manage their money until they reach the age at which they can own property without strings attached.

A living trust is commonly used as an alternative to, or in conjunction with, a will.  Generally, trusts are more complex and expensive to create.  One common motive for using a trust is to avoid the legal process of probate.  Estate plans should not be considered “off the rack” purchases and should be carefully tailored to meet the needs of the family according to all their specific circumstances and budgetary concerns.

fam-and-babyFrequently confused with a last will and testament is the “living will.”  The living will is a much narrower document delegating the right to make hard end of life decisions such as to “pull the plug” and discontinue life support under certain circumstances when there is no reasonable hope of recovery.  Similar to a living will, but for conditions not reaching that level of severity, we use a “health care surrogate” or “advanced health care directive.”  A power of attorney may cover many situations as narrowly or broadly as desired when a person wants to delegate the authority to make a variety of decisions.  In Florida, a power of attorney can no longer be considered “springing,” meaning it would take effect after a determination of incapacity.

Though these documents are important and useful for virtually anyone, unmarried couples should take special note of the need to spell out their wishes, as the legal protections of marriage do not apply.

At CPC Law, we urge all families to confront the reality of death and serious disability while its members remain alive and healthy, even if it takes a death dinner to accomplish this important task.  We welcome feedback from our clients and the public as to how we can help spread the gospel of preparation and add value to this important discussion.

Blog /09.08.14 /By Charles P. Castellon

Start Thinking About Your Digital Estate Plan

      Traditionally, the legal world has lagged behind advances in technology.  In this high-tech internet age, the pace of change rapidly accelerates while our digital presence in daily life continues to grow.  Consider how much our lives revolve around technology.  As individuals and businesses gradually but irreversibly move toward

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      Traditionally, the legal world has lagged behind advances in technology.  In this high-tech internet age, the pace of change rapidly accelerates while our digital presence in daily life continues to grow.  Consider how much our lives revolve around technology.  As individuals and businesses gradually but irreversibly move toward a paperless existence, our gadgets and the cloud store ever-increasing parts of our lives.  In this landscape, the idea of our heirs looking through filing cabinets and safety deposit boxes for important documents and information necessary to pick up the pieces of our demise seems naively antiquated.  This modern reality makes digital estate planning an important task.  This blog post is the beginning of an ongoing discussion regarding the intersection of technology and the law designed to get our readers thinking about the issues and starting to take action steps to create a smart plan.

As the most basic starting point, we need to determine all that makes up our digital estate.  Give some thought to this inventory process and you can soon be overwhelmed.  Have you ceased getting paper bank account statements?  Would your surviving loved ones know where to begin looking for all the important information contained in your digital footprint?  Don’t count on the NSA to cooperate.

The state of the law on many issues flowing from this discussion is generally an incomplete patch work varying greatly among states.  Many states have no laws on their books at all on this topic.  In many platforms, including social media sites, those manifesto-length acceptance of terms agreements that nobody reads will include a declaration of what happens to your profile or account after you’re gone.  A likely answer may be that it’s the property of the site and your heirs have no rights.

The inventory process is a sensible first step toward organizing and planning your digital estate.  Passwords and other login information need to be collected.  We should not overlook the collection of gadgets and hardware containing various categories of information ranging from the trivial to crucially important.  I’ve written about the avoidance factor interfering with traditional estate planning.  When we start to consider the tasks described in this article, it becomes an even more daunting process.  It may be helpful to imagine the stress on our loved ones added to the underlying trauma of death as a motivator to take action now.

Another step to consider is clearly stating your desires concerning your digital assets.  You can include a digital assets clause in your last will and testament, for example.  Also, the will can name a point person for digital matters.  This doesn’t have to be the executor (called the “personal representative” in Florida) in charge of overseeing the entire estate.

The importance of digital estate planning will only continue to grow alongside our increasing use of and dependence on the online world.  At CPC Law, we’ll remain on the cutting edge and follow up this discussion with more specific information, ideas and suggestions to help our readers be fully prepared in the modern age for the one sure thing in life.

Blog /07.08.14 /By Charles P. Castellon

Foreclosure Crisis – Where We Are Headed

We have discussed where the foreclosure crisis has been.  This brings us to the questions of where are we now and where is the crisis headed?  One major issue for borrowers involves the expiration of the Mortgage Debt Relief Act (MDRA).  Passed during the infancy of the crisis in 2007,

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save-our-homeWe have discussed where the foreclosure crisis has been.  This brings us to the questions of where are we now and where is the crisis headed?  One major issue for borrowers involves the expiration of the Mortgage Debt Relief Act (MDRA).  Passed during the infancy of the crisis in 2007, this federal law in essence protected primary homeowners in foreclosure from tax liability flowing from forgiven mortgage debt.  In the view of the IRS, when a lender forgives all or part of the borrower’s debt, this is a taxable event creating phantom income for which the borrower needs to pay taxes at their ordinary income rate.  The law conferred a great protection by preventing a big tax bill.

The MDRA has been extended numerous times, most recently in January 2013 retroactive to 2012.  As of the date of this writing, another extension is mired in Congress and does not seem likely.  What this means is that a great many borrowers receiving a “1099-C” debt forgiveness form will be hit with a large tax bill.  This is a situation requiring a consultation with a knowledgeable CPA to discuss some potential exemptions or other available damage-control options.

This tax liability is often confused with deficiency actions described more fully below but they are distinct and separate threats.  For years, players in the foreclosure world have been expecting deficiency collection actions to hit foreclosed borrowers.  It appears to finally be happening and this may be a major issue for some time to come.

Simply put, a deficiency is the difference between the fair market value of a property in foreclosure and the final debt owed the lender.  For more recent cases, the 2013 law provided clarity in terms of the statute of limitations for lenders to pursue a deficiency claim, now two years.  For older cases, the allowable time to sue for deficiency is more of a legal grey area but it’s unlikely that motivated lenders will let too much time pass before suing.  Now we’re seeing a wave of deficiency claims representing the biggest new threat to distressed homeowners in the foreclosure aftermath.

I have long urged clients seeking an exit strategy to consider a short sale instead of simply allowing the lender to steamroll them through an undefended foreclosure.  Though short sales carry many virtues for homeowners not interested in keeping the home and the mortgage debt, a major benefit is the opportunity to negotiate a deficiency waiver.

For the overwhelming majority of our firm’s short-sellers, the lenders have agreed to waive the right to pursue a deficiency action as a condition of the deal.  For many “strategic defaulters” lacking great hardship, lenders have granted deficiency waivers in exchange for a borrower’s cash contribution or taking back a much smaller unsecured promissory note to put some “skin in the game.”  When a borrower allows the foreclosure process to take title to the home, there are no promises regarding the deficiency and the lender is free to seek that relief.

Who is at risk for a deficiency action?  The answer is borrowers who have lost their homes through foreclosure or have reached some kind of settlement, such as a short sale or deed in lieu of foreclosure, without the benefit of a deficiency waiver as part of the deal.  Practically speaking, however, lenders are much more likely to pursue a deficiency claim against borrowers they know or suspect to have significant assets to seize.  The old cliché, “blood from a stone” comes to mind and it certainly makes sense for lenders to set their sights on targets with the best potential for recovery.

The next question involves what borrowers can do to defend themselves against deficiency claims.  Though such legal actions may seem a slam-dunk, there are some steps borrowers can take to contain the damage and fight back.

home-sale-penOne defense may come from “standing” issues.  This relates to the fundamental legal question of who has the right to sue.  In defending foreclosures over the years, the standing issue has presented the most common defense.  This is because originating lenders sold off the rights to mortgages so frequently (and often illegally, in violation of the terms of mortgage-backed security agreements) that they failed to properly convey the rights to another party attempting to sue.  In many cases, the foreclosing lender will file a deficiency action.  In other cases, they will “sell the paper” to collection company sharks buying for pennies on the dollar with an enormous cushion to reap a profit.  If such rights are not properly and legally assigned, there will likely be holes in the case.

Additionally, the borrower can dispute certain facts in a deficiency action that may not kill the case, but may contain the damage.  For example, the issue of the market value of the property is a benchmark in the case from which the amount of damages is measured.  Successfully challenging that benchmark can significantly reduce the amount owed.

Also, a borrower may engage in asset protection strategies to shield assets from deficiency claims.  This is an ethical and legal minefield that should only be considered very carefully.  There is a legal concept known as “fraudulent conveyance” that refers to a debtor moving assets to avoid or hinder creditor claims.

Generally, there is a spectrum of time under which a borrower may transfer or dispose of assets that would be under judicial scrutiny.  On one end of that spectrum, moves made before a debt is even delinquent and there is no claim against the debtor are more likely to be upheld.  On that other end, moving around assets closer in time to the deficiency claim would more likely be held invalid as a fraudulent conversion.  The surrounding circumstances rule when there isn’t much direct evidence of the debtor’s intent regarding these moves.  A successful fraudulent conveyance claim would allow the lender to overturn asset transfers to get their paws on some money.  Debtors should proceed with extreme caution and seek advice before playing this game.

Deficiency actions may push many borrowers toward bankruptcy protection.  This option may work well, either as a liquidation of debt through a Chapter 7 or reorganization through Chapter 13 of the Bankruptcy Code.  The pros and cons of filing bankruptcy as well as who may qualify for various forms of relief may be complicated and borrowers facing a deficiency claim should consider all the consequences.

It is worth noting that a deficiency action shouldn’t be considered a zero-sum game with a clear winner and loser.  Frequently, fighting back and asserting one’s legal rights will lead to a negotiated settlement that can get the plaintiff some money while containing the damage for the defendant to regroup and start rebuilding one’s financial life.

Though we have come a long way in this long, strange trip, the foreclosure crisis remains far from being over.  Stay tuned for more reports from the frontlines.

Blog /06.08.14 /By Charles P. Castellon

The Foreclosure Crisis – Where We Have Been, Where We Are & What Lies Ahead

As we endure the historical foreclosure crisis resulting from the great real estate boom and bust, it’s worth evaluating where we stand, how we got here and what lies ahead.  This legal, economic and real estate crisis began in earnest around 2008 when the economy collapsed and real estate market

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As we endure the historical foreclosure crisis resulting from the great real estate boom and bust, it’s worth evaluating where we stand, how we got here and what lies ahead.  This legal, economic and real estate crisis began in earnest around 2008 when the economy collapsed and real estate market went crashing down.  A tsunami of borrowers began defaulting on their mortgages as they lost income and their plummeting property values put them deeply “upside down.”

Now the economists tell us foreclosure rates are at their lowest levels since 2006 (near the peak of the real estate rise).  Florida, however, carries the dubious honor of being number one in the nation in foreclosure filings.  According to Realty Trac ®, one in seventy four Florida homes had foreclosures filed in the first half of 2014.  Though we’re far from the lowest depths of the crisis, there is much continued and new danger for borrowers in Florida.  The economy has rebounded at a painfully slow pace, unemployment remains high and many will continue to struggle through the foreseeable future.

On the frontlines of the foreclosure crisis—the courts—it has been a wild ride.  The legal system was completely unprepared for the onslaught of cases that flooded court houses statewide.  Unprecedented backlogs resulted and a virtual state of paralysis set in.  Though slow to respond, the judiciary made efforts to better handle the cases.  Retired judges stepped back in to preside over hearings.  With many unjust results, “rocket dockets” emerged to push through in rubber stamp fashion cases toward court auctions with the entire judicial review taking merely minutes to complete.  The courts ordered mediation conferences for primary homeowners to work out terms with their lenders and avoid foreclosure.  This effort has been far more sizzle than steak, as very few borrowers walked out of mediation with a deal in hand and nobody has ever forced a lender to offer relief it did not want to extend.

We have seen the “robo-signing” scandal among many other examples of lender fraud, CourtGaveloften perpetuated by their own legal counsel.  The infamous David Stern, king of the foreclosure legal empire representing lenders and owner of the yacht called “Tu Casa Es Mi Casa” went down in flames while running a criminal enterprise.   Though no high-level banking or Wall Street executive has faced criminal prosecution for the massive fraud leading up to and during this crisis, there have been numerous class action lawsuits and government civil cases leading in hundreds of millions of dollars in penalties.  Very recently, Sun Trust settled a government action resulting from its failure to process loan modification applications as required by law and their acceptance of government funds.

In 2013, after repeated efforts, the banking lobby successfully pushed through the Florida Legislature a foreclosure reform law with much hype.  Though it contains no radical provisions (such as the earlier effort to convert Florida into a non-judicial foreclosure state that would have essentially handed the hen house to the foxes without court oversight) it brought some significant changes.

Among the changes to the foreclosure law were provisions limiting wrongfully-foreclosed homeowners to money damages rather than the ability to regain title to their homes.  Similarly, a competing “lender” claiming to hold the rights to a previously-foreclosed mortgage would only be able to seek financial compensation instead of title.  If you’re wondering how this could be an issue, trust me, it is a huge byproduct of the fraud banks and their Wall Street partners committed by selling the rights to the same individual mortgages to multiple investors in mortgage-backed securities.  At our law firm, we’ve handled more than one case involving two separate lenders each claiming to own the rights to the same mortgage and promissory note.   As Mark Knopfler of the band Dire Straights wrote, “two men say they’re Jesus, one of them must be wrong.”

The provision of the new law getting the most attention is perhaps the “expedited foreclosure” section.  This is supposed to ease the judicial backlog by providing lenders a quicker path to a foreclosure judgment and court sale.  It basically turns the tables on the burden of proof by requiring the borrower to raise legal issues and defenses at an “order to show cause” hearing to convince a judge why the lender shouldn’t win on the spot.  We have seen some lenders and their aggressive counsel use this provision and it has made our foreclosure defense work more challenging.  Oddly, as long as I can remember, there has already been a version of a “fast track” foreclosure on the books, but lenders’ attorneys have almost never used it in residential cases prior to the enactment of this new law.

/29.07.14 /By Charles P. Castellon

Many Borrowers are in Danger of Receiving a Large Tax Bill for Forgiven Mortgage Debt Following a Foreclosure or Short Sale

Many of our clients may receive the benefit of having the lender forgive a portion of their mortgage debt.  For example, if a borrower sells the property through a short sale, the lender will file a 1099-C debt cancellation form with the IRS to declare a loss for the difference between

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Paris_Tuileries_Garden_Facepalm_statueMany of our clients may receive the benefit of having the lender forgive a portion of their mortgage debt.  For example, if a borrower sells the property through a short sale, the lender will file a 1099-C debt cancellation form with the IRS to declare a loss for the difference between the value of the property and the amount the lender is owed on the mortgage.

Until the Mortgage Debt Relief Act was passed at the start of the foreclosure crisis in 2007, the IRS considered such cancelled debt taxable income, with some limited exceptions. http://taxes.about.com/od/income/qt/canceled_debt.htm This law protects primary homeowners from being taxed on forgiven debt under most circumstances and has been a great relief to millions of borrowers suffering through our historic housing collapse and global economic catastrophe.

Now, the law has expired at the end of 2013 and Congress has not renewed it.  This means that many homeowners who may receive the benefit of debt forgiveness through a short sale or other method after this year will likely suffer a large tax bill.

CPC Law will continue to write about this important topic and offer the expert tax advice of a CPA on our blog and an in-house presentation.  Stay tuned for more information.

Blog /24.07.14 /By Charles P. Castellon

Creditor Harassment – There Are Laws That Protect You

One of the most powerful defenses Florida consumers have against harassing behavior from creditors is the Florida Consumer Collection Practices Act (“FCCPA”). This state law lists a number of prohibited acts creditors are not allowed to take part in. Florida Statute 559.72 outlines  nineteen (19) separate types of act creditors are not allowed to participate

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AnnoyingCall-300One of the most powerful defenses Florida consumers have against harassing behavior from creditors is the Florida Consumer Collection Practices Act (“FCCPA”). This state law lists a number of prohibited acts creditors are not allowed to take part in. Florida Statute 559.72 outlines  nineteen (19) separate types of act creditors are not allowed to participate in. Many of these prohibited activities are common sense, i.e. your credit card company isn’t allowed to threaten violence if you fail to pay, a collection company can’t call you at 4:00AM in the morning to collect a debt.

While many of the protections are common sense, I’d like to highlight a few of the items that commonly occur that may not immediately jump to your mind. If a creditor participates in any of these, contact us immediately for a free consultation.

  • Communicating or threatening to communicate with your employer prior to  a final judgment being entered. A creditor can’t tell your boss that you owe them money. Also, they can’t threaten to do this.
  • Attempting or threatening to enforce a debt when that person knows the debt is not legitimate or does not exist. If you’ve paid off a debt to the creditor and they try to collect the same debt afterward, they’ve violated the FCCPA. If you’ve discharged a debt in bankruptcy and a creditor still attempts to collect the debt despite knowing of your backruptcy, they’ve violated the FCCPA.
  • Communicating or using paperwork that simulates  the government or law enforcement. If  a debt collector sends letters that try to mimic the appearance of government communications, they’re crossing the line.
  • Communicating directly with a debtor in an attempt to collect a debt, when the creditor knows the debtor is represented by an attorney with respect to that debt. This happens often in a foreclosure context, where  a bank will contact the borrower/homeowner attempting to collect a debt despite knowing they have an attorney who represents them regarding this debt.

The entire list of prohibited acts can be seen here. If any of these laws are violated, make notes of the time they’re violated, who you spoke with and what exactly happened. At CPC Law we deal with these types of cases and would be happy to represent you in these matters, typically free ofcharge.

Blog /23.07.14 /By Charles P. Castellon

Business Succession Planning – The Basics

What is a Business Succession Plan? We’re a nation of planners.  We plan our days, weeks, vacations, weddings and paying for our children’s college education many years ahead of time.  Unfortunately, many of us fall short in planning for the one sure thing in life.  It’s long been said the only

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What is a Business Succession Plan?biz-succession

We’re a nation of planners.  We plan our days, weeks, vacations, weddings and paying for our children’s college education many years ahead of time.  Unfortunately, many of us fall short in planning for the one sure thing in life.  It’s long been said the only guarantees are death and taxes.  While we can avoid paying taxes and face unpleasant consequences, there’s no avoiding death.

That’s why virtually everyone with a minimal amount of assets and loved ones should create an estate plan.  It’s a byproduct of human nature that a barrier for many people without an estate plan is the avoidance factor.  Death is obviously an unpleasant thing to contemplate and we often avoid planning for a long time.  Frequently, a near-death experience or the sudden passing of someone in our life creates the motivation to plan.  This holds true with respect to both personal and business planning.

For entrepreneurs and small business owners, there are important considerations flowing from the inevitability of death.  Just as parents of minor children should provide for their care and maintenance through tools such as wills and trusts, entrepreneurs need to provide for the care of another needy legacy—the business they worked so hard to build.  That’s where a business succession plan (BSP) comes into play.  Business owners use a BSP to protect the interests of the following stakeholders following the owner’s passing: the surviving partner(s), the deceased owner’s loved ones and the employees of the business.

An Estate Plan for your Business

Simply put, the BSP is an estate plan for your business.  It lays out the mechanism for the transfer of a business owner’s interest in the company to designated successors.  Your BSP can take a variety of forms depending on the circumstances, but I’ll describe a very common and simple framework here.

How Does it Work?

The buy-sell agreement is a contract among business people.  The participants may include corporate shareholders, partners, members of an LLC, key employees of a business and other players.   The main purpose of the buy-sell agreement is to ensure the smooth transfer of the business interests of a deceased or disabled person in a pre-determined, mutually-agreed upon way that guarantees a market for their sale.

Here is a common scenario illustrating how the buy-sell agreement may work.  The business owners agree on a fair market value for the business.  This contract obligates the business to purchase from the estate (heirs) of the deceased owner that person’s share of the company.  There are several ways to fund this buyout, but the most common method is through the proceeds of a life insurance policy for each of the business owners.  The death benefits are based on the value of the business.  Of course, the cost of the insurance premiums will vary according to many factors, including the health of the respective owners.  Whatever the costs, the insurance policy may be viewed as a sound form of protection for all involved.

Risks of Not Having a Business Succession Plan in Place

Without a buy-sell agreement funded by a life insurance policy or some other means, unintended and very unpleasant consequences may arise.  Without this framework of protection, the deceased owner’s interests would most likely be passed according to the terms of a last will and testament.  Worse, if there is no will, the interests would pass according to a legal hierarchy known as “intestate succession.”  Surviving partners might thus suddenly find themselves being partners with a surviving spouse, children, a trust or some other heir without the ability and/or interest in running the business.

Other forms of BSP include the use of buy-sell agreements between a corporation and its shareholders.  It may also take the form of a cross-purchase buy-sell plan between individual business owners.  The survivor would buy the deceased owner’s business share from the estate.  Any BSP can be tailored to fit the individual needs of a given business and its ownership.

As small business owners and entrepreneurs, failing to plan for the inevitable can tarnish our legacies in terrible ways.  Now let’s clear that avoidance hurdle and address a necessary and important part of life planning.

Blog /23.06.14 /By Charles P. Castellon

Thank you for attending the CPC Law Open House!

The CPC Law Open House was a smashing success! Current and former clients, business partners and colleagues, members of the community and the CPC Law team enjoyed an evening of networking, music, food and fun.  We enjoyed the opportunity to thank those that have helped us along the way. We look

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The CPC Law Open House was a smashing success! Current and former clients, business partners and colleagues, members of the community and the CPC Law team enjoyed an evening of networking, music, food and fun.  We enjoyed the opportunity to thank those that have helped us along the way. We look forward to working hand in hand with these same people in the future towards a goal of shared prosperity and well being.

 

Blog /22.06.14 /By Charles P. Castellon

The True Cost of Do-It-Yourself Legal Forms (Pitfalls in Writing your Own Will)

The June edition of the Florida Bar News included an article titled “The case of the not-so-simple will”. The article is about a Florida woman who created a will without legal counsel, using an “E-Z Legal Form”. As you may have guessed from the title of this blog and the article

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OLYMPUS DIGITAL CAMERAThe June edition of the Florida Bar News included an article titled “The case of the not-so-simple will”. The article is about a Florida woman who created a will without legal counsel, using an “E-Z Legal Form”. As you may have guessed from the title of this blog and the article title, things did not go as planned for this woman and her family, as the case ultimately ended up costing her family many times more than what was saved by buying an “E-Z Legal Form” versus hiring an attorney.

Estate planning is about a person’s wishes being followed in the event of incapacity or death and making the disposal of an estate easier and more efficient. The concept has a lot in common with insurance in that people are sometimes slow to see the need for it while they are alive and healthy. Other times, they’re loathe to spend money on an attorney, especially with the prevalence of fillable forms and websites offering wills, powers of attorney and other estate planning vehicles.

When you fill out a legal form, you get no feedback from an attorney who will advise you on the particulars of your situation. All you get is a generic form not fitted to your particular desires. Further, you likely will have no idea of what items were omitted from the form. This was a major problem with the will at issue in the above case that ended up forcing the decedent’s brother and nieces to fight over who got what under the “E0Z Legal Form” will. The will at issue here include an improperly executed addendum and also did not include a residuary clause. These two shortcomings caused fueled expensive litigation that would have easily been avoided with the assistance of an attorney.

When you plan your estate with an attorney, you can take comfort in knowing how your estate will be handled after your passing and ultimately save money over using a legal form that appears to be less expensive.

 

 

Blog /19.06.14 /By Charles P. Castellon

Elizabeth Warren and the Equal Employment for All Act – What this says about the importance of credit

Senator Elizabeth Warren and a group of fellow Senators, introduced a bill February of this year that would amend the Fair Credit Reporting Act to prevent employers from requiring prospective employees to disclose their credit history. It would also prevent employers from refusing applicants based on a bad credit rating. The prospects of

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Senator Elizabeth Warren and a group of fellow Senators, introduced a bill February of this year that would amend the Fair Credit Reporting Act to prevent employers from requiring prospective employees to disclose their credit history. It would also prevent employers from refusing applicants based on a bad credit rating. The prospects of the bill passing is a separate conversation, but what cannot be denied is a recognition by consumer advocates in the Senate that more employers today are using people’s credit ratings as a criteria for hiring. I would argue (and Ms. Warren and her fellow Senators introducing the Bill will agree) that a person’s credit has no bearing on their ability to do a job.

Regardless of your position on this issue or feelings towards these Senators, this Bill reinforces the importance of a  person’s credit and how prevalent it’s use has become. If you’d like to discuss your credit and how you can be proactive in managing it, contact John Crone (john@jc3law.com). We are always happy to educate people on this subject, regardless of whether they become a client or not.

Blog /19.06.14 /By Charles P. Castellon

Everything You Ever Wanted to Know About Short Sales But Were Afraid To Ask

Everything You Ever Wanted to Know About Short Sales But Were Afraid To Ask By Charles P. Castellon, Esq. Throughout the foreclosure crisis, many distressed borrowers have pursued a short sale of the property as a solution to the problem.  Though there has been much written about short sales, many

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Everything You Ever Wanted to Know About Short Sales But Were Afraid To Ask

By Charles P. Castellon, Esq.Florida Short Sale

Throughout the foreclosure crisis, many distressed borrowers have pursued a short sale of the property as a solution to the problem.  Though there has been much written about short sales, many homeowners evaluating their options lack a fundamental understanding of this process.  In this article, we’ll de-mystify short sales and break it down to the basics of what, why, how and when a short sale should be done so you can better understand the process and decide whether it’s right for you.

What is a short sale?

Essentially, a short sale is the sale of real estate for market value when that value is not enough to pay the outstanding mortgage debt on the property.  The main difference between a short sale and a conventional sale of a home is the seller/borrower walks away from the closing table with no money.  Usually, the seller pays no money at closing either.  A seller contribution most commonly occurs when there is a second mortgage or equity line on the home and that lender requires more money to approve the short sale and release their lien so the deal may close.  Often, the second lender will offer the borrower the option of bringing a lump sum cash contribution to the closing or take back an unsecured promissory note (without a mortgage on any property) for a larger amount than the lump sum option.  The amount of either contribution is usually far less than the outstanding balance owed to that second lender and when the borrower accepts a note instead of a lump sum, it is often with zero interest.

When there is more than one mortgage on a property, the lender with the first priority lien is in control.  The first lender determines how much it needs to collect at closing to approve the deal.  This lender also decides how much it is willing to allow to trickle down from the purchase price to pay off “junior liens” such as a second mortgage, which often takes the form of a credit line.

Why do a short sale?

One of the main reasons to consider a short sale is because it is largely an exercise in damage control.  The circumstances leading to missing mortgage payment usually involve great financial distress.  In some cases, there is no great distress and the borrower has the ability to continue paying, but instead makes a business decision to stop paying because the value of the property is far less than the debt owed with no hope of the value recovering for many years.  This is commonly referred to as a strategic default.  In either situation, a short sale represents an exit strategy to get out of a bad financial situation and move on.

One of the most significant ways a short sale contains the damage from a distressed property is through a far lighter credit impact to the borrower compared to a foreclosure.  When a borrower closes a short sale, the credit harm will be much less than a foreclosure completed through the legal process in terms of credit score points lost, the duration of time the transaction remains on the credit report and how it is reported.  A short sale is typically reported to the credit bureaus as “debt settled for less than full” or words along those lines.  In my practice, I have seen many damage control success stories resulting from a short sale.

One memorable example is a family who sold a property with a mortgage balance of approximately $1 million for $500,000 in a short sale.  Less than two years following that sale, these borrowers qualified for a mortgage to buy a new home.  Had they not pursued the short sale and simply allowed the lender to foreclose, I’m certain they would not have been able to rebuild their financial lives anywhere near as quickly.

Despite beliefs to the contrary, it’s important to note that no bank wants to take title to a home.  They are not in the business of owning properties.  They are in the business of making money.  The lending industry was hopelessly unprepared for the financial collapse they helped engineer and the resulting tsunami of foreclosures that followed.  Banks want money and will always prefer to take short sale proceeds instead of becoming home owners.  If a lender forecloses and takes title, it will then try to sell the property as an “REO” (real estate-owned).  At that point, all the bank will receive is the market value minus many additional litigation and carrying costs along with delay that accompanies taking title through foreclosure.  When the dust settles, the bank is very likely to net less money in the REO sale than they would have gotten through a short sale.  They may be dense, but they understand this.  The challenge is making the numbers work to get the short sale deal approved.

Another crucial damage-control justification for the short sale is the opportunity to negotiate a deficiency waiver.  The “deficiency” is basically the difference between the market value of the property and the final debt owed to the lender.  In a short sale or foreclosure case, unless the lender signs an agreement to waive its deficiency rights, it will have the ability to sue the borrower to collect this amount. I have seen many deficiencies in the hundreds of thousands of dollars as a result of the historic market collapse.  In the majority of short sales our firm has handled, we have successfully obtained deficiency waivers for our clients.

This is an important condition of the short sale approval that every borrower should work hard to obtain.  When the borrower is engaged with the lender in negotiating a short sale, the opportunity to work the deficiency waiver into the deal is available.  For borrowers who simply surrender and allow the foreclosure to take place, there will be no such opportunity and the overall potential resulting harm is greater.

Another reason to consider a short sale is it provides the home owner the opportunity to continue living in the property while not paying the mortgage. For those who have suffered great financial distress throughout these terrible economic times, this means the chance to save up some reserves, pay down other debt or do other productive things while taking advantage of the breathing room that comes from living in a property without paying for it.

Simply attempting to short sell will not delay the foreclosure process indefinitely.  Short sales usually do take a long time to close and most homeowners we have represented have continued living in their homes until the closing.  It’s sad to note, however, that many borrowers have simply walked away from their properties very early in the process upon missing payments because they failed to understand their rights and options.  Additionally, many real estate investors with rental properties have been able to collect rent while pursuing a short sale.

One more reason why a short sale may be the best strategy is the typical alternative to keep the property—a loan modification—usually is a bad deal that doesn’t work out for the borrower.  The much hyped government-initiated HAMP modification program has been a dismal failure that has helped only a tiny fraction of distressed borrowers trying to save their homes.  Though there has been a lot of talk, which is cheap, the government has yet to force the lenders to do anything meaningful they don’t feel like doing to help borrowers.

Most importantly, the most difficult thing to get out of a loan modification is a principal balance reduction.  Lenders commonly use many slight of hand tricks to lower the monthly payments.  An example of this is the deferred principal play, in which a chunk of the upside-down mortgage is taken out of the monthly principal and interest calculation (the amortization) and “put on the back” of the mortgage.  This technique may allow the borrower to pay a lower monthly amount, but that piece of the debt must be paid upon sale or refinance of the property and the borrower is often unlikely to remain in the property beyond the point at which the market value surpasses the debt.

I recommend going to a website called youwalkaway.com and using their Walk Away Calculator to determine the estimated time it will take your property to recover its value and have equity.  The numbers can be shocking and quite often greater than 20 or 30 years.  The bottom line is the loan modification usually represents the only available “stay strategy,” but it is usually a disastrous financial undertaking.  All things considered, the short sale, which is an “exit strategy” is more likely to be the best move to recover and rebuild.

How do I do a short sale?

First, you need a realtor to list the property.  The borrower should carefully select a listing agent with experience working these kinds of deals.  Short sales can be complicated and stressful, but a skilled and experienced agent will make the process easier.  Ask how many short sales the agent has handled and closed and what kind of training he/she has received in this specialized area.  Once the borrower signs a listing agreement with the realtor, the agent will market the property on the MLS (multiple listing service) to seek offers.  The listing will need to give prominent notice to prospective buyers and their agents that it is a short sale.  It is necessary to clearly label a short sale and notify everyone that third party lender approval will be necessary and the sale proceeds will not satisfy the lien(s) on the property.

Once a written offer is submitted to buy the property, the short sale really gets cooking.  At this stage, either the listing agent or a third party negotiator will get to work to collect all the necessary paper work and submit it to the lender’s negotiator for approval.  Our law firm has a title and short sale processing division that handles all the negotiations and closes the deal.  Some realtors are glad to handle the negotiations themselves, but most prefer to hand that cumbersome and difficult work to another negotiator.

Sellers will need to open their financial books so the lender can evaluate whether to approve the deal based on financial hardship.  If the seller is a strategic defaulter without much, if any, hardship to note, it is more likely the lender will require a cash contribution to approve the deal.  What constitutes a “strategic” default versus a default by necessity is not always clear.  There are gray areas and there is often room for compromise.  The way I like to look at it is, if the borrower ends up getting out from under a far greater amount of debt and a bad investment, but still pays the lender something, we can call it a “win.”

When do I do a short sale?

The timing of a short sale is largely a matter of discretion for the seller.  A homeowner may want to move quickly to sell the properties or try to extend the process, depending on needs and circumstances.  For many who have suffered and are continuing to endure financial distress, it may be in the borrower’s best interest to try to remain in the property as long as possible before selling.  In other cases, there may be a need for quick action and the desire to close this chapter and move on.

The foreclosure crisis has evolved in different ways since it began around 2007 and will continue to change in response to political and economic circumstances.  What we are seeing now is most lenders taking at least six months, quite often longer, to file a foreclosure case and take the borrower to court following the first missed payment.  Once filed, the lender may complete the foreclosure case as quickly as within six months in Florida if, and this is a big “if,” the borrower doesn’t respond and mount a defense.  On the other hand, we have litigated some cases as long as 3-4 years in court and some of these remain open from the inception of the foreclosure crisis.  As the recent fraud and “robo-signing” scandal that the media discovered has shown, foreclosure cases can be anything but “open and shut” and there are many legitimate defenses borrowers can raise to defend the case.  The timelines are all over the place, depending on many factors.

Many borrowers who stop the mortgage payments and thus find themselves in “pre-foreclosure” (behind in payments, but not yet sued) begin trying to short-sell only after being served court papers.  Some don’t want to face litigation at all and try to sell before being served.  Unfortunately, many of these rushed borrowers move so quickly out of ignorance of the legal process and its timing, their rights and what can be done to fight a foreclosure.

Others choose to handle the matter more aggressively and only attempt to sell once the case reaches a more advanced stage in litigation.  There are many ways to plan and time a short sale and it can be done either before a foreclosure case is filed against the borrower or while the case is pending.  A short sale is likely to take six months or longer to close from the placement of the listing until the closing.  Accordingly, the borrower who wants to short sell should make sure to plan to close prior to the court auction that concludes the legal process, at which point the lender or a third party bidder will take title and the chance to sell will be forever lost.

I hope this article answers most of the questions about short sales.  A short sale is not the best solution for everyone, but I’m convinced it’s the best for most who find themselves in trouble with their mortgage.  For more information and to discuss your options, please call our firm.

 

Blog /10.06.14 /By Charles P. Castellon

What you Should Know About Asset Protection

Much has been written about the legal concept of asset protection.  In some circles, asset protection has developed a seedy reputation of unethical or illegal activities including off-shore trusts and Swiss bank accounts.  Though some will always engage in unsavory practices, asset protection should be a sensible, legal and ethical

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Florida Asset ProtectionMuch has been written about the legal concept of asset protection.  In some circles, asset protection has developed a seedy reputation of unethical or illegal activities including off-shore trusts and Swiss bank accounts.  Though some will always engage in unsavory practices, asset protection should be a sensible, legal and ethical component of every investor’s wealth-building game plan.

Before discussing what asset protection is, it’s helpful to focus on what it’s not.  It’s not about illegally hiding assets from anyone with a legal right to know what you have.  It’s also not about tax evasion.  In summary, asset protection is about properly structuring and titling assets in a way to best secure them against anyone trying to take them.  The best use of asset protection strategies is preemptive action.  For reasons more fully discussed below, the timing of the implementation of asset protection strategies is critical.  Trying to shelter assets in reaction to bad things happening, such as a lawsuit, is much less effective and less likely to be upheld in court than protection arranged during times of peace and quiet.

As every good investor wants to do business in compliance with the law, the legal concept of “fraudulent conveyance” is important to understand.  Fraudulent conveyance refers to the act of moving or restructuring assets solely for the purpose of avoiding or hindering creditor claims.  Generally speaking, if an owner of any asset sells, restructures, re-titles or changes access to the asset for a legitimate reason other than preventing a creditor from getting it, such maneuvers are likely to be upheld in a court challenge.

It’s worth noting that the term does not imply criminal activity even though the word “fraud” is found in the phrase.  Although it is possible that criminal fraud may be committed in the process of hiding assets or falsely responding to questions about assets, a fraudulent conveyance case is usually a civil matter.  Typically, the creditor will learn that a debtor used to own one or more assets the creditor could’ve pursued, but no longer has the asset(s).  The burden would then be on the creditor to establish in legal proceedings that the debtor engaged in the activities affecting the assets for the sole purpose of thwarting the creditor’s claim.  The likely worst-case scenario for the debtor would be the invalidation of the prior asset transfers and restoring title to the debtor so the creditor can seize the asset.  According to that scenario, there may be little for the debtor to lose in attempting transfers that could later be deemed fraudulent conveyances, as the debtor would simply be put back at “square one,” where he started.  There could, however, be the possibility of liability to innocent third-party buyers of assets.

As any challenge of the movement of assets would rely on the intent of the owner, a logical question would be how does the court determine the legality of these acts?  The answer is found in the court’s review of the totality of the circumstances surrounding the asset transfers.  A helpful tool in this inquiry is known as “badges of fraud.”  These are mainly common-sense indicators in the surrounding circumstances that shed light on the intent of the debtor.  They include, among others, whether the transfer is to an insider, the amount of money exchanged in relation to fair market value, whether the debtor renders himself insolvent as a result of the transfers and other factors.

Perhaps the most important factor is the timing of the transfer.  This is why preemptive, rather than reactive action is best.  For example, if the owner of asset shelters it while he lacks any care in the world, including no outstanding debts, claims, lawsuits or judgments in existence, it’s much more likely these moves will be held valid.  If, on the other hand, a debtor signs a quit claim deed to his brother in law the day after a judgment is entered, the court will treat it with much greater suspicion and more likely over turn it.  Nice try.

There are many methods available for protecting assets.  For real estate, a Florida land trust is a very effective asset protection tool.  In essence, the land trust creates a shelter of privacy and anonymity whereby the true “owner” in control of the property will not be a public record.  This is mainly a deterrent effect.  Before any potential plaintiff and her attorney would consider filing a lawsuit, the concept of “pockets” comes into play.  It’s not worthwhile to sue a judgment-proof defendant without assets to take away.  Real estate is perhaps the only common asset for which there is an easily accessible public record of ownership along with an estimate of value.

In a land trust, the record owner of the property is the trust, either an individual or entity such as a corporate trust company.  The true de facto owner in control is the beneficiary, who may similarly be any number of individuals or entities.  The two documents comprising the land trust are the trust deed and trust agreement.  The trust deed is recorded and creates a public record of ownership in the name of the trustee.  The trust agreement, by contrast, is a private document containing the identity of the beneficiary.  The land trust is an under-utilized and economical vehicle for holding title to investment properties (though a homestead property may be owned through a land trust, it’s not recommended due to the strong homestead legal protections already in place in Florida).

Other asset protection options available include the use of corporate entities (especially limited liability companies), personal property trusts, marital property and whole and universal life insurance policies and annuities, which protect both the cash value and income streams from creditor claims.

Asset protection is not just for the rich and crooked, as a common stereotype would imply.  All thoughtful investors should carefully consider their exposure to claims in our litigious society and asset protection strategies are invaluable in that regard.

Blog /09.06.14 /By Charles P. Castellon

What is a Strategic Default and When is it an Appropriate Decision?

For many homeowners, a plummeting housing market has transformed a previously prudent investment into an oppressive financial burden. Engaging in a strategic mortgage default with the help of a foreclosure defense attorney may be one of your best options for controlling damage to your credit.

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DefaultFor many homeowners, a plummeting housing market has transformed a previously prudent investment into an oppressive financial burden.  Engaging in a strategic mortgage default with the help of a foreclosure defense attorney may be one of your best options for controlling damage to your credit.  If you’ve found yourself in a tough financial situation with your mortgage lender, then consider whether or not strategic default is a feasible option for you.

What is a Strategic Default?

A strategic default occurs when a borrower who is able to pay their mortgage chooses to stop because a property’s value has dropped significantly below the mortgage debt owed on it. Because strategic defaulters (as opposed to seriously financially distressed borrowers) are more likely to have higher income and assets, the decision to stop the payments should include asset protection considerations and strategic planning.

  • What are its Consequences?

As with any other foreclosure, the direct consequences of a strategic default are fundamentally the same.   It’s important to understand that the strategic default decision is not the end of the discussion, but rather, the beginning.  The decision to discontinue payments should lead to the next question—“now what?”  A borrower may simply give up and allow the lender to foreclose, but this is a terrible idea.  In most cases, attempting a short sale of the property will be the best damage control option.

Although getting short sale approval is often more challenging for the strategic defaulter due to the lack of “hardship” the lender expects to see, the borrower should not consider this a “zero sum game.”  There does not need to be an absolute winner or loser in this process between the borrower and lender.  Quite often, strategic defaulting borrowers will agree to bring money to the closing table in exchange for a release from a much greater mortgage debt and an exit from a bad real estate investment. The borrower should consider that the credit damage resulting from a short sale could be overcome in as little as one and a half to two years.

 

  • The Moral Question

 Many borrowers who retain the ability to pay the mortgage resist the idea of strategic default because of moral considerations.  They adhere to traditional values of honor and integrity and the notion that signing a “promissory note” means a promise to pay.  This moral question deserves a detailed and thoughtful reply.  A good place to start is by reading the moral discussion in University of Arizona Law Professor Brent White’s excellent article [link].  In essence, a strategic default is not an avoidance of the consequences of the mortgage; it is the acceptance of them.  A borrower signs a promissory note, which is a legal contract to repay a loan.  The note is secured by a mortgage, which is the borrower’s consent to allow the lender to take title to the property upon failure to repay the note.  The probability of defaulting on the note is factored into the deal through the mortgage.  Otherwise, the lender could simply lend the money unsecured, as with credit card debt.

For the lender, as with any other corporation, the bottom line is the bottom line.  It’s a business transaction and the parties in any business deal are expected to act in ways to further their own self-interests.  It is hypocritical and unfair to expect an individual borrower to sacrifice his own self interest for the benefit of the other party in the deal—the lender.  There are endless examples of naked self interest in the corporate world trumping moral considerations, including the noteworthy instance where Morgan Stanley strategically defaulted and walked away from its obligation to pay on several upside down properties it owned.  In the business world, we eat our mistakes.  Unfortunately, the control of our government by Wall Street and their partners in crime in the lending industry have created a world of socialized losses and individualized gains, as the “too big to fail” federal bailouts have sadly demonstrated.

If lenders recklessly issued mortgages on the faulty premise of continuing rising home values to provide their “cushion” and they were tragically wrong, it should not fall on the borrower (the less sophisticated party in the deal who had no choice but to accept all the lender’s terms or not do the deal) to bear the burden of the housing market collapse.  This brief discussion does not do justice to the moral question, but it’s a start.   Any borrower considering a strategic default should contact the law firm of CPC Law to discuss all the ramifications, including the moral issue and create a strategic game plan.

/05.06.14 /By Charles P. Castellon

Lapsing of the Mortgage Forgiveness Debt Relief Act has Major Implications for Distressed Homeowners

Our government’s decision not to extend the Mortgage Forgiveness Debt Relief Act has some costly implications for underwater homeowners and those dealing with foreclosure. This article from the Washington Post outlines the effects of the lapse. If you have questions about what this means to you, we’d be happy to answer them.

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foreclosure signOur government’s decision not to extend the Mortgage Forgiveness Debt Relief Act has some costly implications for underwater homeowners and those dealing with foreclosure. This article from the Washington Post outlines the effects of the lapse. If you have questions about what this means to you, we’d be happy to answer them.

http://www.washingtonpost.com/business/economy/distressed-homeowners-seeking-mortgage-relief-could-get-stuck-with-higher-taxes/2014/04/11/ba3d7498-be6b-11e3-b195-dd0c1174052c_story.html?wpisrc=nl_wonk 

 

Blog /03.06.14 /By Charles P. Castellon

Five Ways Bad Credit Can Cost Money and Opportunity

The word “credit” has appeared frequently in a variety of contexts including advertisements and news over recent years. Credit default swaps unpinned the mortgage crisis.  Target’s credit card data breach. Greece’s debt situation and credit risk. “Sign up today for a new credit card starting at 0% APR.” “Bad Credit, No

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5 Ways Credit Can Cost YouThe word “credit” has appeared frequently in a variety of contexts including advertisements and news over recent years. Credit default swaps unpinned the mortgage crisis.  Target’s credit card data breach. Greece’s debt situation and credit risk. “Sign up today for a new credit card starting at 0% APR.” “Bad Credit, No Credit? No Problem! We Sell Cars to Anyone!” It is likely you have seen Central Florida credit repair companies advertised in a number of places.

What I am focused on here is what a negative credit score can cost you in currency and opportunity. The following is a list of the ways a negative credit score can affect you, whether you are an Orlando/Central Florida resident or you live in Chicago:

1: You will pay a higher interest rate on loans or credit cards than someone with a good credit score. In the eyes of a lender, you are a riskier investment than someone who has a good credit history (and correspondingly a better credit score). As a result of this, you’re going to pay a high interest rate.

Your Cost: Could end up being hundreds or thousands of dollars over the term of the loan.

2: You might have trouble renting that awesome apartment you have your eye on.More landlords are requiring a credit check prior to accepting tenants, which makes sense because they can use a credit score to measure risk.

Your Cost: The opportunity to live in the place of your choice.

3: You could miss out on that amazing job opportunity. Not every job requires a credit check but some in the financial services industry and a few others do. It isn’t illegal for employers to ask for your approval to check your credit history and to use that information in deciding to hire you (or promote you). It would be a shame to miss out on a great opportunity solely as a result of your credit history.

Your Cost: The opportunity for a job and what could be thousands, tens of thousands or hundreds of thousands in lost wages over the course of a career.

4: Trouble buying a house or a car. Obtaining financing for either of these purchases could be problematic. Even if you are able to get financing, it will take your credit into account and your rate will be correspondingly high based on the risk.

Your Cost: The opportunity to live in the place of your choice or getting the car you wanted.

5: Problems getting a cell phone. In modern America, the cell phone is ubiquitous. Unfortunately phone companies have begun screening applicants for service based on their credit. While prepaid phones and cards avoid this sort of problem, this can be a more expensive solution.

Your Cost: The aggravation of having to buy prepaid phones or having to go without.

Good news; not all is lost if your credit score isn’t up to snuff. There are many common sense ways for you to improve your credit score which include getting current on delinquent debts and making sure you examine your credit report for errors. If you live in Central Florida and you are looking for an Orlando Credit Repair attorney, look no further than CPC Law. With the guidance of an attorney who understands the ins and outs of the Fair Credit Reporting Act, you can begin taking the steps necessary to avoid the costs outlined above.

Blog /29.05.14 /By Charles P. Castellon

Why We Want to Serve Our Clients Bacon & Eggs

In February 2014, I attended a one-day conference in Ft. Lauderdale.  I considered the fee expensive for a one-day event, but I thought it would be educational and a good networking opportunity.  I booked a room in the high-end hotel in which the conference was held and headed down to

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Bacon and Eggs ThumbIn February 2014, I attended a one-day conference in Ft. Lauderdale.  I considered the fee expensive for a one-day event, but I thought it would be educational and a good networking opportunity.  I booked a room in the high-end hotel in which the conference was held and headed down to the event that morning.  Just outside our ballroom, I passed an inviting hot breakfast in gold shiny serving trays.  During registration, I realized that breakfast was for the conference next door.  Our breakfast consisted of the typical muffins and danishes found at most seminars.

Of course, I didn’t sign up for the food and the breakfast provided had no direct bearing on the quality of the event.  Despite that logical understanding, breakfast set the tone for the day.  It’s easy to feel apprehensive about the wisdom of any investment and whether I’ll get a satisfactory return for attending the conference, along with the more precious resource of my time invested in this event.

That nice hot breakfast would have made a good first impression.  It would have conveyed a subtle message along the lines of “we acknowledge you spent a lot of money for our event and we want to show our appreciation and treat you right at every opportunity starting with the small gesture of breakfast.”  In my view, whatever dent the catering upgrade would have made in the organizer’s profit margin would have generated a great ROI in the attendees’ good will and inclination to do further business with him following the conference.

All businesses should consider how to make clients feel appreciated and not viewed as merely a dollar sign.  Throughout this conference, selling was a higher priority than educating.  At the end of the day, I rated the conference approximately 80% infomercial and 20% educational, though I don’t regret my tax-deductible investment to attend.  I did make some good connections and learned valuable information.   The most valuable lesson I took away, however, did not relate to the subject matter of the conference.  Instead, it was  a greater understanding of what we need to do to make sure our clients feel appreciated and respected for the fees they pay in exchange for our legal services.

We genuinely care about our clients and serving their needs is our first core value.  Beginning with breakfast, my conference experience made me wonder whether all our clients agree with my assessment.  Perception is reality and no matter how noble our intentions, if even one client feels like merely a dollar sign and unappreciated, we have failed.

At CPC Law, we work as a team.  Every team member has a vested interest in making sure our clients receive the highest quality representation along with appreciation and respect.  Without satisfied, appreciated and well-treated clients, we cease to exist.  I’m asking our clients to call me directly if they ever feel we don’t appreciate them or we fail to deliver the level of services for which they’ve paid their hard-earned money.

We need to be fully engaged with our clients and we have launched policies to achieve that objective.  We are putting all our clients on a regular call rotation to connect even when there is no new information to convey.  If we reach out to the client for any reason in between these regularly-scheduled calls or the client contacts us, we’ll reset the next call to follow that in-between contact.

We are also committed to an increased social media presence and encourage our clients to follow and communicate with us on these platforms to be fully engaged.  Our firm will send periodic email newsletters and updates with useful information such as pertinent legal developments and news that may be of interest to our clients.  Along the way, we’ll inform our clients of all the ways we can help them and available legal services that may serve their needs.

CPC Law promotes the concept of the “personal empire” we help our consumer, investor and small business clients build and protect.   Part of this involves helping clients acquire and protect material wealth, but it goes far beyond that.  We view the “empire” as the collective parts of our clients’ business and personal lives come together to make happy, meaningful and comfortable lives for the long run.  This holistic view of legal services involves going above and beyond what law firms have traditionally done for clients, including regular educational and networking opportunities we will continue to offer while seeking to build strong relationships as their trusted advisors.  It is my mission to make sure every client of CPC Law receives a satisfying hot breakfast and much more through meaningful life-long relationships.

Charles P. Castellon, Esq.

Orlando, FL

February 20, 2017 /By Charles Castellon /

Lilli Rodriguez photo

By Charles P. Castellon, Esq. 2017 © All rights reserved.

Recognizing the adage that “you make money when you buy,” all real estate investors look for bargains.  A popular place to buy low is the tax deed auction.  Many investors specialize in this area or include tax deeds among other acquisition strategies.  The main drawback, however, is that when you take title through this auction, issues come with it.  This article will discuss the title issues tax deed investors face and available solutions.

Before a property may be auctioned to pay the tax collector, certain procedures are required.  After a property tax bill goes unpaid, there is a tax lien certificate sale.  The winning bidder pays the taxes and receives a guaranteed return on investment.  After a minimum of two years have passed, the certificate holder may redeem it and have a tax deed sale set.  The sale is announced to the public and anyone can bid on the property.  This sale will wipe out all other liens, including mortgages, with the exception of other government liens.

The winning bidder gets title to the property, in some cases, for little more than the amount of property taxes owed.  Occasionally, if there is good equity, the winning bid will result in a surplus when that amount is greater than the taxes owed.  In most cases, other lien-holders (usually mortgage lenders) claim the surplus funds, but if there are no other liens, the former homeowner may receive the money.

The title problem is effectively a real estate marketability issue.  The title insurance industry, takes the position that tax deed title is risky. A tax deed investor may find a cash buyer willing to take the property without the assurance of a warranty deed and owner’s policy of title insurance, but that’s unlikely.

If the buyer of a property acquired through the tax deed sale uses mortgage financing, that lender will want its own title insurance coverage.  This means the property is not marketable, unless the owner holds it for at least four years, which is the title insurance industry norm for considering that the coast is clear.

The main reason for the nervousness is that the legal process leading to the tax deed sale could be defective.  All parties with an interest in the tax-delinquent property, including title owners, mortgage lenders and lien-holders found in the public record are entitled to notice and an opportunity to pay the tax bill or raise challenges prior to the tax sale.  If the clerk of court makes mistakes and fails to notify interested parties, that could poison the underlying legal process and create a title problem.

The solution is generally found when the new owner files a lawsuit called a quiet title action.  This is a legal action against all other parties who may have a valid claim on the title based on information found in the public records.  These potential claim-holders are named in the suit, served legal papers and given an opportunity to respond.  In the tax deed world, most quiet title actions are won on default because the court system usually gets it right by giving notice to all the proper parties leading up to the tax deed sale and nobody has a defense to raise.

Depending on the issues that may arise in any given case, the quiet title process may be completed within several months.  Perpetual court congestion can cause delay even in the absence of anyone contesting the case.

As an alternative to filing a quiet title suit, some investors pursue an alternate solution.  There are some specialized title insurance underwriters who will, for a higher premium than a usual title policy, take on the risk and insure the title of a tax deed property.  Many real estate attorneys would prefer that investors not know about this option.  In many cases, the cost of the premium will be less than the legal fees and court costs associated with the quiet title suit.

In any given situation, there may be valid considerations aside from costs.  The smart investor should get the advice of counsel, do a cost-benefit analysis and determine which option is right.  The answer may be to hold the property for an extended period to remove the title issue, file the quiet title suit or buy the special title insurance policy.  The main thing is to make a knowing and informed business decision that’s right for the investor in their situation.

 

Charles Castellon has been practicing law since 1992 and is the Founder and Managing Attorney.  Charles is also the principle of Esquire Title Company (“Hard Deals Made Easy”), a member of Common Wealth Land Trust Services and a real estate investor.   For all your legal, title and land trust needs, call 407 851-0201 or email Charles@cpclaw.net

 

February 7, 2017 /By Charles Castellon / Blog

All Florida landlords should read and understand the state’s landlord-tenant laws found in Chapter 83 of the Florida Statutes.  A part of the law that contains pitfalls and has historically caused problems for investors is 83.49.  This subsection covers tenant security deposits and the rules governing how landlords may hold and refund deposits following the tenancy.  The law contains strict procedural rules to follow, including specific notice language landlords must use to inform tenants of their legal rights regarding deposits.

These legal waters are dangerous to navigate because violations will trigger attorneys’ fees for the winning party in litigation as well as forfeiture of the deposit.  Many savvy tenants and their attorneys have effectively exploited technical violations to their advantage, which can be costly for landlords.

Additionally, investors renting their properties through the popular federal “Section 8” subsidy program administered by the Department of Housing and Urban Development (HUD) should be aware of some differences in the rules governing deposits from what the State of Florida requires.  This article shall discuss these legal issues to give investors the knowledge to comply with the law and avoid the liability and stress resulting from deposit disputes.

Section 83 of the Florida Statutes covers all aspects of landlord-tenant law.  A good place for investors to start understanding the law is Subsection, 83.49-“Deposit money or advance rent; duty of landlord and tenant.”  83.49 (1) and (2) set forth how landlords shall hold deposits  as well as required  notice language they must give tenants.

Landlords may hold their tenant’s deposits in interest-bearing or non-interest bearing accounts.  It is illegal to co-mingle tenant deposit money with other funds of the Landlord.   If held in an interest-bearing account, the tenant is entitled to receive “at least 75% of the annualized average yearly interest rate…or 5% per year, simple interest, whichever the landlord elects.”

Alternatively, the landlord may post a surety bond to secure deposits, as described in 83.49(c).  This bond is posted with the clerk of the circuit court for the county where the property is located.  Choosing this option will trigger payment of 5% simple annual interest to the tenant.  Different rules apply to landlords owning rental properties in five or more counties, including the right to post a bond with the Secretary of State instead of the clerk of court for each county.

Section 83.49(2) requires landlords to give tenants a specific legal notice concerning their deposit rights.  This part of the law does not apply to landlords renting fewer than five individual dwelling units.  Landlords may choose to include this language in the lease or deliver it within 30 days of receipt of the deposit.  The best practice is to include this language, exactly as written in the statute, in all residential leases.

The handling of security deposits is likely the most common landlord-tenant legal dispute.  This is a very dangerous area  because of the strict legal procedural requirements and attorney fees provision allowing the winning party in a lawsuit to collect the fees and costs of the case.  Many attorneys will pursue deposit cases without requiring advance fees from the likely economically-challenged tenant because a winning case will lead to the landlord paying the tenant’s attorney.  The “reasonable” attorney fees a court may award the winning party often far exceed the amount of the deposit at issue.

Section 83.49 states that, if upon the end of the tenancy, the landlord has no claim for any part of the deposit, the landlord must return the money to the tenant within fifteen days of moving out.  If the landlord intends to make a claim on the money, they have thirty days to deliver written notice by certified mail to the tenant’s last known address.  This written notice must include specific language found in the statute.  The landlord shall give the tenant fifteen days to object in writing to the claim on the deposit.  Tenants commonly file legal actions for defective notice based on grounds such as untimely delivery or failure to state the required statutory language.

A more obscure provision of the law states that these deposit requirements don’t apply where the deposit “is regulated by …federally administered or regulated housing programs or [Section] 8 of the National Housing Act…”  Florida Statute 83.49(4).  Considering the popularity of the HUD Section 8 subsidy program, many landlords should be familiar with this exception to the state law.

The Code of Federal Regulations, Title 24, Chapter VIII, Part 891.435 (cited as 24 CFR 891.435) describes federal requirements .  These federal regulations refer back to applicable state or local laws for certain matters.  The federal rules contain some minor differences from the state law, but allow for state statutory provisions to apply in certain circumstances.  Under the federal regulations, the landlord may use the security deposit to cover unpaid rent.

The federal rules require that within thirty days of the tenant’s notification of a new mailing address, the landlord must refund the deposit or provide an itemized list of amounts owed.  In addition, the landlord is required to give the tenant a statement of rights under state law.  This requirement would have the landlord recite the 83.49 deposit rights language referred to above.  If the amount owed the landlord is less than the deposit, the landlord must refund the balance.  If the landlord fails to provide an itemized list of damages, the tenant is entitled to receive the full deposit.

The tenant may present objections to the landlord in an “informal meeting.”  The landlord must keep a record of the tenant’s objections at that meeting for inspection by HUD.  If the parties are unable to resolve the dispute, the tenant may pursue relief under the terms of the state law, 83.49.  If the retained deposit is less than the amount owed, the landlord may apply for HUD reimbursement for the difference.   The landlord may collect the lesser of the balance owed or one month’s rent minus the security deposit balance.

The main take-away for Florida landlords is that the law on tenant deposits is a minefield of legal liability and exposure that must be thoroughly understood.  Section 8 landlords should also be aware of some nuances differing from the applicable state law, though there is some overlap allowing for both state and federal law to apply to deposit issues.  Understanding and following all these rules at the start of a landlord-tenant agreement will greatly reduce the landlord’s exposure and allow buy and hold investors to focus on making money.Lilli Rodriguez photo

April 13, 2016 /By Charles Castellon / Blog

Lilli Rodriguez photoRecently, the Obama administration and Department of Housing and Urban Development (“HUD”) made a policy announcement of great concern to the real estate investor community.  The government announced that under the federal Fair Housing Act (“the Act”), landlords cannot deny housing based on a prospective tenant’s criminal history.

The historical legislation was passed in 1968 to combat a long and shameful history of housing discrimination by the private and public sectors.  The law prohibits discrimination in the sale and rental of, and lending for, residential real estate on the basis of membership in protected classes.  These classes predictably include race, color, sex, religion, national origin, familial status and later through an amendment to the law, disability.  Stiff penalties for violations may include fines as high as $70,000 for repeat offenders plus attorney fees.

The list of protected classes does not include convicted criminals.  The government’s argument in support of its broad interpretation of the law is that because the convicted criminal population so disproportionately consists of minorities, discriminating against criminals is effectively the same as racial discrimination.  It’s noteworthy that the Act does allow landlords to exclude convicted drug dealers.  This article shall pick apart the government’s argument and offer practical suggestions for landlords, sellers and private lenders in response to this sweeping government pronouncement.

The extension of the Act’s protection to criminals is not as radical as it may appear at first glance because of a recent U.S. Supreme Court precedent that no doubt inspired the government’s recent policy declaration.  In 2015, the Court ruled in the case of TX Dept. of Housing and Community Affairs vs. The Inclusive Communities Project (in a 5-4 opinion) that evidence of “disparate impact” of housing policies may be used to show a discriminatory effect, regardless of the intent of the actor.

The Court ruled in this case brought under the Act that the actual intent to discriminate against a member of a protected class is not required to prove a violation if a discriminatory impact is found.  Remarkably, throughout the 47-year life of the Act, the issue of the intent, or mental state, needed to make out illegal discrimination had not been decisively resolved.

Fast forward to last week and the government says that the Act protects convicted criminals against discrimination because criminal populations are disproportionately minority.   The courts, not HUD, have the final word on the interpretation of any law.  This policy declaration is a warning that HUD may file legal action for denying housing to criminals.

The main flaw in the government’s argument is that race is not the true correlation to criminal behavior, but rather, poverty.  Take the “live free or die” State of New Hampshire as a case study.  According to U.S. Census Bureau data from 2014, it’s among the whitest of states.  About 94% of the population is white, 1.5% African-American and 3.3% Hispanic.  According to the government’s logic, this lack of minorities should lead to sparsely-populated prisons overseen by the correctional equivalent of the Maytag repairman.

The reality is that New Hampshire’s prison population has grown in recent years at the fastest rate in the nation.  A U.S. Department of Justice study reported an 8.2% increase in 2014 (with another very white state, Nebraska, coming in second at 6.8%).  The NH prisoner population has been increasing since 2005.  If minorities are disproportionately represented in national inmate populations, then who is packing into NH’s prisons?  The answer is poor white people.

Poverty is clearly the most common denominator in relation to crime.  America’s historical disgrace has been that minorities are disproportionately poor and the poor are disproportionately convicted of crimes.  What and who are to blame are subject to debate.  Few would say (at least in polite company) that blacks and Hispanics are more genetically inclined to be criminals.  Some would argue that bad government policies have created these conditions of poverty and incarceration.  What’s undeniable is that the government has failed to cure the problem, regardless of the causes.

Now HUD is passing the problem down to investors and landlords to suffer the cycle of crime and poverty.  The government is effectively requiring landlords to do business with the worst financial risks because convicted criminals (outside of the white collar crime world) are most likely to be financially unstable.  The Act never intended to make poverty a protected class but that’s what HUD is doing now by failing to understand that poverty, not race, is most responsible for criminal behavior.

Of course, personal accountability and character are also important factors.  It would be irresponsible to suggest that poverty alone creates criminals as well as demeaning to the large majority of poor people who don’t commit crimes.  People with free will make bad choices that often lead to criminal records.  To force investors to accept tenants who under the best light, exercise poor judgment, and under the worst, are bad and dangerous people incapable of rehabilitation, is simply wrong and hypocritical.

To make matters worse, HUD has created liability for accepting dangerous tenants to avoid a discrimination action.  Imagine renting to a violent felon, possibly a sex-offender, in a multi-family property and the risk that creates for innocent neighbors, especially children.  There is little doubt that lawsuits will be filed against landlords for creating dangerous living conditions when predators act.

Investors need a game plan in response to the government policy.  It’s uncertain whether the courts will uphold HUD’s interpretation, but unless an investor wants to be a defendant in a test case, avoiding trouble is the safest course of action.

A good place to start is by reviewing tenant screening procedures.   Criminal record should not be an automatic disqualifier.  Landlords should screen prospective tenants based on finances.  Credit rating, rent payment history (including eviction filings), outstanding judgments, income, reserves and other financial data are all appropriate criteria to consider and unrelated to protected class status.  Because of the strong link between criminal history and poverty, applicants with a record are already likely to be financially unstable.  Landlords should avoid accepting a worse financial risk tenant with a clean record over a better one with a rap sheet.

For those who haven’t completely given up on the political process to get things right, lobbying should be done.   Congress can amend the Act to clarify that it does not protect convicted criminals as an extension of the racial protected class status, as HUD has interpreted.  On a more ambitious level, Congress can more broadly overhaul the Act to require the actual intent to discriminate, rather than only “disparate impact.” The Supreme Court was able to render its broad interpretation of the Act in the above-cited case because the law was unclear on the required mental state to discriminate.

National, state and local Real Estate Investor Associations should rally the rank and file to be heard as a unified voice.  On the local level, there is power in the compound effect of individual investors contacting their Congressional Representatives and Senators to demand action.   The investor community should take seriously the duty to speak out in response to this injustice and protect against the recent government attack on its livelihood.

Charles Castellon is the founder and managing attorney of CPC Law as well as a principal in Esquire Title Company and Common Wealth Trust Services.  Charles has been practicing law since 1992 and serves the investor community throughout Florida.

March 28, 2016 /By Charles P. Castellon / Blog

7214450550_bd3c1e5db2_oIn today’s world, there are many instances where a company attempting to collect a debt is not the same one that originated the debt. When a consumer is dealing with such a party, they have a right to dispute owing anything to this third party and to request the third party does in fact have a right to collect anything. This is known as “validating” the debt and this consumer right is found at 15 U.S. Code § 1692g – Validation of debts (LINK).

Making sure your creditor can validate the debt and prove they have a right to collect it is an important safeguard if a consumer feels unsure whether they owe a creditor who alleges to own a debt. If you have questions about your rights when it comes to debts, please call John Crone at 407-851-0201 to discuss your case.

 

February 15, 2016 /By Charles P. Castellon / Blog

            Purchasing a car can be a stressful event. Not only is it normally a large expenditure but it also can involve pressure tactics and the filling out of paperwork you’re unfamiliar with. It’s important to know your rights and to protect your interests when spending so much money. The following are three common practices in the world of used car sales you should know about going in.

Number One: Spot Delivery. This happens when the dealer allows a customer to drive off the lot with the car – “on the spot” – while the agreement is not technically finalized. In some cases, the dealer and the buyer enter into a sales agreement conditioned on some other type of action like securing financing from a third party.

Number Two: Conditional Sales Agreements. Typically in this type of agreement, there is an action that the consumer must take to complete the deal, like arranging financing to purchase the car from a source other than the dealer. In the conditional sales agreement, the buyer knows that he or she is expected to secure financing elsewhere.

Number Three: The Yo-Yo Scam. In a typical yo-yo deal, the dealer cancels the original deal after a few days (or weeks in some cases) and forces the consumer to return to the dealership with the newly purchased car. Often, the dealer states that “the lender” has changed its mind and will not finance the loan at the rate or with other terms promised. When a dealer can unilaterally cancel a transaction, the dealer can offer the consumer any interest rate, even low teaser rates they knowingly may not be willing or able to honor, and do so without any significant risk. Any risk in a yo-yo transaction is instead borne by the consumer

Another common issue is that the dealer may refuse to return the consumer’s trade-in vehicle or the consumer’s down payment. The dealer may also threaten to charge the consumer fees for mileage put on the car, wear and tear, or other items. In some cases, the dealer may threaten to call law enforcement on charges of auto theft if the consumer does not return the vehicle immediately.

What this Means for You

While the practices outlined above aren’t automatically illegal, they can be. If you feel you’ve been wronged in the purchase of a used vehicle, call CPC Law for a free Consultation.

 

 

 

 

 

 

** The information for this article was obtained through our experiences with these matters and via the FTC website and specifically Deal or No Deal: How Yo-Yo Scams Rig the Game against Car Buyers, an article written by Delvin Davis

October 7, 2015 /By Charles P. Castellon / Blog

Event Description:

Business owners and operators can learn how to build and grow their businesses in this five week course taught by experts in the areas of finance & administration, Leadership & management, sales & marketing, and HR & legal.  Course sessions include lunch and a special guest speaker on locally-available business resources.  A $500 Value!!

Participants are required to attend all five classes to receive their certificate of completion and be recognized at the 2015 Osceola Business Awards on November 18th.

Fees/Admission:
$100 – Members
$150 – Non-Members
Fee includes course materials, lunch each session, and graduation certificate.
Contact Information:
Christina Pilkington 407-847-4145 or Send an Email
Date/Time Information:
Intro: Traction – The Entrepreneurial Operating System w/ Chris White
Wednesday, October 14th, 11:30 AM – 1:30 PM
UCF Business Incubator
111 E. Monument Avenue, 4th Floor
Kissimmee, FL 34741
Finance, Administration, & Data w/ Russell Slappey
Thursday, October 22nd, 11:30 AM – 1:30 PM
Kissimmee/Osceola County Chamber of Commerce
1425 E. Vine Street
Kissimmee, FL 34744
Leadership & Management w/ Ray Watson
Thursday, October 29th, 11:30 AM – 1:30 PM
Kissimmee/Osceola County Chamber of Commerce
1425 E. Vine Street
Kissimmee, FL 34744
Sales & Marketing w/ Kelly Trace
Thursday, November 5th, 11:30 AM – 1:30 PM
Kissimmee/Osceola County Chamber of Commerce
1425 E. Vine Street
Kissimmee, FL 34744
HR & Legal w/ Julie Wheeler
Thursday, November 12th, 11:30 AM – 1:30 PM
Kissimmee/Osceola County Chamber of Commerce
1425 E. Vine Street
Kissimmee, FL 34744
September 21, 2015 /By Charles P. Castellon / Blog

By Charles P. Castellon, Esq.

All real estate professionals should be very much aware of certain legal issues regarding housing discrimination and the federal and state laws that cover them.  Some very important issues involve fair housing laws designed to protect the public from the discriminatory practices that once flourished in the real estate industry.

There are many examples of practices known as “steering,”  “block-busting” and “redlining,” among  others, that prevented racial minorities and other disadvantaged members of the public from buying homes.  The Civil Rights movement that gained momentum in the 50’s and 60’s was the catalyst for the passage of a series of legal reforms to change this history and prohibit housing discrimination.

The long history of discrimination led to the passage of the Fair Housing Act.  Also known as Title VIII of the Civil Rights Act of 1968, the law prohibited discrimination in the sale, rental and financing of home purchases and other housing transactions.

The law established protected classes of consumers and prevents discrimination based on race, color, national origin, religion, gender and familial status.  In later years, disability rights came along to require certain reasonable accommodations in limited circumstances.  Among other violations, it is illegal to refuse to rent or sell, refuse to negotiate, refuse to make housing available, falsely deny availability or set different terms and conditions based on a consumer’s membership in one of the protected classes.

In Florida, we have Chapter 760 of the state statutes, known as the Florida Fair Housing Act.  There is much overlap with the federal law.  Having a state version allows for greater enforcement opportunities by government overseers.  This also creates greater potential for liability to all real estate professionals dealing with the public, including investors, realtors, property managers and mortgage lenders.

It is noteworthy that members of the LGBT community to this day lack protected class status.  As a result, under both federal and Florida state law, it is still legal to discriminate in housing based on sexual orientation.  This may be the next legal battleground in the LGBT civil rights movement.

Why is all of this relevant to good real estate players with no intention to discriminate?  The answer is the penalties for violations may be severe, including fines of many thousands of dollars.  Legal violators may not realize they are engaging in prohibited discrimination.  With the most innocent intentions, many may violate the letter of the law and face serious consequences.

In 2015, the U.S. Supreme Court decided a case with serious consequences for anyone who may be on the receiving end of a Fair Housing discrimination claim.  In TX Dept. of Housing and Community Affairs vs. The Inclusive Communities Project, the high court ruled that indirect evidence, including the use of statistics, may be used to show the impact of discrimination.  This means the actual intent to discriminate need not be proven to make out a Fair Housing claim.  This decision will have a far-reaching  impact for all real estate professionals.

Some may believe the history of housing discrimination is a relic from the past and there is no longer a need for these legal protections.  You may be dry, but is it because it’s not raining or you have an umbrella?

This year,  the Department of Housing and Urban Development (the agency in charge of federal enforcement) reached a huge class action settlement with Associated Bank for its discriminatory lending practices from 2008–2010.  Among the terms of this deal was a requirement that Associated Bank give $200 million in mortgage loans to borrowers in minority areas, among other damages.

State and Federal agencies, including HUD and the Florida Commission on Human Relations, send undercover enforcement agents into the housing market to test many industry players as well as field complaints.  Everyone working with consumers in the real estate industry should be very familiar with Fair Housing laws and what it takes to violate them.  If you don’t want to end up somewhere, it’s useful to know the path to getting there so you can avoid it.

September 21, 2015 /By Charles P. Castellon / Blog

By Charles P. Castellon, Esq.

Both experienced and new real estate investors can benefit from forming alliances to work together in deals.  This article will highlight some of the most important issues investors should consider before joining up to make money.

The first question to consider is why investors should work together in the first place.  The power of leveraging is the first thing that comes to mind.  Investors can unite to share in or contribute to, the risks, work, capital, rewards, knowledge, experience and leads, among other things.  Spreading the risks of a deal is often called “hedging.”  Sharing the rewards can be a great way to minimize the impact of the many bad things that can happen to an individual investor working alone.

There are some important issues any potential partners should discuss before entering a deal.  One consideration involves the capital contributions each team member will make.  Who will put up cash to buy the property?  Investors can lend money to each other or their company, buy a share of the property or company that owns it or any combination of these options.

Someone can offer his or her credit to qualify for financing.  This can be a dangerous idea, the impact of which is often under-estimated.   When family and close friends decide to do business, one partner can contribute a  good credit rating to for the loan application.  Investors should understand  there is no such thing as being “just a co-signor.”  Whoever signs a promissory note is personally liable and puts personal assets and that excellent credit rating at risk if the deal fails and the debt isn’t paid.

Another important contribution is the work or “sweat equity” put into improving a property.  This is where having a partner who is a contractor otherwise experienced in renovations can be gold.  It’s often more difficult to find good deals than finance them.  This can make the person who finds the deal a valuable contributor entitled to a piece of the action for generating the lead.  Everyone needs a good bird-dog.

Another issue to consider beyond contributions is how the alliance will be structured.  There is a broad array of available options but this article will focus on three of the most common choices.  The first is to join together by forming a corporate entity such as a limited liability company.  LLCs are popular with investors for reasons including the ease of use, flexibility and versatility.  Less corporate formalities are needed compared to other types of companies.  Very importantly, it’s challenging for a creditor to pierce an LLC to pursue corporate assets to satisfy the personal obligations of an LLC member.   A carefully-written operating agreement should clearly spell out all the duties and obligations of the company’s members.

In Florida, a strange legal outcome that may result is the creditor getting a kind of lien, or “charging order” against the LLC without the ability to force distributions of assets.  In some cases, the creditor can end up receiving a tax liability for the profits of the company without reaping any benefits.

There are downsides to using an LLC, including expenses from keeping the company’s books, state government fees and preparing tax returns.   Overall, if the members want the equivalent of a business “marriage,” and expect to do more deals together, an  LLC would likely work well.  If a lesser commitment anticipating  a one-shot deal is desired, there are alternatives.

A Florida land trust is one such alternative.  Land trusts remain very popular among investors for many reasons.  The benefits include the privacy that comes from keeping the true parties in control of the property—the “beneficiaries,” out of the public records.  A land trust can also help prevent liens such as those resulting from code enforcement violations from infecting other properties the investors own.  Another nice benefit is that beneficiaries don’t legally own the real estate.  The beneficial interest in a land trust is generally personal property that can be easily sold from one beneficiary to another without transferring title to the property, which is legally held by the trustee.  This benefit can help avoid a “partition” lawsuit that would force a sale resulting from a dispute where co-owners disagree on what to do with the property.  There are many other benefits to using land trusts.

A third option that would be most appropriate for collaborating on a single deal instead of ongoing business is a joint venture.  A joint venture agreement is created to describe the parties’ contributions and duties as well as their returns and respective shares of the risks.  The joint venture agreement serves a similar role as the operating agreement for an LLC.

There are numerous considerations to be discussed before entering a JV agreement, or for that matter, any of the other alliances described here.  They include but are not limited to, business objectives and goals, the structure of the JV, the respective contributions and duties of the parties, how profits losses and liabilities are to be shared and management or control of the venture.

This is a basic overview of the issues associated with investors doing business together.  Before entering into any entangling arrangement, it would be wise to seek expert legal and tax advice.  As the carpenter says, “measure twice, cut once.”

® all rights reserved, 2015.

July 19, 2015 /By Charles P. Castellon / Blog

By: Ness Chakir, Esq.Back_to_Back_House

Are you buying or selling real estate in Florida? If so, all the terms of deal will be set forth in a written contract governed by Florida law.  Buyers and sellers have the ability to use an already written up contract that has been approved by the Florida Association of Realtors® and the Florida Bar Association.  In fact such contract is used in all transactions.  In most cases you will use a Realtors® help in assisting you with the sale or purchase of the property nonetheless only attorneys can give you legal advice regarding the contract.

These are the most important terms of the real estate contract:

  • Contract must be in writing: all the essential terms of the contract must be in writing so to reduce vagueness and any potential misunderstanding of the contracts
  • Names & Signatures of all Parties. All the parties of the contract must be listed and sign the contract. If you own a house as a husband and wife then both of you must sign the contract in order to sell your property. Neither husband nor wife can compel the other party to sell the property.
  • Description of the Property. The description of the property must be sufficient to identify the property being purchased. The best way to do that is to put down the legal description of the property which would be listed in the deed of the property or the county’s appraisal website. Mailing address may not be enough to sufficient describe the property because of the location of fences or natural boundaries. That can create confusion regarding the location of the actual property.
  • Purchase Price.  The contract for real estate requires that you input the offered purchase price of the real estate.
  • Earnest Deposit: in order for the seller to hold down the property for you and not sell it to another party, you must provide him with an earnest deposit depending on the purchase price.
  • Closing Date. Finally, to enforce a real estate contract, a closing date stating when the property will be transferred to the new owner must be clearly stated.  Depending on the type of financing, it typically takes 30 days from when the contract is signed to close on the property.
  • Agreement to Buy and Sell. To be enforceable, contracts must include language stating that the buyer intends to buy and the seller intends to unequivocally sell the property. Additionally, most contracts come with certain contingencies that will have to occur in order to close on the property. The most common one is the financing contingency, which you will need to include if you plan on getting a loan from the bank to buy the property.  In most cases, if you are unable to close on the property because of lack of financing then you can walk out of the closing and get your earnest deposit back.

What I have described to you is the essential terms of the real estate contract. Nonetheless, there is more to the contract that you should be made aware of.  As a real estate attorney, I can assist you in drafting the contract and protect your interest.

July 18, 2015 /By Charles P. Castellon / Blog

By Mark A. Freeman, Esq.Last Will and Testament

The majority of Americans do not have an estate plan, though they may be aware of the importance of preparing for that one sure thing in life.  For many who have taken the time to deal with such a serious matter and create an estate plan, another problem commonly arises.  The surviving loved ones often cannot find the last will and testament and other important document following death.  The inability to locate a lost will can lead to some serious unintended consequences.

For example, in Florida, having only a copy of a will leads to the same legal result as the deceased never having  prepared one in the first place.  The result would be that the deceased is treated as having died “intestate,” or without a will, and state laws would decide who gets what, regardless of the harm to the family, rather than honoring that person’s wishes.

If the original last will and testament is lost, it can be a very costly problem for the surviving family.  The U.S. Will Registry (www.WillsUS.com) has a way for attorneys and their clients to have access to a national database that can trace information regarding the location and the last known holder of the wills of individuals who register for this program.  The actual will is not in the database but its location may be described.

This registry will not take the place of knowing where the actual original will is kept.  There is no substitute for clear communication and instructions following the preparation of estate planning documents.  Everyone having a will prepared should make sure that their family members know where to find the original will.  Many will keep it in a safe at home or a safety deposit box at a bank.

If an estate planning attorney prepares the will, the attorney may hold the original at the client’s request.  Otherwise, it may be a good idea to share with the attorney where the will is going to kept and have the attorney note this information in the file.  It’s difficult to over-estimate the consequences of losing a will for many families.  For example, in Florida, there is no legal requirements to leave any assets to adult children.  If someone wants to make a gift in a will for adult children,  that desire would likely be voided if there is a surviving spouse standing by to take everything.

Lawyers may not list their clients on the registry without their consent and the service is completely free for attorneys to create a profile page and register their firms and clients with the U.S. Will Registry.  An added feature is that if a Will is not located an email is sent to all attorneys who are registered on the database to alert them to check their files on behalf of the family.

In order of importance, everyone should start with preparing an estate plan.  Once that’s done, if the plan involves a last will and testament (as most plans do), the next important thing to do is make sure it’s kept safe and secure while eliminating the stress for the survivors to have to search for the will.

CPC Law will participate in the U.S. Will Registry program for the benefit of our clients.  Contact us at 407 851-0201 for a complimentary estate planning consult.

July 17, 2015 /By Charles P. Castellon / Blog

By Charles P. Castellon, Esq.

© 2015, All Rights Reserved.

Small BusinessSmall business has long been the heart of our nation’s economy.  For years, however, giant national and global companies have taken a greater market share and made it more difficult for mom and pop businesses to survive.  We’ve all seen independent retailers and hardware stores close down following a Wal Mart or Home Depot coming to town and many other similar examples.

In recent years, grass roots movements have gained traction in an effort to reverse the trend.  During the Christmas shopping season, we now have “Small Business Saturday” following “Black Friday.”  Despite these grass roots efforts, it remains a struggle for small business to compete with big money.  There is one recent case that shows how vulnerable the moms and pops are even when they’re not trying to compete with large companies.

Yogi Patel represents the American dream so many hard-working immigrants have come here to follow.  Yogi owns an Indian restaurant located in the tourist corridor of Highway 192 in Kissimmee, near Celebration.  His life story is typical of so many immigrants.  He has a long entrepreneurial history and has been an active member of his church in both New York and Florida.  His current business is the Indian restaurant, called Wa Wa Curry.

Late in 2014, Yogi began his suffering at the hand of big business.  This is when the gas station and convenience store chain called Wa Wa determined that Yogi’s restaurant was a threat.  Wa Wa, the convenience store chain,  has headquarters in Pennsylvania and a strong presence throughout the mid-Atlantic states.  Recently, Wa Wa has established a foothold in Florida and is expanding rapidly.  There was no Wa Wa convenience store in Central Florida when Yogi opened his restaurant, but the larger company has determined that Kissimmee is not big enough for two Wa Was.

Wa Wa the larger began asserting its strength by sending Yogi a “cease and desist” letter directing him to change the name.  This initial demand was soon followed by a federal lawsuit for trademark infringement seeking money damages in addition to the name change.

To defend his rights, Yogi retained the firm of CPC Law and its of-counsel attorney, Cliff Geismar.  Following talks between Yogi’s small firm legal team and Wa Wa’s large national law firm, it became clear that Yogi could not take on this fight.  Yogi soon realized that he didn’t have the guns to take on such a big company and its apparently unlimited resources to litigate the case.  Had Yogi fought back and eventually won, he would have likely found himself many thousands of dollars poorer from years of fighting a federal lawsuit while Wa Wa would have barely seen a dent in its bottom line.  Based on this realization, Yogi settled and agreed to change the name.

Yogi’s case bears some similarity to a recent mayonnaise fight.  Unilever, the multi-national corporate giant who owns the Helman’s brand, challenged a upstart company’s right to use the term “mayonnaise” in a no-egg product called “Just Mayo.”  After a flood of ridicule and negative publicity, Unilever dropped the case.  Unfortunately for Yogi, his case failed to generate enough media interest to convince Wa Wa to back down.

One lesson for small business owners to take away from the Wa Wa case is to get good legal advice on intellectual property issues.  Small businesses tend to overlook the importance of protecting their rights to assets such as business names, logos, slogans and other similar fruits of their labor.  With awareness, due diligence and expert advice, entrepreneurs can use for their benefit all the protections available from patent, trademark and copyright laws as well as take action to protect themselves against legal attacks like the one Yogi suffered.

In Yogi’s case, a trademark search would have revealed that the Wa Wa name was protected, regardless of the reality that he posed absolutely no threat of competition to the Pennsylvania company owning the rights and operated under the name in the local market long before the convenience store muscled in.  Other business owners should properly stake out their claims to all their intellectual property and make sure they aren’t violating any other business’ rights before finding themselves tangled in costly litigation.

July 15, 2015 /By Charles P. Castellon / Blog

Airbnb and LandlordsBy Charles P. Castellon, Esq.

© 2015, All Rights Reserved.

The law has always struggled to keep up with technology.  Back in the 70’s, the legal system was not ready to address issues stemming “test tube” babies and currently, there are some gray areas involving digital assets in estate planning. [see our prior article here].  In the still-young internet age, it will continue to be difficult for the legal system to keep up.  An interesting example in the real estate world relates to tenants’ use of Airbnb to earn money from their properties.

Airbnb is a wildly successful web-based company that matches visitors seeking to rent a room with lodging providers.  What Uber is to the taxi industry, Airbnb is to hotels.  Recently, a New York judge ruled to evict a tenant in a rent-controlled apartment for using Airbnb to rent three of the sprawling apartment’s four bedrooms to guests.  The tenant earned an astounding $61,000 in nine months of rental activity.

The judge ruled this subleasing violated the lease and New York’s and rent-controlled housing laws.  Though there are unique facts to this case and New York landlord-tenant laws are very different than Florida’s, all Florida real estate investors should carefully consider how the Airbnb revolution may affect them.

Perhaps the first and most important issue Florida landlords should consider is liability.  The constant “revolving door of strangers” that alarmed the New York tenant’s neighbors should be a real concern to Florida property owners.  As title owner to the home, the landlord is likely to be held liable in court for any harm an Airbnb guest may commit while using the property.  If a guest renting one room were to sexually assault a guest in another room, it is a near certainty the victim would sue everyone–the owner, tenant and perpetrator and try to collect damages against any or all.  Which one is most likely to have assets the victim could pursue?

A similar liability concern involves an injury to the Airbnb guest in the property.  Though it’s not advisable, some investor owners don’t carry hazard insurance on their free and clear properties and instead suggest or require the tenant to get a renter’s policy.  If the owner does have insurance, the next risk is whether the carrier may deny coverage based on the “commercial” use of the home effectively being operated as a hotel, or deny the claim for some other reason.

Fortunately, in our market economy, every problem leads to an opportunity for profit by solving it.  The “sharing” economy has spawned insurance pools to cover this new category of risk.

The next question is whether the landlord wants to allow the tenant to make money off the property.  Some owners may not mind and would feel more secure about collecting the rent if the tenant has an additional income source.  Others may demand a piece of the action if there is extra income to be earned.  Most landlords would likely be swayed by the liability concerns and as a result, try to prevent the sub-leasing.

A landlord may draft a lease clearly prohibiting using the property as a hotel with heavy penalties, but enforcement may be difficult.  Periodically monitoring Arbnb for listings of the investor’s properties may be one answer, but other sites are likely to arise in the wake of Airbnb’s success, just as Lyft came along to compete with Uber for passengers.  With time being the most scares resource for most investors, trying to root out such rentals (that may never occur) on all potential platforms cannot be considered a wise investment.

The best solution to this potential problem is a well-written lease with a heavy hammer of penalties for violations for landlords who don’t want their properties used as hotels.  For landlords who don’t object or want to participate in the money-making opportunity, a different lease can be written.

No matter what, the tenant should sing an air-tight indemnification agreement in favor of the landlord.  This means the tenant would fully cover the landlord in the event of a claim.  Of course, most tenants will not have the money to protect the landlord, so insurance coverage will be essential.

The first step for landlords is to be aware of developments in our society such as Airbnb and how it affects them.  The next is to make a well-considered strategic plan to contain the risk of this web-based platform and either prevent its use or share in the profits.

 

 

July 13, 2015 /By Charles P. Castellon / Event

HelpCDCHELP CDC (HELP Community Development Corporation) is a Home Buyers Program that provides individuals and families with the resources and knowledge to become homeowners. Attorney Charles Castellon will be speaking at this event on Saturday, July 18, 2015 beginning at 8:30AM, ending at 3:00PM. THIS CLASS IS FREE & WILL FILL UP QUICKLY!

<< REGISTER NOW! >> <<MORE DETAILS HERE>>

Located at:

PINE HILLS COMMUNITY CENTER

6408 Jennings Road

Orlando, FL 32818

 

July 13, 2015 /By Charles P. Castellon / Blog

Florida HOA Foreclosure Surplus FundsThere has been a lot of media coverage about banks foreclosing on homeowners in recent years.  Another type of foreclosure that hasn’t received as much attention involves homeowner associations (“HOA”) suing property owners for failing to pay their dues. Homeowners can lose their homes, which is clearly a terrible outcome.  Unless they know their legal rights, they can also miss out on the chance to recover money through the legal system to soften the blow.

In Florida, HOAs have great legal power.  Their powers include the ability to file foreclosure cases against homeowners very much like lenders may take borrowers to court for failing to pay the mortgage.  During the hard times of a bad economy and unemployment, many homeowners have struggled to pay their HOA dues.  This has resulted in HOAs foreclosing in great numbers.  In recent years, HOAs have struggled financially as more homeowners have failed to pay their dues.  This has caused associations to pursue foreclosures more aggressively.

When an HOA wins a foreclosure case, the judge signs a judgment declaring   the total amount the homeowner owes the association.  This amount usually includes the back dues, interest, penalties and attorney fees.  Next, a court sale is scheduled.  At the court sale, anyone may bid on the property.   Often, the foreclosing HOA itself is the winning bidder and ends up with title to the home.  The HOA goes into the court auction with a credit for its judgment amount.  Thus, if the judgment is ten thousand dollars, the HOA may bid that amount without actually putting up any money.  Quite often, an investor will make the highest bid on the property and become the owner.  This is where a surplus bid will often come into play.

The judgment in an HOA foreclosure case is almost always a much smaller amount than a judgment a foreclosing lender gets in a foreclosure the lender may file.  This is because the amount of money owed on mortgages in foreclosure are usually well over a hundred thousand dollars, if not hundreds of thousands.  The amount typically owed to an HOA is less than ten thousand dollars.

When an investor comes to bid at an HOA foreclosure sale, that person will often gladly bid above the judgment amount.  For example, if a home is worth two hundred thousand dollars and the HOA foreclosure judgment is ten thousand dollars, it can be a smart move to bid above the judgment amount but below the property value.  If there are competing bidders, the winner may get title for twenty thousand dollars and buy a home for a bargain because although that’s more than the judgment, it’s far less than the property value.

If the homeowner who loses title to the property also has a mortgage, the lender holding that mortgage may still foreclose and take title away from the investor later.  In the meantime, the winning bidder can make a return on the investment by renting out the property until the lender forecloses or negotiating a deal with the mortgage lender to buy out the bank’s interest.  The lender may agree to accept a discounted payoff from the new owner to avoid the costs and delay of a foreclosure.

That amount of money between the judgment figure and the court sale winning bid is known as the “surplus.”  This scenario leads to the question of what happens to that surplus money.  The answer is, most likely, the foreclosed former homeowner may claim it.  Florida Statute Section 45.032 says the property owner has first dibs to the surplus, unless a “subordinate lienholder” files a claim for the money within 60 days.  A subordinate lienholder would most likely be a second mortgage lender standing in line behind a first lender.  The law is user-friendly enough to provide the actual language the former owner should use to file a claim with the court.

The law states the former owner is not required to hire an attorney for this legal action.  The process will require some time and effort but will likely be a worthwhile investment.  Although some attorneys would handle the matter and pursue the surplus claim for a contingency fee (a percentage of the money recovered, like in a personal injury case), anyone potentially entitled to the money may take on this task if they have the time and initiative to do so.

Any former homeowner deciding to pursue the surplus without an attorney should be aware that the court personnel in the clerk’s office are not supposed to help them.  Anyone seeking a surplus without legal representation should handle the matter carefully to successfully recover the money.  This right to claim the surplus is not something most homeowners would expect to be available to them.  Although receiving a surplus doesn’t provide a new home, the found money can be a great relief in hard times.

 

June 10, 2015 /By Charles P. Castellon / Video

June 9, 2015 /By Charles P. Castellon /

blog-imgCPC Law is extremely excited to announce our new CPC Real Estate Investor Subscription Services

Benefits include but are not limited to:

  • Having a real estate attorney on call for answers and advice
  • Peace of mind that comes from avoiding liability
  • One-stop shop for all your real estate & title needs
  • Access to legal forms with an attorney’s guidance on how to use them
  • Updates on changes in law that affect your business
  • Avoid consult fees and putting money down for retainer agreements

Explore our 3 Plan Options (View more information by following link above) and see which one best suits your needs!

  • Entry Level Plan
  • Basic Plan
  • Premium Plan

To learn more and schedule a complimentary attorney consultation, CALL 407-851-0201 or email office@cpclaw.net

 

May 30, 2015 /By Charles P. Castellon /

Everyone knows they have a credit score and most have an understanding that there are “major” credit reporting agencies that create credit reports from which these scores are derived. What many do not know is that there are speciality reporting agencies that exist, gathering different types of data and providing more narrow information. These specialized reports are used in the areas of employment, tenant screening, check/bank screening, medical, utilities, retail and gaming.

An entire list of these “specialty” credit reports can be found on the Consumer Financial Protection Bureau’s website. It’s good practice to look into these specialized reports if you have concerns about prior incidents or if you’re pursuing an important objective that might be influenced by the information one of these companies may have collected. Always keep in mind the fact that these companies are collecting and selling your data but they aren’t always accurate.

May 21, 2015 /By Charles P. Castellon / Video

Attorney Charles Castellon of CPC Law answers a frequently asked question: What happens when you fall behind on your mortgage in Florida?

November 11, 2014 /By Charles P. Castellon /

foreclosure notice 11-11Much written about the glaring lack of criminal prosecutions against leaders of the lending industry and the titans of Wall Street for their widespread fraud in the selling of mortgage-backed securities.  This wildly lucrative collaboration created the historical financial crisis from which the world is still recovering.  The feds have, however, brought some civil actions leading to large settlements.  The most recent major litigation settlement in the news was between the Department of Justice and Bank of America (“BOA”).  The lending giant agreed to a $16.7 billion payout to atone for its sins.

There is a component of this settlement of enormous significance to a great many borrowers.  Justice and BOA agreed to earmark $490 million from the settlement for distressed borrower tax relief.  Though not widely reported by the media considering its staggering widespread financial implications, this tax issue has adversely affected many borrowers and will continue to do so for quite some time unless Congress takes corrective action.

The back story to this tax issue stems from IRS regulations requiring that most forms of debt a creditor forgives (writes-off) for the benefit of a debtor is considered taxable income to the debtor.  In the mortgage industry, especially through the foreclosure crisis, a lender will usually concede that it cannot recoup a portion of the outstanding debt.  For example, a borrower may sell a property through a short sale with the lender collecting sale proceeds amounting to less than the mortgage debt owed.

This difference, known as the “deficiency,” is the amount the lender will write off by filing a 1099-C cancellation of debt form with the IRS.  By doing so, the lender gets the benefit of claiming a loss on its books to offset other taxable income.  In the view of the IRS, wherever there is a loss, there must be a gain.  Accordingly, the lender’s loss as a taxable gain for the borrower.  The IRS taxes the forgiven amount at the debtor’s ordinary income tax rate.

As the floodgates to the real estate collapse began to open in 2007, George W. Bush signed the Mortgage Debt Relief Act.  This federal law modified the general tax regulation described above to allow borrowers, in most circumstances, to avoid being taxed for forgiven mortgage debt used to buy, build or improve their primary residence.  The law has expired and been renewed, most recently in January 2013, retroactively to its sunset at the end of 2012.  As we approach the end of 2014, the least productive Congress in our nation’s history has not voted to extend the law again, though there is a pending bill proposing to extend the tax relief into 2014.  The bill’s sponsors seek to extend the mortgage relief through 2015 and estimate tax savings of approximately $5.4 billion.

It is difficult to overestimate the economic impact of such “phantom” income leading to large tax liabilities in an economy struggling to recover.  When the real estate market crashed, property values plummeted, in many cases, to levels hundreds of thousands of dollars below the inflated appraised purchase or refinance value.  This means borrowers receiving 1099 debt forgiveness will be taxed for the amount forgiven at their ordinary income tax rates for “income” they never received.  When Warren Buffet said nobody ever went broke paying taxes, it’s doubtful he considered this scenario.

There are IRS legal provisions borrowers can pursue to offset or avoid this tax liability in some circumstances.  These options should be discussed with a CPA experienced in real estate matters and include using the decline in value of the property, insolvency or bankruptcy to mitigate the tax damage.

The BOA settlement with the Justice Department provides some hope for relief but it will only cover a portion of the tax bill BOA’s borrowers are facing.  A read between the lines of the settlement reveals a $25,000 cap on compensation that may be used to offset the tax liability.  In states such as Florida, where it’s not unusual to see far more than $100,000 of mortgage debt forgiven following foreclosures or short sales, borrowers will be left scrambling to find Uncle Sam’s cash at tax time.

If Congress fails to pass an extension of the Mortgage Debt Relief Act in the lame duck session, the slowly-recovering economy is likely to suffer another setback from all the upside-down borrowers being burdened by a tax bill for income they never earned.  Unfortunately, calls from the lending lobby are much more likely to get through to Congressional offices than their constituent borrowers’ pleas for relief.

September 11, 2014 /By Charles P. Castellon / Speakers

Date: Saturday, September 13, 2014

Time: 9:00AM – 4:00PM

Location: Bohemian Hotel, 700 Bloom St., Celebration, FL

Attorney Charles Castellon will be included amongst the speakers at this event being sponsored by Pact Prosperity. Mr. Castellon will be speaking on the subjects of credit qualification for mortgage lending and factors to be aware of related to your credit.

Other topics to be discussed include:

  • Creating and closing transactions without bank involvement
  • Selling properties that won’t qualify for conventional financing
  • Buying even when the bank says “no”
  • Leveraging alternatives to banks for helping sellers sell and buyers buy

The prices for this workshop is $79. If you reserve today for two, you’ll receive a special price of $99 for a couple. Reserve your seat today at PACTprosperity.com.

September 4, 2014 /By Charles P. Castellon / Blog

ConcernedForeclosures down from peak numbers, but there are signs foreclosures may spike again.

There is no doubt that foreclosure cases are far down from peak numbers during the crisis.  The economy has improved, although at a painfully slow pace.  The real estate market has rebounded generally and there are even hot markets throughout Florida, fueled largely by international cash buyers.  I’ve written about moving ahead and rebuilding but there are some disturbing indicators of another foreclosure setback in the coming years.

Thousands of homeowners suffering through the early years of foreclosure will no doubt begin to rebuild in coming years and many have already rebounded impressively.  Though we can celebrate signs of optimism and success, it’s worth examining some disturbing negative factors pointing to the conclusion that we’re not out of the foreclosure woods just yet.

HELOC resetting and other factors hinting at a new wave of potential foreclosures.

One issue gaining attention in the media concerns the resetting of interest rates many home equity line of credit (HELOC) borrowers will soon encounter.  A major contributor to the real estate crash and corresponding foreclosure crisis was the leveraging of increasing property values for HELOC cash.  These equity lines were used for a variety of purposes ranging from sound fiscal strategy to wildly reckless speculation.  In 2015, we can expect an initial wave of adjustable rate mortgages to reset with higher monthly payments resulting.  From my experience representing hundreds of distressed homeowners, I can testify that significant segments of the population are getting by financially with little to no margin for error or cushion to absorb even minor increases in their payment obligations.

Further compounding the problem is the persistently high unemployment rate.  The Department of Labor, who generates employment data, and economists tell us that the true rate is always higher than the reported rate because the uncounted masses who drop out from job searching.  Many of our long-term foreclosure clients have been unable to successfully complete a loan modification because one or both household contributors remain unemployed or under-employed to consistently make the mortgage payments.

Another segment of the distressed homeowner population is about to join the foreclosure party late.  They have managed to continue paying over several years of economic crisis by a variety of means, including, unfortunately, by tapping into savings and retirement plans.  The widespread depletion of 401K and IRA accounts to pay the mortgage today has only added to another crisis in the making which involves people unable to retire and others outliving their retirement savings.  In recent months, we’ve had a number of new clients who valiantly did all they could to avoid foreclosure  for years before finally breaking down and defaulting.

HAMP and other forms of temporary relief.

A similar problem to the resetting of HELOC rates is the fact that the majority of loan modifications that helped avoid foreclosure were structured as temporary relief.  Through the federal program, HAMP, and other modification plans, we have seen many lender terms with increasing tiered rates of interest, such as a lower rate from years 1-5, higher for 6-10 and so on.  Unfortunately, principal reductions have not been part of the overwhelming majority of loan modifications.

The next wave of foreclosures will come from those who just can’t take it any longer.

Japan lived through a recession lasting more than a decade in which homeowners became prisoners of their castles, unable to sell and move because of their extreme upside down equity.  I have joined the chorus of many voices, including University of Arizona law professor, Brent White, who have advocated for strategic defaults when carefully considered and under the right circumstances.  It seems America
ns from a much more individualized society are more likely to decide to stop paying on horribly upside down properties before running out of money completely while our Japanese counterparts languish for the good of society.

Whether a default is “strategic” or borne of a literal inability to pay, being upside down makes default more likely.  Although property values have rebounded impressively in recent years, there still remain a great many properties lacking any equity with burdensome mortgage payment obligations.  Unless the economy continues to improve significantly and property values increase  further, we should expect continued waves of mortgage delinquencies and the resulting foreclosure filings.  At CPC Law, we stand ready to help the next wave of homeowners and investors, as we have helped hundreds before them.

September 3, 2014 /By Charles P. Castellon / Blog

ZombieBy: Charles P. Castellon

In recent years, zombie movies and television shows have been a big hit.  I think there’s a certain release that comes from watching gory violence committed by and against the undead.  I’m still unsure of the rules for how to vanquish a zombie, but there’s another zombie problem in the real estate world without a solution in sight.  The term “zombie property” has come to refer to the many thousands of properties abandoned by distressed homeowners unable to pay the mortgage.  These homes have become zombies because  the lenders holding the mortgage have declined to step up and foreclose.  As a result, they sit empty and neglected with tall grass and entire neighborhoods suffer.

There are several reasons why lenders choose not to foreclose.  One factor is that because of all the fraud and mismanagement surrounding the housing boom and bust, including the mass-bundling of mortgages into securities sold to unsuspecting investors, many entities “holding the paper” can’t prove their case.  Another motive is financial (isn’t everything for the lenders?).  Many lenders do not want to take on the fiscal responsibility of home ownership.  This includes property taxes, code enforcement fines, HOA dues, utilities and maintenance costs.

In Florida, where I practice and my firm defends homeowners in foreclosure, the problem is chronic.  According to RealtyTrac, there are over 55,000 zombie properties in the Sunshine State, a figure representing one third of the national total.   The ripple effect is unavoidable, as the neighbors’ property values are sure to suffer from their proximity to these neglected eyesores.  In many neighborhoods, the problem has brought an increase in crime and rapid downward spiral causing many innocent bystander homeowners to lose thousands of dollars in their own property values.

In Florida, homeowner associations are very common and generally do a good job of policing its member property owners to abide by the rules of the community and thereby protecting property values.  What has been problematic is that many lenders who have completed foreclosures and taken title have failed to pay the HOA dues which become the responsibility of the title owner.  There have been instances of HOAs foreclosing upon foreclosing lenders in a bizarre ironic twist.

A related issue is known as the “shadow inventory” of properties the lenders have taken through foreclosure but have declined to market as bank-owned homes for sale.  Also known as real estate owned (REO) properties, these  post-foreclosure sales have been a major part of the real estate market for years.  Players in the real estate and banking industries disagree on the volume held in the shadows, but it’s hard to deny the number is significant under any rational analysis.  How and when the banks unload this inventory will affect the continuing but fragile real estate recovery.

It would be nice to believe the worst of the foreclosure crisis is behind us.  This is likely true, but the continued problems the brought on by zombie properties and the shadow industry remind us that we still have a long way to go toward a healthy economy and real estate market with any real staying power.  At CPC Law, we represent distressed homeowners facing foreclosure and slay zombies.

September 3, 2014 /By Charles P. Castellon / Blog

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By:  Marian “MJ” Jacklich, CPA (Guest Blogger)

You found yourself sliding down a money ramp you never thought was possible.  Whether from a job loss, business problems, health problems, trying to help family members, or a mix of these, you now find yourself stretching every dollar you have that does come in and you still find yourself short.  Worse (you think), you keep coming up short.

First, take a deep breath.  Then keep breathing regular breaths.  The good news is, without getting too excited, you may well be able to “come out on the other side” still breathing, definitely feeling better.

Each person’s situation will vary some, but in general there are some real steps you can take to minimize the damage to your credit, reduce or head off taxes, and focus on your ability to recover.

In 99.9% of the cases, it will take some serious work on your part.  Since you are the person that will benefit from the hard work, though, why not? Better yet, find out what to do from a professional so you can focus and make that work count.

You might have heard from a friend, co-worker, or colleague how much they were helped by filing bankruptcy.  The thought has entered your mind more than once.  It sounds good.  Hopefully, you have not begun acting on these well meaning friends and/or family advice, though.  Bankruptcy is not for everyone.  It can make a situation worse, not better, and only a professional can help assist in making that determination.

If you are reading this blog, you have taken the right step in looking for real, professional advice.

“I thought Congress passed a bill so we don’t have to pay tax on debt relief.”

They did. It expired last year, Dec. 31, 2013.  It only applies to certain types of debt.  It’s not there right now in 2014, and with new elected politicians coming into Washington, it may not be there.  Further, you cannot bankrupt out of IRS taxes, so it’s not wise to try to figure it out on your own.

CPC Law and MJ CPA have scheduled a  half-hour workshop on this topic for Thursday, September 4th, 2014 at 6:00 p.m.  You can register (for free) by calling CPC Law at (407) 851-0201 or emailing your RSVP to jessica@cpclaw.net. Space is limited, so RSVP as soon as possible.

August 25, 2014 /By Charles P. Castellon / Blog

It is said that, “money makes the world go ‘round” whether that is true or not is up to you to decide but in many respects it does make the world of commerce go ‘round! 

In the world of investment real estate there are myriad ways to buy, sell and finance real estate.  The following information is about a particular segment of the business, private lending and most specifically targeted toward the financing of non-owner occupied real estate. With the enactment of the Wall street Reform Act more commonly know by the name of its authors, lending to owner occupants has become a potentially hazardous business fraught with,  as of this writing, many unknowns that could negatively impact small lenders.

For many years, private individuals seeking better returns have provided the fuel that keeps investment real estate viable for many small developers, builders and those who buy, fix and sell foreclosures, short sales, probate properties and others that not considered financeable by banks.   Their funds have facilitated the acquisition and renovation of literally millions of single family homes, helped small builders to create new housing stock and kept many trades people employed.  In a nutshell, private money lenders help the economy while earning above market returns on their capital.

During my first 15 years in the banking industry I had never even heard the term private lending let alone know what it was, then, I was approached by a talented young builder who had acquired enough property to build 15 houses but needed capital.  His plan was to build and sell one house at a time and use the proceeds to repay the loan plus interest that was at least 5 percent more than I could earn at my bank.  After reviewing his plan, some of his previous work and the blueprints of what he was going to build I developed a comfort level.  We documented the arrangement and he was off and running.  I am happy to report that a formally vacant piece of dirt now has 15 families living in homes each worth over $500,000 today!  That was about 20 years ago.  Oh, I more than doubled my original investment in a few short years so I was pretty happy too!

Private individuals seeking to avoid the volatility of the stock and bond markets may find the safe haven they are looking for in the world of private lending.  This is sometimes called hard money lending though the two can be somewhat different.  If you are prudent and diligent, you can earn solid returns while minimizing risks as a private lender.

Like any business venture private lending requires specialized knowledge; higher and more predictable returns can result when investing in private money loans but it also requires more effort and patience than that needed to push a button and execute a buy or sell order for a stock.

WHAT’S INVOLVED?

At its core, investing in private loans is a lot like investing in a bond that pays a fixed rate of return and pays off at maturity.  If you make a loan to a borrower for $100,000 at 8% interest, and require interest-only payments, you’ll earn $8,000 income each year.  And if the borrower does not default, the loan will pay off at or before maturity and the original principal will be returned.

Liquidity – Do not consider becoming a private lender if you need the money before the maturity date.  Even though most loans payoff, many do not pay off as expected.   You can sometimes sell loans using an online loan exchange, or broker them to another private investor via a hard money loan broker.  But even performing private money loans are typically sold at a discount.  If you want to sell notes, even if they are performing, be prepared to take a haircut.

Collateral Valuation – The underlying collateral for a private loan is very important to the overall security of the transaction.  Lenders should carefully evaluate the value of the collateral and use several sources to confirm their valuation.   A common practice among private lenders is to “drive the comps yourself.”  That means do not just look at photos on an appraisal and assume you have an accurate value.

With the appraisal in hand get in your car and drive to the subject property as well as each comparable property and confirm for yourself that the property value is realistic.  Consider multiple sources of value.  In addition to an appraisal and driving the comps yourself, consider using an automated valuation model or a Broker Price Opinion (BPO) as well.   Some properties are easier to comp than others.

Advances – On occasion loans require the investor/lender advance additional funds for a variety of reasons.  Advances may be required to cure delinquent property taxes, cure a senior lien position, hire an attorney, pay to defend bankruptcy claims, or even remodel a property if a foreclosure takes place.

Warning !! Do not invest in private loans without leaving yourself a cash cushion.  Be conservative and leave yourself plenty of liquidity in your personal finances to handle unexpected circumstances.

Title –Be sure your borrower obtains a lender’s title policy that will insure your lien position as a lender and offers fraud protection against forgery.   Title insurance is not like homeowners insurance.  If you suffer a loss with your homeowner policy, you submit the claim and get a quick reimbursement.  Title insurance is an indemnity policy and as such you are reimbursed for a proven loss only and not the potential for a loss.   The result may be that even though you will eventually lose money due to a title issue, you may not receive reimbursement for months, or even years later.

Borrower Credit – Carefully reviewing the borrower’s credit application and capacity to make monthly payments is the key to a successful loan investment.  Private money loans are often made based on the collateral, but the best loans are those that give equal weight to the borrower’s past credit track record and capacity to make payments and repay the loan when a balloon payment is due, or when the loan matures.

Private Lender Insurance – You will need to make sure the property owner has appropriate hazard and liability insurance in the amounts you desire as an investor.  The insurance company must also be notified to include the private lender as an additional insured on the policy so in the event of loss, the check is sent to you first.

Documentation – Documenting the loan, creating the appropriate security documents and disclosures to the borrower can be complicated and time consuming.   There are a myriad of state and federal regulations to be followed, and a violation of these regulations could invalidate the loan and result in lost interest and/or fees.  Consulting an attorney or mortgage professional can help you do things right.

LOAN SERVICING

Once a loan has been originated, payments need to be collected from the borrower, and various tax, regulatory and informational statements need to be sent regularly to the borrower. Lenders can do this themselves or hire a loan servicer to collect payments and provide reporting for a fee.

HARD MONEY AND FORECLOSURE

If a borrower fails to pay as agreed, lenders must be prepared to foreclose on their collateral.  This can be an arduous and time-consuming process that requires a significant amount of expertise and expense.

There are also alternatives to a foreclosure; among then are for the lender to accept a deed-in-lieu of foreclosure or a short sale of the property whereby the lender agreed to allow the property to be sold for less than the loan balance.

GETTING STARTED

As you can see, investing in loans is not as easy as it may seem on the surface and certainly more involved than buying a publicly traded security like a stock share or a bond.  So, how to invest in private money loans?  How do you get started?  How do you take the plunge?

The answer is: very carefully.  Learning the private money lending business takes time.  But once you understand the nuances and study the business, it can provide returns substantially greater than the bond markets.

There are professionals in the business of helping investors make loan investments.  In the past, they have been referred to as hard money lenders, loan brokers, or mortgage loan originators.  These are professional business people who are skilled and in most cased licensed by their state at originating private money and conventional loans.

The best part about using one of these sources of assistance to invest in loans is that the fees are typically paid by the borrower and therefore you get the expertise without paying for it directly.  You pay for it because of the additional fees you would likely have collected had you originated the loan yourself.

For example, if the borrower was willing to pay 3 points up front for a $300,000 construction loan, you may earn the entire $9,000 fee up front as the sole investor and originator.   If you use a loan originator instead, you may still get a piece of that commission; typically 1 point they keep the remainder.

If you’re just starting out, the services of a loan originator can be invaluable and they will help walk you through the transaction.  Many investors who are not real estate professionals maintain life-long relationships with their loan originators just as a corporate executive might maintain a relationship with an investment advisor.  Others will learn to work with a core set of borrowers, developers, rehabbers etc.  Many times when this is the case the loan originator may no longer be necessary.

Learn more and register at www.PACTProsperity.com

 

 

Disclaimer

This information is designed to provide accurate and authoritative information in regard to the subject matter covered.  It is provided with the understanding that the author and publisher is not engaged in rendering legal, accounting, or other professional advice.  If legal advice or other expert assistance is required, the services of a competent person should be sought.

 

August 9, 2014 /By Charles P. Castellon / Blog

death-dinnerThe concept of “Death Dinners” is a growing trend gaining momentum nationwide.  Talking about death over dinner may not seem appetizing, but this idea is the result of the chronic problem of our societal avoidance of the most unpleasant and certain event in life.  There are organizers, both volunteer and for profit, facilitating gatherings where family members discuss their desires and concerns surrounding the end of life.

Survey results confirm that as nation, we fail to properly confront and prepare for death and the end-stage conditions that are often much harder on loved ones than death.  This avoidance factor is understandable.  Recently, an elderly mother’s resistance to this discussion inspired the title of her daughter’s memoir called “Can’t We Talk About Something More Pleasant?”  According to the Pew Research Center, about 70% of people lack a living will.  Approximately 20-30% die at home while 70% desire this outcome.  I suspect the understandable human tendency to avoid and put off the scary and disturbing prospect of death is largely to blame for the irrational failure to prepare for the inevitable.  Though we can easily pay lip service to ideas such as “death is part of life,” planning advocates like death dinner organizers will likely need to continue working diligently to get the attention of the majority of the public.

Oddly, the town of La Crosse, WI boasts the astounding distinction of 96% of its residents having advanced health care directives.  This is a document delegating a loved one the authority to make health care decisions on behalf of an incapacitated patient.  The credit for this remarkable rate goes to an influential local hospital official who has persuasively advocated the virtues of advanced health care planning.  As an aside, this community’s average health care costs fall far below the national average.

There is no shortage of cautionary tales stemming from failures to plan.  At our law firm, we have counseled several families suffering from their deceased relative’s negligence.  In one case, a husband died suddenly without a will and without ever having added his wife to the deed of the marital home he purchased before the marriage.   After having lived in the home for several years and contributing to its maintenance, the widow must now sell the home and share the proceeds with her late husband’s daughter from a prior marriage.  We can’t be completely certain of his intentions, but there is much evidence indicating he wanted his wife to inherit the home they shared, rather than the eventual legal outcome, including a writing he signed that does not constitute a valid will and is irrelevant for all intents and purposes.

In another case, a senior Alzheimer’s victim could have delegated to his wife the right to manage his affairs through a power of attorney while he remained competent.  Following the onset of dementia and complete lack of capacity to knowingly sign such a directive, the family must resort to an expensive and lengthy legal guardianship action.  I could go on for pages.

It’s helpful to understand some basics about estate planning.  A last will and testament or simply, a “will,” is the document that sets forth one’s wishes regarding assets and heirs following death.  For those with minor children, a will addresses very important issues including the naming of a guardian to raise the kids and a trustee to manage their money until they reach the age at which they can own property without strings attached.

A living trust is commonly used as an alternative to, or in conjunction with, a will.  Generally, trusts are more complex and expensive to create.  One common motive for using a trust is to avoid the legal process of probate.  Estate plans should not be considered “off the rack” purchases and should be carefully tailored to meet the needs of the family according to all their specific circumstances and budgetary concerns.

fam-and-babyFrequently confused with a last will and testament is the “living will.”  The living will is a much narrower document delegating the right to make hard end of life decisions such as to “pull the plug” and discontinue life support under certain circumstances when there is no reasonable hope of recovery.  Similar to a living will, but for conditions not reaching that level of severity, we use a “health care surrogate” or “advanced health care directive.”  A power of attorney may cover many situations as narrowly or broadly as desired when a person wants to delegate the authority to make a variety of decisions.  In Florida, a power of attorney can no longer be considered “springing,” meaning it would take effect after a determination of incapacity.

Though these documents are important and useful for virtually anyone, unmarried couples should take special note of the need to spell out their wishes, as the legal protections of marriage do not apply.

At CPC Law, we urge all families to confront the reality of death and serious disability while its members remain alive and healthy, even if it takes a death dinner to accomplish this important task.  We welcome feedback from our clients and the public as to how we can help spread the gospel of preparation and add value to this important discussion.

August 9, 2014 /By Charles P. Castellon / Blog

      Traditionally, the legal world has lagged behind advances in technology.  In this high-tech internet age, the pace of change rapidly accelerates while our digital presence in daily life continues to grow.  Consider how much our lives revolve around technology.  As individuals and businesses gradually but irreversibly move toward a paperless existence, our gadgets and the cloud store ever-increasing parts of our lives.  In this landscape, the idea of our heirs looking through filing cabinets and safety deposit boxes for important documents and information necessary to pick up the pieces of our demise seems naively antiquated.  This modern reality makes digital estate planning an important task.  This blog post is the beginning of an ongoing discussion regarding the intersection of technology and the law designed to get our readers thinking about the issues and starting to take action steps to create a smart plan.

As the most basic starting point, we need to determine all that makes up our digital estate.  Give some thought to this inventory process and you can soon be overwhelmed.  Have you ceased getting paper bank account statements?  Would your surviving loved ones know where to begin looking for all the important information contained in your digital footprint?  Don’t count on the NSA to cooperate.

The state of the law on many issues flowing from this discussion is generally an incomplete patch work varying greatly among states.  Many states have no laws on their books at all on this topic.  In many platforms, including social media sites, those manifesto-length acceptance of terms agreements that nobody reads will include a declaration of what happens to your profile or account after you’re gone.  A likely answer may be that it’s the property of the site and your heirs have no rights.

The inventory process is a sensible first step toward organizing and planning your digital estate.  Passwords and other login information need to be collected.  We should not overlook the collection of gadgets and hardware containing various categories of information ranging from the trivial to crucially important.  I’ve written about the avoidance factor interfering with traditional estate planning.  When we start to consider the tasks described in this article, it becomes an even more daunting process.  It may be helpful to imagine the stress on our loved ones added to the underlying trauma of death as a motivator to take action now.

Another step to consider is clearly stating your desires concerning your digital assets.  You can include a digital assets clause in your last will and testament, for example.  Also, the will can name a point person for digital matters.  This doesn’t have to be the executor (called the “personal representative” in Florida) in charge of overseeing the entire estate.

The importance of digital estate planning will only continue to grow alongside our increasing use of and dependence on the online world.  At CPC Law, we’ll remain on the cutting edge and follow up this discussion with more specific information, ideas and suggestions to help our readers be fully prepared in the modern age for the one sure thing in life.

August 7, 2014 /By Charles P. Castellon / Blog

save-our-homeWe have discussed where the foreclosure crisis has been.  This brings us to the questions of where are we now and where is the crisis headed?  One major issue for borrowers involves the expiration of the Mortgage Debt Relief Act (MDRA).  Passed during the infancy of the crisis in 2007, this federal law in essence protected primary homeowners in foreclosure from tax liability flowing from forgiven mortgage debt.  In the view of the IRS, when a lender forgives all or part of the borrower’s debt, this is a taxable event creating phantom income for which the borrower needs to pay taxes at their ordinary income rate.  The law conferred a great protection by preventing a big tax bill.

The MDRA has been extended numerous times, most recently in January 2013 retroactive to 2012.  As of the date of this writing, another extension is mired in Congress and does not seem likely.  What this means is that a great many borrowers receiving a “1099-C” debt forgiveness form will be hit with a large tax bill.  This is a situation requiring a consultation with a knowledgeable CPA to discuss some potential exemptions or other available damage-control options.

This tax liability is often confused with deficiency actions described more fully below but they are distinct and separate threats.  For years, players in the foreclosure world have been expecting deficiency collection actions to hit foreclosed borrowers.  It appears to finally be happening and this may be a major issue for some time to come.

Simply put, a deficiency is the difference between the fair market value of a property in foreclosure and the final debt owed the lender.  For more recent cases, the 2013 law provided clarity in terms of the statute of limitations for lenders to pursue a deficiency claim, now two years.  For older cases, the allowable time to sue for deficiency is more of a legal grey area but it’s unlikely that motivated lenders will let too much time pass before suing.  Now we’re seeing a wave of deficiency claims representing the biggest new threat to distressed homeowners in the foreclosure aftermath.

I have long urged clients seeking an exit strategy to consider a short sale instead of simply allowing the lender to steamroll them through an undefended foreclosure.  Though short sales carry many virtues for homeowners not interested in keeping the home and the mortgage debt, a major benefit is the opportunity to negotiate a deficiency waiver.

For the overwhelming majority of our firm’s short-sellers, the lenders have agreed to waive the right to pursue a deficiency action as a condition of the deal.  For many “strategic defaulters” lacking great hardship, lenders have granted deficiency waivers in exchange for a borrower’s cash contribution or taking back a much smaller unsecured promissory note to put some “skin in the game.”  When a borrower allows the foreclosure process to take title to the home, there are no promises regarding the deficiency and the lender is free to seek that relief.

Who is at risk for a deficiency action?  The answer is borrowers who have lost their homes through foreclosure or have reached some kind of settlement, such as a short sale or deed in lieu of foreclosure, without the benefit of a deficiency waiver as part of the deal.  Practically speaking, however, lenders are much more likely to pursue a deficiency claim against borrowers they know or suspect to have significant assets to seize.  The old cliché, “blood from a stone” comes to mind and it certainly makes sense for lenders to set their sights on targets with the best potential for recovery.

The next question involves what borrowers can do to defend themselves against deficiency claims.  Though such legal actions may seem a slam-dunk, there are some steps borrowers can take to contain the damage and fight back.

home-sale-penOne defense may come from “standing” issues.  This relates to the fundamental legal question of who has the right to sue.  In defending foreclosures over the years, the standing issue has presented the most common defense.  This is because originating lenders sold off the rights to mortgages so frequently (and often illegally, in violation of the terms of mortgage-backed security agreements) that they failed to properly convey the rights to another party attempting to sue.  In many cases, the foreclosing lender will file a deficiency action.  In other cases, they will “sell the paper” to collection company sharks buying for pennies on the dollar with an enormous cushion to reap a profit.  If such rights are not properly and legally assigned, there will likely be holes in the case.

Additionally, the borrower can dispute certain facts in a deficiency action that may not kill the case, but may contain the damage.  For example, the issue of the market value of the property is a benchmark in the case from which the amount of damages is measured.  Successfully challenging that benchmark can significantly reduce the amount owed.

Also, a borrower may engage in asset protection strategies to shield assets from deficiency claims.  This is an ethical and legal minefield that should only be considered very carefully.  There is a legal concept known as “fraudulent conveyance” that refers to a debtor moving assets to avoid or hinder creditor claims.

Generally, there is a spectrum of time under which a borrower may transfer or dispose of assets that would be under judicial scrutiny.  On one end of that spectrum, moves made before a debt is even delinquent and there is no claim against the debtor are more likely to be upheld.  On that other end, moving around assets closer in time to the deficiency claim would more likely be held invalid as a fraudulent conversion.  The surrounding circumstances rule when there isn’t much direct evidence of the debtor’s intent regarding these moves.  A successful fraudulent conveyance claim would allow the lender to overturn asset transfers to get their paws on some money.  Debtors should proceed with extreme caution and seek advice before playing this game.

Deficiency actions may push many borrowers toward bankruptcy protection.  This option may work well, either as a liquidation of debt through a Chapter 7 or reorganization through Chapter 13 of the Bankruptcy Code.  The pros and cons of filing bankruptcy as well as who may qualify for various forms of relief may be complicated and borrowers facing a deficiency claim should consider all the consequences.

It is worth noting that a deficiency action shouldn’t be considered a zero-sum game with a clear winner and loser.  Frequently, fighting back and asserting one’s legal rights will lead to a negotiated settlement that can get the plaintiff some money while containing the damage for the defendant to regroup and start rebuilding one’s financial life.

Though we have come a long way in this long, strange trip, the foreclosure crisis remains far from being over.  Stay tuned for more reports from the frontlines.

August 6, 2014 /By Charles P. Castellon / Blog

As we endure the historical foreclosure crisis resulting from the great real estate boom and bust, it’s worth evaluating where we stand, how we got here and what lies ahead.  This legal, economic and real estate crisis began in earnest around 2008 when the economy collapsed and real estate market went crashing down.  A tsunami of borrowers began defaulting on their mortgages as they lost income and their plummeting property values put them deeply “upside down.”

Now the economists tell us foreclosure rates are at their lowest levels since 2006 (near the peak of the real estate rise).  Florida, however, carries the dubious honor of being number one in the nation in foreclosure filings.  According to Realty Trac ®, one in seventy four Florida homes had foreclosures filed in the first half of 2014.  Though we’re far from the lowest depths of the crisis, there is much continued and new danger for borrowers in Florida.  The economy has rebounded at a painfully slow pace, unemployment remains high and many will continue to struggle through the foreseeable future.

On the frontlines of the foreclosure crisis—the courts—it has been a wild ride.  The legal system was completely unprepared for the onslaught of cases that flooded court houses statewide.  Unprecedented backlogs resulted and a virtual state of paralysis set in.  Though slow to respond, the judiciary made efforts to better handle the cases.  Retired judges stepped back in to preside over hearings.  With many unjust results, “rocket dockets” emerged to push through in rubber stamp fashion cases toward court auctions with the entire judicial review taking merely minutes to complete.  The courts ordered mediation conferences for primary homeowners to work out terms with their lenders and avoid foreclosure.  This effort has been far more sizzle than steak, as very few borrowers walked out of mediation with a deal in hand and nobody has ever forced a lender to offer relief it did not want to extend.

We have seen the “robo-signing” scandal among many other examples of lender fraud, CourtGaveloften perpetuated by their own legal counsel.  The infamous David Stern, king of the foreclosure legal empire representing lenders and owner of the yacht called “Tu Casa Es Mi Casa” went down in flames while running a criminal enterprise.   Though no high-level banking or Wall Street executive has faced criminal prosecution for the massive fraud leading up to and during this crisis, there have been numerous class action lawsuits and government civil cases leading in hundreds of millions of dollars in penalties.  Very recently, Sun Trust settled a government action resulting from its failure to process loan modification applications as required by law and their acceptance of government funds.

In 2013, after repeated efforts, the banking lobby successfully pushed through the Florida Legislature a foreclosure reform law with much hype.  Though it contains no radical provisions (such as the earlier effort to convert Florida into a non-judicial foreclosure state that would have essentially handed the hen house to the foxes without court oversight) it brought some significant changes.

Among the changes to the foreclosure law were provisions limiting wrongfully-foreclosed homeowners to money damages rather than the ability to regain title to their homes.  Similarly, a competing “lender” claiming to hold the rights to a previously-foreclosed mortgage would only be able to seek financial compensation instead of title.  If you’re wondering how this could be an issue, trust me, it is a huge byproduct of the fraud banks and their Wall Street partners committed by selling the rights to the same individual mortgages to multiple investors in mortgage-backed securities.  At our law firm, we’ve handled more than one case involving two separate lenders each claiming to own the rights to the same mortgage and promissory note.   As Mark Knopfler of the band Dire Straights wrote, “two men say they’re Jesus, one of them must be wrong.”

The provision of the new law getting the most attention is perhaps the “expedited foreclosure” section.  This is supposed to ease the judicial backlog by providing lenders a quicker path to a foreclosure judgment and court sale.  It basically turns the tables on the burden of proof by requiring the borrower to raise legal issues and defenses at an “order to show cause” hearing to convince a judge why the lender shouldn’t win on the spot.  We have seen some lenders and their aggressive counsel use this provision and it has made our foreclosure defense work more challenging.  Oddly, as long as I can remember, there has already been a version of a “fast track” foreclosure on the books, but lenders’ attorneys have almost never used it in residential cases prior to the enactment of this new law.

July 29, 2014 /By Charles P. Castellon /

Paris_Tuileries_Garden_Facepalm_statueMany of our clients may receive the benefit of having the lender forgive a portion of their mortgage debt.  For example, if a borrower sells the property through a short sale, the lender will file a 1099-C debt cancellation form with the IRS to declare a loss for the difference between the value of the property and the amount the lender is owed on the mortgage.

Until the Mortgage Debt Relief Act was passed at the start of the foreclosure crisis in 2007, the IRS considered such cancelled debt taxable income, with some limited exceptions. http://taxes.about.com/od/income/qt/canceled_debt.htm This law protects primary homeowners from being taxed on forgiven debt under most circumstances and has been a great relief to millions of borrowers suffering through our historic housing collapse and global economic catastrophe.

Now, the law has expired at the end of 2013 and Congress has not renewed it.  This means that many homeowners who may receive the benefit of debt forgiveness through a short sale or other method after this year will likely suffer a large tax bill.

CPC Law will continue to write about this important topic and offer the expert tax advice of a CPA on our blog and an in-house presentation.  Stay tuned for more information.

July 24, 2014 /By Charles P. Castellon / Blog

AnnoyingCall-300One of the most powerful defenses Florida consumers have against harassing behavior from creditors is the Florida Consumer Collection Practices Act (“FCCPA”). This state law lists a number of prohibited acts creditors are not allowed to take part in. Florida Statute 559.72 outlines  nineteen (19) separate types of act creditors are not allowed to participate in. Many of these prohibited activities are common sense, i.e. your credit card company isn’t allowed to threaten violence if you fail to pay, a collection company can’t call you at 4:00AM in the morning to collect a debt.

While many of the protections are common sense, I’d like to highlight a few of the items that commonly occur that may not immediately jump to your mind. If a creditor participates in any of these, contact us immediately for a free consultation.

  • Communicating or threatening to communicate with your employer prior to  a final judgment being entered. A creditor can’t tell your boss that you owe them money. Also, they can’t threaten to do this.
  • Attempting or threatening to enforce a debt when that person knows the debt is not legitimate or does not exist. If you’ve paid off a debt to the creditor and they try to collect the same debt afterward, they’ve violated the FCCPA. If you’ve discharged a debt in bankruptcy and a creditor still attempts to collect the debt despite knowing of your backruptcy, they’ve violated the FCCPA.
  • Communicating or using paperwork that simulates  the government or law enforcement. If  a debt collector sends letters that try to mimic the appearance of government communications, they’re crossing the line.
  • Communicating directly with a debtor in an attempt to collect a debt, when the creditor knows the debtor is represented by an attorney with respect to that debt. This happens often in a foreclosure context, where  a bank will contact the borrower/homeowner attempting to collect a debt despite knowing they have an attorney who represents them regarding this debt.

The entire list of prohibited acts can be seen here. If any of these laws are violated, make notes of the time they’re violated, who you spoke with and what exactly happened. At CPC Law we deal with these types of cases and would be happy to represent you in these matters, typically free ofcharge.

July 23, 2014 /By Charles P. Castellon / Blog

What is a Business Succession Plan?biz-succession

We’re a nation of planners.  We plan our days, weeks, vacations, weddings and paying for our children’s college education many years ahead of time.  Unfortunately, many of us fall short in planning for the one sure thing in life.  It’s long been said the only guarantees are death and taxes.  While we can avoid paying taxes and face unpleasant consequences, there’s no avoiding death.

That’s why virtually everyone with a minimal amount of assets and loved ones should create an estate plan.  It’s a byproduct of human nature that a barrier for many people without an estate plan is the avoidance factor.  Death is obviously an unpleasant thing to contemplate and we often avoid planning for a long time.  Frequently, a near-death experience or the sudden passing of someone in our life creates the motivation to plan.  This holds true with respect to both personal and business planning.

For entrepreneurs and small business owners, there are important considerations flowing from the inevitability of death.  Just as parents of minor children should provide for their care and maintenance through tools such as wills and trusts, entrepreneurs need to provide for the care of another needy legacy—the business they worked so hard to build.  That’s where a business succession plan (BSP) comes into play.  Business owners use a BSP to protect the interests of the following stakeholders following the owner’s passing: the surviving partner(s), the deceased owner’s loved ones and the employees of the business.

An Estate Plan for your Business

Simply put, the BSP is an estate plan for your business.  It lays out the mechanism for the transfer of a business owner’s interest in the company to designated successors.  Your BSP can take a variety of forms depending on the circumstances, but I’ll describe a very common and simple framework here.

How Does it Work?

The buy-sell agreement is a contract among business people.  The participants may include corporate shareholders, partners, members of an LLC, key employees of a business and other players.   The main purpose of the buy-sell agreement is to ensure the smooth transfer of the business interests of a deceased or disabled person in a pre-determined, mutually-agreed upon way that guarantees a market for their sale.

Here is a common scenario illustrating how the buy-sell agreement may work.  The business owners agree on a fair market value for the business.  This contract obligates the business to purchase from the estate (heirs) of the deceased owner that person’s share of the company.  There are several ways to fund this buyout, but the most common method is through the proceeds of a life insurance policy for each of the business owners.  The death benefits are based on the value of the business.  Of course, the cost of the insurance premiums will vary according to many factors, including the health of the respective owners.  Whatever the costs, the insurance policy may be viewed as a sound form of protection for all involved.

Risks of Not Having a Business Succession Plan in Place

Without a buy-sell agreement funded by a life insurance policy or some other means, unintended and very unpleasant consequences may arise.  Without this framework of protection, the deceased owner’s interests would most likely be passed according to the terms of a last will and testament.  Worse, if there is no will, the interests would pass according to a legal hierarchy known as “intestate succession.”  Surviving partners might thus suddenly find themselves being partners with a surviving spouse, children, a trust or some other heir without the ability and/or interest in running the business.

Other forms of BSP include the use of buy-sell agreements between a corporation and its shareholders.  It may also take the form of a cross-purchase buy-sell plan between individual business owners.  The survivor would buy the deceased owner’s business share from the estate.  Any BSP can be tailored to fit the individual needs of a given business and its ownership.

As small business owners and entrepreneurs, failing to plan for the inevitable can tarnish our legacies in terrible ways.  Now let’s clear that avoidance hurdle and address a necessary and important part of life planning.

June 23, 2014 /By Charles P. Castellon / Blog

The CPC Law Open House was a smashing success! Current and former clients, business partners and colleagues, members of the community and the CPC Law team enjoyed an evening of networking, music, food and fun.  We enjoyed the opportunity to thank those that have helped us along the way. We look forward to working hand in hand with these same people in the future towards a goal of shared prosperity and well being.

 

June 22, 2014 /By Charles P. Castellon / Blog

OLYMPUS DIGITAL CAMERAThe June edition of the Florida Bar News included an article titled “The case of the not-so-simple will”. The article is about a Florida woman who created a will without legal counsel, using an “E-Z Legal Form”. As you may have guessed from the title of this blog and the article title, things did not go as planned for this woman and her family, as the case ultimately ended up costing her family many times more than what was saved by buying an “E-Z Legal Form” versus hiring an attorney.

Estate planning is about a person’s wishes being followed in the event of incapacity or death and making the disposal of an estate easier and more efficient. The concept has a lot in common with insurance in that people are sometimes slow to see the need for it while they are alive and healthy. Other times, they’re loathe to spend money on an attorney, especially with the prevalence of fillable forms and websites offering wills, powers of attorney and other estate planning vehicles.

When you fill out a legal form, you get no feedback from an attorney who will advise you on the particulars of your situation. All you get is a generic form not fitted to your particular desires. Further, you likely will have no idea of what items were omitted from the form. This was a major problem with the will at issue in the above case that ended up forcing the decedent’s brother and nieces to fight over who got what under the “E0Z Legal Form” will. The will at issue here include an improperly executed addendum and also did not include a residuary clause. These two shortcomings caused fueled expensive litigation that would have easily been avoided with the assistance of an attorney.

When you plan your estate with an attorney, you can take comfort in knowing how your estate will be handled after your passing and ultimately save money over using a legal form that appears to be less expensive.

 

 

June 19, 2014 /By Charles P. Castellon / Blog

Senator Elizabeth Warren and a group of fellow Senators, introduced a bill February of this year that would amend the Fair Credit Reporting Act to prevent employers from requiring prospective employees to disclose their credit history. It would also prevent employers from refusing applicants based on a bad credit rating. The prospects of the bill passing is a separate conversation, but what cannot be denied is a recognition by consumer advocates in the Senate that more employers today are using people’s credit ratings as a criteria for hiring. I would argue (and Ms. Warren and her fellow Senators introducing the Bill will agree) that a person’s credit has no bearing on their ability to do a job.

Regardless of your position on this issue or feelings towards these Senators, this Bill reinforces the importance of a  person’s credit and how prevalent it’s use has become. If you’d like to discuss your credit and how you can be proactive in managing it, contact John Crone (john@jc3law.com). We are always happy to educate people on this subject, regardless of whether they become a client or not.

June 19, 2014 /By Charles P. Castellon / Blog

Everything You Ever Wanted to Know About Short Sales But Were Afraid To Ask

By Charles P. Castellon, Esq.Florida Short Sale

Throughout the foreclosure crisis, many distressed borrowers have pursued a short sale of the property as a solution to the problem.  Though there has been much written about short sales, many homeowners evaluating their options lack a fundamental understanding of this process.  In this article, we’ll de-mystify short sales and break it down to the basics of what, why, how and when a short sale should be done so you can better understand the process and decide whether it’s right for you.

What is a short sale?

Essentially, a short sale is the sale of real estate for market value when that value is not enough to pay the outstanding mortgage debt on the property.  The main difference between a short sale and a conventional sale of a home is the seller/borrower walks away from the closing table with no money.  Usually, the seller pays no money at closing either.  A seller contribution most commonly occurs when there is a second mortgage or equity line on the home and that lender requires more money to approve the short sale and release their lien so the deal may close.  Often, the second lender will offer the borrower the option of bringing a lump sum cash contribution to the closing or take back an unsecured promissory note (without a mortgage on any property) for a larger amount than the lump sum option.  The amount of either contribution is usually far less than the outstanding balance owed to that second lender and when the borrower accepts a note instead of a lump sum, it is often with zero interest.

When there is more than one mortgage on a property, the lender with the first priority lien is in control.  The first lender determines how much it needs to collect at closing to approve the deal.  This lender also decides how much it is willing to allow to trickle down from the purchase price to pay off “junior liens” such as a second mortgage, which often takes the form of a credit line.

Why do a short sale?

One of the main reasons to consider a short sale is because it is largely an exercise in damage control.  The circumstances leading to missing mortgage payment usually involve great financial distress.  In some cases, there is no great distress and the borrower has the ability to continue paying, but instead makes a business decision to stop paying because the value of the property is far less than the debt owed with no hope of the value recovering for many years.  This is commonly referred to as a strategic default.  In either situation, a short sale represents an exit strategy to get out of a bad financial situation and move on.

One of the most significant ways a short sale contains the damage from a distressed property is through a far lighter credit impact to the borrower compared to a foreclosure.  When a borrower closes a short sale, the credit harm will be much less than a foreclosure completed through the legal process in terms of credit score points lost, the duration of time the transaction remains on the credit report and how it is reported.  A short sale is typically reported to the credit bureaus as “debt settled for less than full” or words along those lines.  In my practice, I have seen many damage control success stories resulting from a short sale.

One memorable example is a family who sold a property with a mortgage balance of approximately $1 million for $500,000 in a short sale.  Less than two years following that sale, these borrowers qualified for a mortgage to buy a new home.  Had they not pursued the short sale and simply allowed the lender to foreclose, I’m certain they would not have been able to rebuild their financial lives anywhere near as quickly.

Despite beliefs to the contrary, it’s important to note that no bank wants to take title to a home.  They are not in the business of owning properties.  They are in the business of making money.  The lending industry was hopelessly unprepared for the financial collapse they helped engineer and the resulting tsunami of foreclosures that followed.  Banks want money and will always prefer to take short sale proceeds instead of becoming home owners.  If a lender forecloses and takes title, it will then try to sell the property as an “REO” (real estate-owned).  At that point, all the bank will receive is the market value minus many additional litigation and carrying costs along with delay that accompanies taking title through foreclosure.  When the dust settles, the bank is very likely to net less money in the REO sale than they would have gotten through a short sale.  They may be dense, but they understand this.  The challenge is making the numbers work to get the short sale deal approved.

Another crucial damage-control justification for the short sale is the opportunity to negotiate a deficiency waiver.  The “deficiency” is basically the difference between the market value of the property and the final debt owed to the lender.  In a short sale or foreclosure case, unless the lender signs an agreement to waive its deficiency rights, it will have the ability to sue the borrower to collect this amount. I have seen many deficiencies in the hundreds of thousands of dollars as a result of the historic market collapse.  In the majority of short sales our firm has handled, we have successfully obtained deficiency waivers for our clients.

This is an important condition of the short sale approval that every borrower should work hard to obtain.  When the borrower is engaged with the lender in negotiating a short sale, the opportunity to work the deficiency waiver into the deal is available.  For borrowers who simply surrender and allow the foreclosure to take place, there will be no such opportunity and the overall potential resulting harm is greater.

Another reason to consider a short sale is it provides the home owner the opportunity to continue living in the property while not paying the mortgage. For those who have suffered great financial distress throughout these terrible economic times, this means the chance to save up some reserves, pay down other debt or do other productive things while taking advantage of the breathing room that comes from living in a property without paying for it.

Simply attempting to short sell will not delay the foreclosure process indefinitely.  Short sales usually do take a long time to close and most homeowners we have represented have continued living in their homes until the closing.  It’s sad to note, however, that many borrowers have simply walked away from their properties very early in the process upon missing payments because they failed to understand their rights and options.  Additionally, many real estate investors with rental properties have been able to collect rent while pursuing a short sale.

One more reason why a short sale may be the best strategy is the typical alternative to keep the property—a loan modification—usually is a bad deal that doesn’t work out for the borrower.  The much hyped government-initiated HAMP modification program has been a dismal failure that has helped only a tiny fraction of distressed borrowers trying to save their homes.  Though there has been a lot of talk, which is cheap, the government has yet to force the lenders to do anything meaningful they don’t feel like doing to help borrowers.

Most importantly, the most difficult thing to get out of a loan modification is a principal balance reduction.  Lenders commonly use many slight of hand tricks to lower the monthly payments.  An example of this is the deferred principal play, in which a chunk of the upside-down mortgage is taken out of the monthly principal and interest calculation (the amortization) and “put on the back” of the mortgage.  This technique may allow the borrower to pay a lower monthly amount, but that piece of the debt must be paid upon sale or refinance of the property and the borrower is often unlikely to remain in the property beyond the point at which the market value surpasses the debt.

I recommend going to a website called youwalkaway.com and using their Walk Away Calculator to determine the estimated time it will take your property to recover its value and have equity.  The numbers can be shocking and quite often greater than 20 or 30 years.  The bottom line is the loan modification usually represents the only available “stay strategy,” but it is usually a disastrous financial undertaking.  All things considered, the short sale, which is an “exit strategy” is more likely to be the best move to recover and rebuild.

How do I do a short sale?

First, you need a realtor to list the property.  The borrower should carefully select a listing agent with experience working these kinds of deals.  Short sales can be complicated and stressful, but a skilled and experienced agent will make the process easier.  Ask how many short sales the agent has handled and closed and what kind of training he/she has received in this specialized area.  Once the borrower signs a listing agreement with the realtor, the agent will market the property on the MLS (multiple listing service) to seek offers.  The listing will need to give prominent notice to prospective buyers and their agents that it is a short sale.  It is necessary to clearly label a short sale and notify everyone that third party lender approval will be necessary and the sale proceeds will not satisfy the lien(s) on the property.

Once a written offer is submitted to buy the property, the short sale really gets cooking.  At this stage, either the listing agent or a third party negotiator will get to work to collect all the necessary paper work and submit it to the lender’s negotiator for approval.  Our law firm has a title and short sale processing division that handles all the negotiations and closes the deal.  Some realtors are glad to handle the negotiations themselves, but most prefer to hand that cumbersome and difficult work to another negotiator.

Sellers will need to open their financial books so the lender can evaluate whether to approve the deal based on financial hardship.  If the seller is a strategic defaulter without much, if any, hardship to note, it is more likely the lender will require a cash contribution to approve the deal.  What constitutes a “strategic” default versus a default by necessity is not always clear.  There are gray areas and there is often room for compromise.  The way I like to look at it is, if the borrower ends up getting out from under a far greater amount of debt and a bad investment, but still pays the lender something, we can call it a “win.”

When do I do a short sale?

The timing of a short sale is largely a matter of discretion for the seller.  A homeowner may want to move quickly to sell the properties or try to extend the process, depending on needs and circumstances.  For many who have suffered and are continuing to endure financial distress, it may be in the borrower’s best interest to try to remain in the property as long as possible before selling.  In other cases, there may be a need for quick action and the desire to close this chapter and move on.

The foreclosure crisis has evolved in different ways since it began around 2007 and will continue to change in response to political and economic circumstances.  What we are seeing now is most lenders taking at least six months, quite often longer, to file a foreclosure case and take the borrower to court following the first missed payment.  Once filed, the lender may complete the foreclosure case as quickly as within six months in Florida if, and this is a big “if,” the borrower doesn’t respond and mount a defense.  On the other hand, we have litigated some cases as long as 3-4 years in court and some of these remain open from the inception of the foreclosure crisis.  As the recent fraud and “robo-signing” scandal that the media discovered has shown, foreclosure cases can be anything but “open and shut” and there are many legitimate defenses borrowers can raise to defend the case.  The timelines are all over the place, depending on many factors.

Many borrowers who stop the mortgage payments and thus find themselves in “pre-foreclosure” (behind in payments, but not yet sued) begin trying to short-sell only after being served court papers.  Some don’t want to face litigation at all and try to sell before being served.  Unfortunately, many of these rushed borrowers move so quickly out of ignorance of the legal process and its timing, their rights and what can be done to fight a foreclosure.

Others choose to handle the matter more aggressively and only attempt to sell once the case reaches a more advanced stage in litigation.  There are many ways to plan and time a short sale and it can be done either before a foreclosure case is filed against the borrower or while the case is pending.  A short sale is likely to take six months or longer to close from the placement of the listing until the closing.  Accordingly, the borrower who wants to short sell should make sure to plan to close prior to the court auction that concludes the legal process, at which point the lender or a third party bidder will take title and the chance to sell will be forever lost.

I hope this article answers most of the questions about short sales.  A short sale is not the best solution for everyone, but I’m convinced it’s the best for most who find themselves in trouble with their mortgage.  For more information and to discuss your options, please call our firm.

 

June 10, 2014 /By Charles P. Castellon / Blog

Florida Asset ProtectionMuch has been written about the legal concept of asset protection.  In some circles, asset protection has developed a seedy reputation of unethical or illegal activities including off-shore trusts and Swiss bank accounts.  Though some will always engage in unsavory practices, asset protection should be a sensible, legal and ethical component of every investor’s wealth-building game plan.

Before discussing what asset protection is, it’s helpful to focus on what it’s not.  It’s not about illegally hiding assets from anyone with a legal right to know what you have.  It’s also not about tax evasion.  In summary, asset protection is about properly structuring and titling assets in a way to best secure them against anyone trying to take them.  The best use of asset protection strategies is preemptive action.  For reasons more fully discussed below, the timing of the implementation of asset protection strategies is critical.  Trying to shelter assets in reaction to bad things happening, such as a lawsuit, is much less effective and less likely to be upheld in court than protection arranged during times of peace and quiet.

As every good investor wants to do business in compliance with the law, the legal concept of “fraudulent conveyance” is important to understand.  Fraudulent conveyance refers to the act of moving or restructuring assets solely for the purpose of avoiding or hindering creditor claims.  Generally speaking, if an owner of any asset sells, restructures, re-titles or changes access to the asset for a legitimate reason other than preventing a creditor from getting it, such maneuvers are likely to be upheld in a court challenge.

It’s worth noting that the term does not imply criminal activity even though the word “fraud” is found in the phrase.  Although it is possible that criminal fraud may be committed in the process of hiding assets or falsely responding to questions about assets, a fraudulent conveyance case is usually a civil matter.  Typically, the creditor will learn that a debtor used to own one or more assets the creditor could’ve pursued, but no longer has the asset(s).  The burden would then be on the creditor to establish in legal proceedings that the debtor engaged in the activities affecting the assets for the sole purpose of thwarting the creditor’s claim.  The likely worst-case scenario for the debtor would be the invalidation of the prior asset transfers and restoring title to the debtor so the creditor can seize the asset.  According to that scenario, there may be little for the debtor to lose in attempting transfers that could later be deemed fraudulent conveyances, as the debtor would simply be put back at “square one,” where he started.  There could, however, be the possibility of liability to innocent third-party buyers of assets.

As any challenge of the movement of assets would rely on the intent of the owner, a logical question would be how does the court determine the legality of these acts?  The answer is found in the court’s review of the totality of the circumstances surrounding the asset transfers.  A helpful tool in this inquiry is known as “badges of fraud.”  These are mainly common-sense indicators in the surrounding circumstances that shed light on the intent of the debtor.  They include, among others, whether the transfer is to an insider, the amount of money exchanged in relation to fair market value, whether the debtor renders himself insolvent as a result of the transfers and other factors.

Perhaps the most important factor is the timing of the transfer.  This is why preemptive, rather than reactive action is best.  For example, if the owner of asset shelters it while he lacks any care in the world, including no outstanding debts, claims, lawsuits or judgments in existence, it’s much more likely these moves will be held valid.  If, on the other hand, a debtor signs a quit claim deed to his brother in law the day after a judgment is entered, the court will treat it with much greater suspicion and more likely over turn it.  Nice try.

There are many methods available for protecting assets.  For real estate, a Florida land trust is a very effective asset protection tool.  In essence, the land trust creates a shelter of privacy and anonymity whereby the true “owner” in control of the property will not be a public record.  This is mainly a deterrent effect.  Before any potential plaintiff and her attorney would consider filing a lawsuit, the concept of “pockets” comes into play.  It’s not worthwhile to sue a judgment-proof defendant without assets to take away.  Real estate is perhaps the only common asset for which there is an easily accessible public record of ownership along with an estimate of value.

In a land trust, the record owner of the property is the trust, either an individual or entity such as a corporate trust company.  The true de facto owner in control is the beneficiary, who may similarly be any number of individuals or entities.  The two documents comprising the land trust are the trust deed and trust agreement.  The trust deed is recorded and creates a public record of ownership in the name of the trustee.  The trust agreement, by contrast, is a private document containing the identity of the beneficiary.  The land trust is an under-utilized and economical vehicle for holding title to investment properties (though a homestead property may be owned through a land trust, it’s not recommended due to the strong homestead legal protections already in place in Florida).

Other asset protection options available include the use of corporate entities (especially limited liability companies), personal property trusts, marital property and whole and universal life insurance policies and annuities, which protect both the cash value and income streams from creditor claims.

Asset protection is not just for the rich and crooked, as a common stereotype would imply.  All thoughtful investors should carefully consider their exposure to claims in our litigious society and asset protection strategies are invaluable in that regard.

June 9, 2014 /By Charles P. Castellon / Blog

DefaultFor many homeowners, a plummeting housing market has transformed a previously prudent investment into an oppressive financial burden.  Engaging in a strategic mortgage default with the help of a foreclosure defense attorney may be one of your best options for controlling damage to your credit.  If you’ve found yourself in a tough financial situation with your mortgage lender, then consider whether or not strategic default is a feasible option for you.

What is a Strategic Default?

A strategic default occurs when a borrower who is able to pay their mortgage chooses to stop because a property’s value has dropped significantly below the mortgage debt owed on it. Because strategic defaulters (as opposed to seriously financially distressed borrowers) are more likely to have higher income and assets, the decision to stop the payments should include asset protection considerations and strategic planning.

  • What are its Consequences?

As with any other foreclosure, the direct consequences of a strategic default are fundamentally the same.   It’s important to understand that the strategic default decision is not the end of the discussion, but rather, the beginning.  The decision to discontinue payments should lead to the next question—“now what?”  A borrower may simply give up and allow the lender to foreclose, but this is a terrible idea.  In most cases, attempting a short sale of the property will be the best damage control option.

Although getting short sale approval is often more challenging for the strategic defaulter due to the lack of “hardship” the lender expects to see, the borrower should not consider this a “zero sum game.”  There does not need to be an absolute winner or loser in this process between the borrower and lender.  Quite often, strategic defaulting borrowers will agree to bring money to the closing table in exchange for a release from a much greater mortgage debt and an exit from a bad real estate investment. The borrower should consider that the credit damage resulting from a short sale could be overcome in as little as one and a half to two years.

 

  • The Moral Question

 Many borrowers who retain the ability to pay the mortgage resist the idea of strategic default because of moral considerations.  They adhere to traditional values of honor and integrity and the notion that signing a “promissory note” means a promise to pay.  This moral question deserves a detailed and thoughtful reply.  A good place to start is by reading the moral discussion in University of Arizona Law Professor Brent White’s excellent article [link].  In essence, a strategic default is not an avoidance of the consequences of the mortgage; it is the acceptance of them.  A borrower signs a promissory note, which is a legal contract to repay a loan.  The note is secured by a mortgage, which is the borrower’s consent to allow the lender to take title to the property upon failure to repay the note.  The probability of defaulting on the note is factored into the deal through the mortgage.  Otherwise, the lender could simply lend the money unsecured, as with credit card debt.

For the lender, as with any other corporation, the bottom line is the bottom line.  It’s a business transaction and the parties in any business deal are expected to act in ways to further their own self-interests.  It is hypocritical and unfair to expect an individual borrower to sacrifice his own self interest for the benefit of the other party in the deal—the lender.  There are endless examples of naked self interest in the corporate world trumping moral considerations, including the noteworthy instance where Morgan Stanley strategically defaulted and walked away from its obligation to pay on several upside down properties it owned.  In the business world, we eat our mistakes.  Unfortunately, the control of our government by Wall Street and their partners in crime in the lending industry have created a world of socialized losses and individualized gains, as the “too big to fail” federal bailouts have sadly demonstrated.

If lenders recklessly issued mortgages on the faulty premise of continuing rising home values to provide their “cushion” and they were tragically wrong, it should not fall on the borrower (the less sophisticated party in the deal who had no choice but to accept all the lender’s terms or not do the deal) to bear the burden of the housing market collapse.  This brief discussion does not do justice to the moral question, but it’s a start.   Any borrower considering a strategic default should contact the law firm of CPC Law to discuss all the ramifications, including the moral issue and create a strategic game plan.

June 5, 2014 /By Charles P. Castellon /

foreclosure signOur government’s decision not to extend the Mortgage Forgiveness Debt Relief Act has some costly implications for underwater homeowners and those dealing with foreclosure. This article from the Washington Post outlines the effects of the lapse. If you have questions about what this means to you, we’d be happy to answer them.

http://www.washingtonpost.com/business/economy/distressed-homeowners-seeking-mortgage-relief-could-get-stuck-with-higher-taxes/2014/04/11/ba3d7498-be6b-11e3-b195-dd0c1174052c_story.html?wpisrc=nl_wonk 

 

June 3, 2014 /By Charles P. Castellon / Blog

5 Ways Credit Can Cost YouThe word “credit” has appeared frequently in a variety of contexts including advertisements and news over recent years. Credit default swaps unpinned the mortgage crisis.  Target’s credit card data breach. Greece’s debt situation and credit risk. “Sign up today for a new credit card starting at 0% APR.” “Bad Credit, No Credit? No Problem! We Sell Cars to Anyone!” It is likely you have seen Central Florida credit repair companies advertised in a number of places.

What I am focused on here is what a negative credit score can cost you in currency and opportunity. The following is a list of the ways a negative credit score can affect you, whether you are an Orlando/Central Florida resident or you live in Chicago:

1: You will pay a higher interest rate on loans or credit cards than someone with a good credit score. In the eyes of a lender, you are a riskier investment than someone who has a good credit history (and correspondingly a better credit score). As a result of this, you’re going to pay a high interest rate.

Your Cost: Could end up being hundreds or thousands of dollars over the term of the loan.

2: You might have trouble renting that awesome apartment you have your eye on.More landlords are requiring a credit check prior to accepting tenants, which makes sense because they can use a credit score to measure risk.

Your Cost: The opportunity to live in the place of your choice.

3: You could miss out on that amazing job opportunity. Not every job requires a credit check but some in the financial services industry and a few others do. It isn’t illegal for employers to ask for your approval to check your credit history and to use that information in deciding to hire you (or promote you). It would be a shame to miss out on a great opportunity solely as a result of your credit history.

Your Cost: The opportunity for a job and what could be thousands, tens of thousands or hundreds of thousands in lost wages over the course of a career.

4: Trouble buying a house or a car. Obtaining financing for either of these purchases could be problematic. Even if you are able to get financing, it will take your credit into account and your rate will be correspondingly high based on the risk.

Your Cost: The opportunity to live in the place of your choice or getting the car you wanted.

5: Problems getting a cell phone. In modern America, the cell phone is ubiquitous. Unfortunately phone companies have begun screening applicants for service based on their credit. While prepaid phones and cards avoid this sort of problem, this can be a more expensive solution.

Your Cost: The aggravation of having to buy prepaid phones or having to go without.

Good news; not all is lost if your credit score isn’t up to snuff. There are many common sense ways for you to improve your credit score which include getting current on delinquent debts and making sure you examine your credit report for errors. If you live in Central Florida and you are looking for an Orlando Credit Repair attorney, look no further than CPC Law. With the guidance of an attorney who understands the ins and outs of the Fair Credit Reporting Act, you can begin taking the steps necessary to avoid the costs outlined above.

May 29, 2014 /By Charles P. Castellon / Blog

Bacon and Eggs ThumbIn February 2014, I attended a one-day conference in Ft. Lauderdale.  I considered the fee expensive for a one-day event, but I thought it would be educational and a good networking opportunity.  I booked a room in the high-end hotel in which the conference was held and headed down to the event that morning.  Just outside our ballroom, I passed an inviting hot breakfast in gold shiny serving trays.  During registration, I realized that breakfast was for the conference next door.  Our breakfast consisted of the typical muffins and danishes found at most seminars.

Of course, I didn’t sign up for the food and the breakfast provided had no direct bearing on the quality of the event.  Despite that logical understanding, breakfast set the tone for the day.  It’s easy to feel apprehensive about the wisdom of any investment and whether I’ll get a satisfactory return for attending the conference, along with the more precious resource of my time invested in this event.

That nice hot breakfast would have made a good first impression.  It would have conveyed a subtle message along the lines of “we acknowledge you spent a lot of money for our event and we want to show our appreciation and treat you right at every opportunity starting with the small gesture of breakfast.”  In my view, whatever dent the catering upgrade would have made in the organizer’s profit margin would have generated a great ROI in the attendees’ good will and inclination to do further business with him following the conference.

All businesses should consider how to make clients feel appreciated and not viewed as merely a dollar sign.  Throughout this conference, selling was a higher priority than educating.  At the end of the day, I rated the conference approximately 80% infomercial and 20% educational, though I don’t regret my tax-deductible investment to attend.  I did make some good connections and learned valuable information.   The most valuable lesson I took away, however, did not relate to the subject matter of the conference.  Instead, it was  a greater understanding of what we need to do to make sure our clients feel appreciated and respected for the fees they pay in exchange for our legal services.

We genuinely care about our clients and serving their needs is our first core value.  Beginning with breakfast, my conference experience made me wonder whether all our clients agree with my assessment.  Perception is reality and no matter how noble our intentions, if even one client feels like merely a dollar sign and unappreciated, we have failed.

At CPC Law, we work as a team.  Every team member has a vested interest in making sure our clients receive the highest quality representation along with appreciation and respect.  Without satisfied, appreciated and well-treated clients, we cease to exist.  I’m asking our clients to call me directly if they ever feel we don’t appreciate them or we fail to deliver the level of services for which they’ve paid their hard-earned money.

We need to be fully engaged with our clients and we have launched policies to achieve that objective.  We are putting all our clients on a regular call rotation to connect even when there is no new information to convey.  If we reach out to the client for any reason in between these regularly-scheduled calls or the client contacts us, we’ll reset the next call to follow that in-between contact.

We are also committed to an increased social media presence and encourage our clients to follow and communicate with us on these platforms to be fully engaged.  Our firm will send periodic email newsletters and updates with useful information such as pertinent legal developments and news that may be of interest to our clients.  Along the way, we’ll inform our clients of all the ways we can help them and available legal services that may serve their needs.

CPC Law promotes the concept of the “personal empire” we help our consumer, investor and small business clients build and protect.   Part of this involves helping clients acquire and protect material wealth, but it goes far beyond that.  We view the “empire” as the collective parts of our clients’ business and personal lives come together to make happy, meaningful and comfortable lives for the long run.  This holistic view of legal services involves going above and beyond what law firms have traditionally done for clients, including regular educational and networking opportunities we will continue to offer while seeking to build strong relationships as their trusted advisors.  It is my mission to make sure every client of CPC Law receives a satisfying hot breakfast and much more through meaningful life-long relationships.

Charles P. Castellon, Esq.

Orlando, FL