Short Sales – The current recession, aggravated by decreased liquidity in the mortgage market, has created an increase in the number of situations that present “short sales”.

LLCS AS PROTECTION FROM LIABILITY – How To Protect Everything You Have Worked So Hard To Earn.

Employment Contracts – Financial Sector and Wall Street Lay-offs have Re-focused Attention on Employment Contracts and Severance Agreements.

Tax Appeals – Has Your Property Been Reassessed? An Introduction To Tax Appeals.

SHORT SALES

The current recession, aggravated by decreased liquidity in the mortgage market, has created an increase in the number of situations that present “short sales”.

A short sale occurs when the value of a property is less than what is needed to pay all mortgages, liens and closing costs. Several factors have caused the increase in short sales:

1. Many homeowners were able to purchase houses with little money down.
2. Many other homeowners financed all or a portion of their down payments with home equity lines of credit.
3. People have lost jobs or become over-extended on their credit cards and have fallen behind in their mortgages, thus increasing the amount due to their lenders.
4. Closing costs, including conveyance tax, brokerage and legal fees, average about eight (8.0%) percent of a home’s sales price.
5. Housing prices have fallen in many (but not all) markets.
6. Due to loss of job, illness or other problem, the homeowner has no savings to pay any or all of the shortfall that has arisen.

The only way that a seller can effectuate a closing without paying additional money out-of-pocket is to convince the mortgage lender to accept a short sale. This process is made difficult by the fact lenders historically are reluctant to accept less than full payment. The process becomes more difficult because when the well-meaning homeowner calls the lender to talk about turning over the house when it is in good condition and before the mortgage has become further delinquent, the mortgage lender usually only communicates through a voicemail system and out-of-state account representatives who change with every phone call. In addition, many of the lenders outsource collections, workouts and foreclosures to servicers, who have no connection to the homeowner and are generally short-staffed.

Short sales pose traps for unwary parties and realtors. A purchaser could lose the house of his or her dreams or, at the least, be out-of-pocket for inspection, appraisal and other costs for a transaction aborted because the seller could not deliver good title. A listing broker may become legally responsible for paying a commission to a selling or other cooperating broker if a ready, willing and able buyer is unable to close because the seller could not effectuate a short sale. Worst of all, the homeowner could end up facing a foreclosure and potential bankruptcy if the short sale is not achieved.

Lawyers and realtors experienced in short sales know what must to be accomplished in order to maximize the chances that a lender or servicer will approve a short sale. It is, therefore, extremely important that any party involved in a short sale, whether the party is a buyer, seller or realtor, has engaged an attorney with the proper background as early as possible in this process. The attorneys at Goldman Gruder & Woods, LLC have this necessary experience. In fact, Kenneth Gruder and Descera Daigle both lecture extensively to Realtors and business organizations concerning Short Sales, from the viewpoint of both purchasers and sellers.

LLCS AS PROTECTION FROM LIABILITY

How To Protect Everything You Have Worked So Hard To Earn.

The prototypical great American success story involves someone achieving fame and fortune in business through perseverance and skill. Increased outsourcing, downsizing, advancement in computers and communications and our desire to balance family and work have made the number of self-employed people greater than ever before. These people need to protect the family home and savings from creditors in the event of a business reversal or a lawsuit from a disgruntled creditor, customer, vendor or employee.

Most people who start small businesses work incessantly but are still understaffed. After all, they are focusing their time and energy on new business and customer service. At this early stage, it is easy for small mistakes to ariseÖemployees are sometimes not closely supervised; small details are neglected, some tasks are done hurriedly. After all, the big picture is so much more important at the start of a new venture. All of this is very normal and nothing to be ashamed of. Compound the added debt and lack of cash flow which typically accompany a new business, and one has created the recipe for a lawsuit which can halt a budding enterprise dead in its tracks.

As the business grows, new demands for capital and the entrepreneur’s time increase the likelihood that the entrepreneur will cross paths with a dissatisfied vendor or customer or an irrational malcontent addicted to litigation. Even if the entrepreneur has done nothing wrong and will ultimately succeed in the lawsuit, litigation expenses and the entrepreneur’s wasted time and anxiety can be catastrophic for the business.

Another problem is that as the business grows, the business generally takes on more debt, and if the owner does not plan carefully, the entrepreneur’s personal assets, including his or her home, are placed at risk in the event that a lawsuit is successful.

How can the Business Owner stop or at least reduce the risk of litigation?

If the business is a properly formed separate corporation or limited liability company (and not a sole proprietorship or partnership), only the business, and not the business owner, is liable for the contracts and debts arising in the course of the business. The disgruntled vendor, customer, former employee or creditor will only have recourse against the entity, and not the owner.

Limited Liability Companies (LLCs) have been in existence for over ten years and provide several excellent advantages, as follows:

• They are relatively inexpensive to form and maintain.
• The owner may elect to be taxed as a corporation or a partnership. Generally, the partnership method is more advantageous, and unlike Subchapter S corporations, there are no limitations on the rights or compositions of the owners.
• Operating as an LLC is relatively easy and does not require much of the entrepreneur’s time.
• Use of a separate entity allows the development of financial statements, which can bolster credibility with banks, vendors, and potential customers.
• LLCs (and corporations) protect each owner from lawsuits arising from the negligence or wrongful actions of employees and co-owners.
• Through careful drafting of the LLC’s Operating Agreement, the LLC can designate management responsibilities while restricting the transferability of the members’ ownership interests. This can thwart creditors’ and litigants’ attempts to garnish or lien the members’ interests and also provide for “discounts” on estate tax upon the death of the first generation of owners, so that the business need not be sold or mortgaged to pay the estate tax.
• Asset Protection Trusts have become a favored way to reduce risk of loss due to creditors and litigation. There are very special rules that govern how and when these trusts can be established, and discussion of these mechanisms is beyond the scope of this article.

Goldman Gruder & Woods, LLC can form an LLC (or corporation) for you and assist with other business issues frequently facing small businesses (for example, insurance, simple contracts, employment issues, etc.), all within a reasonable budget. Protection against the downside is certainly worth this cost.

EMPLOYMENT CONTRACTS

Financial Sector and Wall Street Lay-offs have Re-focused Attention on Employment Contracts and Severance Agreements.

Employees who took their marketability for granted now may wish they had reviewed their contracts more carefully before they signed. Companies, on the other hand, are more carefully examining termination provisions as a way of reducing compensation and are more willing to go to court to enforce covenants not to compete. Thus, while in the 1990’s, lawyers were asked to advise their clients concerning stock options and equity kickers, they are now refocused on the “meat and potatoes” issues of compensation, termination, severance, and covenants not to compete.

The typical employment contract covers such basic issues as base salary, bonus, benefits, and vacation. While lawyers are often instrumental in negotiating these items for their clients, both companies and employees generally understand these issues very well.

Termination: For Cause or Not for Cause, that is the Question.

Clients have less familiarity with termination clauses. Contracts can provide for termination with or without cause. While some contracts grant severance (sometimes in substantial amounts) in the event of termination without cause, others permit termination without cause (and without any substantial severance pay) after a mere notice period.

Now that some companies are looking to shed payroll, they are being less generous with severance packages, and some are even looking to find cause when they would otherwise terminate employees without cause in order to reduce their payment obligations. In addition, some companies are trying to preserve spectacular compensation packages for a chosen few executives, and to do so, they are eliminating “near-the-top executives” who would in the past not normally be affected by layoffs.

Therefore, if you do not understand these issues carefully, you may find yourself not as well protected as you thought.

“Cause” provisions are critically important. When drafted to favor the company, cause can be defined to include many things that are not even the employee’s fault. In contrast, when drafted to protect the employee, cause is often limited to conviction of a crime, theft of company property, and other, hopefully rare types of occurrences. Employees signing contracts without the benefit of a lawyer’s review may end up being terminated for cause and having no recourse, even if the employee has not acted wrongfully.

Protecting the Employer: Covenants Not To Compete, Confidentiality, and Non-Solicitation

Employment contracts can also protect the employer by prohibiting (a) disclosure of trade secrets and other confidential information, (b) post-employment solicitation of employees and customers, and (c) post-employment competition. Covenants not to compete are extremely important; yet many are either accepted by employees without much thought or drafted by companies in a way that makes them unenforceable.

If the covenant is too broad (in duration, scope or geographic limitation), the court will not enforce the provision, and the former employee will be free to compete, with potentially devastating effect to the employer. Only with the advice of an attorney can an employer have some comfort that the covenant not to compete will be enforced. Furthermore, covenants not to compete need to contain well-drafted remedies provisions, in order to allow the company not only to recover damages, court costs and litigation expenses, but also to permit the company an injunction to stop the former employee from soliciting customers and/or competing.

The extent to which a covenant not to compete is determined to be too broad (and therefore unenforceable) is a “reasonableness test”, based on the specific facts and circumstances involved. Without an attorney having background in employment contracts, the employer will not be certain whether its covenant not to compete will be enforced by a court.

In short, whether you are an employer or an employee, the employment contract and other agreements signed at the beginning of an employer-employee relationship are well worth the attention of an attorney. Goldman Gruder & Woods, LLC represents both employers and employees in these matters, as well as in most other types of employment issues.

TAX APPEALS

Has Your Property Been Reassessed? An Introduction To Tax Appeals.

Connecticut recently amended the procedures pursuant to which towns and cities assess commercial and residential real property. The most important change is that properties will be reassessed every four years, rather than the present practice of every ten years. As a result, most towns and cities have recently or will soon conduct a reassessment of all residential and commercial property, and this reassessment will serve as the baseline for your property taxes for at least the next four years.

The reassessment process begins with the Tax Assessor’s mailing you a questionnaire concerning the physical attributes of your property and, if applicable, the income and expenses therefrom. The information you provide on this form is critical because, in conjunction with an outside appraisal company, the Tax Assessor next conducts an exterior visual inspection of all properties in the municipality and an interior inspection of many of the properties. These appraisals greatly rely on the information provided on the questionnaire.

Once the appraisals are completed, you should receive a notice indicating your new assessment. The new assessment is supposed to be 70% of the market value of the property as of the valuation date. The amount of the assessment will determine your taxes for at least the next four years.

Once you receive this notice, you should determine whether the market value determined by the town is accurate. Because the assessed value is equal to 70% of the market value of your property, you must divide the assessment by seven and then multiply it by ten to convert the assessed value to the market value. Next, compare the market value to what you believe the market value is for similar properties in your neighborhood or town. You may want to go to the Tax Assessor’s office and review recent sales of properties that are similar to your property. In addition, you should check that the Tax Assessor’s records accurately reflect such important information as the physical improvements to your property, its age and condition. Occasionally, the Tax Assessor’s records are in error, and an error may result in an excessive valuation.

Once you have conducted this investigation, if you believe the property has been incorrectly assessed, you have several avenues available. First, most municipalities allow property owners to meet with the Tax Assessor or representatives of the appraisal company to discuss their assessment. This informal process is usually the best way to correct problems with such underlying information used to formulate the assessment as square footage, age, number of bedrooms or apartments and condition. Second, if this informal process has not afforded you the relief you seek, you may file an appeal with the Board of Assessment Appeals. You must file the appeal on or before the date set forth in the initial notice of the revised assessment that you received. Forms for filing the appeal are available at the Tax Assessor’s office. Once this documentation is filed, you will receive notification from the Board of the date, time and place of your hearing. When appearing before such a Board, you must bring information to support your contention that the property has been over assessed. This information could include the values of comparable properties as determined by the Tax Assessor or recent sales of comparable properties. In order to present the best possible case, you should contact an experienced attorney.

If you appeared before the Board of Assessment Appeals and did not obtain a satisfactory resolution, you may file an appeal to the Superior Court. Such an appeal must be filed within sixty days after the date of the Board of Assessment Appeals’ decision. The Superior Court appeal requires that you prove that the Tax Assessor’s valuation is incorrect through the testimony of an appraiser whom you must engage. In addition, the Superior Court appeal affords you the opportunity to have the town produce all documentation used to obtain its assessment and market value. There are many other procedural and evidentiary requirements in filing a tax appeal with the Superior Court. Therefore, you should obtain the services of experienced legal counsel when commencing a tax appeal.

Both Matthew Woods and Neil Lippman of Goldman Gruder & Woods, LLC have extensive experience representing commercial and residential property owners in tax appeals. Attorney Woods’ experience includes serving as counsel to the City of Milford in its tax appeal cases. Attorneys Woods and Lippman are available to discuss any questions you have regarding your new assessment or commencing a tax appeal.