November 24th, 2010
The current real estate market is ripe with opportunity. If you are thinking of selling one commercial property and buying another, or of trading up from an inherited investment property, you might want to consider how a 1031 exchange can lower your income taxes and build your estate.
What is a 1031 Exchange?
Internal Revenue Code Section 1031 allows an owner of investment property to sell it and reinvest the sale proceeds in a replacement property of “like kind” without paying tax on the profits from the first property until the replacement property is sold at a later date.
The benefits of this transaction are immediate: the seller can take the money that would have been used to pay capital gains tax and depreciation recapture tax on the first property, and apply it instead to the purchase of the replacement property. However, there are technical details to be followed to obtain these tax benefits. It is advisable to seek the advice of a seasoned real estate attorney who understands the strict timelines and requirements for a valid 1031 exchange. Read the rest of this entry »
Posted in Business Real Estate, Buying a Property, Home Ownership
November 24th, 2010
Employee Rights to Use Medical Marijuana and Other Prescribed Drugs
1. Marijuana Use under California Law
California’s Compassionate Use Act of 1996 allows a person to possess and use marijuana under a physician’s prescription, strictly for medical use. It provides that the person who has and uses marijuana but complies with the law may not be criminally prosecuted for this by the State of California. It allows persons with certain medical conditions, such as cancer, chronic pain, and glaucoma, to use marijuana without fear of criminal prosecution by the state.
This law raises a question for California employers, who are required to comply with the Americans with Disabilities Act (ADA). Under the ADA, employers must provide reasonable accommodations to employees with disabilities. Are California employees who have a physician’s prescription for medical marijuana use protected in any way by the ADA? And what about employees who use other prescribed drugs that may affect their job performance, or cause them to fail a drug test? Read the rest of this entry »
Posted in ADA Compliance, Employment, Running a Business
October 22nd, 2010
To date, the Federal government’s Home Affordable Mortgage Program (HAMP) has helped 6,500 San Diego County residents permanently modify their home mortgages. However, the HAMP guidelines have recently become stricter about what will qualify a person for even a trial modification. The HAMP guidelines’ change makes the already daunting and stressful experience even more difficult for many distressed homeowners.
The Loan Modification Process
If the loan modification process is successful, a homeowner can obtain either an interest rate reduction, a conversion of an adjustable rate mortgage to a fixed rate mortgage, or a reduction of the original loan’s principal balance. The outcome of the loan modification process is a solution that is specifically tailored to each individual homeowner’s unique situation and set of circumstances. Having a customized restructuring of the existing loan is essential because it lessens the likelihood that a homeowner will need to default on the loan in the future. Ultimately, this allows a homeowner to remain in their home, rebuild equity, and avoid foreclosure. Read the rest of this entry »
Posted in Foreclosure, Loan Modification
October 22nd, 2010
Copyright infringement is not an issue that most business owners are concerned about — until they find they may lose money or get tied up in a lawsuit because of a copyright infringement problem. It is a good idea to know in advance both how to protect your copyrights from misuse by others, and how to avoid infringing on copyrights belonging to other people and businesses.
What Does a Copyright Protect?
Federal copyright laws protect the expression of an idea in one of several formats. These formats include a literary work, graphics, text, and others. If a work is copyrighted, the owner has the exclusive right to display, reproduce, or create derivative work based on the copyrighted work for commercial purposes. Read the rest of this entry »
Posted in Business Disputes & Lawsuits, Copyright
September 10th, 2010
A customized shareholder agreement can save your corporation from upheaval, bankruptcy, and even a court ordered-dissolution. Unfortunately, most business owners fail to make a buy-sell agreement an integral part of their business plan, unaware that events in their or their partner’s personal life could have more of an impact on their business than they ever could have imagined.
What is a Buy-Sell Agreement?
A buy-sell agreement is a binding contract between the members of a corporation that sets forth the terms of a future sale of each member’s interest in the event of a personal catastrophe such as death, disability, divorce, bankruptcy, or retirement. For example, under California law if a corporate officer/shareholder gets divorced, the former spouse of the shareholder may have a lawful monetary interest in the corporation and may have the right to actively participate in the business of the corporation. Or if an active officer/ shareholder becomes incapacitated and is unable to actively participate in the business operations, the disabled shareholder not only retains control of his or her shares, but he or she has a continued right to the profits of the corporation.
Why a Buy-Sell Agreement is a Necessity
A buy-sell agreement is necessary to establish – among other things – what events will permit or require a buy-out of an officer/shareholder’s business interest. It can also predetermine the value of that business interest. So, in the event of a divorce of a shareholder, a buy-sell agreement can require the former spouse of the divorced shareholder to sell any interest received in the divorce back to the corporation or the other shareholder(s). If a shareholder becomes disabled, a buy-sell agreement can determine the compensation that the disabled shareholder can receive even though he or she no longer plays an active role in the operation of the business.
A Buy-Sell Agreement Can be Customized and Creative, but Should be Carefully Written
There are many contingencies that can be planned for in a buy-sell agreement. By its nature, the buy-sell agreement is forward-looking; it functions to guard against future events that may or may not happen. While there are many things to consider when drafting a buy-sell agreement, the ultimate objective of any buy-sell agreement is to ensure the success of the business. Not having a buy-sell agreement in place can lead to a long and costly legal battle that can interrupt business operations and drain resources. The business law attorneys at San Diego Law Firm can work with you, your partners, accountants, and financial planners to prepare a buy-sell agreement that can help achieve your long-term goals for your company. Please call us at (619) 794-0243 to schedule a consultation.
Posted in Running a Business
September 10th, 2010
Thankfully, there are many ways to avoid a foreclosure. One particular option has become so appealing to homeowners and lenders that the current presidential administration included it as part of its Home Affordable Foreclosure Alternatives Program. This option is the “deed in lieu of foreclosure”.
What is a Deed-in-Lieu of Foreclosure?
A deed in lieu of foreclosure occurs when a homeowner voluntarily transfers legal ownership of property to a lender in exchange for the lender’s promise not to foreclose. The primary advantage is that unlike a foreclosure, a lieu of foreclosure does less damage to borrowers’ credit histories. According to Fannie Mae, a distressed homeowner may be able to qualify for another home mortgage in less time than they would be able to had they gone through a foreclosure. (However, under the FICO credit scoring method, a deed in lieu of foreclosure is reflected as an account that was “not paid as agreed.”)
Will a Deed in Lieu of Foreclosure Work If a Foreclosure Has Already Started?
If a homeowner is already facing foreclosure it may be possible for the homeowner to offer a “deed in lieu of foreclosure” to a lender in exchange for the lender’s promise to stop foreclosure proceedings.
Have a Team of Experts Ready
As with any decision that will have an impact on your tax liability and estate plan, it is best to consult an experienced real estate attorney to discuss the possible consequences — both positive and negative — of any alternative to foreclosure. The process of a deed in lieu of foreclosure may require that a borrower hand over a written agreement expressly stating that the transfer is made voluntarily. Also, while a lender may accept a deed in lieu of foreclosure, income taxes may have to be paid on the amount that the lender is not able to recover after the lender sells the home. It may also be possible to negotiate the terms of the deed in lieu of foreclosure transfer in a way that is actually favorable to a homeowner. For example, Bank of America is not only soliciting distressed homeowners, but in some cases is offering cash incentives. A very recent Los Angeles Times article cited some incentives as being as much as $15,000, a lot of money for a homeowner who need a fresh start.
Because California law limits the extent of services that can be provided by so-called “foreclosure consultants,” a homeowner who faces foreclosure is best served by working with a seasoned real estate attorney who is familiar with the process and has a network of industry experts to step in where needed. If you are facing foreclosure, the real estate attorneys at San Diego Law Firm can carefully evaluate your situation and help you obtain whatever option is both open to you and workable for you. That may be a deed in lieu of foreclosure, a Chapter 13 bankruptcy plan that allows you to keep your home, or negotiations for a delayed foreclosure, cash incentives, or other favorable terms in giving up your home. Please call us today at (619) 794-0243 for an appointment.
Posted in Foreclosure, Real Estate
August 20th, 2010
Depending on your age and financial circumstances, taking out a reverse mortgage may be an excellent financial decision. However, a reverse mortgage has long-reaching effects, and you should not decide it on it in haste, or without carefully considering all your alternatives. An attorney who is experienced in estate planning and real estate can advise you of the effects a reverse mortgage will have on your future finances and on your spouse and adult children should you pass away, and may even be able to help you use the reverse mortgage to pay off an onerous subprime mortgage, freeing up more money for you to live on. Read the rest of this entry »
Posted in Home Ownership, Real Estate
August 20th, 2010
All California business owners should understand the details of both California and federal wage and hour laws. The penalties for a violation of either could destroy a business that took years to build. Even the smallest of businesses can benefit from having a business-specific employee policy manual to navigate the choppy waters of wage and hour law.
According to the U.S. Department of Labor an estimated 80% of employers are not in compliance with either federal or state wage and hour laws. Within recent years, a number of U.S. employers have found themselves on the opposite side of class-action lawsuits by workers who claim that they have been misclassified as contractors rather than employees, and not paid the overtime or given the required meal and rest periods due to employees. As the recession drags on with more layoffs, longer work weeks, and a bare-bones work force, more claims are likely to arise. Read the rest of this entry »
Posted in Running a Business
June 21st, 2010
During times of recession and economic downturn many homeowners find themselves in the position of having to decide what to do with real estate that they can no longer afford. According to data gathered by the California Department of Real Estate, in 2009, nearly three-quarters of all sellers in California sold their homes as a result of financial difficulties. And according to the National Association of Realtors, the number of short sales has increased nationwide. Whether it is an investment property, a vacation property, or the family home, understanding your available options and their outcomes is important if you need to decide what to do with real estate for which you worked so hard, but can no longer afford.
What is a Short Sale?
A “short sale” in real estate refers to a sale of real estate that falls short of the loan balance owed on the mortgage. When a property is sold in this manner, the lender allows the property to be sold for an amount less that what is owed to them. Under a short sale the lender may agree to “write-off” the difference between what remained on the loan balance and what the property actually sold for. It does not necessarily guarantee that the difference will be forgiven by the lender; instead, this is something that has to be negotiated with the lender.
What is a Foreclosure?
A “foreclosure” is a proceeding that allows a lender to end all ownership rights when the owner of a property stops making mortgage payments and is in default. Basically it allows the lender to reacquire the property. While each state is different, in California the lender generally has a right to pursue a property owner for the deficiency owing after the foreclosure has taken place. This means that if your property is not sold, or the purchase price was not enough to cover the balance on the loan, the lender can turn the loan over to debt collectors, or sue you for the balance still owing, and/or pursue payment from you even if you file for bankruptcy.
However, there is an important exception to this rule: the lender has no right to collect a deficiency from you if the loan was used for the original purchase of your primary residence, and you still live there. If you refinanced your home, or if the loan was for a second home, commercial property, or investment property, this exception does not apply.
Why a Short Sale May Be a Better Option for a Distressed Homeowner
There are a number of reasons that a short sale may be in the best interest of a seller who needs to let go of a property. One important advantage to a short sale pertains to future home purchases. For example, Fannie-Mae, the Federal National Mortgage Association, adjusted their guidelines in 2008 to allow an individual that successfully completes a short sale to be eligible for a Fannie-Mae baked mortgage package after only two years. In contrast, an individual who loses their home to a foreclosure will not be eligible for a Fannie Mae backed mortgage for five years.
Another advantage to a short sale would be in the area of credit score issues. The impact of a foreclosure can be a downgrade of your credit score anywhere from 200 to over 300 points, and it will affect your score for a minimum of three years. However, the impact of a short sale on your credit score can be as little as 50 points and its effect can be as brief as 12-18 months.
How to Start a Short Sale
If you think you might be interested in short-selling your home or other real estate, it is best to talk to a legal expert about the process and related legal issues, such as potential tax consequences to you when part of your mortgage loan is forgiven. The skilled real estate attorneys at San Diego Law Firm have specialized experience in handling short sales as well as a unique knowledge of the real estate market. To schedule a consultation, please call San Diego Law Firm at 619-794-0243.
Posted in Home Ownership, Real Estate, Selling a Home, Selling a Property
June 21st, 2010
Starting and building a business can provide a way to personal and financial success. Watching your business grow is exciting! While most small business owners strategize and plan for ways to expand their product line, services, and customer base, many small business owners don’t plan for events like the death of a key employee or business partner. The type of small business that is most vulnerable to this kind of loss is a partnership.
What is a Partnership?
Actually, you may very well be conducting your business as a partnership without realizing it. Under California law, a “partnership” is an association of two or more people who agree to carry on a business as co-owners and share the profits. Unlike a corporation, a partnership can be created without legal formalities, although a written partnership contract and the related legal documents can be important to long-term success.
How a Cross-Purchase Plan Protects Your Business if Your Partner Dies
If there are only a small number of owners working every day to provide a product or service, negotiate with vendors and customers, manage shop, and attend business meetings, you can imagine the impact that the unexpected death of one owner would have on the ability of the business to survive. This is especially true when you consider that the business would, at the same time, be legally required to pay out the value of the deceased partner’s share to his or her heirs. This could force the sudden liquidation of the business, or use up its cash cushion and require a sale of business assets.
One way you can protect against the impact of such an unfortunate situation is with a “cross-purchase plan,” drafted by a skilled business attorney and signed by each partner. In a cross-purchase plan, each partner agrees that the remaining partners will have both the duty and the right to purchase a deceased partner’s interest in the business. To fund this purchase, the partnership takes out a life insurance policy on each partner for the benefit of the surviving partners. The cross-purchase plan typically sets the buy-out price at either a pre-determined amount or an amount determined by an independent valuation of the business at the time of death. The surviving partners then use the life insurance money to buy the shares of the deceased partner, and the money goes into the deceased partner’s estate and eventually is distributed to his or her legal heirs.
Purchasing a life insurance policy to benefit you in your role as a surviving business partner is not something that may naturally occur to you when you start or formalize your business. But if your business is the source of your family’s income or the beginning of a legacy you hope to leave behind, a cross-purchase plan with a life insurance policy on your partner(s) can be your best protection. If you are the surviving partner you can not only preserve your business but also satisfy the financial needs and legal rights of your deceased partner’s family, while providing the same sort of protection and peace of mind for your own family if your business partner survives you.
At San Diego Law Firm, our experienced business attorneys understand the passion and work that goes into operating a small business. A cross-purchase plan is just one of the many beneficial strategies available to you when you formalize your partnership, whether it is new or ongoing, with a written partnership contract and other related legal documents. We can prepare every document you’ll need to give your partnership the greatest legal, financial, and tax benefits, and advise you on the wide variety of ways you can protect both your business and your personal finances. We remain available to help you with both minor and serious legal problems whenever you need us. To learn more or set up a consultation, please call San Diego Law Firm at (619) 794-0243.
Posted in Running a Business, Starting a Business
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