Ep 103: When Should You Hire A Real Estate Attorney?

By on January 13, 2022   /   The Legal Play Podcast   /   Leave a comment

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When it comes to commercial or residential real estate, most people readily understand that a real estate agent’s services will be required, but in many cases it may also require those of a lawyer. When it comes to the basic building blocks of buying or selling a property as set forth by the Texas Real Estate Commission, agents are well positioned to care for clients. However, in the event that a unique circumstance should arise such as a dispute, title issue or easement, a real estate attorney can be an individual’s best bet.

Why People Need a Real Estate Attorney?

In many cases, a real estate agent will help a party look for property and communicate and negotiate an offer on that property. From there, on the buyer’s behalf, a title company will examine real property records to ensure the seller indeed does own the property and that there are no liens, judgments, or clouds to the title on the property lasting after the close of the transaction. A lender also normally becomes involved and will draft the appropriate documents.

With a realtor, title company and bank lined up, a real estate deal has most of the right players in place. Still, when what was thought to be a small, standard purchase develops a complication with the transaction or the base use of the property, a lawyer’s knowledge is needed to provide guidance for that real estate deal.

There are three main considerations of real estate that can account for a rather large percentage of real estate deals, including:

  1. Who is the owner? Who has title to the property? What rights do they have and what type of restrictions are there on those rights?
  2. Property use. Who uses the property? Is a tenant? Is it somebody who is in possession? Is it someone who has an easement in the property? Is it someone that has no authority to use it but is using it anyway and may have been using it for a long time and have acquired some rights by doing so?
  3. Are there mortgage liens? Are there tax liens? Are there judgment liens? What is it that would cloud the title and ultimately give someone else the right to foreclose upon the property by having a foreclosure sale?

 

The 7 Most Common Situations in Which a Real Estate Attorney Is Needed

The real estate industry is vast, and with it can come many issues that require the assistance of a knowledgeable attorney in the industry. The seven most common situations in which a real estate attorney is needed include:

  1. Title to real estate
  2. Borrowing of money
  3. Possession of property
  4. Border disputes
  5. Oil and gas issues
  6. Title/possession/ownership dispute
  7. Earnest money contract cases

Title to Real Estate

This area of real estate involves who owns the property. A title company can be instrumental in ensuring a buyer, lender, or borrower that is pledging a piece of property as collateral is indeed the right person signing the deed of trust and the note. It is critical to guarantee that the seller is the person who owns the property and has the ability to sell it. Unfortunately, this is not always as clear cut as one would think.

When a title company issues a title commitment or title report, it ensures that the title is claimed to the property in question and that the buyer is getting a good title and the lender is getting a good lien on the property. This is then generally followed by a list of exceptions that may concern city ordinances that could restrict the use of property. It may also include deed restrictions from homeowners’ associations. Sometimes it may be possible to find a lien or someone who has rights to a property because they had a lien on it or a fractional interest.

Without a lawyer to look at easement issues, there may be someone who buys a property who discovers an easement that keeps them from using the property the way they intended. In cases like these, navigating real estate title issues can be a challenge that requires a successful real estate attorney.

Borrowing Money

Real estate is pricey and is generally one of the most expensive things an individual will ever buy. Most people do not have enough money to buy real estate upfront, so then the property can be used as collateral to borrow money to purchase, improve upon, or build on the property.

As long as the property value is solid, the property can also be used to finance other things. This typically happens by a lender such as a bank or a mortgage company working together to determine a property’s value and then using a formula to establish what percentage of the value will be lent. From here, legal documents will be drafted, such as loan agreement, promissory note, deed of trust, etc.

In these documents, it is common for borrowers to make  promises about what they will do with the property and how they will make payments. This also typically includes an understanding about maintaining insurance and taxes as well as that the property can be foreclosed upon if payments are not made. Businesses may have additional requirements for loans.

A real estate attorney can be instrumental in reviewing and drafting paperwork as much of this will go well beyond the realm of general real estate but is still part of the transaction.

Possession of Property

Although tenants are expected to pay rent, sometimes they do not, and then demands are generally made of the tenant. If those demands are not met, they may eventually be evicted.

In many ways, the coronavirus pandemic put a spotlight on landlord and tenant issues related to possession of property issues. For example, even if a tenant is not forced to be evicted during an unprecedented event like a pandemic, landlords are still usually on the hook to pay the mortgage. This in turn strained families with rental houses or properties who had to then pay the mortgage without any help from their tenants.

While it may be possible in some standard cases to evict someone without the help of a lawyer, many find legal counsel necessary when it comes to the related court proceedings, filings, and notices.

Border Disputes

Border disputes are another area of real estate where an attorney’s help is welcome. The main issues in this particular area can be a dispute over something like determining who owns a fence or how to navigate properties with zero lot lines.

While most attorneys will advise against purchasing a property with a zero lot line because it can create a bevy of problems, if a party should find themselves in this exact situation, they will likely need a lawyer to help them successfully navigate it.

Oil and Gas Issues

Texas is an oil and gas state, so it is not uncommon to have issues with old pipeline easements that may or may not still be good. This can be an especially sensitive issue when it comes to properties as it is possible that a party that owns the surface of the ground is different from the party that owns the minerals below the surface.

In other words, if an individual owns several acres of land and has surface rights, they may have to allow people owning the mineral rights to be able to drill down and get oil or minerals.

Some good advice can be not to buy a property that someone can put a rig on and then drill for oil in your backyard. However, if this is a situation you are already currently in, finding help from a lawyer with real estate knowledge is essential.

Title, Possession, or Ownership Dispute

This type of dispute can be straightforward, but in other cases, it can be much more complex, such as situations with a trust or a recently passed property owner, an incapacitated owner, or heirs that are dealing (or not) with a will and probate.

These situations take quite a bit of legal work to definitively determine ownership, administrators, and work with lenders who want to foreclose upon the property. An experienced lawyer will know how to best streamline the process and have a title company to get the proper sign-offs on family agreements and court rulings.

Earnest Money Contract Cases

An earnest money contract is generally between a seller and a buyer for a property. The buyer will put down some earnest money and open up a title. The problem can come if both parties do not show up to closing because something has happened that caused one of them to change their mind.

Many people mistakenly consider an earnest money contract is a cocktail napkin type of agreement in that it is not serious. In reality, earnest money contracts are enforceable and can require an attorney to step in.

If one or more parties tries to break free of an earnest money contract, some in the industry may advise to simply release the property and sell it, allowing the buyer to move on to something else. However, in the case that a buyer wants the property and wants to enforce that earnest money contract, a lawyer’s assistance is needed. Although an agent or broker can assist with certain aspects of real estate, a dispute like this typically requires legal action and therefore the expertise of an attorney.

For more information about real estate law issues, consider going beyond the resources of a realtor to also include the proficiency of a high-quality real estate attorney.

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What Creates Joint Property?

By on January 4, 2022   /   Blog   /   Leave a comment

There are many different combinations that would determine what creates joint property. First of all, what kind of property are we talking about? Do you share real estate? Are you a partner in a business where it’s the business entity that owns property? How many owners are there?

Let’s break it down so we can determine what the value, responsibility, and ownership rights are and what happens if there is a transfer, sale or dispute where an attorney might need to get involved.

What kinds of joint property configurations are there?

At the base case, there is joint property, where more than one person owns it. But within the concept of joint ownership, there are a few segments:

Tenancy in Common –

This is where there is more than one person who owns the property. Typically, in a joint tenancy, there are agreements between the owners, because some owners may own a higher percentage of the property than others. This would then create a differentiation in the rights and responsibilities those owners have to the property.

For instance, let’s say three friends decide to buy a vacation home. One of the friends may live close by and want to use it more often than the other two. So, they may decide that Friend #1 will pay 50% of the cost of the house and the other two would each pay 25%. This would require an agreement between the three, not only for the mortgage payments and ownership rights, but potentially for the maintenance, utility and repair costs as well.

Another example is when siblings or even cousins inherit property that at least some of which want to keep and used.

An attorney would be useful in this case to draw up an agreement so everyone is very clear on their responsibility to paying for and maintaining the house as well as the frequency that they could use it.

Also important, if one of the friends decided to sell his share of the house, would the other two have rights of first refusal to buy his shares? Or could that friend sell to someone else? All of these points should be agreed to prior to getting into the arrangement.

Joint Tenancy –

This is where each person owns an equal portion of the property. In this case, the owners are typically a husband and wife who buy a house or own property where a business resides.

Joint tenancy is an easier arrangement because if one spouse dies, the other would automatically take control over the full property ownership.

However, in a tenancy in common arrangement, it become a bit more complex because there are more than one party that owns the property.

If one member of a tenancy in common agreement dies, the others cannot simply split their share among the surviving members. First, it is important to assess if the deceased person left a will. If so, whomever they bequeathed their share of the property to would be the rightful owner. If not the laws of intestate succession would apply, and blood relatives of the deceased will own a share of the property. Other complication result id the decedent’s estate has too much debt. In which case the decedent’s interest may have to be sold to satisfy the creditors. I similar problem would exist is the tenant in common files bankruptcy.

Here is the tricky part of having a tenancy in common partnership with property. Let’s go back to the three friends who decide to buy a vacation home together. Then one person dies. The other two people do not automatically get to split that person’s share.

That person may have a will and stipulates in their will that their shares would go to a relative or friend. He may also leave his shares to a non-profit organization. It is not up to the other two partners to determine what happens to his share.

Of course, if the three friends actually think about the “what ifs” when they enter into the agreement, they can consult with an attorney and, as part of their agreement, determine up front what would happen if one of them dies or wants to sell his shares.

By thinking about these scenarios in advance, they each can utilize this agreement and refer to it in their wills, so there is not dispute later on. This way, no relative, friends or other person can claim rights to the share of the property.

If you are thinking about entering into a tenancy in common partnership for buying a property, here are some tips to consider:

  • Make sure you are clear about your intentions: will everyone be using the property in equal amounts of time? Is the property meant to be used by the partners or will you want to use it as an investment?
  • Agree to the circumstances if someone wants out: Like a prenup, it is always a good idea to consider the “what ifs” of a partnership breaking apart. One person may fall on hard economic times and may not be able to afford to pay their share of a mortgage. There could be a falling out among the partners. You go into these relationships with good faith, but you never know what could happen.
  • What if someone dies: Have you all included the terms in your estate planning? Don’t leave it up to your executor and the surviving parties to battle it out.
  • Work with a knowledgeable attorney to write up your agreement: This is not a back of the napkin kind of document to write up together over a beer. Having a professional who can anticipate any other circumstances that may arise is an important ingredient to any successful partnership. Then you can relax knowing your interests are covered.

Regardless of the type of property and who you are entering into it with, what creates joint property headaches could take all of the fun out of ownership. Anticipating any pitfalls ahead of time is key with any type of partnership. Work with a reputable real estate attorney to ensure peace of mind for all parties involved.

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Episode 105: Business Bankruptcy

By on December 26, 2021   /   Blog, The Legal Play Podcast   /   Leave a comment
Episode 105 Business Bankruptcy

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Business bankruptcy can be a common term in today’s world with the effects of the pandemic on the economy, and it has many struggling companies wondering just how it works. The first step for a business that is even considering filing for bankruptcy is to contact an experienced and reputable bankruptcy attorney to determine the exact path forward. This ensures that legal counsel is advocating for the client’s best interest regardless of the next steps required.

What A Business Bankruptcy Attorney Does

A proficient bankruptcy attorney should have a great deal of experience in many different aspects, primarily because no two businesses are the same and will likely not have the exact same plan for closure or recovery.

Some of the general services a bankruptcy attorney should have experience with can include:

  • Acting as counselors to businesses on both business debtors and creditors
  • Representing the debtor and creditors lending money to the debtor with a court approved plan called a debtor in possession loan
  • Assisting with sale or exit financing if a business is selling an asset in connection with the bankruptcy
  • Reviewing tax considerations before declaring bankruptcy
  • Discussing if there is a need to file bankruptcy or to avoid it
  • Determining the optimal timing for filing for bankruptcy if it is needed

These attorneys may also help with entities that amidst a bankruptcy want to buy the business as a whole or the majority, if not all of their assets. This is typically done via what is called a plan of reorganization in which a debtor prepares a plan, makes a disclosure statement, and files it with the court, and then sends a disclosure statement to creditors. Then the creditors will have a chance to vote. If the classes of creditors approve the plan and certain requirements are met, the court can in turn approve the plan and the debtor can either sell its assets or continue in business with an obligation to pay its creditors over time.

Another and probably more common scenario is when a new buyer purchases the assets, or a new shareholder comes in and takes over some, if not all, of the stockholder positions in the company, new money goes into the company and the creditors are paid from it, leaving the business free of the old creditors. This is generally considered a successful bankruptcy.

What A Business Bankruptcy May Not Restore

While many bankruptcy plans can cover a multitude of issues, there are some things that it may not be able to restore. For example:

  • The guarantee by a shareholder is not necessarily dissolved in the process
  • Tax obligations such as payroll taxes could leave some individuals unpaid depending on how the bankruptcy process plays out

Is Business Bankruptcy Right for Me?

If a business is in trouble, but not so much trouble that it would have to shut down and tell all their employees to go home, their shareholders not to expect any money, and the creditors that they will get what they get once inventory is sold for scrap, and as many accounts receivables are collected as possible, then bankruptcy might be a valid option.

Today, it is becoming increasingly common for a business in trouble to find themselves in that debacle due to temporary trouble from a temporary event they experienced or that affected the entire economy. A case in point would be the coronavirus crisis. Many hotels, restaurants and other businesses struggled greatly as a result of the pandemic, and if it had not been for PPP loans and other government subsidies, they may very well have gone under. Other businesses simply have hope that once things stabilize, people will go back to work and the economy will pick up again. There will be some businesses that struggled in the past two years that should be able to bounce back, sometimes with the help of the bankruptcy process.

For example, if creditors are ready to foreclose upon a business’ assets, the bankruptcy process can halt continuing collection activities. In other words, a lender for a hotel that had a first lien would not be able to foreclose. Without the bankruptcy process to stop this, lenders would be able to foreclose at will and this is something that should be avoided.

How Business Bankruptcy Works

If a business owns a property and believes they have a future despite a lender threatening to foreclose, it may be time for the business to reorganize, find a new lender and investors, and sell at least some assets to satisfy the lender.

A business that goes into bankruptcy then has to make arrangements to provide adequate protection to its creditors. Hypothetically, in the case of a real estate asset in which the business is dealing with a first lien holder, it requires them to make periodic payments. This does not necessarily mean the note would be paid off in total. If a business files for bankruptcy, a creditor cannot foreclose as the court mandates that as long as the business makes adequate protection payments (generally the interest that accrues and some depreciation allowance on the building), keeps their taxes current, and complies with pertinent ordinance and safety laws, they are usually allowed to continue to pay the creditor as the plan works out.

After this stabilization, the debtor must be able to fund itself. While a traditional bank may be hesitant to lend money due to the risk, there are provisions in the bankruptcy code that allow a court to say that future accounts receivable, inventory, and newly acquired assets will not be given to the traditional lender who has liens filed. Their liens will apply to the inventory and accounts receivable as of the day the bankruptcy entity files its petitions.

This generally means that any inventory required or accounts receivable after that would be unencumbered. This is a good thing because it allows a new lender to come in and make a secured loan. This can be called debtor in possession (DIP) financing in which a DIP loan is made, approved by the court, and the lender provides the money while taking new inventory, assets, and accounts receivable as collateral.

This turn of events may induce the legacy lender (the pre-petition lender – often a bank) to become the DIP lender. They are usually already familiar with the customer and the collateral, and they then have a stake in making sure the bankruptcy process works because they want to collect as much pre-petition debt as they can, meaning they have an interest in continuing that relationship.
This can result in striking a deal with the bank detailing the proof of claim, how much is owed, an agreement to that number, and an agreement that they have a lien position on those assets, but not newly acquired accounts receivable and inventory. In return for continuing to lend to the business, the bank will get the first lien. This is a common scenario going into bankruptcy.

Once foreclosure is abated and there is new financing coming in, a business will have to figure out their plan of reorganization. This means taking into account the following considerations:

  • Whether or not there are assets to be sold to continue the business
  • Whether or not new investors can come in
  • If existing investors will put up more money or value into the debtor so unsecured creditors can be paid

A typical plan makes arrangements to refinance real estate, big equipment loans, typically financed by long term debt. Then unsecured creditors from the pre-petition period are paid something. For example, it may look like a new investor coming in and arranging to secure the real estate and equipment assets while putting in enough money to pay the legacy or pre-petition unsecured creditors twenty cents on a dollar. The plan may then be approved and shortly after the investor puts in money, checks go out to the unsecured creditors.

However, in some cases where the long-term debt is stabilized and the unsecured creditors are paid through a liquidating trust where the ongoing future business takes some specified percentage such as 30% of their profits over the next five years. That percentage is then distributed to the unsecured creditors over the next five years, which may or may not be enough to pay the debt in full. Secured creditors generally get paid either the value of their collateral or the amount of the debt, whichever is less. However, the unsecured creditors can be more at risk because they may not get much at all.

For this reason, unsecured creditors get to vote. There are two different votes they have in order for them to be considered to have voted yes as a class.

  1. Identify how many unsecured creditors are there regardless of how much they are owed, and if 50% of those creditors vote for the plan, it passes the first hurdle.
  2. The second hurdles includes taking the list of unsecured creditors and scoring them by the amount of money they are owed, and there is a process to determine that. By that measure, two-thirds by the dollar amount of the class need to approve in order to meet the second hurdle. Some statutory requirements usually have to be met and there is a hearing, but generally speaking, if the unsecured creditors approve, the plan has got a good chance of being accepted. If unsecured creditors do not approve, and the other classes approve or at least one approves, then the court may do what they call a cram down, where they have a hearing to essentially determine if it is in the best interest of or is it equitable to allow the plan to go forward even without the approval of the unsecured creditors. If the plan is not allowed to go forward, either a business goes back to the drawing board and comes up with a plan that works, or the case is converted to a Chapter 7 and a trustee comes in and liquidates the company, which can be bad news for unsecured creditors because they may not get anything at all.

If you have additional questions about business bankruptcy, how it works, or how a business bankruptcy attorney can help, be sure to reach out before filing in order to better protect your rights and future.

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