Episode 101: Real Estate

Episode 101: Real Estate

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 Lawyer

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, judgements, or clouds to 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. Ownership. 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 they have acquired some rights by doing so?
  3. Leins. Are there mortgage liens? Are there tax liens? Are there judgement 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 Lawyer 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 up front, 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 bank or 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 many 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 who 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 straight forward, 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.

Ep 101: What Happens When a Business Owner Dies

Although it is not a welcome prospect, things to consider before a business owner dies are critical in the here and now. If you are a business owner who has not yet given thought to what will happen to the company you have worked so hard for, you risk losing everything for yourself as well as any potential beneficiaries. Estate planning is not just for individuals, it is essential for business owners as well. To protect all that you have built in assets, relationships, and more, it is advised for you to meet with an estate planning attorney as soon as possible so your legacy does not go unsecured.

What Happens to a Corporation When the Business Owner Dies?

In the unfortunate event that a business owner dies, one of the most frequently asked questions by personnel and relatives is, “What will happen to the business?” To a degree, this depends on how it is classified. For example, a corporation or limited liability company does not die, even if the owner does.

A corporation can live until it is either:

  1. Voluntarily terminated by filing papers with the state of the corporation
  2. Terminated by the state for issues with creditors, failure to file the proper forms, or failure to pay a state franchise tax

Aside from the above, a corporation should continue to exist even if the president or sole shareholder of the company dies.

Why Wills Are Important for Corporation Stocks

Corporations have stocks, and if the owner who owned all or even the majority of that stock dies, the stock then becomes an asset that is subject to probate. This means that the person’s will can determine who will get his or her corporation stocks in the event of their death.

In addition to having a will, some owners may choose to put corporate stock into a trust, as in some cases this can avoid probate and keep a business from ceasing to operate. If upon their death an owner wants to give stock to charity, that can be done through a will or a combination of a will and a trust. It is important to discuss this with your lawyers and accountants before taking action as sometimes there can be more advantage to making charitable contributions before death.

Giving advance thought to who will get the corporation stocks if a business owner dies is critical for both the individual’s and company’s wellbeing. Because life is unpredictable and we are not promised tomorrow, it requires both parties to be proactive now, regardless of the age or health of the owner.

The Importance of Securing a Successor Now

Business owners often have strong relationships with employees, customers, suppliers, and government agencies, and in the event that the owner passes, those relationships must be able to be maintained in their absence.

Many companies mistakenly do not consider that it could take some time for the business to recover from the death of an owner because that person may have acted as the primary agent in:

  • Bringing in business
  • Collecting monies owed
  • Fulfilling contracts

The result is that in some cases a business owner can be difficult to replace. At the very least it may require time and money to do so. For this reason, it can be beneficial to have insurance or enough cash stored away that this can be handled without waiting.

For some businesses such as sales, accounting, and such, the owner’s personal relationship with a client or customer base is critical to the company’s success. In situations like these, when an owner passes it is not uncommon for employees or staff to panic and try to grab the business, form their own business, or take the practices and relationships to a new employer who will reward them.

To keep the business from ending up this way after the owner’s death, it is important to make good use of covenants not to compete, as well as consider the following questions now, before it becomes an issue:

  • Who is going to take over the company?
  • Will it be a family member?
  • Will it be a current employee?
  • Will it be someone from the outside?
  • Is there anybody able to take over?
  • Is selling the business a better way to go?

Doctor’s offices, in particular, can struggle with this type of situation because of the nature of their practice. Over time a doctor typically builds up a practice that might have value to another doctor. If the owner/doctor passes, it is critical to move swiftly in getting an executor appointed to facilitate selling their book of business to another doctor before it is taken over.

This can be true of non-medical businesses too, as if there is no one in the family or business ready and willing to take over the role of owner, it is possible the business will end up being sold to an existing competitor or someone who wants to get into that business.

A corporation needs to make sure it is governed properly in the event of the owner’s passing. If there is not someone such as a Vice President who might be designated to automatically take over, there should be a shareholders meeting. If the shareholder is dead, a probate estate should be established, and an executor or administrator appointed. The appointed party would then act as the shareholder and be able to do tasks such as taking paperwork to the bank to show the corporation is now changing the authorized signer on the account.

Determining the Valuation of a Company

It can be complex to determine the valuation of a company because there are multiple concepts for doing so.

  • Sometimes a company will have value because it owns something such as process, machine, or brand name recognition. In these situations, the company has goodwill that has some value that the company will want to preserve.
  • In other cases, goodwill can be more personal if the founder or owner of the company’s relationships are key in getting people to come to them to do business. In other words, a person or entity is in relationship with the business specifically because of the owner, not the company, per se.


What to Do Now If Your Business’ Success Centers Around You as the Owner

While it can be quite the compliment to have business come to you because of your personal reputation and character as a business owner, it can also be responsible for the fast demise of your company after your passing or retirement.

A company earning millions of dollars annually because an owner has made a name for himself and established and maintained critical relationships will be in trouble when the owner dies and the people they had relationships with no longer feel obligated to work with their business.

This type of set up can make a business owner almost impossible to replace unless they take action now. Ensuring a balance between the relationships they have with the customers and other people within the company is key.

For a law or accounting firm, this may look like bringing in some of the younger company executives during the process of meeting and developing clients so that if a senior partner retires, dies, or decides they want to do something entirely different, the junior partners are able to then continue the owner’s legacy.


Prepare for Changes in Existing Business Relationships After an Owner Passes

Business owners typically have unique relationships with key players such as banks and suppliers, and it is common for these relationships to change after their passing. Some examples of this can be:

  • Bankers who may have felt quite comfortable in loaning a dollar a day and getting paid back the next
  • Suppliers who would willingly ship goods in August and not get paid until September

Without that relationship with the owner, banks and suppliers can be much less comfortable with the state of things, which can then negatively impact the company. If a bank has your operating account and capital line, it may freeze the account and use it to pay their note if they are feeling insecure. A supplier who may not have thought twice about shipping twenty thousand dollars of goods to the business each month may reconsider if they want to move forward in the same way.

No matter how healthy or young a business owner is, it is critical to anticipate the unthinkable so that the business and beneficiaries do not suffer. Key questions for an owner to consider now include:

  • Who are the shareholders?
  • Who are potential purchasers?
  • Who are competitors you might be willing to sell to?
  • Who will take over?
  • Who will have authority?
  • Functionally, who will be able to take over the business?
  • What is the business worth?
  • How will the customer base be maintained?
  • How will employee and supplier relationships be handled?
  • How will the value of the business be maintained in the event of disability or death of the owner?

Because life and business can change so rapidly, these questions should be evaluated on a near constant basis. Take action today to protect all that you’ve built for tomorrow.

How Can A Real Estate Agent Benefit from A Great Real Estate Attorney

Real estate agents are on the front lines when it comes to buying and selling property but can also benefit from the behind the scenes support of a great real estate attorney. As a real estate agent, your job bears the brunt of helping a client prepare to sell and register on the MLS or help a client buy a property via the MLS. You are skilled at what you do and have your client’s back when it comes to real estate. But who has yours? This is where a great real estate attorney can be an asset for building your reputation as a versatile leader in the industry. Read more