The Legal Play https://www.may-firm.com Fri, 18 Nov 2022 23:32:43 +0000 en-US hourly 1 Blubrry PowerPress/9.7.3 The Legal Play is a show that takes on todays' tough legal challenge and talks though the law. The topics covered include business law, tax law, real estate law, probate as well as other topics that are relevant in today's society. This is not a legal advise show and should not be perceived as such but rather an open discussion on the law and its applications. Hap May is the owner of the May Firm if Houston Texas Hap May clean Hap May katie.marsh@may-firm.com katie.marsh@may-firm.com (Hap May) The Legal Play The Legal Play https://www.may-firm.com/wp-content/uploads/2021/09/tlp-1400-x-1400-px-1.jpg https://www.may-firm.com Houston, Texas Houston, Texas Monthly Episode 106: What is Escrow? https://www.may-firm.com/episode-106-what-is-escrow/ Fri, 20 May 2022 13:00:48 +0000 https://www.may-firm.com/?p=6425 Earnest money contracts to buy real estate are something every buyer and seller should be familiar with. Although most are familiar with a one to four-family residential contract, there are those that can also be put together for farms, ranches, commercial office buildings, commercial properties, and industrial properties. Regardless of the type of property, it can be advantageous to enlist the help of a reputable and knowledgeable real estate attorney to assist with the different components of earnest money contracts. How Earnest Money Works Earnest money is typically put down in the form of a check that is paid to the title company to hold on to until the transaction terminates or is fulfilled. However, it is worth noting that there are forfeiture provisions that can go into effect if certain things do not happen. If the property is not closed upon, the buyer is at risk of losing their earnest money. A real estate attorney may be helpful in dealing with a more complex escrow situation. More recently, a termination option has become available in which a buyer will pay a fixed amount of money in markets that are considered a buyer’s market, in which there is a great deal of product available. These options are usually low numbers of approximately $100, $200, or $500 and allow the buyer the option to terminate if they see something they do not like or for no particular reason. In this case, the buyer forfeits their termination fee which the seller keeps, but the buyer typically wants the rest of their earnest money back. However, at present, there is a much tighter market with not a lot of product, so some of these termination provisions are at a much higher number that buyers are putting up in order to more effectively attract a seller. It may even be possible for the buyer to waive their termination option entirely to make themselves more competitive in attracting a seller. A buyer’s higher termination option number or waiver may make them stand out from all the other bidders and make a seller more likely to accept their contract. The Role the Title Company Plays in Earnest Money Contracts Most of the time the title insurance company gets involved in the process. The purpose of a title insurance company is: To go through the process to make sure that the seller has a good title To ensure there are no liens To determine that the borders are properly defined To make certain there are no easements or judgments that affect the property This process is in place so that a buyer knows that they actually are buying the property and there are not expected to be any legal problems that come up afterward. However, should there be legal problems that crop up afterward, there is an insurance policy that will help pay the cost of fixing that property or paying the damages caused by the title problem. The seller typically pays for the title policy, but it is an option for the buyer to pay for it. The title company generally takes over the process of closing. They will get a title report out showing liens, easements, problems that exist, and whether or not they get eliminated or it is just something the buyer has to understand. The title company will provide that report and work out whatever needs to be worked out regarding that and makes sure that any liens, taxes, or homeowners association dues that are outstanding are paid at closing. Usually, the buyer’s money (or lender’s money) goes to the title company who will then pay the taxes and the former mortgage company and any other liens necessary to clean it up and then disperse the excess monies (if any) to the seller. Surveys and Inspections as Related to Earnest Money Contracts Typically, when buying a home, a survey is done. In cases where there are lots, blocks, and subdivisions, it is typically not that difficult to do. Farms, ranches, and places with larger acreages can be a different story. There are also usually inspections where the buyer wi...

Earnest money contracts to buy real estate are something every buyer and seller should be familiar with. Although most are familiar with a one to four-family residential contract, there are those that can also be put together for farms, ranches, commercial office buildings, commercial properties, and industrial properties. Regardless of the type of property, it can be advantageous to enlist the help of a reputable and knowledgeable real estate attorney to assist with the different components of earnest money contracts.

How Earnest Money Works

Earnest money is typically put down in the form of a check that is paid to the title company to hold on to until the transaction terminates or is fulfilled. However, it is worth noting that there are forfeiture provisions that can go into effect if certain things do not happen. If the property is not closed upon, the buyer is at risk of losing their earnest money. A real estate attorney may be helpful in dealing with a more complex escrow situation.

More recently, a termination option has become available in which a buyer will pay a fixed amount of money in markets that are considered a buyer’s market, in which there is a great deal of product available. These options are usually low numbers of approximately $100, $200, or $500 and allow the buyer the option to terminate if they see something they do not like or for no particular reason. In this case, the buyer forfeits their termination fee which the seller keeps, but the buyer typically wants the rest of their earnest money back.

However, at present, there is a much tighter market with not a lot of product, so some of these termination provisions are at a much higher number that buyers are putting up in order to more effectively attract a seller. It may even be possible for the buyer to waive their termination option entirely to make themselves more competitive in attracting a seller. A buyer’s higher termination option number or waiver may make them stand out from all the other bidders and make a seller more likely to accept their contract.

The Role the Title Company Plays in Earnest Money Contracts

Most of the time the title insurance company gets involved in the process. The purpose of a title insurance company is:

  • To go through the process to make sure that the seller has a good title
  • To ensure there are no liens
  • To determine that the borders are properly defined
  • To make certain there are no easements or judgments that affect the property

This process is in place so that a buyer knows that they actually are buying the property and there are not expected to be any legal problems that come up afterward. However, should there be legal problems that crop up afterward, there is an insurance policy that will help pay the cost of fixing that property or paying the damages caused by the title problem. The seller typically pays for the title policy, but it is an option for the buyer to pay for it.

The title company generally takes over the process of closing. They will get a title report out showing liens, easements, problems that exist, and whether or not they get eliminated or it is just something the buyer has to understand.

The title company will provide that report and work out whatever needs to be worked out regarding that and makes sure that any liens, taxes, or homeowners association dues that are outstanding are paid at closing.

Usually, the buyer’s money (or lender’s money) goes to the title company who will then pay the taxes and the former mortgage company and any other liens necessary to clean it up and then disperse the excess monies (if any) to the seller.

Surveys and Inspections as Related to Earnest Money Contracts

Typically, when buying a home, a survey is done. In cases where there are lots, blocks, and subdivisions, it is typically not that difficult to do. Farms, ranches, and places with larger acreages can be a different story.

There are also usually inspections where the buyer will send an inspector in to make sure of things such as whether the plumbing works and that the roof and foundation are good and that there are no mechanical or physical problems with the home.

There are survey reports and inspection reports. Generally speaking, the buyer has an opportunity to object to those things and either require an allowance to fix those things or require a seller to fix them before closing. Once those objections are resolved and the financing is set up, the title company can conduct a closing.

The Real Estate Closing Process

The buyer’s lender (usually a mortgage company, bank, or third-party lender) will want to have a valid first lien on the property. For this reason, the mortgage company will get involved and look at the survey and the title report to make sure they are getting a clean first lien on a property that is going to have value.

An appraisal is also typically done to make sure the property is worth enough to support the loan. Sometimes there can be problems with appraisals, although not as much recently because values have gone up. In tighter markets, you may have a contract for a $300,000 house that only appraises for $280,000, which means the borrower may not be able to close.

There are provisions and contracts that can give a buyer the option to get out of a contract if they do not meet the financial requirements. However, in the current market, some buyers are waiving that to be more attractive to sellers.

The closing date is a key provision in an earnest money contract.  It generally sets the date at which the buyer must either buy or be in default of the contract. Sometimes there may be extensions granted voluntarily if an inspection is taking too long or there is some other reason a closing is delayed, but everybody still wants to get the deal done. There are forms a realtor can distribute to the buyer and seller to extend that date.

Ultimately there is a date at which the transaction needs to take place or the buyer will be in default. Or, if the buyer shows up and the seller wants out, the seller could be in default. After the closing takes place, the seller will turn possession over to the buyer.  This basically means giving them the keys and having the seller move their stuff out if they have not already.

Are Earnest Money Contracts Enforceable?

When done properly, an earnest money contract is enforceable.

There can be lawsuits for defaults on earnest money contracts. However, be forewarned that it ties up the property and can be expensive. It is often difficult for a seller to enforce a contract against a buyer just because they can sue them for damages (generally what it costs the seller to find a new buyer, the difference in price, and the carrying cost of the property going forward).

Even if there ends up being a judgment against a potential buyer, that judgment may or may not be collectible. At times, these things can fall out because the buyer did not have enough money to do the deal, and maybe not enough money to pay the judgment of the lawsuit. There are situations where there may be a wealthy enough buyer willing to pay money to get out of the contract and would have some problems with having a lawsuit and getting a judgment against them that they would rather pay some sort of compensation to the seller for the seller’s loss in connection with a broken earnest money contract.

On the flip side, a buyer who wants to enforce a contract against a seller that wrongfully backs out of a contract may have a better choice of remedies. The seller has the property, a lawsuit can be filed, and a lis pendens can be filed in the real property record, which lets the world know that the title to that property is the subject matter of a lawsuit, and whoever buys the property from the seller is taking it subject to the rights of the lis pendens holder, or the potential buyer in this example.

One caveat to the notion that a buyer can sue the seller and recover something is that if the seller has a large mortgage on the property, then there may not be much the seller can do because the mortgage company would likely foreclose on the property, wiping out the interest the seller had, leaving little money for the buyer to collect from the seller. This type of situation is not good for the buyer.

]]> Earnest money contracts to buy real estate are something every buyer and seller should be familiar with. Although most are familiar with a one to four-family residential contract, there are those that can also be put together for farms, ranches, Earnest money contracts to buy real estate are something every buyer and seller should be familiar with. Although most are familiar with a one to four-family residential contract, there are those that can also be put together for farms, ranches, commercial office buildings, commercial properties, and industrial properties. Regardless of the type of property, it can be advantageous to enlist the help of a reputable and knowledgeable real estate attorney to assist with the different components of earnest money contracts.

How Earnest Money Works
Earnest money is typically put down in the form of a check that is paid to the title company to hold on to until the transaction terminates or is fulfilled. However, it is worth noting that there are forfeiture provisions that can go into effect if certain things do not happen. If the property is not closed upon, the buyer is at risk of losing their earnest money. A real estate attorney may be helpful in dealing with a more complex escrow situation.
More recently, a termination option has become available in which a buyer will pay a fixed amount of money in markets that are considered a buyer’s market, in which there is a great deal of product available. These options are usually low numbers of approximately $100, $200, or $500 and allow the buyer the option to terminate if they see something they do not like or for no particular reason. In this case, the buyer forfeits their termination fee which the seller keeps, but the buyer typically wants the rest of their earnest money back.
However, at present, there is a much tighter market with not a lot of product, so some of these termination provisions are at a much higher number that buyers are putting up in order to more effectively attract a seller. It may even be possible for the buyer to waive their termination option entirely to make themselves more competitive in attracting a seller. A buyer’s higher termination option number or waiver may make them stand out from all the other bidders and make a seller more likely to accept their contract.

The Role the Title Company Plays in Earnest Money Contracts
Most of the time the title insurance company gets involved in the process. The purpose of a title insurance company is:


* To go through the process to make sure that the seller has a good title
* To ensure there are no liens
* To determine that the borders are properly defined
* To make certain there are no easements or judgments that affect the property

This process is in place so that a buyer knows that they actually are buying the property and there are not expected to be any legal problems that come up afterward. However, should there be legal problems that crop up afterward, there is an insurance policy that will help pay the cost of fixing that property or paying the damages caused by the title problem. The seller typically pays for the title policy, but it is an option for the buyer to pay for it.
The title company generally takes over the process of closing. They will get a title report out showing liens, easements, problems that exist, and whether or not they get eliminated or it is just something the buyer has to understand.
The title company will provide that report and work out whatever needs to be worked out regarding that and makes sure that any liens, taxes, or homeowners association dues that are outstanding are paid at closing.
Usually, the buyer’s money (or lender’s money) goes to the title company who will then pay the taxes and the former mortgage company and any other liens necessary to clean it up and then disperse the excess monies (if any) to the seller.

Surveys and Inspections as Related to Earnest Money Contracts
Typically, when buying a home,]]>
Hap May 18:58 <iframe width="320" height="30" src="https://www.may-firm.com/?powerpress_embed=6425-podcast&amp;powerpress_player=mediaelement-audio" title="Blubrry Podcast Player" frameborder="0" scrolling="no"></iframe> The Real Estate Blender of Investment and Bankrupcy https://www.may-firm.com/the-real-estate-blender-of-investment-and-bankrupcy/ Thu, 21 Apr 2022 22:46:49 +0000 https://www.may-firm.com/?p=6408 Straight from the files of a Houston real estate attorney focusing on bankruptcy, and investment, we want to share an interesting personal story about a recent undertaking that blended all three of these areas. Our hope in sharing this story is that it will shed some light on the process for others aspiring to have similar endeavors. The process is not without risk, but if done right, the payoff can be big. Finding the Property Late last year, we were contacted by a bankruptcy lawyer who was representing a bank trying to foreclose on a specific piece of property where the borrower was in default. The borrower had gone through several bankruptcy tactics and was now delaying foreclosure. Our acquaintance was about to have the stay lifted so they could foreclose on behalf of her small out of town bank. The bank had asked the attorney to find someone who would buy the note and just take over the foreclosure and repossession process for the property. Getting the Property In the end, there was an arrangement put in place for a company we owned to buy the note from the bank and take over the bankruptcy process. Although the process was complicated and at times drawn out, we got the automatic stay in bankruptcy which then prevents foreclosures from occurring while someone is in bankruptcy. The automatic stay prevents foreclosures until such a time as the judge allows it. We went through the process, got the judge to approve it, and then received the right to foreclose. Although the debtor did try to do several things to stop the foreclosure, they were unable to do so. We then got the order to lift the stay and then posted the property for foreclosure. We then conducted a foreclosure sale, where as the holder of the note, we were allowed to credit bids. This enabled us to bid up to the amount of the debt including: Unpaid interest Attorney’s fees Related costs By that time, with the attorney’s fees, because of the bankruptcy and interest running at a default rate, the balance owed was enough that nobody else bid and we were able to bid and eventually became owners of the property. Property Evictions As new owners of the property, we had to go through the process of evicting the occupant. The next step was to hire eviction counsel, file the papers and serve them on the property. By having a process server tape the papers to the wall and also send letters to the debtor and the property, it then triggered a thirty-day clock where the occupant had thirty days to leave the property. Fortunately, the occupant called us on the thirtieth day and said they were turning over the property. Had the occupants not turned over the property within the thirty-day time period, we would have had to go to court and either have them evicted or get a judgement saying the occupant had no right to be on the property. Then, if necessary, a constable would have gone out to the property and physically removed the occupant. Luckily it did not come to that. Renovating and Selling the Property for Profit The property was not horrible, but it was definitely not clean either, so we spent several days hauling out trash and then began painting and cleaning and getting ready to put in new floors so the property could go on the market soon. The project became a family affair as my wife is a real estate agent and helped take on many of the responsibilities of improving the property and staging it in a way that makes it more marketable. The property is now awaiting a few final touches and inspections before it goes on the market. The endeavor has been a mixture of bankruptcy, real estate law, real estate investment, and real estate marketing. It is an adventure that we are glad we signed on for because although we have helped with legalities of situations like this before, going through it personally has given us a firsthand perspective that will only add to us successfully representing similar cases in the future. Straight from the files of a Houston real estate attorney focusing on bankruptcy, and investment, we want to share an interesting personal story about a recent undertaking that blended all three of these areas. Our hope in sharing this story is that it will shed some light on the process for others aspiring to have similar endeavors. The process is not without risk, but if done right, the payoff can be big.

Finding the Property

Late last year, we were contacted by a bankruptcy lawyer who was representing a bank trying to foreclose on a specific piece of property where the borrower was in default. The borrower had gone through several bankruptcy tactics and was now delaying foreclosure. Our acquaintance was about to have the stay lifted so they could foreclose on behalf of her small out of town bank. The bank had asked the attorney to find someone who would buy the note and just take over the foreclosure and repossession process for the property.

Getting the Property

In the end, there was an arrangement put in place for a company we owned to buy the note from the bank and take over the bankruptcy process. Although the process was complicated and at times drawn out, we got the automatic stay in bankruptcy which then prevents foreclosures from occurring while someone is in bankruptcy. The automatic stay prevents foreclosures until such a time as the judge allows it. We went through the process, got the judge to approve it, and then received the right to foreclose.

Although the debtor did try to do several things to stop the foreclosure, they were unable to do so. We then got the order to lift the stay and then posted the property for foreclosure. We then conducted a foreclosure sale, where as the holder of the note, we were allowed to credit bids. This enabled us to bid up to the amount of the debt including:

  • Unpaid interest
  • Attorney’s fees
  • Related costs

By that time, with the attorney’s fees, because of the bankruptcy and interest running at a default rate, the balance owed was enough that nobody else bid and we were able to bid and eventually became owners of the property.

Property Evictions

As new owners of the property, we had to go through the process of evicting the occupant. The next step was to hire eviction counsel, file the papers and serve them on the property. By having a process server tape the papers to the wall and also send letters to the debtor and the property, it then triggered a thirty-day clock where the occupant had thirty days to leave the property. Fortunately, the occupant called us on the thirtieth day and said they were turning over the property.

Had the occupants not turned over the property within the thirty-day time period, we would have had to go to court and either have them evicted or get a judgement saying the occupant had no right to be on the property. Then, if necessary, a constable would have gone out to the property and physically removed the occupant. Luckily it did not come to that.

Renovating and Selling the Property for Profit

The property was not horrible, but it was definitely not clean either, so we spent several days hauling out trash and then began painting and cleaning and getting ready to put in new floors so the property could go on the market soon.

The project became a family affair as my wife is a real estate agent and helped take on many of the responsibilities of improving the property and staging it in a way that makes it more marketable.

The property is now awaiting a few final touches and inspections before it goes on the market. The endeavor has been a mixture of bankruptcy, real estate law, real estate investment, and real estate marketing. It is an adventure that we are glad we signed on for because although we have helped with legalities of situations like this before, going through it personally has given us a firsthand perspective that will only add to us successfully representing similar cases in the future.

]]>
Straight from the files of a Houston real estate attorney focusing on bankruptcy, and investment, we want to share an interesting personal story about a recent undertaking that blended all three of these areas. Straight from the files of a Houston real estate attorney focusing on bankruptcy, and investment, we want to share an interesting personal story about a recent undertaking that blended all three of these areas. Our hope in sharing this story is that it will shed some light on the process for others aspiring to have similar endeavors. The process is not without risk, but if done right, the payoff can be big.
Finding the Property
Late last year, we were contacted by a bankruptcy lawyer who was representing a bank trying to foreclose on a specific piece of property where the borrower was in default. The borrower had gone through several bankruptcy tactics and was now delaying foreclosure. Our acquaintance was about to have the stay lifted so they could foreclose on behalf of her small out of town bank. The bank had asked the attorney to find someone who would buy the note and just take over the foreclosure and repossession process for the property.
Getting the Property
In the end, there was an arrangement put in place for a company we owned to buy the note from the bank and take over the bankruptcy process. Although the process was complicated and at times drawn out, we got the automatic stay in bankruptcy which then prevents foreclosures from occurring while someone is in bankruptcy. The automatic stay prevents foreclosures until such a time as the judge allows it. We went through the process, got the judge to approve it, and then received the right to foreclose.
Although the debtor did try to do several things to stop the foreclosure, they were unable to do so. We then got the order to lift the stay and then posted the property for foreclosure. We then conducted a foreclosure sale, where as the holder of the note, we were allowed to credit bids. This enabled us to bid up to the amount of the debt including:


* Unpaid interest
* Attorney’s fees
* Related costs

By that time, with the attorney’s fees, because of the bankruptcy and interest running at a default rate, the balance owed was enough that nobody else bid and we were able to bid and eventually became owners of the property.
Property Evictions
As new owners of the property, we had to go through the process of evicting the occupant. The next step was to hire eviction counsel, file the papers and serve them on the property. By having a process server tape the papers to the wall and also send letters to the debtor and the property, it then triggered a thirty-day clock where the occupant had thirty days to leave the property. Fortunately, the occupant called us on the thirtieth day and said they were turning over the property.
Had the occupants not turned over the property within the thirty-day time period, we would have had to go to court and either have them evicted or get a judgement saying the occupant had no right to be on the property. Then, if necessary, a constable would have gone out to the property and physically removed the occupant. Luckily it did not come to that.

Renovating and Selling the Property for Profit
The property was not horrible, but it was definitely not clean either, so we spent several days hauling out trash and then began painting and cleaning and getting ready to put in new floors so the property could go on the market soon.
The project became a family affair as my wife is a real estate agent and helped take on many of the responsibilities of improving the property and staging it in a way that makes it more marketable.

The property is now awaiting a few final touches and inspections before it goes on the market. The endeavor has been a mixture of bankruptcy, real estate law, real estate investment, and real estate marketing. It is an adventure that we are glad we signed on for because although we have helped with legalities of situations like this before,]]>
Hap May 5:11 <iframe width="320" height="30" src="https://www.may-firm.com/?powerpress_embed=6408-podcast&amp;powerpress_player=mediaelement-audio" title="Blubrry Podcast Player" frameborder="0" scrolling="no"></iframe>
Fraudulent Conveyance or Fraudulent Transfers Suicide https://www.may-firm.com/fraudulent-conveyance-or-fraudulent-transfers-suicide/ Fri, 18 Feb 2022 19:49:27 +0000 https://www.may-firm.com/?p=6359 Suicide is never an easy topic to discuss, especially as it relates to legal matters such as fraudulent conveyance. Taking one’s own life is a decidedly tragic event that adversely impacts the deceased’s family, friends, and even community. In addition to the heartache of losing someone to suicide, those survived by the individual often do not realize that the legal consequences related to the act can go on long after. Learning more about a fraudulent transfer and how it relates to the Uniform Fraudulent Transfer Act may help survivors better understand the legal processes that can follow a suicide. Understanding Fraudulent Transfers A fraudulent transfer happens when an individual that has money or property and is about to lose that property due to some sort of judgment or creditor then transfers said property to another party. This may be done so that if a judgment or creditor tries to collect from the transferor, there is no property left to collect on. The law recognizes this act as unjust and generally allows a creditor to proceed against the recipient of a fraudulent transfer to recover one of two things: The property that was transferred Judgment for the value of the property Uniform Fraudulent Transfer Act As many other states do, the state of Texas follows the Uniform Fraudulent Transfer Act. This act sets forth the circumstances and establishes the rules to be followed when analyzing if a transfer of money or property is subject to it. There are two prongs to the Uniform Fraudulent Transfer Act including: Actual Intent Constructive Fraud Breaking Down Actual Intent as It Relates to the Uniform Fraudulent Transfer Act For the actual intent prong of the act, if a transferor transfers property to another individual with the express intent to hinder, delay, or defraud the transferor’s creditors it is typically considered to be a fraudulent transfer. Actual intent may be hard for a creditor to prove as the circumstances might or might not permit a jury or judge to determine that the transferor had such intent. Factors that can be taken into consideration in determining intent are: A transfer was made to an insider or related party The debtor or transferor retains possession or control of the property after the transfer A transfer or obligation was concealed in what is viewed as a secret manner An obligation by the transferor was incurred or the transferor had been sued or threatened with a lawsuit before a transfer was made The transfer was substantially all of the debtor or transferor’s assets The debtor or transferor removed or concealed assets The amount of consideration received by the transferor was not of reasonable equivalent value The transferor was insolvent or became insolvent as a result of the transfer Constructive Fraud and the Uniform Fraudulent Transfer Act In the event that a creditor cannot establish the actual intent prong of the act, the constructive fraud prong of the act comes into play. Of the two prongs, constructive fraud is usually easier to prove as all that is necessary is to show the following: There was a transfer The transfer was made at the time that the debtor or transferor was insolvent The transfer was for less than an equivalent value in exchange for the transfer Fraudulent Transfer Act and Suicide Case Study #1 With the knowledge of what a fraudulent transfer is and how the Fraudulent Transfer Act would come into play, it may be easier to understand how the unfortunate incident of suicide might invoke the act. The following case study may help the reader to make better sense of this connection, however, please be forewarned that the following is tragic and somewhat gruesome and may not be appropriate for all audiences. In this example, a husband and wife are going through an intensely contentious divorce. Amidst the divorce, the husband returns to his marital home to gather some of his belongings. In doing so, he gets into a confrontation with the wife and violence ensues,

Suicide is never an easy topic to discuss, especially as it relates to legal matters such as fraudulent conveyance. Taking one’s own life is a decidedly tragic event that adversely impacts the deceased’s family, friends, and even community. In addition to the heartache of losing someone to suicide, those survived by the individual often do not realize that the legal consequences related to the act can go on long after.

Learning more about a fraudulent transfer and how it relates to the Uniform Fraudulent Transfer Act may help survivors better understand the legal processes that can follow a suicide.

Understanding Fraudulent Transfers

A fraudulent transfer happens when an individual that has money or property and is about to lose that property due to some sort of judgment or creditor then transfers said property to another party. This may be done so that if a judgment or creditor tries to collect from the transferor, there is no property left to collect on.

The law recognizes this act as unjust and generally allows a creditor to proceed against the recipient of a fraudulent transfer to recover one of two things:

  1. The property that was transferred
  2. Judgment for the value of the property

Uniform Fraudulent Transfer Act

As many other states do, the state of Texas follows the Uniform Fraudulent Transfer Act. This act sets forth the circumstances and establishes the rules to be followed when analyzing if a transfer of money or property is subject to it.

There are two prongs to the Uniform Fraudulent Transfer Act including:

  1. Actual Intent
  2. Constructive Fraud

Breaking Down Actual Intent as It Relates to the Uniform Fraudulent Transfer Act

For the actual intent prong of the act, if a transferor transfers property to another individual with the express intent to hinder, delay, or defraud the transferor’s creditors it is typically considered to be a fraudulent transfer.

Actual intent may be hard for a creditor to prove as the circumstances might or might not permit a jury or judge to determine that the transferor had such intent. Factors that can be taken into consideration in determining intent are:

  • A transfer was made to an insider or related party
  • The debtor or transferor retains possession or control of the property after the transfer
  • A transfer or obligation was concealed in what is viewed as a secret manner
  • An obligation by the transferor was incurred or the transferor had been sued or threatened with a lawsuit before a transfer was made
  • The transfer was substantially all of the debtor or transferor’s assets
  • The debtor or transferor removed or concealed assets
  • The amount of consideration received by the transferor was not of reasonable equivalent value
  • The transferor was insolvent or became insolvent as a result of the transfer

Constructive Fraud and the Uniform Fraudulent Transfer Act

In the event that a creditor cannot establish the actual intent prong of the act, the constructive fraud prong of the act comes into play. Of the two prongs, constructive fraud is usually easier to prove as all that is necessary is to show the following:

  • There was a transfer
  • The transfer was made at the time that the debtor or transferor was insolvent
  • The transfer was for less than an equivalent value in exchange for the transfer

Fraudulent Transfer Act and Suicide Case Study #1

With the knowledge of what a fraudulent transfer is and how the Fraudulent Transfer Act would come into play, it may be easier to understand how the unfortunate incident of suicide might invoke the act.

The following case study may help the reader to make better sense of this connection, however, please be forewarned that the following is tragic and somewhat gruesome and may not be appropriate for all audiences.

In this example, a husband and wife are going through an intensely contentious divorce. Amidst the divorce, the husband returns to his marital home to gather some of his belongings. In doing so, he gets into a confrontation with the wife and violence ensues, ending with the husband shooting and killing his wife before turning the gun on himself in an act of suicide.

The husband had a long-standing relationship with a girlfriend. After the separation from his wife, he and his girlfriend opened a joint bank account that had a balance of approximately half of a million dollars at the time of his death. The husband did have some credit card debt and other small creditors and essentially his entire fortune consisted of half a million dollars in the joint bank account with his girlfriend. That bank account was considered to be a joint tenancy with right of survivorship meaning that if the man died, his girlfriend and co-bank account holder would receive the money.

However, when the husband took his wife’s life, he became indebted to the wife’s estate for wrongful death. Now, at that time, there had been no transfer yet as the money was still in the account the husband and girlfriend jointly controlled.

Yet, when the husband decided to take his own life, his interests in that bank account would have transferred to the girlfriend due to the survivorship nature of the account.

In this case, a lawsuit was quickly filed and the court froze the bank account with an injunction against the distribution of the money. At a later date, a compromise was eventually reached by splitting the money between the estate of the wife and the girlfriend.

In this specific example, it is fairly clear that the suicide was in fact a fraudulent conveyance.

Fraudulent Transfer Act and Suicide Case Study #2

As with the above, the following case study may not be appropriate for all readers. It should however help the reader to better understand the connection of the Fraudulent Transfer Act to suicide.

In this second case study, a man who admittedly had many mental problems transferred the entire contents of his bank account, which was one million dollars, to his sister on Wednesday. On Thursday, the sister discovers the funds and is confused, so she tries to get in touch with her brother. She is unable to reach him and since she lives in a different city than the brother, she cannot go immediately to check on him.

In the meantime, a neighbor goes to check on the brother. At the moment the neighbor knocks on the door, the brother had just completed writing his suicide note. After hearing the knocking, the brother shoots three bullets through the door injuring the neighbor. The brother then takes his own life by suicide.

The neighbor eventually sues the sister alleging she is the recipient of a fraudulent conveyance or transfer. The brother had no debts and still owned some property even after he transferred the money to his sister, making him decidedly not insolvent. Therefore, this lack of insolvency does not satisfy the constructive fraud prong of the Fraudulent Conveyance Act.

At the time the brother transferred the money, it preceded the actual injury to the neighbor. The transfer happened before the liability or intentional and negligent act which injured the neighbor occurred. Therefore, the neighbor tried to invoke the actual intent prong of the act to force the sister to return the one million dollars.

The invocation of the prong was not successful because the neighbor needed to prove the brother had the actual intent to occur debt. While there was sufficient evidence the brother planned to commit suicide when he made the monetary transfer to his sister, there was little evidence to suggest he intended to incur any other debt including the injury to the neighbor, which seemed to be more of a consequence of unfortunate timing.

In the end, the neighbor accepted a settlement for a relatively token amount of money, the case was resolved, and the sister managed to keep most of the money her brother transferred to her.

Suicide is a delicate subject that is seldom easy to discuss, but it does create real legal issues that can cause conflict between the recipient of a transfer and those who might try to collect a judgment or claim against the deceased party who made the transfer.

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Suicide is never an easy topic to discuss, especially as it relates to legal matters such as fraudulent conveyance. Taking one’s own life is a decidedly tragic event that adversely impacts the deceased’s family, friends, and even community.

Suicide is never an easy topic to discuss, especially as it relates to legal matters such as fraudulent conveyance. Taking one’s own life is a decidedly tragic event that adversely impacts the deceased’s family, friends, and even community. In addition to the heartache of losing someone to suicide, those survived by the individual often do not realize that the legal consequences related to the act can go on long after.
Learning more about a fraudulent transfer and how it relates to the Uniform Fraudulent Transfer Act may help survivors better understand the legal processes that can follow a suicide.
Understanding Fraudulent Transfers
A fraudulent transfer happens when an individual that has money or property and is about to lose that property due to some sort of judgment or creditor then transfers said property to another party. This may be done so that if a judgment or creditor tries to collect from the transferor, there is no property left to collect on.
The law recognizes this act as unjust and generally allows a creditor to proceed against the recipient of a fraudulent transfer to recover one of two things:

* The property that was transferred
* Judgment for the value of the property

Uniform Fraudulent Transfer Act
As many other states do, the state of Texas follows the Uniform Fraudulent Transfer Act. This act sets forth the circumstances and establishes the rules to be followed when analyzing if a transfer of money or property is subject to it.
There are two prongs to the Uniform Fraudulent Transfer Act including:

* Actual Intent
* Constructive Fraud

Breaking Down Actual Intent as It Relates to the Uniform Fraudulent Transfer Act
For the actual intent prong of the act, if a transferor transfers property to another individual with the express intent to hinder, delay, or defraud the transferor’s creditors it is typically considered to be a fraudulent transfer.
Actual intent may be hard for a creditor to prove as the circumstances might or might not permit a jury or judge to determine that the transferor had such intent. Factors that can be taken into consideration in determining intent are:

* A transfer was made to an insider or related party
* The debtor or transferor retains possession or control of the property after the transfer
* A transfer or obligation was concealed in what is viewed as a secret manner
* An obligation by the transferor was incurred or the transferor had been sued or threatened with a lawsuit before a transfer was made
* The transfer was substantially all of the debtor or transferor’s assets
* The debtor or transferor removed or concealed assets
* The amount of consideration received by the transferor was not of reasonable equivalent value
* The transferor was insolvent or became insolvent as a result of the transfer

Constructive Fraud and the Uniform Fraudulent Transfer Act
In the event that a creditor cannot establish the actual intent prong of the act, the constructive fraud prong of the act comes into play. Of the two prongs, constructive fraud is usually easier to prove as all that is necessary is to show the following:

* There was a transfer
* The transfer was made at the time that the debtor or transferor was insolvent
* The transfer was for less than an equivalent value in exchange for the transfer

Fraudulent Transfer Act and Suicide Case Study #1
With the knowledge of what a fraudulent transfer is and how the Fraudulent Transfer Act would come into play, it may be easier to understand how the unfortunate incident of suicide might invoke the act.
The following case study may help the reader to make better sense of this connection, however, please be forewarned that the following is tragic and somewhat grueso...]]>
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Ep 103: When Should You Hire A Real Estate Attorney? https://www.may-firm.com/ep-103-when-should-you-hire-a-real-estate-attorney/ Thu, 13 Jan 2022 16:01:50 +0000 https://www.may-firm.com/?p=6284 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: 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? 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? 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: Title to real estate Borrowing of money Possession of property Border disputes Oil and gas issues Title/possession/ownership dispute 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 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.

]]>
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 o... 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:

* 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?
* 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?
* 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:

* Title to real estate
* Borrowing of money
* Possession of property
* Border disputes
* Oil and gas issues
* Title/possession/ownership dispute
* 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 the...]]>
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Ep 102: Capital Gains and Real Estate Tax Law Planning https://www.may-firm.com/ep-102-capital-gains-and-real-estate-tax-law-planning/ Thu, 04 Nov 2021 03:16:47 +0000 https://www.may-firm.com/?p=6278 With a new tax plan from the current White House administration becoming a distinct possibility, it leaves many Americans wondering about capital gains as it applies to real estate transactions. With the plan still in the discussion phase, there are few concrete details about what new capital gains rates could eventually be if it were to go through, but even the likelihood of the plan passing has many people asking what they can do to maximize their investments. In terms of selling a personal residence or real estate that is held for investment or business use, it is crucial to look at what capital gains rates have been, and what they could be sometime soon. Capital Gains Rates Now Until the law concerning capital gains rates is changed, the rates are typically 15 to 20 percent depending upon whether an individual makes more than $250,000 or not. In addition to this, there is 3.8% that gets added to that investment income coming out of Obamacare for people who make more than $250,000. The capital gains rate is 15% for people who: make $400,000 or less if they are single make $450,000 or less if they are married And in addition, an individual making more than $250K a year has a 3.8% Obamacare net investment income tax added to that. Prior to this year, the maximum gain someone would be required to pay on a capital gains transaction is 23.8% which is essentially the 20% plus the 3.8%. Capital Gains Rates and the Future During the last year and a half and even prior to that, the government has spent a great deal of money due to COVID and other reasons. Because of this significant uptick in spending, it is not inconceivable that Americans will see a tax increase. The new administration has already proposed an aggressive tax increase that would raise capital gains rates significantly, to as high as the mid-40s. While this is possible, some consider it even more likely that instead of the rates going from 23.8% to the 44%, the tax hike will instead put the maximum rate at 28%. This rate would only be reached with compromise. America has had capital gains rates in the past of 28% so it is possible they will see them again if the tax plan passes. In light of this, it could be prudent for investors who are looking at potentially large capital gains transactions to anticipate a 28% rate in the near future. Realistically, an individual who sells something now will continue to be at the lower tax rate, but if they decide to sell it toward the end of the year or after, it could very well be at a much higher rate. The Potential Effect of Higher Capital Gains Rates on the Market The fact that Americans are anticipating higher capital gains rates has had an effect on the market to a certain extent. Most people who are facing capital gains transactions have one of two reactions: “I need to do it now while the rates are lower.” “I’m not going to sell that stock or real estate ever because I’m not going to pay that kind of tax.” The second reaction is particularly disheartening because this is not the desired effect. The goal is to still have individuals be able to sell their assets when they can and change their portfolio and doing so without having to play some sort of tax game with the respect to their business and investment decisions. Personal Residences and Capital Gains Rates A personal residence is only taxable to the extent that the gain on the house exceeds $250,000 for a single individual or $500,000 for a married couple. For example, if a person and their spouse bought a house for $400,000 ten years ago and are now selling it for $800,000, it is simply a $400,000 gain. However, a married couple who sells a house that exceeds the $250,000 or $500,000 limits may have to face new capital gains taxation on some of the proceeds of the sale of their house. Individuals who find themselves in this situation have either typically held on to their house for a long time,

With a new tax plan from the current White House administration becoming a distinct possibility, it leaves many Americans wondering about capital gains as it applies to real estate transactions. With the plan still in the discussion phase, there are few concrete details about what new capital gains rates could eventually be if it were to go through, but even the likelihood of the plan passing has many people asking what they can do to maximize their investments.

In terms of selling a personal residence or real estate that is held for investment or business use, it is crucial to look at what capital gains rates have been, and what they could be sometime soon.

Capital Gains Rates Now

Until the law concerning capital gains rates is changed, the rates are typically 15 to 20 percent depending upon whether an individual makes more than $250,000 or not. In addition to this, there is 3.8% that gets added to that investment income coming out of Obamacare for people who make more than $250,000.

The capital gains rate is 15% for people who:

  • make $400,000 or less if they are single
  • make $450,000 or less if they are married

And in addition, an individual making more than $250K a year has a 3.8% Obamacare net investment income tax added to that. Prior to this year, the maximum gain someone would be required to pay on a capital gains transaction is 23.8% which is essentially the 20% plus the 3.8%.

Capital Gains Rates and the Future

During the last year and a half and even prior to that, the government has spent a great deal of money due to COVID and other reasons. Because of this significant uptick in spending, it is not inconceivable that Americans will see a tax increase.

The new administration has already proposed an aggressive tax increase that would raise capital gains rates significantly, to as high as the mid-40s. While this is possible, some consider it even more likely that instead of the rates going from 23.8% to the 44%, the tax hike will instead put the maximum rate at 28%. This rate would only be reached with compromise.

America has had capital gains rates in the past of 28% so it is possible they will see them again if the tax plan passes. In light of this, it could be prudent for investors who are looking at potentially large capital gains transactions to anticipate a 28% rate in the near future.

Realistically, an individual who sells something now will continue to be at the lower tax rate, but if they decide to sell it toward the end of the year or after, it could very well be at a much higher rate.

The Potential Effect of Higher Capital Gains Rates on the Market

The fact that Americans are anticipating higher capital gains rates has had an effect on the market to a certain extent. Most people who are facing capital gains transactions have one of two reactions:

  1. “I need to do it now while the rates are lower.”
  2. “I’m not going to sell that stock or real estate ever because I’m not going to pay that kind of tax.”

The second reaction is particularly disheartening because this is not the desired effect. The goal is to still have individuals be able to sell their assets when they can and change their portfolio and doing so without having to play some sort of tax game with the respect to their business and investment decisions.

Personal Residences and Capital Gains Rates

A personal residence is only taxable to the extent that the gain on the house exceeds $250,000 for a single individual or $500,000 for a married couple.

For example, if a person and their spouse bought a house for $400,000 ten years ago and are now selling it for $800,000, it is simply a $400,000 gain.

However, a married couple who sells a house that exceeds the $250,000 or $500,000 limits may have to face new capital gains taxation on some of the proceeds of the sale of their house. Individuals who find themselves in this situation have either typically held on to their house for a long time, so it has greatly appreciated in value, or they own upper-end houses that have continued to go up in value since the time of purchase.

Tips for Capital Gains as It Applies to Real Estate Transactions

When it comes to capital gains as it applies to real estate transactions, there are a few tips that individuals may find helpful, such as:

  1. A person considering selling this year or next, may want to sell this year to take better advantage of a market that certainly seems to be hot right now.
  2. Individuals who do not typically have incomes that would kick in the higher capital gains rates may be wise to do something such as sell their house on an installment basis where they can recognize the gains spread out over several years because it looks as though the higher capital gains rates will only kick in at high income levels, like $1 million. However, if somebody doesn’t typically make that much money but has a one-time house transaction that’s going through soon, they may want to spread that out over more than one year via a seller note.
  3. For a business or investment property, an individual that wants to sell a portion of commercial or business use property may want to take care of that this year and recognize that income. If they want to avoid the income or spread it out, an installment sale could be a possibility.
  4. If an individual with commercial or investment property is wanting to sell a piece of their property and purchase another one, they may choose to defer some of the gain via a 1031 or a Like-Kind Exchange but should be aware there are many regulations and rules surrounding this process.
  5. A person buying property that costs as least as much as the one they are selling may be able to defer the whole gain. Or it might be possible to recognize some of the gains to stay under the threshold for higher capital gains rates.
  6. As part of the 2017 Tax Cuts and Jobs Act dealing with opportunity zones, some individuals may be able to invest to defer their capital gain until the year 2026. It must be an investment in certain geographically qualified areas.

The key to knowing about capital gains as it applies to real estate transactions is to try to figure out what your income is going to be, what impact the capital gain may have on it, and then plan ahead using some of the tips and strategies mentioned above. For more information, please contact our Real Estate Lawyer today.

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With a new tax plan from the current White House administration becoming a distinct possibility, it leaves many Americans wondering about capital gains as it applies to real estate transactions. With the plan still in the discussion phase,


With a new tax plan from the current White House administration becoming a distinct possibility, it leaves many Americans wondering about capital gains as it applies to real estate transactions. With the plan still in the discussion phase, there are few concrete details about what new capital gains rates could eventually be if it were to go through, but even the likelihood of the plan passing has many people asking what they can do to maximize their investments.
In terms of selling a personal residence or real estate that is held for investment or business use, it is crucial to look at what capital gains rates have been, and what they could be sometime soon.






Capital Gains Rates Now
Until the law concerning capital gains rates is changed, the rates are typically 15 to 20 percent depending upon whether an individual makes more than $250,000 or not. In addition to this, there is 3.8% that gets added to that investment income coming out of Obamacare for people who make more than $250,000.
The capital gains rate is 15% for people who:

* make $400,000 or less if they are single
* make $450,000 or less if they are married

And in addition, an individual making more than $250K a year has a 3.8% Obamacare net investment income tax added to that. Prior to this year, the maximum gain someone would be required to pay on a capital gains transaction is 23.8% which is essentially the 20% plus the 3.8%.






Capital Gains Rates and the Future
During the last year and a half and even prior to that, the government has spent a great deal of money due to COVID and other reasons. Because of this significant uptick in spending, it is not inconceivable that Americans will see a tax increase.
The new administration has already proposed an aggressive tax increase that would raise capital gains rates significantly, to as high as the mid-40s. While this is possible, some consider it even more likely that instead of the rates going from 23.8% to the 44%, the tax hike will instead put the maximum rate at 28%. This rate would only be reached with compromise.
America has had capital gains rates in the past of 28% so it is possible they will see them again if the tax plan passes. In light of this, it could be prudent for investors who are looking at potentially large capital gains transactions to anticipate a 28% rate in the near future.
Realistically, an individual who sells something now will continue to be at the lower tax rate, but if they decide to sell it toward the end of the year or after, it could very well be at a much higher rate.






The Potential Effect of Higher Capital Gains Rates on the Market
The fact that Americans are anticipating higher capital gains rates has had an effect on the market to a certain extent. Most people who are facing capital gains transactions have one of two reactions:

* “I need to do it now while the rates are lower.”
* “I’m not going to sell that stock or real estate ever because I’m not going to pay that kind of tax.”

The second reaction is particularly disheartening because this is not the desired effect. The goal is to still have individuals be able to sell their assets when they can and change their portfolio and doing so without having to play some sort of tax game with the respect to their business and investment decisions.
Personal Residences and Capital Gains Rates
A personal residence is only taxable to the extent that the gain on the house exceeds $250,000 for a single individual or $500,000 for a married couple.
For example, if a person and their spouse bought a house for $400,000 ten years ago and are now selling it for $800,000,]]>
Hap May 10:12 <iframe width="320" height="30" src="https://www.may-firm.com/?powerpress_embed=6278-podcast&amp;powerpress_player=mediaelement-audio" title="Blubrry Podcast Player" frameborder="0" scrolling="no"></iframe>
Ep 101: What Happens When a Business Owner Dies https://www.may-firm.com/ep-101-what-happens-when-a-business-owner-dies/ Sat, 25 Sep 2021 17:33:48 +0000 https://www.may-firm.com/?p=6252 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: Voluntarily terminated by filing papers with the state of the corporation 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? 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.

]]>
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, 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:

* Voluntarily terminated by filing papers with the state of the corporation
* 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,]]>
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