Don’t miss the upcoming Town Hall meeting in which Tisha Black, Esq., will address YOUR legal questions about the current Real Estate market. This meeting will be on September 25, 2010 at 9:00 AM located at the Red Rock Casino Convention Center. Please submit any questions you would like to have answered at this very important meeting through Twitter or Facebook.
On February 9, 2010,
in Estate Planning, Finance, Landlord & Tenant, Real Estate, Taxes,
by blacklobellolaw
As we enter the second year of widespread foreclosures and short sales in Clark County, we are just starting to figure out how the banks will behave. Many are unaware that they can take proactive steps to minimize both the possibility and effects of when lenders pursue a deficiency action.
As always, the best defense is a good offense. The best option available to those with assets is to engage in a preemptive strike: asset protection. Several strategies can be used to properly protect properties, investments, and savings.
First and foremost, take advantage of state and federal exemption laws. Homesteads in Nevada are protected up to $550,000 worth of equity in a primary residence with a proper homestead designation. Other exemptions can be applied to funds in ERISA qualified plans and some of the cash values held in life insurance policies. This means, if you are sued or have a judgment against you, assets or equity held in exempt resources cannot be collected.
Next, a proper structure using business entities can be used to remove assets from your personal name and place them in the name of the business. This offers two types of protection; shielding a business from claims of its owners’ creditors and an owner’s assets from the claims of business creditors. In certain circumstances, business owners may also see tax benefits from proper business formation.
Take, for example, Ann and Tom. Ann and Tom have a house worth $400,000 that they paid cash for, and own a sole proprietorship business with cash accounts of around $50,000. Ann manages their business while Tom works as a pharmacist. They each have $50,000 in their 401(K)s and have about $10,000 worth of cash value in whole life insurance. They have three children, all under the age of 18. Unfortunately, they also own a rental property worth about $200,000 less than what they paid. They both signed on the loan. Ann and Tom also have about $100,000 in savings in their joint savings account. They are up to date on all of their mortgage payments but are thinking of a possible strategic default on the underwater investment property.
What can Ann and Tom do to protect their assets (home, 401(K)s, cash value, business assets) from potential claims if they default on their investment property?
There are many possible solutions for every situation. Here are some possible recommendations for Ann and Tom:
- File a Declaration of Homestead for their primary residence. This quick, inexpensive method may protect all of the equity in their home and involves only a trip to the Recorder’s office and approximately $20.00 in recording fees.
- Take advantage of state and federal deductions.
- As long as their 401(K)s are ERISA qualified, all of the funds are protected from any judgment rendered against them.
- Additionally, Nevada offers protection to Ann and Tom’s life insurance benefits as long as the annual premiums on the policy do not exceed $15,000.
- They may want to take some of their savings and put it into 529 plans to save for their children’s education, which have various tax and asset protection advantages.
- Set up a proper business structure.
- A sole proprietorship offers little or no asset protection for the owners of the business or the business assets. A better strategy is to form a Nevada limited liability company. This provides protection of the business’s assets from Ann and Tom’s creditors. Also, if the business itself is sued, Ann and Tom’s assets may be protected as well.
- Tom may also want to form a separate company for his pharmacy practice since that particular profession has a high risk of being sued.
- Pursue negotiations with the bank.
- Ann and Tom might try to negotiate a loan modification with the bank or work out a short sale. However, if they do not engage in proper planning before submitting their financial statement to the lender, the outcome could be less than ideal.
- Again, proper structuring is important. A short sale has many advantages over a foreclosure and Ann and Tom should sit down with a qualified attorney before deciding which courses of action to take.
Tiffany N. Ballenger, Esq.
The Service Members Civil Relief Act of 2003 (SCRA) formerly known as the Soldiers’ and Sailors’ Civil Relief Act of 1940 (SSCRA) is a federal law that gives all military members some important rights as they enter active duty and while on active duty. It covers such issues as rental agreements, security deposits, prepaid rent, eviction, installment contracts, credit card interest rates, mortgage interest rates, mortgage foreclosure, civil judicial proceedings, and income tax payments.
The SCRA also protects active duty military members and reservists or members of the National Guard called to active duty (starting on the date active duty orders are received) and, in limited situations, dependents of military members (e.g., certain eviction actions).
To receive protection under some parts of the SCRA, the member must be prepared to show that military service has had a “material effect” on the legal or financial matter involved. Protection under the SCRA must be requested during the member’s military duty or within 30 to 180 days after military service ends, depending on the protection being requested.
In many situations, the SCRA protections are not automatic, but require some action to invoke the Act. For example, to obtain a reduction of your pre-active duty mortgage or credit card interest rates, you should send your lender/creditor a written request and a copy of your mobilization orders.
The Six Percent Loan Cap
One of the more well-known protections of the SCRA is the 6% loan provision. In general, service members may be entitled to have the interest rate on some loans reduced to 6% for the time the member is on active duty. This provision is especially useful for Reservists and National Guard members. Of course, there are a number of special requirements that must be met in order to qualify for the interest rate reduction. Some of the eligibility requirements are:
- The service member obtained the loan during a time when he or she was not on any form of active duty in any branch of the military.
- The interest rate is currently above 6% per year.
- The service member’s military service affects the ability to pay the loan at the regular (pre-service) interest rate. Generally this requirement means that the member makes less money in the military than as a civilian.
- The service member must notify the lender in writing, explain the situation, and provide a copy of the orders placing the member on active duty.
Delay of Court and Administrative Proceedings
A major benefit provided by the SCRA is that it permits active duty service members, who are unable to appear in a court or administrative proceeding due to their military duties, to postpone the proceeding for a mandatory minimum of ninety days upon the service member’s request. The request must be in writing and (1) explain why the current military duty materially effects the service member’s ability to appear, (2) provide a date when the service member can appear, and (3) include a letter from the commander stating that the service member’s duties preclude his or her appearance and that he is not authorized leave at the time of the hearing. This letter or request to the court will not constitute a legal appearance in court. Further delays may be granted at the discretion of the court, and if the court denies additional delays, an attorney must be appointed to represent the service member. (See Section 202, SCRA)
Default Judgment Protection
If a person does not appear in court when ordered to do so, the judge may render a verdict against that person. This is called a default judgment. Obviously, if a service member is overseas, deployed, on classified duty or in transit then the service member will not be able to appear at a court hearing and may suffer a default judgment. If a default judgment is entered against a service member during his or her active duty service, or within 60 days thereafter, the SCRA allows the service member to reopen that default judgment and set it aside. In order to set aside a default judgment, the service member must show that he or she was prejudiced by not being able to appear in person, and that he or she has good and legal defenses to the claims against him or her. The service member must apply to the court for relief within 90 days of the termination or release from military service. This provision is especially useful to Reservists and Guardsmen who may in the middle of a legal proceeding when they are ordered onto active duty. If the court ignores the Delay of Court provisions (discussed above) and renders a default judgment, the Reservist or Guardsman can have the default judgment set aside upon their return to their home. (See Section 201, SCRA)
Stay of Foreclosure
In today’s recession and drop in housing prices, many service members have seen civilian pay cuts or job loss and found themselves unable to make their mortgage payments. If a service member faces foreclosure and while ordered onto active duty, it can make a stressful situation even more so. The SCRA provides relief to such service members. A foreclosure action against a Reservist or Guardsman must be halted when that service member is called up onto active duty. The bank can only proceed if it obtains a court order. This provision protects mortgages entered into while the service member was in civilian status. (See Section 303, SCRA).
Termination of Leases
In the past, upon having to leave their home on active duty orders, many Reservists and Guardsmen were caught by surprise when the landlords or car companies with whom they had leases filed lawsuits for termination of the leases or demanded large cash payments to settle the lease. New provisions to the SCRA protect members in these situations.
The SCRA allows termination of leases by active duty service members who subsequently receive orders for a permanent change of station (PCS) or a deployment for a period of 90 days or more. The SCRA also includes automobiles leased for personal or business use by service members and their dependents. The pre-service automobile lease may be cancelled if the service member receives active duty orders for a period of one hundred and eighty (180) days or more. The automobile lease entered into while the service member is on active duty may be terminated if the service member receives PCS orders to a (1) location outside the continental United States or (2) deployment orders for a period of one hundred and eighty days or more. (See Section 305, SCRA).
Eviction for Nonpayment of Rent
Military members and their dependents (in their own right) have some protection from eviction if military service impacts their ability to pay rent. In order to evict a military member or his or her dependents, the landlord must obtain a court order. The court must find the member’s failure to pay is not materially affected by military service. Material effect is present where the service member does not earn sufficient income to pay the rent. Where the member is materially affected by military service, the member may request the court stay the eviction for three months. The court may decide on a shorter or longer period in the interest of justice. There is no requirement that the lease be entered into before entry on active duty, and the court could make any other “just” order under § 301 of the SCRA. The requirements of this section are:
- The landlord is attempting eviction during a period in which the service member is in military service or after receipt of orders to report to duty
- The rented premises is used for housing by the spouse, children, or other dependents of the service member
- The agreed rent does not exceed $2,465 per month. (See Section 305, SCRA)
Carlos L. McDade, Esq.
On October 7, 2009,
in Landlord & Tenant, Real Estate,
by blacklobellolaw
When a military Servicemember receives orders to move or deploy, they don’t want to start the move by having a battle with their landlord. The Servicemembers Civil Relief Act (SCRA) was designed to remove that stress by requiring landlords to return prepaid rent and security deposits to Servicemembers moving pursuant to valid orders. The law is relatively new, so military and civilian lawyers who represent military families have been waiting to see how the law would be enforced. They got their answer as the Justice Department settled its first lawsuit under the law, forcing the landlord to return the unearned funds to the Servicemember.
On September 24, 2009, the Justice Department announced that it reached a settlement with a Virginia landlord to resolve allegations that she violated the SCRA. This was the first lawsuit filed under the new law. The lawsuit alleged that the landlord failed to return prepaid rent and security deposits to a tenant who had terminated her lease early in order to comply with military orders to relocate from to Georgia. The settlement requires the landlord to pay $5,600 in damages to the Servicemember. It still must be approved by the judge.
“It is because of our men and women in uniform that we, as a nation, are able to enjoy great personal freedoms,” said Loretta King, Acting Assistant Attorney General for the Civil Rights Division. “It is therefore our duty, and our privilege, to protect the rights of our Servicemembers, as they protect us.”
The Justice Department’s official press release stated “ the investigation of this matter originated with a referral to the Civil Rights Division from the U.S. Air Force. The Civil Rights Division received enforcement authority under the SCRA in 2006, and has since reviewed numerous allegations of SCRA violations and resolved investigations in the following areas without the need for litigation; the charging of excess interest over the six percent interest rate cap; the repossession of vehicles without court orders; and the foreclosure on home mortgage loans without court orders.”
Servicemembers and their dependents who believe that their SCRA rights have been violated should contact the nearest Armed Forces Legal Assistance Program office. Office locations may be found at http://legalassistance.law.af.mil/content/locator.php. Additional information on the Justice Department’s enforcement of the SCRA and other laws protecting Servicemembers is available at www.servicemembers.gov.
Carlos L. McDade, Esq.
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