Michigan Business Law Update: Bill Would Require Women Presence on For-Profit Public Corporate Boards

February 15, 2019 Leave a comment
Lake Michigan

Happy Friday, all.

I took this photo last weekend. This is Lake Michigan in Holland. The water is frozen, but the lakeshore is still beautiful.

Yesterday Senate Bill 119 was introduced: Check it out here

This Bill would require any publicly traded corporation to phase in over a specified time period at least one female director on its board, up to 3 female directors.

The Bill would also require publication of those corporations in compliance and impose stiff penalties for those out of compliance – $100,000 up to $300,000 for repeat violations.

Please keep in mind – this Bill would not affect privately held corporations (corporations whose company stock is privately held.

Board Diversity is a Good Thing.

If I put on my “corporate board governance” hat – I agree that in order to be effective, an organization needs a diverse background represented on its board of directors. I appreciate this Bill’s intention of encouraging publicly traded corporations to be more intentional about seeking out women in these key leadership roles.

That being said, I am doubtful that this Bill will move forward. To support my thought process, I will look no further than to the history of BCorp Legislation in Michigan.

BCorps

I look at all the push to make Michigan one of the majority of states where entrepreneurs have a viable legal option to do business in the State of Michigan as BCorps. House Bills 5867, 5868 & 5869 were introduced on April 24, 2018, that would allow BCorps to be formed under Michigan Law. A few years before that the legislature proposed similar legislation which died in committee. For a review of the Former BCorp Bills, the House Fiscal Agency issued a Fiscal Analysis, check it out here. 


Despite the overall popularity of BCorps, the growing trend in businesses to be socially-minded, these BCorp Bills died in committee – just like their predecessors in years past.

For its part, Senate Bill 119 would create a significant obligation on publicly held corporations doing business in the State of Michigan.

Based upon the Michigan Legislature’s failure to enact BCorp legislation over the years, I am hard pressed to believe Senate Bill 119 stands a chance. I am guessing it will also die in committee.

Questions? Comments?

Jeshua@dwlawpc.com

http://www.dwlawpc.com

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Real Estate Investors Bidding at Foreclosure Sale: What Happens to a “Surplus?”

January 28, 2019 1 comment

It is a snowy day today in Grand Rapids. If you are on the roads, drive safe!

snow day

 

Last week I read a  Court of Appeals decision that prompted me to write on the topic concerning real estate investors.

 

The market to purchase distressed real estate has become extremely competitive since 2008-09. Having multiple real estate investors bidding on properties can cause some serious problems. 

Some lenders/investors have tried some creative methods of recovery and made some interesting legal arguments in order to  maximize their profit at or after foreclosure sales. Complex legal issues can arise in a competitive market when there is money to be made.

For clients of mine that purchase investment real estate at foreclosure – an interesting situation can come up:

  1. Purchaser at foreclosure knows the bidding is competitive – is the highest bidder – overbids due to competitive bids.
  2. Purchaser, in order to “pocket” the overbid (and to extinguish the mortgagor’s right of redemption) – purchases the homeowner (mortgagor’s) interest via quitclaim deed prior to foreclosure and thereafter.
  3. The Sheriff conducting the sale receives and deposits the surplus with the County Treasurer.
  4. Purchaser seeks from the County Treasurer the overbid amount after the foreclosed debt is satisfied.

 

 

Facts of January 22 Decision in Trustlink Equities LLC v Dietech

That’s presumably what the Plaintiff, purchaser expected to happen in this case.

With real estate, however, things don’t always go how you expect.

Check out the January 22, 2019 unpublished case of Trustlink Equities, LLC

This case is helpful, because it provides some guidance to an area of the law that isn’t used very often and there simply isn’t a lot of case law about: what happens to surplus funds after foreclosure and who is entitled to those funds?

In the Trustlink case,  after foreclosure, there was a second mortgage with $162,497.12 remaining owed. Id.

After the proceeds from the sale of the Property to Purchaser satisfied the first mortgage the Sheriff received and deposited the $77,490.54 in surplus funds with the St. Clair County Treasurer.

Purchaser filed a document with the Treasurer, “document titled “Verified Claim for Turn-Over of Proceeds of Sale.” seeking payment of the $77,490.54 surplus funds.

Defendant, the junior mortgage servicer, filed a competing document titled “Verified Claim for Surplus Proceeds of Sale

The result was that the funds were turned over to the Circuit Court for the proper disposition. The Court found Defendant, as junior mortgage holder, the proper party. Plaintiff appealed. A few interesting points to discuss came out of this case.

 

Law:

There are a couple of particular laws that come into play here:

I. Full Credit Bid

One general one to be aware of – the Full Credit Bid Rule – it basically stands for the proposition that: “An overbid at a Sheriff’s sale extinguishes the entire debt.” Pulleyblank v. Cape, 179 Mich.App. 690, 446 N.W.2d 345 (1989) (per curiam).

Practically speaking, if the bank bid the entire amount that was owed, regardless of whether or not the fair market value of the property is worth less than what is owed, the bank cannot come after the borrower for a deficiency.

 

II. MCL 600.3252 – Surplus Funds After Foreclosure. 

That statute states in relevant part:

If after any sale of real estate…there shall remain in the hands of the officer…making the sale, any surplus money after satisfying the mortgage on which the real estate was sold, and payment of the costs and expenses of the foreclosure and sale, the surplus shall be paid over by the officer…to the mortgagor…or assigns, unless at the time of the sale, or before the surplus shall be so paid over, some claimant or claimants, shall file with the person so making the sale, a claim…in which case the person so making the sale, shall forthwith upon receiving the claim, pay the surplus to, and file the written claim with the clerk of the circuit court of the county in which the sale is so made…

 

So, the mortgagor is entitled to receive the funds from the Sheriff – or if sent to the Court, an interested party making a “claim” to the funds may make a claim to the Court.

“The statute allows both (1) parties who filed a “claim” with the person making the sale, and (2) any person or persons interested in the surplus, to apply to the circuit court for distribution of the surplus funds after a foreclosure sale.” Id. page 10.

 

a. Mortgagor – “demand” v.s “claim” – all the same?

One of the primary issues on appeal concerns whether the Purchaser’s filing qualified as a “demand” or as a “claim” under MCL 600.3252. Plaintiff filed with the Treasurer a  document and did not use the word “demand.”

The Court held that, “because plaintiff conveyed to the Treasurer its assertion of its right to disbursement of the surplus funds, we conclude that plaintiff made a “demand” for purposes of MCL 600.3252.” Id. page 7

 

b.  Mortgagor’s demand needs to be “immediately” paid?

Purchaser argued that the Sheriff should have paid “immediately upon demand” and disregarded the junior mortgage holder. Basically a “you snooze you lose” argument.

The Court was not convinced, holding:

“Although plaintiff makes a valid point that an obligation to make payment “on demand”
generally requires immediacy, the specific facts of this case support the trial court’s ruling that the Treasurer was justified in delaying payment for seven days while it conducted its due diligence in evaluating plaintiff’s filing.” Id. Page 10.

 

In summary – if you are a Purchaser at foreclosure and have obtained the “mortgagor’s” rights – be careful to search the title for competing claims to that money.

You can’t rely on the fact that you immediately demand the funds to ultimately entitle you to them.

 

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Michigan Business Law Update: Bill Stuck in Committee that would Allowing Single Member LLCs To Evict Tenants without Legal Representation

December 11, 2018 Leave a comment

Once again, we are reaching the end of the year. One of the signs that the year is ending:

december

Rosa Parks Circle becomes an ice rink.

See the photo I took from a few days ago.

Another sign that the year is ending, interest groups are pushing to get legislation pushed through the legislature before they die in committees.

One such Bill would give Certain Landlords who own their real estate in a Limited Liability Company the ability to evict tenants without retaining an attorney

 

 

Today

Kent County Rental Property Owners Association  published a post pushing constituents to contact their State Senators to push this bill out of committee.

This Bill was passed by the Michigan House and since September of 2017 has been sitting in the Senate Judiciary Committee

As the RPOA indicates:

 

“For the first time in two decades, the “LLC bill” has a chance of passing.  The bill, HB 4463, would enable single-member LLC’s and LLC’s owned by married couples to handle their own evictions in court without an attorney.  The cases would be limited to the amount of small claims cases—which is the majority of all landlord-tenant eviction cases”

 

History Behind the Bill…

As background, a common scenario in my legal practice:

Investor purchases property in an LLC. Investor locates a tenant. Tenant falls behind in rent. Investor hires attorney to evict Tenant.

 

Why hold real estate in an LLC?

Most of my investor clients own investment real estate in a Limited Liability Company.

This is for liability protection.

Once a limited liability company comes into existence, limited liability applies, and a member or manager is not liable for the acts, debts, or obligations of the company. “Duray Dev., LLC v. Perrin, 288 Mich. App. 143, 151 (2010).

 

Why not hold real estate in an LLC?

Some investment property owners decide not to do so. The primary driving reason from my experience is cost.

Cost associated with setting up the LLC; and

Cost associated with hiring an attorney and evicting non-paying tenants.

Some landlords don’t want to hire an attorney to evict a tenant.

Under current Michigan law, since an LLC is a separate legal person independent of the actual owners of the LLC, unless such owner is a licensed attorney, an owner of an LLC cannot file a lawsuit on behalf of the LLC.

To do so would be the unauthorized practice of law.

You can practice law on your own behalf – just not on behalf of someone else.

Although, the saying goes – he who is his own lawyer has a fool for a client.

 

House Bill 4463 – Would Allow LLCs to Evict without Legal Representation.

House Bill 4463 was introduced in March 2017 and referred to the  committee on law and justice. It has been passed by the House and sent to the State Senate.

The Bill would allow owners of a single-member LLC (or a married couple under certain conditions) to file their own eviction actions on behalf of the LLC without the need for legal representation.

If the Landlord is seeking money damages, the amount, not including taxable costs, must be under the small claims Court maximum.

I commented that I would be surprised if this bill passes, although other states have similar laws. The Kent County RPOA mentions in its post that it is the closest in over decade that such a bill has come to passing – so the RPOA is pushing hard to get this Bill out of committee.

 

As mentioned, the Bill  came out of the committee on law and justice and a substitute bill was referred for a second reading.  The Bill was passed by the House and sent to the Senate Judiciary Committee over a year ago.

 

The Major Difference in the Substitute Bill

The major revision that came out of the committee affects property managers.

The Bill as introduced would have allowed property managers or agents to represent the LLC under certain circumstances – e.g. – having personal knowledge of the relevant facts related to the Property and tenancy.

That language was removed from the first version of the bill.

Under the substitute bill, Property Managers or other Agents would not be allowed to represent the LLC.

Further, this is a “burden shifting” mechanism in the substitute bill – the law would place the burden on the LLC owner to prove he or she is in compliance with the statute. That makes sense – since the legislature would be creating an exception to the rule – only lawyers practice law.

 

It looks like this Bill will die in committee unless constituents can convince their local state Senators to do something about it.

 

 

 

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Grand Rapids Social Enterprise, L3Cs and a Call to Community Partnership.

November 21, 2018 Leave a comment

Yesterday I visited with Dr. Justin Beene – Founder of Grand Rapids Center for Community Transformation  (GRCCT) – a collective of non-profit/for-profits working to see flourishing in Grand Rapids for all.  GCCT is essentially a hub for social enterprise, for the common good of the Greater Grand Rapids Area.

Justin Beene

Dr. Justin Beene, the future expansion of GRCCT

GRCCT states on its website that Grand Rapids was ranked the number one city in the United States to raise kids by Forbes Magazine (Van Riper, 2012).

Even more, the city has been ranked as one of the most philanthropic areas in the United States (Raghaven, 2013).

GRCCT mentions the powerful presence of the institution of the Church in Grand Rapids, and over 2,800 nonprofits.

This all sounds good, but there is much work to be done. There is still great need in the Grand Rapids Community.

 

 

despite the affluence, giving, and nonprofit services in West Michigan, the outlook in education, employment, and long-term quality of life for many urban citizens looks bleak. 

Forbes Magazine just recently released a study of 52 metropolitan cities in the United States and found Grand Rapids to be the second worst city in the country for African-Americans to live based on business ownership/entrepreneurship, median income, and home ownership (Kotkin, 2014)…

Youth living in the urban center of Grand Rapids are among the most impoverished young people in the country.”

 

In response to the great need in our city, particularly for youths struggling with poverty,  GRCCT supports several social enterprises (Rising Grinds Cafe and Building Bridges) that not only provide skills/job training but also provides revenue for the long-term sustainability of these programs.

 

Low-Profit Limited Liability Companies.

Both Rising Grinds Cafe and Building Bridges are Michigan Low-profit Limited Liability Companies (L3Cs)

Back in 2009 the Michigan legislature authorized the formation of these “hybrid” business entities.

L3Cs are formed fundamentally for a charitable/socially beneficial purpose, but unlike non-profit corporations, members can own equity in these L3Cs.
L3Cs – Viable Tools for Social Entrepreneurs…

I’ve said this before- L3Cs are a viable tool for social entrepreneurs – they tell the whole world that your company exists, fundamentally to do good.

Certainly, that is the purpose of both Rising Grinds Cafe and Building Bridges –  they exist for the common good.

 

Doing our Part – Being a Good Community Partner.

Grand Rapids is taking deliberate steps to help those most in need, particularly in the area of affordable housing

Recent national headlines demonstrate that there is a lot of mixed feelings about the proper solutions to the affordable housing crisis facing many cities across the U.S.

 

One key take point that GRCCT inherently understands:

 

Creating real change requires an entire community’s involvement.

 

GRCCT is looking for individuals, businesses, organizations

MTM

who will partner for the common good of the Greater Grand Rapids Area.

I love this quote that is often spoken of at Mel Trotter Ministries – “People don’t become homeless when they run out of money. They become homeless when they run out of relationships.”

That is our job. Being those relationships for the most vulnerable.

Not just “one-way relationships” but truly reaching out in community in a sustainable way.

Keep up the good work Justin and all at GRCCT.

 

 

 

 

 

 

 

 

 

 

 

 

A Cautionary Tale for Leaders on National Philanthropy Day. A Call to Humble, Authentic Leadership.

November 15, 2018 Leave a comment

Good afternoon, all.

It has been a month since my last post – a lot has happened in a month. I wanted to sent a quick post.

11.15

 

Today is the first day of some serious snow – check it out. I am looking forward to ice skating beginning at Rosa Parks Circle.

 

Yesterday, I read a press release from the Department of Justice: Former Charity CEO Pleads Guilty to Multi-Million Dollar Political Corruption Scheme

Wow.

 

 

The Press Release goes on to summarize the allegations:

Marilyn Luann Nolan, 68, of Springfield, pleaded guilty before U.S. Magistrate Judge David P. Rush on Friday, Nov. 9, to one count of conspiracy to embezzle and misapply the funds of a charitable organization that received federal funds.

By pleading guilty, Nolan admitted that she conspired with others from 2008 to June 30, 2017, to misapply millions of dollars of the charity’s funds for substantial, undisclosed payments to lobbying firms and political advocates, monetary and in-kind contributions to the campaigns of candidates for public office, and to bribe public officials.  Nolan also admitted that she knew her co-conspirators defrauded the charity in order to enrich themselves, and her.

 

 

In a prior post I wrote about the need to be authentic as leaders.  It is true, that, we all get to choose what parts of our story we reveal to other people.

It is a tremendous temptation to only reveal to others what looks favorable about ourselves – to shine the light on our achievements, awards, skills, and the things that we can so easily take pride in.

You know what I am talking about.

The things that fall into the  “look at me, I am important.”  category.

This is especially true for those in key leadership positions.

Last month, in my 40 Second Story  I hoped to convey authenticity. Being real.

That is not a comfortable thing to do, particularly if you are like me and don’t have it all together. (none of us do).

In fact, when my story was displayed in front of 500+ people last month, I was extremely anxious. It was not a comfortable feeling. But, I know that it is OK not to have it all together.

Applying this concept of Authenticity to Ms. Nolan’s story – I am sure she that she did not set out running a multi-million dollar non-profit organization with the goal of breaking the law and the public trust.

But at some point, I imagine that the lie she was living became too big in her mind to disclose to others until it was too late.

In light of National Philanthropy Day I wanted to highlight this point:

There is a desperate need for leaders who are willing, in humility, to be authentic.

Humble authentic Leadership.

 

I’ve heard it said by Craig Groeschel

Be yourself.

“People would rather follow a leader who is always REAL than one who is always RIGHT.”

 

As for me, I’m striving to be a leader who is real.

In order that God might be made powerful in my weakness. – 2 Corinthians 12:9

 

Questions? Comments?

Jeshua@dwlawpc.com

http://www.dwlawpc.com

Connect with me on Twitter: @JeshuaTLauka

Legal Update on Michigan Bcorps and Purpose Driven Business.

October 9, 2018 Leave a comment

Happy Tuesday, all.

I recently took this photo of the Grand River that flows through downtown Grand Rapids.

Today I read an article in the Grand Rapids Business Journal by Local First President

2018-09-30 13.46.51Elissa Sangalli Hillary on how to build a “Purpose Driven Business“.

Elissa starts off the article by advising entrepreneurs to “start with your values”

“As an entrepreneur, you have an opportunity to start a business that’s founded on your values, morals and principles. Before you dive into your business plan, reflect on your core values and prioritize those you want as the foundation of your business.”

 

According to Elissa’s article, you can join her and other entrepreneurs at  Start Garden on Oct. 10 for a “Measure What Matters Workshop on The Social Justice Entrepreneur. This workshop is an opportunity to hear from entrepreneurs and their best practices for developing a meaningful business plan and leading a business with purpose.

 

Benefit Corporations – purpose driven business.

The option of forming a business entity using a “benefit corporation” legal structure is one way to formally memorialize at a fundamental level your company’s values morals and principals.

 

Why BCorps?

BenefitCorp.net describes the benefit of BCorps as:

“Benefit corporations expand the obligations of boards, requiring them to consider environmental and social factors, as well as the financial interests of shareholders. This gives directors and officers the legal protection to pursue a mission and consider the impact their business has on society and the environment. The enacting state’s benefit corporation statutes are placed within existing state corporation codes so that it applies to benefit corporations in every respect except those explicit provisions unique in the benefit corporation form.”

 

BCorps have gained Popularity since 2006.

Currently 34 States have enacted BCorp Laws.

Michigan is not one of those States.

Almost six months ago the State of Michigan House tantalized social entrepreneurs, once again, with the possibility of Bcorps becoming a viable legal option to do business in the State of Michigan.

House Bills 5867, 5868 & 5869 were introduced on April 24, 2018, that would allow BCorps to be formed under Michigan Law.

As of today, there is still no movement on these bills.

 

Back almost two years ago the legislature proposed similar legislation which died in committee. For a review of the Former BCorp Bills, the House Fiscal Agency issued a Fiscal Analysis, check it out here. 

The Analysis provides good background on what the legislation would do. This is helpful for those who are not overly familiar with BCorps in general.

 

I continue to wonder why year after year Michigan fails to catch up with the rest of the country concerning these social enterprise businesses for good.

As of March 2018 there have been 14 West Michigan businesses certified B Corporations – a third party sustainable good certification process, but not having the corporate BCorp Structure. That number is growing.

People want to do business with companies that exist for something besides making a profit. Certainly you don’t need the Bcorp legal structure in order to accomplish that.

However, there seems to be a demand for such a social enterprise entity in Michigan.

What is the legislature waiting for?

Questions? Comments?

Jeshua@dwlawpc.com

http://www.dwlawpc.com

Connect with me on Twitter: @JeshuaTLauka

 

 

 

Grand Rapids Combats the Affordable Housing Crisis through the Rental Assistance Center

September 20, 2018 1 comment

Today was my first day back mentoring my student at a local elementary school in the City of Grand Rapids.

MTM

I was excited to catch up with my student, what had changed over the summer?

One thing that changed, he had moved once again. Having to be concerned about where you will be sleeping at night, is a concern that no kid should have.

In fact, Mel Trotter Ministries reports that in Kent and Ottawa

County there are over 3,300 homeless school-aged children.

 

 

Yesterday evening was Mel Trotter Ministries’ Annual Season of Hope Event. There, once again, was presented the information on the above photo. People become homeless due to a lack of relationships.

Our community needs to come around those who are vulnerable. One way that our community is doing that, is through the public/private collaborations to address the affordable housing crisis in Grand Rapids.

 

There is an Affordable Housing Crisis.

As many of you know, Kent County, like much of the U.S. is experiencing a serious lack of Affordable Housing.

The City of Grand Rapids has made concerted efforts to address problem through an advisory board, which has come up with strategies for addressing the Affordable Housing Crisis

Last year I posted on one of those tools that I deal with fir

st hand in representing landlords, real estate investors and property management companies – the Kent County Eviction Prevention Program. You can check out a blog post I wrote about that here

I have seen firsthand that this program can be a useful tool to keep families facing temporary emergencies in housing.

The EPP was developed as a collaborative effort between the City of Grand Rapids, Salvation Army of West Michigan, The Kent County Court System, the Michigan Department of Human Services and with funding provided by Steelcase.

Why I like this program.

This program provides an opportunity to keep people in housing who are on the verge of being homeless. The fact is, families are experiencing homelessness in Grand Rapids every day.

 

 

City, Grand Rapids Housing Commission create Rental Assistance Center

 

Today I read that the City of Grand Rapids and the Grand Rapids Housing Commission have established a two-year pilot for a Rental Assistance C

enter for low-income households. Check out the complete press release here.

According to the press release:

“The Rental Assistance Center – approved by the City Commission on Tuesday – will connect households that earn 80 percent or less of the Area Median Income (AMI) with vacant rental properties and refer “rent-ready” applicants to landlords, increasing the efficiency of the rental search for households and landlords.”

Further – households who are “not rent-ready” “who – do n

ot meet established landlord criteria – will be referred to a resident service coordinator who can help them overcome barriers to secure rental housing.”

 

 

Housing is a community problem. It is encouraging to see the great collaboration between government, private sector, non-profit sector.

We all have a role to play. I hope you can find yours.

 

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

www.dwlawpc.com