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Archive for October, 2016

Update on Community Development and Affordable Housing: Is an Answer Found in Social Enterprise?

October 31, 2016 3 comments

Today the Community Development Financial Institutions Fund released its five year Strategic Plan

If you are not familiar with the CDFI, the CDFI “works to spur economic growth and opportunity in many of our nation’s most distressed communities.2015-11-26-13-04-02

“The CDFI Fund’s mission is to expand economic opportunity for underserved people and communities by supporting the growth and capacity of a national network of community development lenders, investors, and financial service providers.”

Included in the overarching goal for the CDFI’s strategic plan is promoting community development. If you have a few minutes, take a look at the strategic plan.

The Affordable Housing Problem in Grand Rapids

As many of you may know, a few weeks back the Grand Rapids Chamber hosted an Issue Summit on the Housing Crisis in Grand Rapids.

The Summit brought speakers representing many community stakeholders, including representatives from 616 DevelopmentGrand Rapids Urban League,Rockford ConstructionICCFMSHDA, and many local non-profits, including Mel Trotter MinistriesHQHeartside Ministries, on this lack of affordable housing, what is as Mayor Bliss emphasized, admittedly, “a complex issue”.

I have previously offered my own perspective, both as a lawyer representing real estate developers/investors, and as Board Chairman at Mel Trotter Ministries.Is there an answer found in Social Enterprise?

Last week Jim Harger with MLive posted a thorough article on the affordable housing crisis.

One community partner highlighted was Pastor Jim Davis and his company “Purpose Properties

“The mission of Purpose Properties is to “raise enough money from local foundations and philanthropists to buy market-rate and affordable rental properties in the city.”

According to Jim Harger’s article:

Purpose Properties plans to charge market rates for its properties to those who can afford them and use their profits to subsidize the rents of those who cannot afford market rates.”

My thoughts:

This is social entrepreneurship at its finest. Social entrepreneurs engage their community by using the power of business to solve a social problem.

We need more businesses and community stakeholders to approach our community problems like Jim Davis and Purpose Properties.

The question we should all ask ourselves: Am I working to build a better community?

Jeshua@dwlawpc.com

 

Twitter: @JeshuaTLauka

Real Estate Investors Bidding at Foreclosure Sale: If You Pay Less than owed on the Mortgage, there is no Surplus.

October 21, 2016 Leave a comment

Real estate investors and lenders are under pressure to “get it right” when bidding at sheriff sales, especially in a market where good deals are getting harder to come by.

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.

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Complex legal issues can arise in a competitive market when there is money to be made.

 

One issue that comes up after the foreclosure sale – who is entitled to keep surplus funds?  How do you define “surplus funds”?

The Court of Appeals decided these issues in an October 11th decision – see the case Trademark Properties of Michigan, LLC v County of Macomb

Summary of Facts:

  • The mortgagor defaulted on her mortgage – property went to foreclosure sale.
  • The balance on the mortgage, including fees, interest, and costs, was $55,030.58.
  • The mortgagee, CitiMortgage, Inc. made a bid of $20,572.80 as an initial partial credit bid.
  • Trademark Properties, LLC (“TM Properties”) was the highest bidder with a bid of $31,572.80.
  • After the foreclosure sale, the mortgagor assigned her rights to any surplus proceeds to TM Properties.
  • TM Properties then filed a petition in  court for the return of surplus proceeds in the amount of $11,000, which was the difference between the initial credit bid and the final bid.

 

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…

 

Essentially, TM Properties recognized that the Bank/mortgagee made a credit bid. The investor out bid the bank and claimed that the difference between the bank’s bid and the excess of what TM Properties bid was a “surplus“.

TM Properties acquired the mortgagor’s “interest” in the Property, which presumably included her rights to redeem the property AND any rights to any surplus funds.

TM Properties demanded payment of the “surplus” – the County claimed – there is no surplus!

The Trial Court agreed with the County.  TM Properties appealed.

The Court of Appeals was tasked to decide:

Whether the $11,000 difference between CitiMortgage’s initial credit bid and TM Properties’ successful bid constituted “surplus money after satisfying the mortgage on which the real estate was sold,” under MCL 600.3252. Opinion at page 2.

The Court went on to define “Surplus” and “satisfy” – since those terms are undefined in the statute. The Court held:

“MCL 6003242 provides that a surplus constitutes the differ
ence between the amount due on the mortgage note, plus costs and expenses, and the purchase price of the property at foreclosure sale. If the purchase price of the property is less than the amount due on the mortgage note and costs and expenses, then there is no surplus.”

 

In summary – the Bank did not make a full credit bid.  The Third Party purchaser, TM Properties did not purchase the property for more than what was owed on the Mortgage, plus foreclosure costs.  As such, there was no surplus.

 

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

 

A Call to Young & Future Leaders

October 19, 2016 Leave a comment

Several years ago I moved my family to the Grand Rapids Area. As a new member of the West Michigan community I asked myself one fundamental question: where am I going to serve in my local community…

Source: A Call to Young & Future Leaders

Categories: Uncategorized

Trending Towards Social Entrepreneurship: Update on Michigan’s Benefit Corporation Legislation.

October 10, 2016 Leave a comment

2016-07-22 13.10.20

 

House Bills 5710, 5711 & 5712 were introduced on May 31, that would allow BCorps to be formed under Michigan Law.

Although the State House has taken no formal action since June 1, in late September the House Fiscal Agency issued a Fiscal Analysis on the BCorp bills, 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.

Education on the “why” for BCorps.

Interested groups and local politicians are educating the public on why BCorp laws would be a good thing for our state.

State Rep Hank Vaupe gave a discussion to a local chamber group on B-Corps in September:

As Rep. Vaupe indicated “benefit corporations provide an opportunity for businesses to use the markets, rather than traditional charity giving, to advance their philanthropic missions.”

BCorp Certification is Trending in Michigan…

Over the last several months more and more local businesses have becoming Certified B Corps through BLabs. West Michigan has the most concentration of BCorp businesses in the State.

Recent headlines in Grand Rapids have brought attention to the need for businesses to ask the question: Am I working to build a better community?

B-Corp certification is one way (certainly not the only way) for businesses to hold themselves accountable to being a good community partner.

Why has it taken so long to get here?

Over the last several years Michigan legislators have introduced BCorp legislation – to no avail.

Check out this handout from Rep Barnett several years ago in support of the BCorp legislation he proposed in September 2010.

I found particularly interesting the very last section – it provides some comment on why some Michigan businesses may have been averse to the introduction of BCorp legislation. Feel free to read it and reach your own conclusions.

Trending Towards Social Entrepreneurship.

The trends all show that millennials and our up and coming workforce want to to be part of business as a force for good in our local community.

Questions? Comments?

Jeshua@dwlawpc.com

http://www.dwlawpc.com

Connect with me on Twitter: @JeshuaTLauka

Business Law Update: Why Your Operating Agreement Matters.

October 5, 2016 1 comment

Business Owners and Entrepreneurs: Let me paint you a picture:

You decide to go into business. You’ve identified a business partner. You and your business partner decide the details of who is going to contribute what (capital, finances, “sweat equity”, etc..).

Your startup is now off and running!2015-11-26-13-04-02

Your business does not go as expected.

You have a few “hiccups” that were unanticipated.

Your business needs some emergency cash flow.

You and your business partner agree (verbally) that you will contribute some extra funds out of your savings, and your partner will do the same.

Your partner does not contribute what you verbally agreed to….

Unfortunately, these scenarios can oftentimes find themselves in Court.

The Michigan Court of appeals issued a  recent business law opinion on September 20, 2016.

The Case is Copacia v Ginzinger (on reconsideration of its prior decision.)

This case illustrates very important reasons why you want your LLC to have a fully executed Operating Agreement in place.

The Facts:

Plaintiff and Defendant formed an LLC in 1998 as equal members. 50/50.

The purpose of the LLC was to own a parcel of undeveloped land to develop site condos.

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An initial question you may be asking yourself: Why should I form an LLC? 

The primary reason – limit your personal liability.

“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)

Ok, now going back to the facts…

As the Court tells us in its opinion,

“the development did not go as planned by the parties.” Cocacia, Id. at page 1.

The financing of the development had to be restructured – Plaintiff and at times his spouse provided additional funds. Copacia, Id at page 1.

Thereafter, Plaintiff sued his business partner for “50% of the operating expenses and costs pursuant to a purported oral agreement between the parties.” Id. pg 1-2.

Defendant counter-sued, he asked the court to declare that $135,000 held in escrow should be disbursed according to the proper adjustment of the parties’ membership in the LLC (50/50). Id.

 

Law: The Business Partners’ Operating Agreement Controlled.

An Operating Agreement is a contract between the owners of the LLC.

“The LLC operating agreement is the written agreement regulating the parties conduct in this matter. See MCL 450.4102(2)(r)(footnote omitted). An operating agreement is a contract between the members of a limited liability company and is interpreted according to principles of contract interpretation.” Copacia, Id. at pg 2.

The Court went on to hold that the parties’ operating agreement is a contract that is analyzed under ordinary contract principles, citing Holmes v Holmes, 281 Mich App 575, 594; 760 NW2d 300 (2008). “The language of a contract should be given its ordinary and plain meaning.”

As the Court noted, analyzing under the plain meaning,  the signed operating agreement indicated that no interest accrues on any capital contribution and no member shall have any right to withdraw or to be repaid any capital contributions except as provided in the operating agreement. Id. pg 3.

Plaintiff’s argument is essentially:  Ginzinger verbally agreed to compensate me for the additional funds that me and my wife contributed!

Michigan law is clear, MCL 450.4302 “a promise by a member to contribute to the [LLC] is not enforceable unless..in writing and signed by the member.” See Copacia, Id. at pg 4.

The Court found that the parties’ business relationship was governed by the Operating Agreement. Period.

If Copacia expected to be repaid the funds he contributed, a few things he could have done:

  1. loaned the funds under an executed promissory note; or
  2. have the parties’ Operating Agreement revised and signed by him and his business partner.

 

A few take aways:

If you are going into business with a business partner there are a few things you want to do:

  1. Limit your Liability – form an LLC.
  2. Execute an Operating Agreement (all parties need to sign it); and
  3. Any revision to that relationship must be signed in writing.

 

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka