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Warning for Real Estate Investors: Three Northern California Real Estate Investors Convicted of Rigging Bids at Public Foreclosure Auctions

 

There are many pitfalls for real estate investors who purchase dIMG_1513istressed property.

In today’s market, good deals are getting harder to come by. With distressed property becoming a scarce resource and competition ever increasing, some real estate investors have resorted to illegal acts to boost their profit.

Investors should know that the Department of Justice as well as State Agencies are cracking down on fraudulent real estate practices.

Today, the Department of Justice announced that a federal jury convicted three real estate investors for their roles in a conspiracy to rig bids at public real estate foreclosure auctions held in Northern California.

This after a 3-week trial.

You can see the press release here.

Based upon the DOJ’s investigation – this was a large conspiracy “to rig bids to obtain hundreds of properties sold at foreclosure auctions. The conspirators designated the winning bidders to obtain selected properties at the public auctions, and negotiated payoffs among themselves in return for not competing. They then held second, private auctions at or near the courthouse steps where the public auctions were held, awarding the properties to conspirators who submitted the highest bids.”

 

What is particularly striking to me is that including today’s convictions the DOJ report that:

68 individuals have pleaded guilty or been convicted after trial as a result of the department’s ongoing antitrust investigations into bid rigging at public foreclosure auctions in Northern California.

 

Question for Real Estate Investors:

What type of unfair practices, including bid rigging, do you believe is going on in your state? What are you seeing foreclosure sales?

In Michigan the record numbers of foreclosed properties since 2008 has provided a market (albeit one that is slowing down) for flipping and rehabbing residential real estate.

This has also created opportunities for abuse and fraud.  The real estate legal landscape is complex enough, do yourselves a favor – follow the rules.

You don’t want to expose yourself to undue liability.

 

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

 

More Updates on Michigan’s Affordable Housing Crisis

Today is a beautiful day in downtown Grand Rapids. The photo below actually from yesterday. There is something about the sun that just puts me in a good mood.

A few days ago I did not have a sunny disposition. I was in court during a landlord/tenant docket. I’ll be honest – it was a depressing scene.  Many of the people in the courtroom were in a sad condition – one lady was visibly intoxicated.IMG_1570

Grand Rapids’ Housing Crisis

This morning I read an article on how the Rental Housing Market Leads to Homelessness in Grand Rapids

Clearly, Grand Rapids, and other parts of the State and Nation have an affordable housing crisis. I have previously offered my own perspective, both as a lawyer representing real estate developers/investors, and as Board Chairman at Mel Trotter Ministries.

A Community Problem – requires Community Collaboration

Recently Mel Trotter Ministries announced that it was partnering with 3:11 Youth Housing and the NAACP to provide housing for homeless males ages 18-24.

This effort could not have happened without collaboration between community stakeholders. It also couldn’t have happened without real estate owners willing to put “purpose above profit”.

There are other examples of social enterprises taking action to address affordable housing. One community partner is 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.”

It will take all community stakeholders to do their part – businesses, churches, government, and non-profits.

The question we should all ask ourselves: Am I working to build a better community?
Legal Updates – Bills and Lawsuits.

 

A few months back I wrote about a Michigan House Bill introduced that would repeal Michigan’s prohibition on rent control. This Bill seemed to be a “gut response” to the affordable housing crisis that we are facing in Michigan and all across the United States.

Other local governments across the U.S. are exploring legislative avenues to address the housing crisis.

A few days ago, Representative Stephanie Chang introduced a few other Bills on Affordable Housing.

On May 31, 2017 House Bill 4686 was introduced that would allow local government  to “adopt an ordinance to limit the rent paid by senior citizens and individuals with a disability to 50% of their household incomes.”

Tie-barred to that Bill was House Bill 4687  which would prohibit local government from enacting, maintaining, or enforcing “an ordinance or resolution that would have the effect of  controlling the amount of rent charged for leasing private resident.”

Representative Chang also spoke on the issue of Affordable Housing at a Detroit Housing Summit a few days ago at the University of Detroit Mercy School of Law.

 

DOJ sues City of Jacksonville for refusing to allow development of permanent supportive housing for individuals with disabilities.

You can check out the press release from yesterday – Where Cities Can Get in Trouble with Fair Housing Laws

Yesterday, the Department of Justice issued a Press Release concerning an agreement it reached with the City of Jacksonville, Florida. Apparently, the DOJ sued the City concerning “allegations that the city violated the Fair Housing Act and the Americans with Disabilities Act when it refused to all ow the development of permanent supportive housing for individuals with disabilities in its Springfield neighborhood.”

As part of the settlement, the City has agreed to “establish a $1.5 million grant to develop permanent supportive housing in the city for people with disabilities.”

 

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

 

 

Michigan Entrepreneurs and Small Businesses: Crowdfunding Law Update.

Last year  Representative Tom Barrett introduced House resolution2015-11-26-13-04-02 235 (HR 235)

“to support the (SEC)’s recent adoption of rules…to facilitate small and start-up companies’ access to capital raised through crowdfunding.”

The resolution supports crowdfunding as viable tools for start-up businesses.

The resolution acknowledges:

Businesses in Michigan have greatly benefited from the opportunities created by the…Michigan Invests Locally Exemption (MILE) program. MILE has allowed everyday Michiganders, referred to as unaccredited investors, the ability to play a larger role in growing Michigan’s creative business ventures through Michigan-based crowdfunding platforms while still enjoying investor protections and security in their investments” (Emphasis added.)

 

Is Crowdfunding a Viable Option in Michigan?

Fast forward to today,  MIBiz recently reported that Michigan’s crowdfunding law hasn’t gained much traction

However, it may remain a viable tool for cash-strapped startups and the Michigan legislature has not given up on it.

 

Yesterday the Michigan House passed HB 4035 that amended the Michigan Invests Locally Exemption to Intrastate Crowdfunding.

 

According to yesterday’s announcement from the Michigan House Republican Website:

The amendments contained in HB 4035 “will expand the program so people can also invest in small businesses primarily doing business in the state and allows Michigan’s law to remain active under new Federal regulations

You can check out the House Fiscal Agency’s Analysis Here

The HB now moves to the Senate Commerce Committee for consideration.

 

Entrepreneurs and Start-ups:

 

Proponents of Crowdfunding: access to capital.

A while back Candace Klein Chief Strategy Officer at DealStruck was Interviewed by CrowdfundInsider and talked about how small business might benefit from crowdfunding. She had this to say, in part:

“Most businesses are community-based, and have an immediate impact for those in their community, whether geographic or industry-based.  Crowdfunding brings these companies together with the everyday investors in their communities.”

 

Crowdfunding for Social Enterprise?

I agree. As I’ve previously written about, crowdfunding appears to be a viable tool for community based businesses.

People are willing to invest in projects that will enhance their local community.

This is what makes local equity-based crowdfunding attractive for social entrepreneurs.

This is what makes local equity-based crowdfunding attractive for social entrepreneurs.

 

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

www.dwlawpc.com

News for Residential Real Estate Investors: DOJ receives Verdict against Landlord Disability Discrimination.

img_1417Here’s a profound truth those in the real estate industry will readily acknowledge:

Owning and Managing Real Estate is uniquely challenging.

I hear it from my Property Owner/Manager clients. I experience it when I am involved in negotiating in landlord/tenant disputes.

I believe that is why, at least in West Michigan, there is an opportunity for good property management companies – and a handful of companies I work with locally do it really well.

 

Some of the pitfalls property owners/managers have to watch out for are illustrated in a recent press release announce by the Department of Justice.

Yesterday the Department of Justice announced that it obtained a verdict in a disability discrimination case against a Landlord

 

 

According to the press release,

The lawsuit, filed in U.S. District Court in Butte, alleged that Jaclyn Katz, the owner and manager of rental properties in Bozeman, discriminated against Kristen Newman, a tenant with physical and psychiatric disabilities, by charging her a $1,000 deposit as a condition for allowing her to keep her service dog, Riley.  At trial, Newman, her treating therapist and an independent expert testified that Riley assisted Newman in living with the symptoms of her disabilities, including providing emotional support, helping to predict migraines, and reducing suicidal thoughts.  Newman also testified that she repeatedly informed Katz that charging a deposit for a service animal was illegal and that Newman understood that she would have to pay for any actual damage caused by her service dog.

 

 

Not good.

A right to a Service animal is legally protected under the Americans with Disabilities Act.

Michigan Law requires a public accommodation to permit the use of a service animal by a person with a disability.

Among other things:

“A public accommodation shall not ask a person with a disability to remove a service animal from the premises due to allergies or fear of the animal. A public accommodation may only ask a person with a disability to remove his or her service animal from the premises if either of the following applies:

(a) The service animal is out of control and its handler does not take effective action to control it.

(b) The service animal is not housebroken” MCL 750.502c

 

Landlords and property owners should heed the warning of General Deputy Assistant Secretary Bryan Greene of the U.S. Department of Housing and Urban Development’s Fair Housing and Equal Opportunity.

“Many people with disabilities require the assistance of an animal to carry out major daily activities,” said  “Complaints alleging disability discrimination now account for the majority of the complaints HUD receives. HUD will continue to enforce the law and educate the public on the rights of people with disabilities in housing.”

.

I wonder, did the landlord/property owner ever consult with legal counsel on its practices?

There are some lessons to be learned for landlords, property owners, managers, and real estate investors.

 

Two takeaways from this news headline:

 

1. It is worth being proactive and engaging legal counsel. 

Issues arise. When in doubt, e-mail or call your attorney.

 

2. Residential Real Estate Investment is highly regulated.

If you are a landlord leasing out “residential” property as opposed to purely commercial property (business tenant), you are under much more stringent regulations. You must comply with Federal laws, like the Fair Housing Act and state laws, like the Michigan Truth in Renting Act. Make sure you are operating lawfully.

 

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Michigan Business Law: Update on Work Opportunity Act – Removing Barriers to Employment for Ex-Felons.

Falling From Grace.

Yesterday, I was at a CBMC Grand Rapids Luncheon and listed to Craig DeRoche tell his remarkable story of his rise to becoming the youngest House Speaker in Michigan history and abrupt fall to incarceration due to his hidden drug and alcohol addiction.

Craig now uses his skills and unique life experiences serving as VP of Policy at Prison Fellowship, an organization actively engaged in restoring those affected by crime and incarcerated.

But for God’s Grace – there go I.

Craig’s story and my own life experiences gave me pause to consider:

How many of us are a few life choices/circumstances away from being homeless? In prison? Addicted?

Serving the Vulnerable – Ex-Felons.

Yesterday I read a rather timely article posted by the Small Business Association of Michigan – the following statistic stood out to me:

Convicts leaving incarceration often have a difficult time re-entering the working world because, according to one survey, 65 percent of employers would never consider hiring someone with a felony record.

When people think about the marginalized in our society – those with a felony record should be at the top of the list.

Michigan Work Opportunity Act

Senate Bill 14 was passed by the Senate and it appears set to be passed by the House as well. Check out the Legislative Analysis by the House Fiscal Agency, here

The Bill would create the “Work Opportunity Act” which would require the Department of Talent and Economic Development (TED) to provide grants for employers’ hiring of qualified individuals on probation or parole.

The House Fiscal Agency’s Analysis recognizes the “apparent problem”

“In seeking re-entry into the workforce, an ex-felon is confronted with myriad challenges, including appealing to employers who are not eager to accept the risk of hiring an ex-felon. This program would seek to mitigate that risk, by offering grants of a portion of the exfelon’s salary to employers who hire qualified ex-felons.”

The Bill has received formal support from the following organizations:

Kelly Services (2-8-17)

Goodwill Industries of Greater Detroit (2-8-17)

Michigan Catholic Conference (2-8-17)

Michigan Sheriff’s Association (3-1-17)

Grand Rapids Chamber (3-1-17)

The office of the Attorney General (3-1-17)

Being Part of the Solution.

I am encouraged by the many groups committed to being part of the solution to removing barriers to work for the formerly incarcerated.  Goodwill Industries of Greater Grand Rapids lead by CEO Kathy Crosby does a fantastic job of equipping this demographic and putting them into long term employment. Mel Trotter Ministries has placed 135 individuals in their shelter into full time employment in 2016.

Some West Michigan companies who do a great job of reaching out to hire/place those with employment barriers include Cascade Engineering, the work started by its Founding CEO Fred KellerLacks EnterprisesKentwood Office Furniture and Express Employment Professionals of Grand Rapids lead by Janis Petrini  to name a few.

These organizations should give us pause to reflect on how we can do our part.

But for God’s Grace, there go I.

Questions? comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Real Estate Law Update: Investors Purchasing at Foreclosure – Take Care in Handling Personal Property Left at the Property.

May 11, 2017 1 comment

Today I am posting about a Court of Appeals case decided on April 25, 2017  – Suzor v Kamlay 2016-07-22 13.10.20

Foreclosed Property = high risk/high reward.

Real estate investors are always wary of the many pitfalls when purchasing property at foreclosure.

I’ve previously posted on problems when someone is still occupying the Property after foreclosure.

The latest case talks about what happens if the holdover is no longer in the property – but has left personal belongings.

Should you take matters into your own hands and remove the stuff?

What liability does a purchaser have after foreclosure and the expiration of redemption if they remove any personal belongings?

FACTS:

  • Plaintiffs’ home was foreclosed on.
  • The property was sold at a sheriff’s sale.
  • Plaintiffs did not redeem the property.
  • Purchaser sued  and was given a judgment of possession and an order of eviction.
  • Purchaser hired defendant to secure and clean the property and remove any remaining personal property—a process commonly referred to as a “trash out.
  • Plaintiffs brought a claim for conversion, arguing that their attempts to get defendant to return the items of personal property he removed from the foreclosed property were to no avail
  • Defendant argued – I have immunity under the Anti-Lockout Statute, since I was operating pursuant to a Court Order.
  • Trial Court agreed.

 

Anti-Lockout Statute – MCL 600.2918 

Any landlord who has gone through the process of evicting a tenant knows that, in the residential leasing context, there are heightened duties of landlords, and heightened rights of tenants.  Tenants have the right not to have their possessory interest in the property interfered with, without the proper court procedure being complied with (Summary Proceeding Action in District Court).

 

Here, Defendant claimed he was shielded from liability under MCl 600.2918(3)(a) which provides

that “[a]n owner’s actions do not unlawfully interfere with a possessory interest if . . . [t]he owner acts pursuant to court order.” Id. page 2.

The Court of Appeals held though that such immunity only shields from liability if the parties have a landlord-tenant relationship.

“However, the parties to this case did not have a landlord-tenant relationship.”

Also, The Court noted that

“While an owner has the right to lawfully enter the premises and remove belongings left therein pursuant to court order, the owner does not have title over the property removed.” Id. page 4.

 

The Court of Appeals would have presumably reversed on this point, but held that the trial court essentially “got it right, but for the wrong reasons.”   The Plaintiffs failed to provide any evidence to prove their case – that the defendant when he removed the personal property converted them by failing to allow the Plaintiffs to recover the property, or otherwise “that a bailment existed”. Id.  page 4.

 

Conclusion:

A purchaser at foreclosure should be careful in handling the personal property leftover.

 

As the Court of Appeals noted – the purchaser is not shielded from liability under the Anti-Lockout Statute, since there is no landlord-tenant relationship.

Also, the owner may have purchased title to the real estate, but not to the personal property.

 

To avoid any unfounded claims by holdovers, it always makes sense after purchasing property at foreclosure, when there are any occupants present, to go through the lawful channels for a court proceeding to extinguish any possessory rights and to make sure any personal belongings are handled appropriately.

You don’t want to expose yourself to undue liability.

 

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Detroit Startup Week Kicks off with Legal Panels: There are Legal Matters Startups Need to Know.

April 18, 2017 Leave a comment

Detroit Startup Week is about a month away.

It is exciting to see the growth in downtown Detroit.  Detroit was recently ranked the No. 4 City where Downtown is Making a Comeback.

It must be an exciting time to be part of the downtown Detroit community.  The city promises to be buzzing during Detroit Startup Week.

 

Working in downtown Grand Rapids, I can’t help but mention some of our local startup groups.

We have some great organizations that support small business and encourage entrepreneurship in West Michigan, including:

Start Garden

Entrepreneurs’ Organization of Grand Rapids

LocalFirst

GRIN

GRAPE

LinkedUPGR

Grand Rapids Chamber

Small Business Association of Michigan

 

Back to Detroit Startup, Week…

You can check out the events schedule, which includes a whole week packed full of valuable events.

I think it no coincidence that the very first day, May 20th, starts out with Detroit’s Small Business Legal Academy.

It seems fitting that a week long celebrating startups begins with education on all the legal ways things can go wrong.

According to the website:

SBLA Detroit will consist of a series of hands-on panels designed to provide practical legal and professional information necessary for new business owners and entrepreneurs to take their businesses to the next level. The panelists will cover legal issues involving real estate, intellectual property, employment, funding, formation, and organizational issues.

 

From the above excerpt, the legal panels look to discuss real issues that entrepreneurs will run into. I hope many take advantage of these panels.

 

The reality is that there are a host of legal areas that can turn into pitfalls for startup businesses – I write on quite a few of those areas:

Terms and Conditions in Contracts

Non-Competition Agreements

Entity Formation and Personal Liability

Personal Guarantees

 

Cash flow is a barrier for startups. This doesn’t mean you should avoid educating yourself on the legal issues affecting your business.

Take advantage of the resources available.

Consult with an attorney – Particularly law firms friendly to startup businesses.

 

 

e-mail: Jeshua@dwlawpc.com

www.dwlawpc.com

twitter: @JeshuaTLauka