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

December 11, 2018 1 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

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

September 20, 2018 2 comments

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

Legal Update for Real Estate Investors Bidding at Foreclosure Sales.

Happy Friday, all.

Here’s a photo I took from this morning. Although the weather looks to be clearing up a little downtown this afternoon…

7.20

 

Real Estate Investors Bidding at Foreclosure Sale.

Real estate investors and lenders are under pressure to “get it right” when bidding at sheriff sales, especially in a real estate market like Grand Rapids – 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 a foreclosure sale.

 

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

 

What to Do with Surplus Funds?

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

This issue has come up for clients of mine in the last few years. In the past, it seemed to me that there was general confusion on the part of everyone involved – Court Officers, Courts, and parties to a foreclosure.

 

The Michigan Court of Appeals decided these issues in a 2016 opinion – see the case Trademark Properties of Michigan, LLC v County of Macomb

 

 

What Will Court Officers Do with those funds?

I think this case is worth discussing since this particular case is posted on the Michigan Court Officers, Sheriffs, and Process Servers Association website

So if you want to know how a Court Officer is going to handle surplus funds – this case is probably good guidance.

 

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

Business Law Update: A Booming Downtown Real Estate Market Means Businesses Should Pay Careful attention to Contracts.

June 5, 2018 1 comment

Happy Tuesday, all.

I took this photo yesterday from the skywalk between the Amway Grand Plaza and the DeVos Place Convention Center. I like walking downtown and watching the development unfold.

6.4

It is an exciting time to be working or living in downtown Grand Rapids. Everywhere you look, real estate development is transforming the town.

Check out Experience Grand Rapids for a detailed list of all the current downtown development.

Not to rain on anyone’s parade (but that is kind of a lawyer’s job)…

With increased commercial activity comes increased opportunity to fall into legal pitfalls.

 

 

As I tell my clients – if you are in business for any amount of time, it is just a matter of time, you will probably get into a business dispute.

Real estate development is no exception. The more transactions, the more opportunity for hiccups along the way.  A Court opinion I read last week brought this reality to  my mind.

 

Case Study

Last week an unpublished Michigan court of appeals case was released that highlights some contract drafting pitfalls. You can check out the May 31st unpublished decision of Greater Faith Transitions, Inc. v Ypsilanti Community Schools here

 

The case was about a commercial lease in which Landlord also granted Tenant an option to purchase the Building.

These “lease with options to purchase” can pose interesting questions – as the facts of this case illustrate.

Summary of the Facts

  • On August 13, 2013, plaintiff and defendant entered into a lease with option to purchase a property in Ypsilanti owned by defendant.
  • The parties intended the lease to be effective until August 31, 2018.
  • Under the lease terms, plaintiff was required to make monthly rent payments and to pay for all utility bills, including water bills.
  • According to plaintiff, it had attempted to enforce its option to purchase the property in a text to defendant on February 2, 2017, that stated:
    I tried to call you to make you aware of the fact that we’re buying the church this year.
  • On February 13, 2017, defendant sent to plaintiff a letter from its attorney and a Notice to Quit Termination of Tenancy, claiming that plaintiff was in default of the lease for repeated failure to pay water bills.

Plaintiff, tenant, sued its landlord, among other things, for interfering with its right to exercise its option to Purchase.  The trial court ended up dismissing Tenant’s lawsuit.

The tenant appealed.

The opinion of the Court of Appeals was interesting, essentially holding that the tenant’s claim for breach of contract was not ripe – since a contract was not yet breached. The tenant was not yet evicted.

(See opinion, page 2 – “Plaintiff claims that “Defendant’s improper use of summary proceedings to evict Plaintiff from the leased premises will breach the parties’ Lease
with Option to Purchase because Plaintiff will be deprived of its right to cure any defaults during the term of the Lease (i.e., through August 31, 2018) so that Plaintiff can exercise its option to purchase thereunder.”)

 

The ultimate ruling aside, the case, to me, provides a good opportunity to highlight a few drafting issues that can come up in commercial leases.

First, a general point I want to bring to the business owner’s attention:

Why Careful attention to Business Contracts is important – Freedom of Contract 

First and foremost, when entering a business contract each party should understand – they will be bound to the contracts they sign.

In a commercial lease context the courts’ mantra is “Freedom of Contract“.

The Court will look at the contract that the parties’ agreed to, and, absent extraordinary circumstances, enforce it by its term. (therefore in  a commercial lease you might see language such as the following “rent is due with no right of offset, setoff, counterclaim…”) In such instance, the landlord is telling the tenant that tenant has no right to withhold rent just because landlord may have breached a duty under the lease.

The Courts have recognized that commercial landlords and tenants are “free to contract”:

 

Drafting Issues.

Going back to the court opinion, it doesn’t appear to me from reviewing the opinion that the parties disputed that the tenant defaulted in failing to pay utility bills.

Question:

Did the lease have a provision that said that the “Option to Purchase” terminated if:

  • the tenant had been in default at any time?
  • or, only in Default at the time the Option was being exercised?
  • Or, did it say nothing on the subject of Default?

Another question:

was there a lease provision that strictly provided where “notices” must be sent?

e.g. – was it left up to the parties to interpretation whether or not notice delivered “via text message” was an appropriate method?

 

If these issues are plainly addressed in business contracts, then possibly, the parties avoid a lawsuit.

 

 

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauk

 

 

 

Small Businesses and Startups: What you Don’t Know Can Hurt You.

It is truly starting to feel like summer in downtown Grand Rapids! This was the scene today from my office.

5.17.18

 

Summer is coming fast and so is Detroit Startup Week. Scheduled from June 18-22.

 

According to its website, Startup week is:

“A week long celebration of Detroit’s entrepreneurs. Volunteer-led and completely free for attendees, we are aiming to create a community driven event that builds a stronger startup ecosystem. Startup Week is held in dozens of cities around the world.”

 

Crain’s Detroit reported this week that the venue will be moved to outdoors where a crowd of 8,000 – 10,000 is expected, up from last year’s 6,500.

Crain’s reports that Startup week will consist of similiar “weeklong collection of panel discussions, speeches, activities, networking and competitions is bringing back its women-tailored entrepreneur events.”

Last year the week kicked off with Detroit’s Small Business Legal Academy.

I think it is no secret – that startup businesses would do well to get some basic legal  during their business startup

 

I had a client just yesterday send me this e-mail, below (unprompted) which I was given permission to share – it is extremely on point:

 

“I don’t think you understand how valuable your assistance is. A small guy like me, without you, would sign whatever they put in front of me and get into big trouble because of that someday.  The problem is that most small businesses don’t understand how critical legal review is either.” – client

 

The reality is that there are a host of legal areas that can turn into pitfalls for startup businesses – over the years I have written on quite a few of those areas, including:

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

 

Business Law update: Michigan Senate to Take up “Pyramid Promotional Scheme Act”

 

It is a rainy day in Grand Rapids, today. I took this photo of Lyons Street – showing the Amway Grand Plaza and the Windquest Building.

Speaking of Amway and Windquest, the Michigan House passed a Bill that would benefit Amway’s direct sales business.

5.3.18

 

The Michigan legislature has been busy proposing some interesting laws that affect business.  I posted a few days ago on the recent BCorp legislation. 

The Legislature also apparently wants to clarify that direct selling companies like Amway are not within the definition of pyramid schemes.

The Michigan House recently passed four bills that would create a new Act known as the Pyramid Promotional Scheme Act. 

Those Bills appear to address the question: what is a pyramid scheme v.s. what is a perfectly legal direct selling business.

Not surprising, the following companies were in support of the Bills:

Direct Selling Association
Amway
American Communications Network
Mary Kay, Inc.
Southwestern Advantage

 

According to an Article published by U.S. World News 

“The new classification more obviously sets distinctions between pyramid schemes and traditional direct selling companies such as Amway, which testified in support of the bill. The legislation exempts operations that repurchase unsold inventory from participants at no less than 90 percent of the original cost.”

the Bills would create a new Act known as the Pyramid Promotional Scheme Act, amend the criminal code, as well as the Michigan Consumer Protection Act.

For more detailed information you can check out the House Fiscal Agency’s Analysis of these 4 bills.

According to the HFA this legislation is intended:

“to more clearly define a pyramid promotion scheme and provide for the attorney general to investigate and prosecute when violations are found”

 

Stiff Penalties

According to the new Act:

“Any person that promoted a pyramid promotional scheme would be guilty of a felony
punishable by imprisonment for not more than 7 years or a fine of not more than $10,000 (per violation), or both.”

 

With penalties this severe, it is understandable why certain companies would want to insure they are clearly on the right side of the law.

 

What’s Next.

Next week the State Senate Commerce Committee will be taking on these four bills.

The Meeting will be held on Wednesday, May 9 at 9:00 am in Lansing.

This could result in a fast track course for this new Act.

Questions? Comments?

Jeshua@dwlawpc.com

http://www.dwlawpc.com

Connect with me on Twitter: @JeshuaTLauka

 

 

 

Real Estate Law Update for Investors and Lenders: Court of Appeals Holds “Admittedly Curious Practice” “Expungement Affidavit” is Not Permitted under Statute.

April 20, 2018 Leave a comment

Happy Friday, all! I took this photo today – the sun is shining and it is starting to feel like spring.

4.20

 

 

In what was already a shocking day for a major lender, Wells Fargo, the Michigan Court of Appeals, in a case of binding precedent, invalidated an efficient tool lenders and investors routinely utilized to undo a foreclosure and revive a mortgage.

I just reviewed a published Court of Appeals decision that came out yesterday that will change the way investors, lenders, and mortgage holders set aside foreclosures.

 

 

The Case: Wilmington Savings Fund Society, et al. v Clare

The Facts are a bit complex, however they can be summarized as follows:

Defendant owned property in Hemlock, Michigan. The original lender held a mortgage on the Property; this mortgage was assigned numerous times. Id. page 2.

In 2010 lender’s assignee (“new lender”) foreclosed on the mortgage. After the redemption period expired, the new lender filed an action to evict the mortgagors/homeowners (“homeowners”).

After trial, the Court found in favor of the homeowners.

the court basically held that the new lender could not provide sufficient evidence that there was a proper chain of title passing on to new lender. Id.

In 2014 new lender’s servicer, Ocwen filed an “Affidavit of Expungement” – which stated that, among other things, the new lender:

agrees to set aside the above Sheriff’s Deed, making it void and of no force or effect, thus reinstating and reviving the above mortgage and Note”  Id.

 

Expungement Affidavit

The Expungement Affidavit has been a common tool used by lenders/mortgage holders  who have foreclosed on mortgages to record an affidavit that would, in theory, and relying on MCL 565.41a, set aside the foreclosure sale, sheriff’s deed, and reinstate the underlying mortgage. See Id, page 6.

The Sixth Circuit Court of Appeals indicated that this is a “admittedly curious practice” other states with similar statutes have not interpreted the statute to allow the affidavit to be used in this way. Id. Citing Wuori v Wilmington Savings Fund Society, 666 Fed Appx 506, 510 (CA 2016).

 

The Court of Appeals agreed and held, as an issue of first impression:

“a Party cannot set aside a foreclosure sale simply through the unilateral filing of an expungement affidavit.” Wilmington, Page 5.

The Court analyzed the statute and held “the plain language of the statute does not include any indication that an affidavit may be used to create a condition. It necessarily follows that a party cannot unilaterally revoke a foreclosure sale by recording an affidavit that is itself the claimed condition.” Id. pg 6. (emphasis in the original).

 

 

Lesson

So, investors and lenders have one less tool at their disposal for what was an efficient method to clear up title if there was a problem with foreclosure.  Since this case is binding precedent, lenders showed take note of this.

 

 

 

 

 

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

www.dwlawpc.com