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Real Estate Investors: Update on Bill Allowing Single Member LLCs To Evict Tenants without Legal Representation

 

A common scenario in my legal practice:2015-11-26-13-04-02

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.

 

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

 

House Bill 4463 was introduced in March and referred to the  committee on law and justice.

 

 

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.

 

Call me surprised.

The Bill recently came out of the committee on law and justice and a substitute bill was referred for a second reading.
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.

 

To Hire an Attorney or Not?

As I stated in my last post, this makes sense for Landlords who want quick and cost-effective resolutions. I understand that an Investor who is not making money on a tenant also doesn’t want to expend additional legal fees to evict a Tenant. This is particularly true since the most attorney fees that a Landlord can recover against a residential tenant is limited to the statutory amount (currently $75).

All business owners make this same business decision –

at what point can I handle a legal matter myself and at what point do I pick up the phone and call my lawyer?

 

However, I will refer readers back to the lawyer who has a fool for a client…

 

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

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

Real Estate Law and Affordable Housing Issues: Lawsuit Alleges Landlords Discriminating Against Families.

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

Owning and Managing Real Estate is challenging.

I hear it from my Property Owner/Manager clients. I experience it when I am in court litigating or negotiating landlord/tenant disputes.2017-02-04-08-16-38-2

Here’s another profound truth:

In many parts of the country, including Grand Rapids, Michigan, we have an affordable housing crisis.

Some of the pitfalls property owners should be mindful of are illustrated in a recent Department of Justice Press Release.

The Department of Justice issued a press release today concerning a lawsuit  filed in the U.S. District Court for the Western District of Washington “alleging that the owners and manager of three Edmonds, Washington apartment buildings refused to rent their apartments to families with children, in violation of the Fair Housing Acts.”

(The complaint is an allegation of unlawful conduct. The allegations must still be proven in federal court.)

According to the press release, the Federal government alleged in its complaint that the “in March 2014, defendant Appleby told a woman seeking an apartment for herself, her husband, and their one year old child that the apartment buildings were “adult only” and therefore not available to her family. The complaint also alleges that at various other times from April 2014 to November 2015, defendants advertised their available apartments as being restricted to adults only

Not good.

The federal Fair Housing Act prohibits discrimination in housing on the basis of race, color, religion, sex, familial status, national origin and disability.

As stated by Attorney Annette L. Hayes of the Western District of Washington
. ““Many families already face challenges finding affordable housing, and they should not also have to deal with unlawful discrimination.””

“Particularly in our tight housing market, landlords must follow the law and make units available without discrimination based on race, color, religion, sex, national origin, disability or familial status.

The lawsuit makes allegations that must be proven in court. However, I wonder, did this Landlord consult with legal counsel on renting practices before posting advertisements for rent?

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

Two takeaways from this news headline:

1. Before renting, it is worth 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 some stringent regulations. To be sure, these rules are there to protect consumers. 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. Make sure your lease is lawful.

 

Questions? Comments?

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Real Estate Law Update: A Discussion on Laches

December 14, 2016 Leave a comment

 

A few years back I wrote a post about the legal doctrine of Laches and how laches relates to real estate disputes.  

Since then, I consistently get a lot of hits on that post – and a lot of searches for “laches in real estate.

Why?

I don’t know. Maybe because its an unfamiliar term, unless you went to law school (even then).

Maybe because it is a valid defense to some real estate related lawsuits. (which it is if you read my previous post).

An October 2016 Michigan court of appeals decision came out on the subject, so I thought I would write about it.

The case:   Charter Township of Lyons v James E. Petty, et al. (unpublished) No. 327686 (Oct. 13, 2016).

But first, as a recap…

The Equitable Doctrine of Laches:

“Laches is an equitable tool used to remedy the inconvenience resulting from the plaintiff’s delay in asserting a legal right that was practicable to assert.” Public Health Dept v. Rivergate Manor, 452 Mich. 495, 507; 550 NW2d 515 (1996).

As such, “when considering whether a plaintiff is chargeable with laches, [a court] must afford attention to prejudice occasioned by the delay.” Lothian, 414 Mich. at 168. It is the prejudice occasioned by the delay that justifies the application of laches.Dunn v. Minnema, 323 Mich. 687, 696; 36 NW2d 182 (1949) .

Therefore in deciding on the issue of Laches, a Court will ask two questions:

1. was there a delay in bringing the claim and, if so,

2. did it prejudice the Defendant?

Question: Why is laches relevant to real estate disputes?

Answer: Because many real estate claims are based in “equity” as opposed to “law”-  e.g. –an injunction, specific performance, action for quiet title…

 

 

Recent Case Discussing Laches: Charter Township of Lyon v Petty, et al.

The Lyons case emphasizes “what type of harm (or prejudice) is a party required to show in order to succeed in a laches defense.”

 

This case was highlight by the Michigan Small Business Association (“SBAM”), since it clarified certain restrictions of small businesses operated on residential lands.

As SBAM reported:

“Two families that operated small businesses out of their homes have to cease their activity on their land because it violated Lyon Township’s zoning ordinance, which had designated the land “residential agricultural.”

 

However, for our purposes, the Pettys, who were operating their businesses on the property, argued that the township’s “decades-long pattern of ignoring their zoning violations, and the investments they made in their business as a result, precluded the township from taking enforcement action…” Id. pg 4.

The Pettys claimed Laches as one of several defenses to the Township’s enforcement of its ordinance.

The Court went through the legal analysis for laches and noted:

“Prejudice is a mandatory element.” and

“The prejudice necessary to establish a laches or estoppel defense cannot be a de minimis harm…” but “…property owners must establish ‘a financial loss…so great as practically to destroy or greatly to decrease the value of the..premises…” Id. pg 5.

 

Lesson:

When utilizing a defense of Laches in real estate disputes, showing merely the passage of time is not sufficient.

Showing the presence of harm due to the passage of time is not sufficient.

Significant harm must be shown.

 

E-mail: Jeshua@dwlawpc.com

http://www.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.

2016-07-22 13.10.20

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

 

Recent Court Case Provides Good Lessons For Real Estate Investors.

September 28, 2016 Leave a comment

Its Wednesday and I wanted to share a court of appeals case that came out on September 15th.

Case: Key Bank v Lake Villa Oxford Assoc, et. al.

Lesson: be careful when drafting “personal guarantees”

I’ve written in the past about personal guarantees.

This particular case involved a real estate development gone bad.

Defendant, developer, Lake Villa and its principal Burnham apparently needed additional funding for the project.

Christopher Investment loaned Lake Villa Rochester $4.45 million, the loan was secured by a second mortgage on the subject property and Burnham, personally guaranteed the loan.

(Note – If I was an investor, and I knew that my mortgage was going to only be a 2nd mortgage, a personal guarantee from the borrower’s owner(s) is definitely a good idea.)

As it turned out, Lake Villa defaulted on its primary loan to KeyBank. KeyBank foreclosed on its mortgage.

Christopher assigned the mortgage and guarantee to Homestead Properties.

When Burnham and Lake Villa defaulted on its loan to Christopher, Homestead declared a default and sought to collect.

Problems arose in litigation.

Burnham claimed the guarantee was not assignable because the specific language in the personal guarantee provided “This Agreement shall be binding and inure to the benefit of the parties and…permitted assigns.” (emphasis mine). Burhman argued – “I never granted permission!”

Keep in mind, that there was no real argument that Burnham defaulted on his repayment obligation. The only relevant question was whether or not Homestead could enforce its rights as an assignee under the personal guarantee.

The trial court agreed!

The case went to a Jury Trial, where a jury returned a verdict in favor of Burnham individually, claiming that the assignment did not intend to benefit Homestead!

However the Court of Appeals did not agree with the Jury or with the trial court.

The Court of Appeals cited the following long standing rules of contract law:

  1. The parties are free to contract as they see fit. Citing Coates v Bastian Bros, Inc, 276 Mich App 498, 503 (2007).
  2. “Under general contract law, rights can be assigned unless the assignment is clearly restricted.” (emphasis added) Citing Burkhardt v Bailey, 260 Mich App 636, 652 (2004).
  3. The Court cited 3 Restatement Contract 2d for the notion that “contractual rights are assignable so long as the assignment is not ‘validly precluded by contract'”. KeyBank, pg 4.
  4. Michigan Courts have “striven to uphold freedom of assignability.” citing Detroit Greyhound Employees Fed Cred Union v Aetna Life Ins Co, 381 Mich 683, 689 (1969).

Conclusion:

The Court of Appeals found that given the legal authority in favor of freedom of assignability, unless clearly restricted, the language “permitted assigns” did not rise to the level that would forbid the assignment.

Burnham was therefore on the hook for the repayment of the debt under the personal guarantee.

Lesson:

Real estate investors: make sure the contractual language in your loan and security documents is clear. Particularly when executing personal guarantees. Courts have recognized that personal guarantees must be “strictly interpreted”.  Bandit Indus, Inc v Hobbs Int’l, Inc 463 Mich 504 (2001).

Here, the language was not clear. The result – undoubtedly significant attorney fees expended in pursuing a jury trial and an appeal.

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

News for Residential Real Estate Investors: Michigan Landlord Settles with DOJ for Allegations of Fair Housing Violations.

August 30, 2016 Leave a comment

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

Owning and Managing Real Estate is challenging.

 

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

 

Some of the pitfalls property owners have to watch out for are illustrated in a recentFederal government press release.

The Department of Justice issued a press release today concerning a lawsuit settlement reached with a Landlord and 7 Michigan apartment complexes over Discrimination Charges brought by the Federal Government. You can review that press release here.

 

According to the press release, the Federal government alleged in its complaint that the “ the defendants, including the rental manager…as well as the corporate entities that own the complexes…discriminated against families with children by prohibiting them from renting one-bedroom units in the defendants’ apartment complexes.

According to the press release: the Fair Housing Center of Southeastern Michigan…had testers posing as prospective residents…ask[ed] to rent one-bedroom apartments. Testers who said that they wanted to rent an apartment with their child were told that children were not allowed in one-bedroom units.” Id.

Not good.

The federal Fair Housing Act prohibits discrimination in housing on the basis of race, color, religion, sex, familial status, national origin and disability.

As stated by Principal Deputy Assistant Attorney General Vanita Gupta, head of the Justice Department’s Civil Rights Division. “Families with children deserve access to housing that meets their needs without facing unlawful discrimination. The Justice Department will continue to enforce the Fair Housing Act to ensure that families with children have the same rights to housing within their price range as people without children.

I’m speculating, but maybe the landlord didn’t know the law.

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 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