Archive

Posts Tagged ‘real estate investor’

Legal Update for Commercial and Residential Property Managers, Investors: Winter is Here. Are you Prepared?

December 11, 2017 Leave a comment

The snow is coming down in Grand Rapids! I took this photo last week from my office – ice skating has officially started.

IMG_1951

 

With the winter months – comes an issue for landlords, property managers, and real estate investors…

icy sidewalks and parking lots.

These types of conditions are a primary reason why investors hold real estate in LLCs.

Two recent Michigan court cases came out where tenants sued their landlords for injuries related to slip and falls on icy sidewalks/parking lots:

Schuster v River Oaks Garden Apartments

Ferguson v Lautrec LTD

The claims in both cases had to do with a Landlord’s statutory duty under Michigan Compiled Laws 554.139(1)(a) to keep the Property kept fit for its intended use.

 

In General:

A Difference Between Commercial and Residential Leases – FREEDOM OF CONTRACT

The above mentioned duty is one created by Michigan statute. It does not apply to Landlords/Property Managers or owners of commercial real estate with commercial tenants.

In the residential context, tenants have certain statutory rights, in addition to contractual. These rights provide extra protection from a landlord’s ability to evict the tenant and are found in such places as “Landlord Tenant Relationship Act” and “Truth in Renting Act”.

One such right of a tenant – the residential property must be kept fit for its intended use and in reasonable repair. These conditions must be met in order for a landlord to otherwise evict a breaching tenant. Stated otherwise, the covenant to pay rent is not an independent covenant to a landlord’s duty to keep the property fit for its intended use and in reasonable repair.

In a commercial 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”

 

Going back to our Case Studies…

Two Cases of Icy Conditions – different results

Ferguson Case

Ferguson was a tenant who slipped and fell on the sidewalk outside of her apartment building. In court, she argued that defendant was  “liable for her injuries because it breached its duty to maintain the common area of the apartment, i.e., the sidewalk, in a condition fit for its intended use as required under MCL 554.139(1)(a).” Id. page 1.

The Court disagreed.

On appeal, the Court of Appeals affirmed the trial court.
MCL 554.139(1)(a) provides the following:

(1) In every lease or license of residential premises, the lessor or licensor
covenants: (a) That the premises and all common areas are fit for the use intended by the
parties.

Courts have held that “sidewalks . . . constitute ‘common areas’ under MCL 554.139(1)(a).”).

The question the Court asked was: what is “fit” mean in this context?

“Our Supreme Court defined “fit” as “adapted or suited; appropriate,” Allison v AEW Capital Mgt, LLP, 481 Mich 419, 429; 751 NW2d 8 (2008), quoting Random House Webster’s College Dictionary (1997) (quotation marks omitted), and a sidewalk’s intended purpose is for walking, Benton, 270 Mich App at 444.” Id. page 2-3

Defendant, therefore, has a duty to keep the sidewalk adapted or suited for walking.

The court reviewed the facts, as presented in the trial court and affirmed that “In this case, the sidewalk was not unfit simply because there was a patch of ice”. Id. 3

 

Schuster

“According to plaintiff, [Schuster,] the fall occurred as she took her first steps onto the sidewalk surrounding the complex’s mailbox kiosk. As a result of her fall, plaintiff broke her ankle requiring surgical repair with hardware placement.” Id pg 1.

The Court dismissed her claim, finding that Schuster failed to present evidence that the sidewalk was not fit for its intended use.

On appeal, Defendant does not dispute that the sidewalk was intended for walking and specifically for access to the apartment complex mailboxes. However it argues that the sidewalk, even if ice covered,  was fit for its intended purpose.” Id. pg 3-4.

The Court, like in Ferguson, relied on the Michigan Supreme Court decision of Allison:

“In Allison v AEW Capital Mgt, LLP, 481 Mich 419; 751 NW2d 8 (2008), the Supreme
Court considered a landlord’s statutory duty regarding common areas, particularly as concerns natural accumulations of snow and ice. It held that “the natural accumulation of snow and ice is subject to the lessor’s duty established in MCL 554.139(1)(a)” to keep the premises and common areas “fit for the use intended by the parties.” Id. at 438.

The Court held that  the duty of the Landlord was to provide “reasonable access” to
pedestrians seeking to use it. Id. pg 4.

The Plaintiff, Schuster, claimed the sidewalk was “dangerous”.

The Court of appeals noted; “[t]here is substantial evidence that the conditions, as predicted, developed overnight and that by the time of plaintiff’s fall, they were severe.” Id page 3.

The  Defendant Apartment Complex claimed that the presence of snow/ice was merely “inconvenient”.

The Court held that such “genuine dispute” of fact must be presented to a judge or jury. The Court reversed the trial court and sent it back.

 

Another interesting argument – Defendant claimed that it had no “notice” of the icy conditions.

The Court held that “notice” was not a prerequisite to the landlord’s duty to keep the property in good condition.

“We initially note, as we did in our previous opinion in this case, that there do not appear to be any published decisions that establish that notice of the condition is required to establish a breach of the duty under MCL 554.139(1)(a).” Id. Page 5.

Lessons:

  • Whether or not the presence of ice or snow on sidewalks presents a breach of a Landlord’s duty to keep the property fit for its intended use is a “highly factual inquiry”.  It depends on the facts of each case – which is what Schuster and Ferguson demonstrate.

 

  • A Landlord likely cannot avoid its duty to keep the property fit for its intended use by claiming a “lack of notice” of the existence of an icy condition.

 

  • If you are a commercial landlord with a commercial tenant – FREEDOM OF CONTRACT.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Advertisements

Grand Rapids Combats Affordable Housing Crisis – Eviction Prevention Program

November 21, 2017 Leave a comment

 

You know winter is approaching when Rosa Parks Circle begins to freeze over and the ice rink begins to form. See the photo I took from my office yesterday.

In fact, the Ice Rink officially opens on Friday!

IMG_1926

 

Before we know it, downtown will look like a snow globe – see the photo, below, I took from last Christmas.IMG_1927
There is an Address 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

 

 

 

Kent County Eviction Prevention Program

Beginning January of 2018, the 61st District Court will begin a pilot program – the “Eviction Prevention Program” (EPP). Judges Faber and Distel are the initial judges presiding over the EPP.

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.

 

Purpose of the Eviction Prevention Program

The EPP is intended to keep those tenants in housing, who truly want to stay in their housing.

The program will not be appropriate for every tenant.

The EPP appears best suited for those on the margin of being homeless due to an emergency situation (as opposed to those tenants chronically behind in rent).

The EPP provides one-time rent assistance and would allow a Landlord to hold a possession and money judgment in abeyance, pending the Tenant’s payment of rent.

The program is, essentially,  intended as a one-time emergency for those on a fixed or low income, who are essentially faced with the difficult choice of either paying an outstanding medical bill, car repair bill, groceries, etc.., or pay their rent.

 

What Property Managers and Landlords need to know about this program:

Landlords – any tenants behind in rent which have been served a summons and complaint for eviction, beginning in January 2018, should be receiving information about the EPP along with the summons and complaint.

Tenants will know that this is a potential resource to keep them in housing.

What you need to know:

1. The program is entirely voluntary. Landlords can choose to opt out.

2. Not every tenant will qualify. A tenant needs to have income to make the next month’s rent payment.

3. The program is geared towards keeping tenants in housing. If a tenant wants out of your property, the program will likely not be the right fit.

 

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.

Practically speaking, the program works for tenants who have the potential to get caught up, who otherwise are good tenants.

The program is an opportunity for Landlords to get paid and to be part of the solution to the affordable housing crisis.

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

 

 

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

www.dwlawpc.com

Real Estate Law Update: Real Estate Investors Be Careful When Interacting with Occupants of Foreclosed Property.

October 23, 2017 Leave a comment

It is a rainy Monday afternoon. It has beenIMG_1873 dark all day long.  I took this picture earlier today and the rain isn’t letting up.

As a way to distract from the gloomy weather I thought it might be a good opportunity to share some of my thoughts about a court case that came out a few days ago involving a real estate investor, property manager, and a hold over occupant of property.

This case illustrates ways that real estate investors and property managers can go wrong when dealing with occupants of foreclosed property.

 

The Case:

Anderson v Great Lakes Property and Investment, Inc.

Facts: 

“This case arises from defendants’ actions in removing plaintiff and his personal belongings from the rental property, on two occasions, without resort to summary  proceedings in the court.” Id. page 1.

  • In 2008 Plaintiff entered into a month-to-month lease with the property owner.
  • Owner lost the property to a tax foreclosure in 2015.
  • Real Estate Investor purchased the property at tax sale in the fall of 2015, and hired defendant Great Lakes to manage the property.
  • After the purchase, Investor and Property Manager, sent a letter of ownership to all occupants of the property, including plaintiff, which gave plaintiff 10 days to vacate the property.
  • Thereafter, defendant Great Lakes’s sole shareholder, defendant McMorris, came to plaintiff’s unit and demanded that he vacate within 3 days.
  • When plaintiff did not vacate the premises, defendants came to the property on January 15, 2016, and removed plaintiff’s personal belongings from his unit.
  • After defendants left, plaintiff returned to the property, purchased and installed a new lock on his door, repaired the door, and placed his personal belongings back into his unit.
  • The next day, defendants returned and once again, removed plaintiff’s possession from the property.
  • Plaintiff filed a six-count complaint against defendants for a violation of the anti-lockout statute. Id. Page 2.

 

Law:

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)

The Anti-Lockout statute provides damages for forcible ejectment from property or unlawful interference with a possessory interest in property.

 

Subsection (1) (forcible ejection) applies to any person. 

Subsection (2) (unlawful interference) applies to any tenant in possession.

Violating the statute can cause a property owner/landlord to be liable for statutory damages (3 times the amount of actual damages or $200.00 whichever is greater.)

 

Here, the District Court sided with the new Owner – basically holding that the Plaintiff was simply “a squatter”, entitling him to no rights or protections.  Id. page 2.

The Court of Appeals REVERSED!

 

As the Court of Appeals noted, “[t]he Michigan anti-lockout statute, MCL 600.2918, “virtually eliminates the self-help remedy in Michigan in favor of judicial process to remove a tenant wrongfully in possession.” Id. Page 3 citing Deroshia v Union Terminal Piers, 151 Mich App 715, 719; 391 NW2d 458 (1986).

The Court also held that “There is no statutory or caselaw definition of squatter.” Id. Page 4.

The Court also questioned whether the Investor or its Manager gave proper notice to terminate. It was questionable whether the “Notice” mailed to each tenant satisfied the requirements to recover possession of property under Michigan law. MCL 554.134(1) – (holding that “[a] tenant is entitled to one month’s notice to quit in order to terminate a month-to month tenancy at will” Id. Page 4.

 

 

In short – if you purchase property that is occupied, you need to properly use the court systems to remove tenants.

 

Lesson:

 

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

Real Estate Law Update: Bill Moves Forward Allowing Single Member LLCs To Evict Tenants without Legal Representation

September 28, 2017 Leave a comment

 

UPDATE ON PROPOSED House Bill 4463 – Would Allow LLCs to Evict wi

thout 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 witho

2017-09-14 15.04.09

ut 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.

Back in May, the Bill came out of the committee on law and justice and

 

a substitute bill was referred for a second reading.

Just 8 days ago the substitute was adopted. Yesterday the Bill was

referred to the Judiciary Committee.
The Major Difference in the Substitute Bill as Adopted.

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.

 

A Divisive Issue: To be, or not to be your own lawyer?

I commented that I would be surprised if this bill passes, although other states have similar laws.  The reason I was surprised is demonstrated a legislative analysis that came out just a few days ago.

 

A recent Legislative Analysis highlights the extreme opposite view points – those expressed by Real Estate Investors and Real Property Owner Associations, and those of Attorneys and Judges.

 

 

To Hire an Attorney or Not?

As I stated in my last post, the Bill 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

Cautionary Tale for Real Estate Investors: Yesterday California Investor Sentenced to Prison for Bid Rigging at Foreclosure Sales.

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

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

IMG_1684

Rosa Parks Circle in Downtown Grand Rapids

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

 

As a follow up to a story that I have been keeping tabs on, just yesterday, the Department of Justice announced that a judge sentenced a real estate investor for his 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

 

According to the press release: Alvin Florida Jr. was “sentenced to serve 21 months in prison and to serve three years of supervised release. In addition to his term of imprisonment, Florida was ordered to pay a criminal fine of $325,803.

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 sentencing 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 do you believe is going on in your state? What are you seeing take place at foreclosure sales?

In Michigan the record numbers of foreclosed properties since 2008 has provided a market (albeit one that is slowing down) for flipping residential real estate. With this opportunity to profit has also created an opportunity for abuse and fraud.  The real estate legal landscape is complex enough, do yourselves a favor – follow the rules.

 

Questions? Comments?

E-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

Business Law Update: Court Lessons on Personal Guarantees.

Rosa Parks Circle in Downtown Grand Rapids

In the world of lending if a business wants to secure financing, you will be hard-pressed to find a bank that is not going to require some collateral, including a personal guarantee of the debt by the principal owner(s) of the business.

businesses don’t want to sign personal guarantees; it’s why businesses take on the corporate formalities of a limited liability company, or a corporation – to limit their personal liability. Therefore, it is understandable in a lawsuit over a promissory note that an individual would argue against the enforceability of a personal guarantee.
This is a reason why lenders, private investors, should make sure their legal documents are precise – so that in the event a lawsuit needs to be filed the document is not drafted so as to create an ambiguity.
Two cases come to mind that illustrate problems in enforcing personal guarantees – one recent and one a few years back.
June 29, 2017 Real Estate Development case
For an interesting case that went up and down the appellate courts, just look no further than a June 29, 2017 decision of WNC Housing LP v Shelborne Development Company
In that case a mortgage loan for a particular real-estate development project, the “Shelborne Park project,” was in default, and to avoid foreclosure, plaintiffs purchased the debt at a negotiated price.” Id.
The trial court found the general partner in a limited partnership of the development, Makino, to be a guarantor.
Makino appealed the trial court’s determination that she was personally liable, attacking the language of the general partnership agreement. The Court of Appeals affirmed the trial court’s decision that Makino was liable, but the Michigan Supreme Court, vacated that portion and essentially told the Court of Appeals to reconsider it.  The Court of Appeals reconsidered, reviewing the text of Makino’s partnership agreement and found, once again, Makino was liable under the language of the agreement (The pertinent language stated that Makino as general partner “hereby guarantees lien free Completion of Construction of the Apartment Housing on or before May 1, 2003”) . Id. at page 3.
October 9 , 2012 Case of the Ambiguously Signed Promissory Note.
Another example is illustrated in the 2012 unpublished Michigan Court of Appeals case of Marcuz v. Steven Premiere Properties & Dev., L.L.C., 305733, 2012 WL 4801060 (Mich. Ct. App. Oct. 9, 2012)
The promissory note was signed by Branoff twice: once as a “member” of Premiere Properties, and once “individually.” The note was also signed by defendants Mario and Antonio Giannandrea “individually.”
Premiere Properties defaulted on the promissory note so Marcuz sued the company and individuals on September 3, 2009.
In court, Branoff admitted that he signed the promissory note twice, but he claimed his second signature was not intended as a personal guarantee.  But his signature and the two other individuals were simply “because “we were showing…who were going to be the finalized members of the company.

Thus, an ambiguity exists.
Regardless, the trial court and the Court of Appeals disagreed with Branoff.
The Court held that “[w]hen Branoff signed the promissory note first as a “member” of Premiere and second “individually,” he manifested his intent to personally guarantee the note. Simply put, it would have been redundant for Branoff to sign the promissory note a second time if he did not intend that his second signature have some legal effect different from his first signature.”
LESSON from these two cases:Don’t Draft Legal Documents In a Manner That Creates Ambiguities.
Although the Lender in both instances did in fact win the day, the problem remained – they won after litigating a case that went to appeal, (and in Makino’s case, up to the Supreme court and back down to the Court of Appeals) which undoubtedly cost significant legal fees. The  drafter of the promissory note and the partnership agreement – much of the trouble could have likely been avoided if the partnership agreement and promissory note were more clearly drafted.

Questions? Comments?

e-mail: Jeshua@dwlawpc.com

http://www.dwlawpc.com

Twitter: @JeshuaTLauka

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