Articles Posted in Real Estate

Bankruptcy and Sheriff Sales Blog ImageAs a professional real estate developer or someone with an interest in purchasing real estate at a sheriff sale, you need to understand how the bankruptcy and foreclosure laws work together.  Foreclosure is a process by which a private party (a bank for example) or a municipality bring a lawsuit to collect monies that are past due. This can be taxes or other fees owed. Once a judgment is entered, the sheriff will schedule a sale to satisfy the money owed at a public auction.  This is known as a foreclosure or sheriff’s sale. Can a bankruptcy filing stop a foreclosure?  The simple answer is yes. However, the investor that fails to perform simple due diligence can make a foreclosure sale purchase a very costly and time consuming proposition.  Before turning to this, a little background on the bankruptcy laws.

Bankruptcy: The Automatic Stay.

The day a debtor files bankruptcy (Chapter 13, for example), is the petition date.  On the petition date, a legal wall comes down known as the automatic stay.  All creditors are now required by federal law to stop collection efforts for debts owed prior to the petition date.  This includes all demand letters, lawsuits and sheriff sales.  So long as the petition date is prior to the “gavel falling” at the sheriff sale, the real estate remains with its original owner.  However, if bankruptcy is filed after foreclosure, even one day after, the real property passes to the successful bidder. The real property is then not part of the debtor’s bankruptcy estate.

For the viewers, reality television offers an escape and a harmless entertaining view of what a new house, fashion choice, or social situation might be like. For participants however, the experience can be anything but harmless.  On the HGTV show “Love It or List It”, homeowners turned to the show producer Big Coat TV and contractor Aaron Fitz Construction to renovate their North Carolina home. The couple had deposited $140,000 into an escrow account with Big Coat TV prior to construction to cover the cost of the renovations performed by Aaron Fitz Construction during the course of the taping. Plans were submitted for what the couple was looking for prior to agreeing to have their experience filmed.

In practice however, the episode shows an entirely different contractor who is not licensed in North Carolina.  A scaled down and subpar version of the original plans was completed.

The homeowners have since filed a lawsuit in Durham County Superior Court asserting claims for breach of contract and deceptive trade practices. The lawsuit contends that the work completed was shoddy and left the home “irreparably damaged”, with holes in the floor, low grade supplies, windows painted shut and more. It also questions why payments were not distributed as agreed to in the original contract as well as Big Coat TV’s use of unlicensed professionals. Instead of the couple paying for their renovation with a licensed contractor and having it filmed for a television program, they essentially paid for a set to be built that benefits the show and its advertisers that leaves this family with a potentially uninhabitable home.

On January 4, 2016, Pennsylvania Governor Tom Wolf eliminated the Capital Stock Tax and Foreign Franchise Tax for all taxpayers effective for tax years beginning on or after January 1, 2016. Previously, the Capital Stock and the Foreign Franchise were imposed on all limited liability companies (LLCs), corporations and a few other entities that were formed or doing business in Pennsylvania. These taxes were not imposed however on an entity that was formed as a state law partnership. As a result, the limited partnership was the entity of choice to own real estate.

With these taxes eliminated, Pennsylvania joins the rest of the country with the LLC now being entity of choice for owning real estate. Keep in mind however that with while this is the law right now, there still is no budget in place. The theory is that the elimination of these taxes will spur economic development and create greater tax revenue in the long run at the cost of losing what had been declining capital stock tax revenue.

Who knows what will happen if the budget is just a little short of what is needed that the January 4, 2016 repeal isn’t tweaked to bring the budget into balance. Regardless, this is the law as it stands today and we are here to advise you of the best way to invest in real estate while protecting your assets and giving you the most flexible management choices that are available. If you have any questions, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt, P.C.

President Obama recently signed into law The Fixing America’s Surface Transportation Act also known as the “FAST Act”. What people may be surprised to learn is that this new law also adds Section 7345 to the Internal Revenue Code which provides in part as follows:

“(a) In general.—If the Secretary (of State) receives certification by the Commissioner of Internal Revenue that any individual has a seriously delinquent tax debt in an amount in excess of $50,000, the Secretary shall transmit such certification to the Secretary of State for action with respect to denial, revocation, or limitation of a passport….”

Think about this for a second. Your passport will now be used against you as a collection tool. If notified by the IRS, the Secretary of State may pull your passport; refuse to renew it or even to issue you one in the first place. The monetary threshold for a “seriously delinquent tax debt” is only $50,000. Once you consider this includes interest and penalties, it is easy to see how quickly this threshold can be met.

Over the past few weeks several landlord clients called and asked the same question, “My tenant bolted and left some of his junk behind. Can I throw it out?” The answer to each landlord was slightly different but came from the same source – 68 P.S. § 250.505a – better known as Pennsylvania’s “Disposition of Abandoned Personal Property Act.” This Act became effective a little more than a year ago in December 2014 and actually is the second attempt by the Pennsylvania legislature to provide guidance to both commercial and residential landlords on how to properly get rid of property that has been left behind.

The Act starts off by identifying five distinct circumstances when personal property remaining on leased premises may be deemed abandoned.

(1) The tenant has vacated the unit following the termination of a written lease.

I was driving into work this morning and I heard on the radio a caller complaining that the secret service cancelled her wedding just 8 days short of the big day because of the Pope. So I started thinking, what happened to all the deposit money? Did she lose it all-the money-not her mind. What about the caterer or the photographer? Did she owe more than just the deposit money? And then I thought-is this the ultimate Act of God defense?

In contract law, when party fails to perform according to the terms of the agreement it is viewed as a breach of contract. However, sometimes there are justifiable reasons that will allow or excuse a party from performing according to the terms of their agreement. For example, when Hurricane Sandy destroyed most of the hotels along the Jersey Shore, these hotels were excused from liability based upon their failure to provide accommodations or being able to host wedding receptions. In essence, an act of God may be interpreted as a defense for failure to perform based upon impossibility or impracticality. So I ponder, is the Pope being in Philly the ultimate Act of God defense.

If you have any questions regarding your legal obligations under a contract you are a party to or any other issue affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

On July 1, 2015, Pennsylvania’s new Entity Transaction Law went into effect and made it easier, faster, and cheaper for business entities to engage in “fundamental transactions” with another business entity. Examples of fundamental changes include a merger of one company into another, an amendment of a company’s articles of incorporation or converting your existing “corporate form” into another business entity. Previously, this took a lot of time and was costly. Now this can be done quickly and cheaply.

The new Entity Transaction Law sets forth five (5) fundamental business transactions that may now take place irrespective of the form of either business entity involved:

  • Merger of one entity with or into another business entity;

For those of us that actually read the bottom of their lawyer‘s email you probably noticed the arcane “IRS Circular 230 Disclosure” that stated the advice contained in this email is not intended and cannot be used for tax avoidance purposes etc… You then probably thought to yourself, but I was just confirming lunch, what the heck does this have to do with tax advice anyway? Perhaps a little perspective is in order.

Circular 230 was the IRS’s compilation of regulations regarding tax services provided by lawyers and other tax professionals with respect to the tax shelter abuses of the 1990s. Circular 230 set the minimum standard with respect to written tax advice and therefore wound up being placed on everything.

Thankfully the IRS issued new rules on June 12 (click here for PDF of rule) which included the following statement; “Treasury and the IRS expect these amendments will eliminate the use of a Circular 230 disclaimer in email and other writing.” Good riddance and where are we meeting for lunch again?
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These are dangerous times to be starting your new business. The economy is tight, money is not readily available and your legal budget is next to nil. You’ve heard that you need to incorporate to protect your family assets and you keep hearing on the radio that you don’t need a lawyer. In fact, you do some quick internet research and feel you can do it yourself. Having practiced for over 20 years now I am confident in stating that yes you can do this on your own but you might make a critical mistake. Doing legal research online without the appropriate background is dangerous. The first answer you get may not be the correct answer and you really are not in a position to recognize whether what you found on the web is just what you “wanted” to find or really the legally correct answer.

For example, after you incorporate you need to decide whether you want to be a C corporation or an S corporation. Usually the S election is preferable for smaller entities because it eliminates taxation at the shareholder level whereas a C corporation is taxed at both the corporate level and the shareholder level. Seems straightforward enough, right? You google S election and click on a link to the Department of Revenue website (click here) where it clearly states that any federal S election is automatically a S election unless you opt out. However, right under the Department of Revenue’s link is Pennsylvania’s Open for Business website link (click here) that clearly states you must file for S-corporation status within 75 days of incorporation. This is a website that was created for the purpose of assisting new business owners and has the Governor’s name on the top yet its advice is 180⁰ opposite the Pennsylvania Department of Revenue.
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Just last week a new law went into effect in Pennsylvania with very little fanfare but it’s likely to have a major impact on anyone who buys, sells, or owns real estate in the Commonwealth.

Act 93 changed the tax lien law, making real estate tax judgments personal. What does this mean? Before this new law took effect, when a property owner failed to pay their tax bill the municipality would obtain a lien against the property. But because of the way liens worked, this was not a judgment against the owner, only against that one property. This procedure led to a situation in which many property owners simply did not pay their real estate taxes. In cities like Philadelphia, where a lot of rental properties are owned by small investors or passed down between family members, this has created tax collection issues. Since the municipal lien didn’t affect the owner’s personally, many owners found it advantageous to simply not pay. If a property owner owed more than the property was worth, they could just kept collecting rent until the Sheriff Sale, if it ever happened. The municipality never got paid what was owed, and personal liability never attached.

Under the new law, the idea is that the lien will also be against the owner, not just the property. This means you will not be able to finance or sell a different property until the lien on the tax delinquent property is paid. Additionally, your own home may be at risk, and you can no longer just walk away from a property without ever paying the tax due. This makes perfect sense; it’s finally giving local municipalities the ability to collect outstanding taxes which is something cities like Philadelphia have spent years clamoring for.