“ARE LAND CONTRACTS NOW SAFE UNDER THE SAFE ACT?”
Posted on | July 27, 2010 | 1 Comment
Regulators Suggest Land Contracts Are Not Subject to New Law
Background
In 2008, Congress passed and President George Bush signed into law the Housing and Economic Recovery Act, (Public Law 110-289) (HERA). HERA is designed to assist with the recovery and the revitalization of America’s residential housing market – from modernization of the Federal Housing Administration, to foreclosure prevention, to enhancing consumer protections. The SAFE Act is a key component of HERA.
The SAFE Act is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators. The SAFE Act requires states to have licensing and registration systems by July 31, 2010. Indiana’s SAFE Act law was passed last year and goes into effect in June 2010. An easier-to-read version of the Indiana law appears in the Indiana Administrative Code.
You Need a License, If You Are a “Loan Originator”
You need a loan originator’s license, if you are a loan originator as defined by the new Indiana law enforcing the SAFE Act. In a sentence, anyone who offers or provides a residential mortgage loan or extends credit for a home purchase is deemed a loan originator and is required to get a license.
You Might Be a “Loan Originator”
The SAFE Act defines “loan originator” as “an individual who (1) takes a residential mortgage loan application; and (2) offers or negotiates terms of a residential mortgage loan for compensation or gain.” This definition is broadly interpreted. If you sell a residential property on credit, YOU ARE PROBABLY A LOAN ORIGINATOR under the SAFE Act.
Indiana’s Law Has (Already) Changed, Since July 1, 2010
Indiana passed its Safe Act statute with an effective date of July 1, 2010. Originally, the following regulation appeared to draw land contracts into scope of the Safe Act:
“Mortgage transaction” means a loan or consumer credit sale in
which that is or will be used by the debtor primarily for personal, family, or household purposes and is secured by a mortgage, or a land contract, or other equivalent consensual security interest on a dwelling or residential real estate.
(emphasis added).
Sometime in July 2010, Indiana proposed a new regulation that deleted the term “land contract” from the definition of a “mortgage transaction.” The new definition reads as follows:
“Mortgage transaction” means a loan or consumer credit sale that is or will be used by the debtor primarily for personal, family, or household purposes and is secured by a mortgage or other equivalent consensual security interest on a dwelling or residential real estate upon which is constructed or intended to be constructed a dwelling.
Clearly, the term “land contract” was deleted from the regulation. However, the question is this: Is the definition of a “mortgage transaction” still broad enough to include land contracts?
In an effort to get this question answered, a number of lawyers and real estate brokers have contacted the Indiana Department of Financial Institutions and have spoken with Jim Harrell, Assistant to the Supervisor-Consumer Credit, about the applicability of the Safe Act to land contracts. What this author has been told is that Department of Financial Institutions deleted the term “land contract” from the regulations, because the Department of Financial Institutions believes the statute should only apply to transactions where title to the real estate has transferred to the consumer-borrower.
A Word of Caution
This author has concerns that the Safe Act is so broadly written that future regulators could apply the law to land contracts, or at least argue that land contracts fall within the scope of the law. We should assume that neither Jim Harrell nor anyone else from the Indiana Department of Financial Institutions will testify in defense of someone using a land contract in years to come. Nor would this evidence be admissible in an Indiana court.
The new regulations make no mention of title to land transferring as a definitional component of the new law. In fact, with regard to ownership of real property, the terms “title,” “transfer,” and “deed” appear nowhere in the new regulations. There is arguably no language in the Safe Act or Indiana law supporting the interpretation given by the Indiana Department of Financial Institutions.
Under the new regulations, the term “loan” still includes “the creation of debt by the creditor’s payment of or agreement to pay money to the debtor or to a third party for the account of the debtor; or the extension of credit by a person who engages as a seller in credit transactions primarily secured by an interest in land.” That language sounds like a land contract to many real estate lawyers.
The new regulations do not exclude land contracts. Nor does the statute or regulations contain any language distinguishing situations where title has or has not transferred, as part of a “mortgage or other equivalent consensual security interest on a dwelling or residential real estate.” The term “land contract” has merely been deleted from the definition of a “mortgage transaction.”
So, until regulators expressly exclude land contracts from the Safe Act, be cautious in the use of land contracts.
Exclusions
There are exceptions under the SAFE Act. Here are a few:
• Selling a home you previously occupied/lived in as your residence.
• Certain clerical and administrative tasks.
• Selling a home to an immediate relative, as defined by the statute.
• Selling commercial buildings, as defined by the statute.
• An attorney who negotiates terms of a residential mortgage loan with a prospective lender on behalf of a client as an ancillary matter to the attorney’s representation of the client, unless the attorney is compensated by a lender, mortgage broker, or other mortgage loan originator or by an agent of such lender, mortgage broker, or other loan originator.
What Is a “Dwelling”
The SAFE Act’s definition of “residential mortgage loan” includes a loan secured by a consensual security interest on a “dwelling” and cross-references the definition of dwelling in section 103(v) of the Truth in Lending Act (TILA) (15 U.S.C. 1601 note). Regulation Z, which implements TILA, defines dwelling to mean “a residential structure that contains 1 to 4 units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.”
As always, feel free to contact this author for specific answers to your real estate investing and legal questions, or call for a consultation. Good luck and Happy Real Estate Investing.
It’s a boy!
Posted on | June 5, 2010 | 6 Comments
I’d like to announce the birth of my son-
Blake Matthew Vivo Griffith
June 5, 2010 - 3:35 a.m.
7 lbs., 7 ounces
21.5 inches long
Baby and mom are doing great. I’ll be in and out of the office next week. Thank you for all the love, support and messages of encouragement.
Matt Appears on “The Buzz”
Posted on | June 4, 2010 | No Comments
Lawyers talk. So why not use TokBox?
Posted on | May 18, 2010 | No Comments
My use of TokBox to improve how I communicate with my clients and control overhead/fees was recently featured on the MarketingTechBlog. Check it out-
http://www.marketingtechblog.com/marketing/talk-to-me-with-tokbox/
Announcing the formation of my new law firm. . .
Posted on | April 9, 2010 | 1 Comment
After 18 years of practice with a downtown Indianapolis law firm, I am pleased to announce that I am launching the Griffith Law Group- my own law firm dedicated to serving the needs of solopreneurs, entrepreneurs, small to medium sized business, and business owners. I will also continue my work representing real estate investors, builders, building trades, property managers and other real estate professionals. Initially, our new offices will be located in the first Small Business Development Center developed by Rainmakers Marketing Group, Inc.
Starting on May 1, 2010, my new contact information will be:
Griffith Law Group
7208 N. Dobson Street
Indianapolis, IN 46268
317-663-0650
The Griffith Law Group will offer legal services in a very different, results-oriented style. Our emphasis is on educating clients and empowering them to make good business decisions that are cost-effective and consistent with their personal, financial and professional goals. To learn more about how our approach to the practice of business and real estate law is different, please visit our website:
We also encourage you to sign up for our electronic newsletter, through which we share important business news and information about changes in the law that might impact your business or real estate interests.
As always, please feel free to contact us with any questions or concerns about your business, real estate or other legal needs. We look forward to serving you.
Matthew A. Griffith, Esq.
Is Your LLC or Corporation Current & Updated?
Posted on | April 5, 2010 | 1 Comment
Limited liability entities- such as corporations and limited liability companies- require basic maintenance. Yet, amazingly, a large percentage of Indiana corporations and Indiana LLC’s are not updated by management or owners. What they risk by failing to upkeep these entities is nothing less than having a court ignore the “corporate shield” by applying liability directly on the owners of the corporation or LLC.
It is not expensive or hard to maintain an Indiana corporation or Indiana LLC. The necessary tasks should begin with a visit to your business attorney, CPA and insurance agent. However, those are just the three most important tasks to complete. There are several others.
Here is a short list of important tasks to complete regularly-
- Visit yourIndiana business attorney to review the corporate records and status of the business.
- Visit your CPA for a review of the financial health of the company.
- Visit your insurance agent to contact a full insurance review.
- Hold an annual meeting of the owners- members in an LLC and shareholders in a corporation. Elect LLC-managers or corporate directors at these meetings.
- Hold an annual meeting of the directors in a corporation. Elect officers at this meeting.
- Create minutes of all annual meetings.
- File biennial reports with the Secretary of State.
- Update an assumed business names with appropriate filings with the Secretary of State and county recorder.
- Remind officers and key personnel on the appropriate operations of a limited liability entity.
- Review all contracts, processes and procedures that might lead to liabilities.
- Conduct a risk audit, which should include a physical inspection of your business facilities.
Of course, each business has unique needs, but this list generally applies to businesses of all types and sizes.
Avoid Collection Problems- How to Get Paid by Your Clients
Posted on | March 27, 2010 | 2 Comments
Businesses often experience difficulties in collecting monies owed to them by their customers and clients as soon as the business first begins offering its goods and services. Every business has experienced some difficulty in getting paid all it is owed, and many business plans are formed with the presumption that a certain percentage of the business’ accounts receivable will go uncollected. The problem of collecting accounts receivable is not usually the cause of a business’ failure, as more businesses fail from undercapitalization. However, collections problems can prevent a business from growing and will always negatively affect the business’ profitability.
There are things a business can do to minimize its risks that an account receivable will become uncollectible. And as is usually the case, preventing the problem from occurring is far less costly than curing the problem once a client or customer fails or refuses to pay you for your goods and services. Whether your business is the sale of pastries, providing rental housing or the construction of high-rise office buildings, the following suggestions, where applicable, should help you increase your collections and avoid much frustration and anguish in the process. Try following these basic collections rules.
Get It In Writing.
It may sound elementary, but it is so very important that you memorialize your agreements with customers, clients and other businesses. Any change, termination or other modification of an agreement should also be memorialized. For example, in a construction context, a “Change Order” form may often be used. To avoid a variety of legal and tax trappings, all written documents, including your regularly used forms, should be reviewed by your legal counsel and tax advisors.
Get Paid In Advance.
Easier said than done, but your goods and services are not free. You should require substantial deposits and down payments before you begin ordering parts or using materials. And you should require payment-in-full before you begin performing services or relinquish control of your property. Remember that until your customer has paid you for a good, the customer is not entitled to the fruits of your labor. This rule may best be exemplified by the landlord who demands rent to be paid on the first day of every month during which the tenant will occupy the leased premises. In essence, the tenant pays in advance. But when the tenant fails timely to make the rent payment, the tenant is essentially a trespasser and the landlord should immediately begin eviction proceedings.
If You Don’t Get Paid In Advance, Get Security.
Obviously, this rule does not apply to leasing agreements or the simple cash transaction such as the sale of a dozen doughnuts. In larger transactions, particular those involving the sale of moveable personal property and real estate, the seller should demand a security interest in something of value. A mortgage, a recorded land contract, a mechanic’s lien and a lien on personal property are familiar examples of security interests. But many people forget that a business can agree to provide services, such as structural repairs to a house, and in exchange receive a security interest in an entirely different property, such as an office building, delivery truck or car owned by the customer. Or alternatively, that same business could require a security interest in the house, office building, delivery truck and car, or some combination thereof. Having a security interest may also improve your chances of recovery in the event the customer files for bankruptcy protection.
If The Customer is Credit Risky, Demand A Co-Guarantee.
Many businesses extend credit to customers while fearing that the customer is a credit risk. In such circumstances, the customer should be made to provide the signature of a co-guarantor who promises to pay the customer’s debt to you in the event the customer does not. Remember, however, that the co-guarantee is only as good as the co-guarantor is creditworthy.
If Your Contract Does Not Allow For Collection Costs,
You Connot Get Them.
The “American Rule” is that litigants pay their own attorneys’ fees. So, if you must retain an attorney to collect a debt, you will pay the attorneys’ fees and most other collections costs. The exceptions to the American Rule are the existence of a written contract allowing the recovery of attorneys’ fees, a statute allowing such recovery; or the assertion of a frivolous, unreasonable or groundless claim or defense. The easy solution to the American Rule is to include a provision in your contracts allowing YOU to recover your attorneys’ fees, collections and court costs. Your customers should not have the same right to recover against you.
The Check Is Never Truly In The Mail.
The lesson here is to begin legal proceedings as soon as possible and not to delay in collecting your money or retrieving your property. Equally important, you should read your written agreements to determine whether you are required to provide any notices or demands to the customer before commencing a collections action against the customer. The longer you wait, the more likely the customer will be difficult to locate; the customer will have been hidden his/her assets; or your property will have been destroyed, devalued or transferred to third-parties.
As a final suggestion, consult your attorneys as soon as you suspect difficulty in collecting a debt. Often a stern letter from an attorney on a law firm’s letterhead can have a dramatic effect on a delinquent customer. You also should consider consulting your attorneys to review your entire billing and collections processes. Thrasher Buschmann Griffith & Voelkel, P.C. has often assisted businesses whose agreements, leases and other forms were outdated or lacking important provisions which would allow the business to pursue additional remedies against a delinquent customer. If we can help you or your business, please contact this author.
Indiana Attorney General Targets Real Estate Investors
Posted on | March 4, 2010 | 6 Comments
If you are engaging in any of these real estate transactions in Indiana, you should read this blog article-
- Buying on option & then selling (assigning) the option.
- Buying & reselling using a “double close”
- Buying “subject to” an existing mortgage
- Listing properties you do not own on your website, in fliers, in newspapers, etc.
- Using “bandit signs” or using the phrase “We buy homes” in your marketing materials.
In the past six months or so, I’ve had multiple conversations with Deputy Attorneys General, and other business and real estate attorneys about how the Indiana Attorney General is applying certain laws. Some of those conversations have been very long and very frustrating. In short, it is clear to me that the Attorney General has essentially declared war on certain small real estate investors who engage in “subject to” transactions with or with having a real estate license. In particular, there are two key statutes that the Attorney General is using to target small real estate investors-
- Indiana’s home mortgagor protection statute, effective July 1, 2007
- Real estate licensing statute.
The Attorney General views essentially every “subject to” transaction as unlawful. If you take title “subject to” an existing mortgage, you better have a bond, as the Indiana Code now requires. And, you better not be holding a Power of Attorney from the seller-owner. And even then, you better have a rock-solid contract with plenty of notices, warnings and disclaimers. And, if you satisfy these requirements, you might be in trouble if you do these deals often without a real estate license.
All of this is done in the name of protecting homeowners. The Attorney General sees this as consumer protection. I respectfully disagree. There are ethical, responsible real estate investors who save houses from foreclosure. The Attorney General’s approach diffrs from what I would do, in that his office seemingly attacks all investors doing deals “subject to.” I would favor an approach that distinguishes between good deals that help people and bad deals that hurt people.
Several months ago, the Attorney General conducted a statewide sweep. He gathered evidence on anyone with a website or bandit sign that read “We buy homes.” Seriously, that happened. The Attorney General started an investigation and issued document requests on 100′s, and maybe 1,000′s, of investors who used the phrase “we buy homes” in advertising messages. I think such tactics are unfair and uinwise.
I wish the Attorney General and the Indiana General Assembly understood the difference between legitimate “subject to” deals and the “get the deed at all costs” deals. Nor does the law they wrote distinguish between good deals and bad deals.
My advice? STAY AWAY FROM “SUBJECT TO” TRANSACTIONS IN INDIANA. Let the house go into foreclosure, buy it REO, and thank the state government for helping you drive down the price. Yes, that will hurt many homeowners, but let government officials explain the policy to homeowners who could have benefitted from a fair “subject to” deal.
Do you need a license to sell my own property?
One day, I had an hour-long argument with an investigator with the Attorney General’s Office who tried to convince me that you need a license to sell your own properties on your own website, if you sell more than a few at a time. I referred that investigator to the U.S. and Indiana constitutions. See “fundamental property rights.” I got a call back from a Deputy A.G. who apologized and retract the mistatements made by the investigator.
Here’s the deal. . . the Attorney General now takes the position that you cannot find a property, take an option on it, and then assign the option for a fee, without a real estate license. I assume that the Attorney General’s policy would extend to buying properties by contract, if the buyer merely marketed and assigned the land contract to another buyer.
The impact of these new policies, which are not law, are enormous on small investors-
- Bird Dogging is dead in Indiana.
- Even worse, most land speculation is dead in Indiana!
You might be wondering if the law changed recently? Did the Indiana General Assembly pass a law making options or landcontract assignments unlawful? No, there was no change in the law. The Attorney General simply decided that the licensing statute now applies to the assignment of options, and presumably to land contract assignments as well.
I should note that these new policies appear to extend only to residential homes. I doubt that commercial properties will be impacted, as there is no “consumer” to protect in a commercial deal.
Conclusion.
If the Attorney General can simply make a policy decision that has the effect of changing the law, I am not sure that you can safely rely on prior case law decisions and well-intend, well-established business practices. Now more than ever, you need to be very careful in such deal structures.
STOP TAKING LEGAL ADVICE FROM “LEGAL WITCH DOCTORS” AT A SEMINAR OR BOOTCAMP WHO JUST WANT TO SELL YOU A DVD OR FORMS ON CD! Those are things that are going to get you investigated or sued or prosecuted. There are no “get rich quick” real estate deals, and your legal documents and deal structures better be vetted by a knowledge real estate attorney. If not, you’re playing with fire. I hope none of you reading this get burned.
Fully Virtual Law Office Is Launched in Indiana
Posted on | March 1, 2010 | No Comments
Indianapolis, IN: March 1, 2009 – Tiffany U. Vivo, an Indianapolis attorney and Managing Partner of Vivo Law Offices, LLC announced today the launch of Indiana’s first fully virtual law office (VLO) in Indiana. The VLO’s address is www.IndianaVirtualLaw.com.
A virtual law office (VLO) is a web-based law practice that enables clients and lawyers to communicate through encrypted messages from any web access point at times convenient for the client and typically at reduced costs. A VLO is not a website operated by non-lawyers selling legal documents, such as Legal Zoom. Rather, a VLO is a licensed law office that uses the web to facilitate attorney-client communications and the safe exchange of data and documents with a licensed attorney.
“By eliminating expensive law offices, large staffs and other unnecessary overhead, our VLO can deliver cost-effective legal services from Indiana-licensed attorneys at lower costs,” explained Vivo. Increasingly, consumers are turning to the Internet for solutions to legal, medical, home improvement, car repair and other problems. “A VLO is not right for every client, but VLO’s do offer many clients access to a knowledgeable and experienced attorney, and good legal documents at a fraction of the cost,” Ms. Vivo further explained.
The other huge advantage of a virtual law office is convenience. A virtual law office can be accessed by a client anytime from anywhere the Internet is available. “There is no doubt that clients expect more convenience. Many clients do not want to drive in downtown traffic, find parking and then fight crowds and elevators just to see their lawyer,” noted Matthew Griffith, an Indianapolis attorney who often meets clients away from his downtown office. “Coffee shops are my office away from the office,” Griffith added.
“It is important that any law virtual firm office strictly adhere to the Indiana Rules of Professional Conduct and the Best Practice Guidelines for Legal Information Web Site Providers written by the E-Lawyering Task Force of the American Bar Association’s Law Practice Management Section and the ABA Standing Committee On the Delivery of Legal Services,” said Ms. Vivo.
About Tiffany U Vivo, Attorney: Tiffany U. Vivo is an Indiana attorney. At her physical law office, she practices immigration and family law.
Immigration law for business owners- Part 1
Posted on | August 6, 2009 | No Comments
Tiffany U. Vivo, Esq.
Immigration & Family Law Attorney
317-236-0486
Guest post-
If you own your own business or otherwise have employees, you are, under federal law, an agent for the Department of Homeland Security (DHS) (previously the Immigration and Naturalization Service (INS). In an effort to reduce the hiring of undocumented immigrants, Congress created the I-9 verification process, which requires employers to confirm the employment eligibility of workers. DHS investigators use these I-9 forms to determine whether employers are hiring undocumented workers.
I-9 forms are actually a positive thing for employers, because I-9 forms provide employers with a “good faith” defense if the employer hires a worker who is actually working illegally in the United States.
Employers can obtain I-9 forms from the DHS (800-870-3676), or download them from the agency’s Web site. You can also write to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
DHS can start an investigation about a company employing illegal workers at any time. An employer can be fined and sanctioned for hiring an undocumented worker. The standard in judging the wrongfulness of the employer’s conduct is whether a reasonable person would believe the employee was illegally employed.
Every employer must complete I-9 forms, even if the employer has just one employee. Hiring independent contractors does not trigger the requirement to complete an I-9 form.
If you, as an employer, receive information and documents that, on their face, appear valid and consistent, you do not need to investigate further. However, if you receive obvious forgeries, information that does not match the employee, or other data that makes you think you should ask more questions, then you need to continue your inquiry as to the employee’s immigration status.
A good business practice is to conduct yourself an audit or hire an immigration lawyer to audit your I-9’s and supporting documents to be sure they comply with the law. Here are some do’s and don’ts when going through the I-9 verification process:
- During an employee’s first day, give the employee a list of documents that can be used to verify status.
- Determine if the employee already has employment authorization.
- Ask questions about name changes.
- Make sure documents provided by the employee are on the lists of acceptable documents. A good immigration attorney can help you with these lists.
- Review documents for authenticity. Are there obvious signs of tampering or forgery? Reject documents if they are clearly fakes. If a document looks valid on its face and is listed as a qualified document on the I-9, accept the document.
- Retain I-9’s for three years, or one year after employment ends, whichever is longer. I-9 forms can be inspected by DHS on three days’ notice, without even a warrant or subpoena.
Employers cannot discriminate against an employee because of citizenship status or national origin through “document abuse,” which is asking the employee for more documents than necessary or different documents to prove employment eligibility. However, employers do have duties to confirm employment eligibility as outlined in this post.
This post is certainly not comprehensive, and I encourage my employer-clients to conduct immigration and I-9 audits annually. An immigration attorney can give you guidance in systematizing these processes to ensure DHS compliance.
Tiffany U. Vivo is an Indianapolis immigration and family law attorney. She practices exclusively in immigration and family law, and lectures and writes frequently on immigration law for businesses, employees and families. For more information, please contact her at the above addresses and phone numbers.
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