The current recession started with a crisis in the real estate market, and the solution, in large measure, remains tied to the real estate market.  However, there are three problems with the massive stimulus plan Congress passed, as it relates to housing.

First, the current stimulus plan limits the $8,000 tax credit to first time home buyers.  Those buyers are in the lower end of the housing market.  So, there is no direct stimulus for middle to upper-end home buyers, who tend to buy larger and more expensive homes.  It made no sense for Congress to stimulate demand for the lower end of the housing market and essentially ignore the other portions of the housing market.

By offering a tax credit to all home buyers, not just first time buyers, Congress would provide needed stimulus for the entire residential real estate industry.

Secondly, Congress failed to account for the fact that all real estate markets are not alike.  Some areas of the country are suffering more than others.  Southern California, Florida, Arizona and Nevada have horrible real estate troubles.  California has seen a drop of nearly 75% in home values in particular areas of that state.  Supply in those markets is out-pacing demand.  There are too many homes, and too few buyers.

In Indiana, we have not suffered huge drops in values, because values here were never over-inflated.  The fall in Indiana property values has not been so deep, because the rise in values was not as high over the past few years.

We need a program that accounts for the differences in local real estate markets across the country.  Congress should establish a formula for determining what constitutes “excess” housing supply for a particular market.  For example, Congress could determine that a normal amount of housing inventory is five months of home sales, on national average.  Then, Congress could provide greater buyer incentives for those markets with excess inventory (greater than five months of inventory), until housing supplies have dropped to a “normal” level.  This would enable Congress to direct more aid to those markets in greatest need.

Thirdly, there is a difference between stimulating the sale of existing homes and stimulating demand for new home construction.  In Marion County, Indiana, we have too much housing inventory.  We need incentives for home buyers to purchase existing homes.  We do not need incentives for new home construction.  By contrast, housing inventories in the surrounding counties are much lower.  Arguably, Hamilton County, Indiana is seeing a housing shortage.  So, new home construction should and could be stimulated in those counties that do not have excess inventory.

What’s the first rule of selling real estate?   Location, location, location.  Congress has ignored that basic principle.   All real estate is not the same, nor are all real estate markets the same.

Are there any solutions in development?

Sort of.

Indiana Congressman Dan Burton is going to co-sponsor the Homebuyer Tax Credit Act, H.R. 1245.  The goal of the bill is to stimulate the entire housing market by offering a $15,000 tax credit to individuals who purchase a home in the next year.  The amount of the tax credit would be $15,000 or 10 percent of the purchase price, whichever is less. Purchases must be made within one year of the legislation’s enactment, and the tax credit would not have to be repaid.  The bill, if passed into law, would replace the current $8,000 housing tax credit.

H.R. 1245 would address some, but not all of the concerns I have expressed in this blog.

What are your thoughts on the subject?  Post your comments.

(photos of Judge David Dreyer with Indiana Supreme Court Chief Justice

& a Notre Dame priest-   from Judge Dreyer’s website- http://www.judgedreyer.com.)

More than 10 years ago, Indiana passed a “tort reform” law that limited the amount of punitive damages that could be awarded in a single case.  There was a wave of “tort reform” years ago, as there was public outrage against several large damages awards.  Remember the old lady burnt by hot coffee at McDonalds?

Tort reform-  the idea was that juries were running out of control and were awarding excessive damages intended to punish bad defendants.  Punitive damages are intended to punish and deter, while compensatory damages are intended to make the plaintiff whole again.  Many states passed laws limiting how much juries could award in punitive damages.  We have had similar caps of medical malpractice claims for years and years now.  Most states do.

So, for the past 10 years, all jury awards have been capped in Indiana, and the same holds true for most states.  But wait a minute. . .  ENTER JUDGE DAVID DREYER.

David Dreyer, a Marion County, Indiana judge, recently refused to reduce damages in a priest sex-abuse case, holding that Indiana’s punitive damage caps are unconstitutional.  Judge Dreyer issued a 20-page ruling last Friday in John Doe v. Father Jonathan Lovill Stewart, No. 49D10-0402-CT-0443. The case involves allegations from a man (John Doe)claiming that he was molested by a Catholic priest when he was 10 years old, back in 1993. A jury awarded $5,000 in compensatory damages and $150,000 in punitive damages.  Under the Indiana “tort reform” law, the punitive damages would have been reduced to $50,000.  That law provides that punitive damages cannot exceed three times the compensatory award or $50,000, whichever is greater.  However, the “tort reform” law capping punitive damages was not passed until 1995, two years after the boy was molested.

Judge Dreyer held that the “tort reform” statute is not retroactive and cannot be applied to a 1993, event. 

Judge Dreyer had another rationale for ignoring the $50,000 cap.  He held that the 1995, law violates the Indiana Constitution with respect to separation of powers and right to trial by jury.  The Judge concluded that the law, passed by the Indiana legislature, violates a person’s constitutional right to trial by jury:

“The Indiana Constitution protects each branch of government from interference with each other, and further guarantees Indiana citizens will have their civil cases decided by a jury,” he wrote. “The Statute’s two provisions … interpose the will of the General Assembly to supersede otherwise valid verdicts. Accordingly, it contradicts the Indiana Constitution and should not interfere with Doe’s punitive damage award.”

Judge Dreyer acknowledged that other states might not have similar constitutional limits, but that Indiana’s constitution clearly does.

It would have been easier for Judge Dreyer simply to uphold the punitive damages cap, and allowed the plaintiff to appeal the issue to the Court of Appeals.  Judge Dreyer could have “passed the buck” and not suffered any criticism or review.  But, he didn’t “pass the buck.”  He did what he thought was right, and struck down a law that he felt was unconstitutional.  Remember that Judge Dreyer is a trial court judge!  Normally, appellate courts strike down laws.  It is rare for a trial court judge to strike down a law on constitutional grounds.

Whether you agree or disagree with Judge Dreyer’s legal opinion and regardless of how you feel about large punitive damages awards, you have to applaud Judge Dreyer’s commitment to the law.  It took much courage to strike down a 10-year old law in this fashion.  If you assume that he truly believes what he wrote, you have to feel good about a judge trying to do the right thing, follow the law despite the personal consequences, and  honoring his Oath of Attorneys.  It’s refreshing to see a judge give so much thought to doing what is right, rather than what is easy.

Matt’s Answer-

What a great question. There are several issues here. I’ll take them in chunks.

FRIVOLOUS LAWSUIT

I’m going to assume that your case was in a small claims court, even though you didn’t say that. Crazy things happen in Small Claims Courts. The level of “lawyering” and judging is often not as high as it is in superior and circuit courts. There are exceptions, of course. But, your case shows why we have appellate courts to fix what lower courts screwed up.
Appeal!
In Marion County, Indiana, appeals from the Small Claims Courts go to the Superior or Circuit Courts. In Marion County, you get a fresh start. . . a new trial. The Small Claims Court judgment is vacated. You start over and get a chance to get the case determination right. So, my first response is: Appeal! That’s an easy solution to all your problems.

INSURANCE

Secondly, ask your insurance agent why you’re not fully insured! Should you be suing your insurance agent for malpractice? Maybe the insurance agent’s Errors & Omissions coverage is your solution.
On a side note, I’d encourage you to learn how to communicate properly with insurance agents. There are specific things you should do in order to develop the right Insurance Plan for your business, and I can share those techniques with you in another article or during a consultation.

JUDGMENT LIENS

When a judgment is entered by a court of record in an Indiana county, a lien is automatically created against any real property owned in the same county. If the judgment-defendant has real property in other counties, those properties are not impacted. However, a judgment in “County A” can be “recorded” in “County B.” At that point, the judgment is a lien on real property owned by the judgment-defendant in both counties.
Importantly, judgment liens apply not only to the subject property but to ANY real property owned by the judgment-defendant.

PERSONAL LIABILITY

If I understand your facts, there is no judgment against the LLC owner, just the LLC. In that case, there should be no collection efforts against the LLC owner. A plaintiff cannot collect a judgment issued against an LLC from the assets of the LLC’s owner. So, the owner (you) should not be concerned about a charging order. Actually, charging orders are a good thing, in a sense (read on).
Some of you might be asking: “What’s a charging order?”
A charging order only applies to LLC’s, not corporations. A charging order is an order that requires the LLC to pay to the plaintiff any monies that would be distributed from the LLC to the owner. There must be a judgment against the owner, before a charging order could be issued. Charging orders are the only remedy a plaintiff would have to collect from the ownership interests a judgment-defendant would have in an LLC. So, in other words, a plaintiff cannot acquire an owner’s ownership interests in an LLC. By contrast, a plaintiff can acquire a judgment-defendant’s stock in a corporation.
Why do the courts distinguish between corporations and LLC’s in this area of the law?
The rationale is that LLC’s are partnerships and that a plaintiff should not be permitted to become someone’s partner. So, if A and B are partners in an LLC, and C gets a judgment against B, C should not be able to enforce the judgment to become A’s partner. A has the right to chose his partners. He picked B, not C, to form a partnership. C could get a charging order against the LLC and collect any monies that would be distributed from the LLC to B. If A and B owned a corporation together, then C could acquire B’s stock and become a co-owner with B.
Back to your situation. . . the law concerning charging orders is irrelevant to your situation for the reasons I described above. What you have at risk is your equity in the LLC. You cannot do much about the equity you have in the LLC at this point, now that the judgment was entered. Any transfers of equity you were to make now could be considered “fraudulent transfers.” And that is an entirely separate topic for another article.

THE LESSON(S) HERE-

Call your attorney. You lost a lawsuit, and probably did not have a good attorney with you in court! You saved the cost of having an attorney in court, but at what greater cost? Was it worth it?
Appeal bad decisions.
Learn how to communicate with your insurance agent to develop the right Insurance Plan.
Plan. Planning is an activity that occurs in advance. I’m not sure from your short question what your Asset Protection Plan includes. Clearly, planning is important, as your situation reveals.