LEGAL MATTERS COLUMN FOR NOVEMBER 9, 2007
YOU ASK – WE ANSWER – “IT DEPENDS”
For this week’s column, we answer some questions that were recently submitted by readers (questions have been edited for space):
Dear Steve and Scott:
I have a small business that I’ve put my heart, soul and last dime into. Unfortunately, I have a lot of retail competition and it seems the only way I’ll survive is to close my storefront and keep only the Internet business portion, which I can run out of my house. The problem is that I still have 22 months left on my three year lease. There is no way I can afford to keep the retail location. Can I legally get out of my lease so that my business can have a chance to survive?
Hanging On (Barely)
Dear Hanging On: Time for the standard lawyer answer…it depends.
Not that we think this will make you feel much better to hear, but know that yours is a tale of woe we’ve heard many times before.
First point, when you use the word “legally,” it’s important to remember that there is nothing “criminal” involved in not complying with all of the terms of your commercial lease. It is strictly a civil matter – you’re not going to jail for bailing on your lease early.
You should first try to find someone to sublease your retail space and assume your lease obligations. Check your lease for any restrictions on the sublease or assignment of your space. Though you’ll still be on the hook if the sublessee defaults, it may provide some relief for the time being and could work out in the long run.
If you can’t find someone to take over the space, discuss the matter with your landlord to see if you can negotiate an early lease termination. Though the landlord technically can hold you to the value of the unpaid rent for 22 months, every landlord, when faced with an early lease termination, has a duty to mitigate damages. This means that the landlord must be diligent in trying to re-lease the space and not just leave it empty under the assumption that, since you’ll be paying the rent anyway, there’s no hurry to find a replacement tenant. In fact, if you left the premises before the end of your lease and the landlord later were to sue you to recover for lost rent, she would have to prove to the court’s satisfaction that reasonable, good faith efforts were made to re-lease the space. This would include evidence of reasonable marketing efforts, timely preparation and availability for showing, fair market lease rate, etc., before being awarded any damages. Good luck.
Dear Scott and Steve:
My aging mother lives with my brother and up until several months ago was doing fine. However, after a series of small strokes, she is now unable to take care of her daily activities and she requires live-in help. She has plenty of money to pay for this but neither of us is on any of her financial accounts and she is beyond the point where she can sign checks or do any banking. Though she previously spoke of doing so, she never got around to appointing either of us to handle her affairs. Is there anything we can do now to get access to her money to pay for the help she needs? We both work and neither can afford the time or money that her care now requires.
Help
Dear Help: We’re sorry to hear of your dilemma and, again, it’s not an uncommon occurrence. The good news is the problem can be resolved by getting the court to appoint you or your brother as a conservator for your mother. Initially, the court may grant you or your brother a temporary conservatorship, pending a hearing for more permanent status. Unfortunately, the entire process is rather cumbersome and lengthy and involves several court hearings, extensive documentation, ongoing court monitoring and $4000 or more.
By comparison, if your mother planned ahead and executed a power of attorney (which would have cost less than $500), the transition would have been instantaneous and could have been accomplished without court supervision. It really does pay to plan ahead because one never knows when these types of documents may be needed. Good luck.
Dear Scott and Steve:
When I started my new job, my boss said I would be an “at-will” employee. Now that my probation period has ended, can they still fire me anytime they want?
Wondering
Dear Wondering: It depends – though probably yes. California is an “at-will” employment state which means that, in the absence of an employment contract providing for a specific employment term, the employer or the employee may end the employment “at-will” meaning - at any time and for any reason - without notice. Naturally, the “reason” must be a legal one and must not be based on discrimination, harassment or a retaliatory or wrongful purpose.
The information herein is intended to be general in nature and does not constitute legal or tax advice. Send column suggestions or questions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at
707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
Wednesday, May 6, 2009
Voting Matters Too!
LEGAL MATTERS COLUMN FOR NOVEMBER 2, 2007
By Steve Gizzi
VOTING MATTERS TOO!
Legal Matters matter – but so do some other things. If you only like to read this column to learn about all things legal, you may want to sit this one out because this disclaimer is about as “legal” as it’s going to get. This week Scott’s going to take the week off and our column is going to divert a bit into an area of something else that matters – politics and voting.
By now, you’re probably looking forward to Tuesday’s election if for no other reason than the campaign signs will come down and your mailbox will at last be free from all of those fancy, multi-colored flyers. By my calculations, I figure the candidates must have spent about $500 on each voter this election season. That’s a far cry from the $4500 I spent the first time I ran for City Council in 1992. Those of you in town at that time may also recall the national news story that resulted from that election when I lost by ONE vote out of over 11,000 cast, to my formidable opponent, Pepe Arteaga.
I like to remind people of the one vote story at election time to impress upon them just how important their one vote is. This is a particularly important story in a small town such as ours. Many don’t vote unless it’s a state or national election. But the reality is that those in our local City Hall have a much greater effect on our daily lives than those far off politicians in Sacramento and Washington. Questions like: How much will we pay in taxes and assessments? How confident are we that our children’s education will be adequate and that school resources will be fairly and effectively allocated? Are city services responsive? No one deals with these issues more effectively and directly than our local representatives. They are our neighbors - not remote elected officials with a soundbite who couldn’t find Benicia without a map or a GPS. One vote DOES matter – and nowhere does it matter more than when it is cast in a local election.
I’ve been off the City Council for five years now and have not run a campaign in about eight years. As I recall, my total expenses in that last campaign were about $12,000. I’m amazed at how dramatically campaigns have changed in that time and how expensive they’ve now become – about five times as much. As an observer, it seems like such a waste of money. But the problem is that to be competitive, you have to match what your opponent is spending and that becomes a vicious cycle that only the printers and media outlets benefit from (sorry, editor). The unfortunate thing is that, like the big elections, with all that money being thrown around it’s hard to hear beyond the sound bites. (Er…of course, maybe that’s the point.)
Because our law firm serves as special counsel to the City of Benicia, we have a policy of avoiding any formal campaign endorsements. There are several great candidates in the race and we hope you’ll take the time to get educated about who they are – beyond the pretty pictures (some of our favorites are not so pretty actually) – and what each represents before you vote. It really is worth the five minute time investment every two years to get to know the candidates that you’re going to entrust with our wonderful community. As a general guideline, I hope you choose candidates that are willing to represent the entire community and not just a select constituency. Think about selecting candidates who will thoughtfully consider matters brought before the Council and then vote based on the issue presented and not personalities or other biases. Only this kind of approach will result in a governing body that will exercise the proper custodial stewardship and care to properly and thoughtfully guide us through the next several years.
Whoever are your choices for City Council and Mayor, please take the time to vote next week – or vote absentee, because your vote really DOES count. Just ask Pepe.
By Steve Gizzi
VOTING MATTERS TOO!
Legal Matters matter – but so do some other things. If you only like to read this column to learn about all things legal, you may want to sit this one out because this disclaimer is about as “legal” as it’s going to get. This week Scott’s going to take the week off and our column is going to divert a bit into an area of something else that matters – politics and voting.
By now, you’re probably looking forward to Tuesday’s election if for no other reason than the campaign signs will come down and your mailbox will at last be free from all of those fancy, multi-colored flyers. By my calculations, I figure the candidates must have spent about $500 on each voter this election season. That’s a far cry from the $4500 I spent the first time I ran for City Council in 1992. Those of you in town at that time may also recall the national news story that resulted from that election when I lost by ONE vote out of over 11,000 cast, to my formidable opponent, Pepe Arteaga.
I like to remind people of the one vote story at election time to impress upon them just how important their one vote is. This is a particularly important story in a small town such as ours. Many don’t vote unless it’s a state or national election. But the reality is that those in our local City Hall have a much greater effect on our daily lives than those far off politicians in Sacramento and Washington. Questions like: How much will we pay in taxes and assessments? How confident are we that our children’s education will be adequate and that school resources will be fairly and effectively allocated? Are city services responsive? No one deals with these issues more effectively and directly than our local representatives. They are our neighbors - not remote elected officials with a soundbite who couldn’t find Benicia without a map or a GPS. One vote DOES matter – and nowhere does it matter more than when it is cast in a local election.
I’ve been off the City Council for five years now and have not run a campaign in about eight years. As I recall, my total expenses in that last campaign were about $12,000. I’m amazed at how dramatically campaigns have changed in that time and how expensive they’ve now become – about five times as much. As an observer, it seems like such a waste of money. But the problem is that to be competitive, you have to match what your opponent is spending and that becomes a vicious cycle that only the printers and media outlets benefit from (sorry, editor). The unfortunate thing is that, like the big elections, with all that money being thrown around it’s hard to hear beyond the sound bites. (Er…of course, maybe that’s the point.)
Because our law firm serves as special counsel to the City of Benicia, we have a policy of avoiding any formal campaign endorsements. There are several great candidates in the race and we hope you’ll take the time to get educated about who they are – beyond the pretty pictures (some of our favorites are not so pretty actually) – and what each represents before you vote. It really is worth the five minute time investment every two years to get to know the candidates that you’re going to entrust with our wonderful community. As a general guideline, I hope you choose candidates that are willing to represent the entire community and not just a select constituency. Think about selecting candidates who will thoughtfully consider matters brought before the Council and then vote based on the issue presented and not personalities or other biases. Only this kind of approach will result in a governing body that will exercise the proper custodial stewardship and care to properly and thoughtfully guide us through the next several years.
Whoever are your choices for City Council and Mayor, please take the time to vote next week – or vote absentee, because your vote really DOES count. Just ask Pepe.
Show Me the "Deposit" Money
Show Me the “Deposit” Money
By Steve Gizzi and Scott Reep
Published in the Benicia Herald on Oct. 26, 2007
Most residential real estate transactions require the buyer to deposit “earnest money” into escrow within a specified period of time after the purchase agreement has been reached. The agreement may also call for an increased deposit prior to the close of escrow.
The close of escrow is typically contingent on a number of things, such as the sale of an existing home, physical inspection of the property, or financing. Sometimes the seller is unable to comply with the contingencies and the sale fails to go forward. Other times, the buyer may have located a more suitable home and they refuse to go forward with the transaction.
Leaving analysis of all possible damages aside, what happens to the deposited funds if one the parties refuses to release the money to the other party by providing written instructions to the escrow company? Hopefully, the real estate professionals are able to give their clients the proper options. However, real estate professionals are not attorneys and are limited in the advice that they can give. We have been surprised by the number of real estate professionals (. . . not in our community) that are unaware of Civil Code Section 1057.3 and fail to direct their clients to it for guidance.
The law states that it shall be the obligation of a buyer and seller who enter into a contract to purchase and sell real property to ensure that all funds deposited into an escrow account are returned to the person who deposited the funds or who is otherwise entitled to the funds under the contract, if the purchase of the property is not completed by the date set forth in the contract for the close of escrow or an agreed upon extension of time.
Any buyer or seller who fails to execute any document required by the escrow holder to release funds on deposit in an escrow account within 30 days following a written demand for the return of funds deposited in escrow by the other party is liable to the person making the deposit for the following: (1) The amount of the funds deposited in escrow not held in good faith to resolve a good faith dispute. "Good faith dispute" means a dispute in which the party refusing to return the deposited funds had a reasonable belief of his or her legal entitlement to withhold the deposited funds. This issue is decided at trial by the judge or jury; and (2) Damages of three times the amount of the funds deposited in escrow, not held to resolve a good faith dispute, but liability under for these damages is limited to between $100 and $1000; and (3) Reasonable attorney's fees incurred in any action to enforce this section.
In order to prevail on their claim the party seeking the award must establish that there was no good faith dispute as to the right to the deposited funds. Once an action is filed the escrow holder shall deposit the sum in dispute, less any cancellation fee and charges incurred, with the court and be discharged of further responsibility for the funds. This typically is not done if a small claims action has been filed. However, the escrow company will often agree to abide by the judgment after the appeal period is over.
To see the statute in its entirety, go to www.leginfo.ca.gov/calaw.html. Often a well written demand letter referring to the specific provisions of Civil Code Section 1057.3 will be sufficient to convince the other side that it is in their best interest to voluntarily release the escrowed funds. If that doesn’t resolve the dispute, you may want to consider retaining the service of an attorney.
The information herein is intended to be general in nature and does not constitute legal or tax advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
By Steve Gizzi and Scott Reep
Published in the Benicia Herald on Oct. 26, 2007
Most residential real estate transactions require the buyer to deposit “earnest money” into escrow within a specified period of time after the purchase agreement has been reached. The agreement may also call for an increased deposit prior to the close of escrow.
The close of escrow is typically contingent on a number of things, such as the sale of an existing home, physical inspection of the property, or financing. Sometimes the seller is unable to comply with the contingencies and the sale fails to go forward. Other times, the buyer may have located a more suitable home and they refuse to go forward with the transaction.
Leaving analysis of all possible damages aside, what happens to the deposited funds if one the parties refuses to release the money to the other party by providing written instructions to the escrow company? Hopefully, the real estate professionals are able to give their clients the proper options. However, real estate professionals are not attorneys and are limited in the advice that they can give. We have been surprised by the number of real estate professionals (. . . not in our community) that are unaware of Civil Code Section 1057.3 and fail to direct their clients to it for guidance.
The law states that it shall be the obligation of a buyer and seller who enter into a contract to purchase and sell real property to ensure that all funds deposited into an escrow account are returned to the person who deposited the funds or who is otherwise entitled to the funds under the contract, if the purchase of the property is not completed by the date set forth in the contract for the close of escrow or an agreed upon extension of time.
Any buyer or seller who fails to execute any document required by the escrow holder to release funds on deposit in an escrow account within 30 days following a written demand for the return of funds deposited in escrow by the other party is liable to the person making the deposit for the following: (1) The amount of the funds deposited in escrow not held in good faith to resolve a good faith dispute. "Good faith dispute" means a dispute in which the party refusing to return the deposited funds had a reasonable belief of his or her legal entitlement to withhold the deposited funds. This issue is decided at trial by the judge or jury; and (2) Damages of three times the amount of the funds deposited in escrow, not held to resolve a good faith dispute, but liability under for these damages is limited to between $100 and $1000; and (3) Reasonable attorney's fees incurred in any action to enforce this section.
In order to prevail on their claim the party seeking the award must establish that there was no good faith dispute as to the right to the deposited funds. Once an action is filed the escrow holder shall deposit the sum in dispute, less any cancellation fee and charges incurred, with the court and be discharged of further responsibility for the funds. This typically is not done if a small claims action has been filed. However, the escrow company will often agree to abide by the judgment after the appeal period is over.
To see the statute in its entirety, go to www.leginfo.ca.gov/calaw.html. Often a well written demand letter referring to the specific provisions of Civil Code Section 1057.3 will be sufficient to convince the other side that it is in their best interest to voluntarily release the escrowed funds. If that doesn’t resolve the dispute, you may want to consider retaining the service of an attorney.
The information herein is intended to be general in nature and does not constitute legal or tax advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
Corporate Dispute Management
LEGAL MATTERS COLUMN - OCTOBER 19, 2007
Corporate Dispute Management
By Stephen Gizzi
Among life's many little irritations, we've all experienced the frustration of trying to straighten out a problem with a large, faceless corporate monolith. As if getting caught up in the voice jail abyss is not bad enough, who among us has not finally quit the good fight and simply paid what then seemed like the small pittance of $5, $10 or even $20 in charges we knew were not owed because we simply didn't have the time to correct a billing or other account error.
It seems that as companies grow, merge and the customer base naturally increases, the first department to be reduced always seems to be customer “service.” This causes a certain number of prospective disputes to go away simply because people don't have the patience to wait the extra time it will take to speak to a real human being.
Many large corporations intentionally develop policies that make it difficult for customers to pursue claims against the company. For example, America Online had a provision in its agreement that required its users to bring any disputes or claims they had against AOL only in the state of Virginia. This is called a “forum selection” clause and is now a part of many contracts. The AOL forum selection clause was contained in the very small print contained in the user agreement. This made it difficult for users, whose claims rarely exceeded a couple of hundred dollars, to enforce their rights under the agreement without incurring significant expense.
In the late 1990s, AOL was accused of continuing to debit credit cards of former users after they terminated service. A class-action suit was brought against AOL in California for the wrongful charges. In its response, AOL sought dismissal of the case claiming that its user agreements required that any claims be heard in the State of Virginia. The California Appellate Court court in America Online v Superior Court (2001) 90 Cal.App.4th refused to enforce the contract provision, reasoning that enforcement would violate public policy and substantially diminish the rights of California consumers.
In 2002, the California Legislature adopted Code of Civil Procedure Section 116.225 which provides that an agreement which establishes a forum outside of California for an action arising from an offer or the provision of goods, services, property or credit, for personal, family or household purposes, that would normally be under the jurisdiction ($7,500) of a small claims court, is contrary to California public policy and is therefore void and unenforceable.
This legislation is extremely important for California consumers. Regardless of what may be contained in the boilerplate provisions of user agreements, product warranty provisions or other similar contracts which purport to define the terms governing the relationship between the manufacturer or provider of services, and the ultimate consumer, those terms will not necessarily stand up to judicial scrutiny. At the end of the day, regardless of what the written provisions may state, because of the unequal bargaining power of the parties, and the fact that in most cases the consumer has not had an opportunity to negotiate the terms under which they have agreed to purchase the product or service, it is the job of courts to ensure that contract terms are fair, accurately reflect the intent of the parties and do not violate public policy.
The information herein is intended to be general in nature and does not constitute legal or tax advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
Corporate Dispute Management
By Stephen Gizzi
Among life's many little irritations, we've all experienced the frustration of trying to straighten out a problem with a large, faceless corporate monolith. As if getting caught up in the voice jail abyss is not bad enough, who among us has not finally quit the good fight and simply paid what then seemed like the small pittance of $5, $10 or even $20 in charges we knew were not owed because we simply didn't have the time to correct a billing or other account error.
It seems that as companies grow, merge and the customer base naturally increases, the first department to be reduced always seems to be customer “service.” This causes a certain number of prospective disputes to go away simply because people don't have the patience to wait the extra time it will take to speak to a real human being.
Many large corporations intentionally develop policies that make it difficult for customers to pursue claims against the company. For example, America Online had a provision in its agreement that required its users to bring any disputes or claims they had against AOL only in the state of Virginia. This is called a “forum selection” clause and is now a part of many contracts. The AOL forum selection clause was contained in the very small print contained in the user agreement. This made it difficult for users, whose claims rarely exceeded a couple of hundred dollars, to enforce their rights under the agreement without incurring significant expense.
In the late 1990s, AOL was accused of continuing to debit credit cards of former users after they terminated service. A class-action suit was brought against AOL in California for the wrongful charges. In its response, AOL sought dismissal of the case claiming that its user agreements required that any claims be heard in the State of Virginia. The California Appellate Court court in America Online v Superior Court (2001) 90 Cal.App.4th refused to enforce the contract provision, reasoning that enforcement would violate public policy and substantially diminish the rights of California consumers.
In 2002, the California Legislature adopted Code of Civil Procedure Section 116.225 which provides that an agreement which establishes a forum outside of California for an action arising from an offer or the provision of goods, services, property or credit, for personal, family or household purposes, that would normally be under the jurisdiction ($7,500) of a small claims court, is contrary to California public policy and is therefore void and unenforceable.
This legislation is extremely important for California consumers. Regardless of what may be contained in the boilerplate provisions of user agreements, product warranty provisions or other similar contracts which purport to define the terms governing the relationship between the manufacturer or provider of services, and the ultimate consumer, those terms will not necessarily stand up to judicial scrutiny. At the end of the day, regardless of what the written provisions may state, because of the unequal bargaining power of the parties, and the fact that in most cases the consumer has not had an opportunity to negotiate the terms under which they have agreed to purchase the product or service, it is the job of courts to ensure that contract terms are fair, accurately reflect the intent of the parties and do not violate public policy.
The information herein is intended to be general in nature and does not constitute legal or tax advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
Good People- Bad Loans
LEGAL MATTERS COLUMN
BENICIA HERALD
September 28, 2007
GOOD PEOPLE – BAD LOANS
By: Mark Mitchell of Gizzi & Reep, LLP
Lately, there’s been a lot of talk about “sub-prime” loans in the news. The term “sub-prime” refers to the qualification, or credit rating, of the borrower. This type of loan is most commonly used when a borrower’s credit rating is in the lower range. Since a lower credit rating means a higher risk of borrower default, interest rates on sub-prime loans are generally higher. The higher the risk, the higher the rate.
Besides higher interest rates, there are other minefields awaiting the unwitting sub-prime borrower:
Loan Adjustment Interval. Virtually all sub-prime loans have a variable interest rate that will change over the life of the loan at pre-determined intervals. Often there is a low “introductory rate” or “introductory payment” for the first few months of the loan or, in some cases, for only the FIRST payment!
Index and Margin. The Index and Margin determine how much your payment will be. There are many different indexes used. The margin is the amount you’ll pay over the index. For example, if an index is 4.5% and the margin is 4.0%, your actual interest rate is 8.5%. If the index moves to 5.5%, your new interest rate is 9.5%. Some index rates are more stable than others so it’s important to know which one your loan is tied to. Your margin rate is usually negotiable so be sure to pay attention to that number.
Negative Amortization. Standard, fixed-rate thirty year home loans typically are fully “amortized,” meaning the home is fully paid off by the end of the loan term. Many sub-prime loans have artificially low introductory payments that do not fully cover the interest owed. That unpaid interest gets added to the loan balance so that, after making payments for a period of time, the homeowner actually owes an amount greater than what was initially borrowed. This creates a real problem in a declining market where homeowners discover they not only owe more than they paid for their home – but more than it is now worth.
Prepayment Penalty. This critical loan feature is essentially a penalty for an early loan payoff. Prepayment penalties generally apply for the first two to three years of a loan. The penalty is typically the equivalent of six months interest. For example, if your payment is $1,500 per month, you may be charged $9,000 for the privilege of paying off your loan early!
Imagine now a homeowner who purchased a home for $400,000 with 5% down ($20,000), and now must sell after two years. Their initial subprime loan balance of $380,000 has ballooned to $392,000 (negative amortization) and their prepayment penalty is $10,000, for a total loan payoff of $402,000. The house is presently worth $350,000. They have to sell because their monthly payment has just increased from $2000 to $3000. After sales commissions and closing costs, their net proceeds would be about $325,000, meaning they will have to come up with over $75,000 just to SELL their home! What to do?
This exact scenario is playing itself out all over America right now. These are good people who chased the American dream and now find themselves engulfed in a nightmarish circumstance with few options. How did this happen?
When closing escrow, borrowers are typically confronted with dozens of documents to sign. If they were to read every document, closing would take days! It’s easy to feel rushed and there simply isn’t time to properly review every document. Borrowers must sign or risk losing their financing. Do borrowers really understand what they’re signing? Did you really fully understand every aspect of your last real estate transaction? Is this a fair process? You decide.
The Federal Truth in Lending Laws (TILA) require that lenders fully disclose the cost to finance your home purchase. Borrowers must be provided with a good-faith estimate of closing costs, and all of the costs of financing, before signing the loan documents.
To help avoid the consequences of the rushed signing of documents, TILA requires that the lender provide you with a notice giving you three business days within which to cancel a loan. The borrower must be given two copies which are completely filled out and clearly indicate the final date and time by which a loan can be cancelled. The loan can be cancelled at any time, and for any reason, during the three day period. TILA also provides for extended notice if the notice to cancel is not provided or incomplete. In the case of an improper notice, the borrower’s time to cancel is extended to three years from the consummation date of the loan.
Should you consult an attorney when buying or refinancing a home? It is always much easier, and less expensive, to avoid traps than to climb out of one! You be the judge!
The information herein is intended to be general in nature and does not constitute legal or tax advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
BENICIA HERALD
September 28, 2007
GOOD PEOPLE – BAD LOANS
By: Mark Mitchell of Gizzi & Reep, LLP
Lately, there’s been a lot of talk about “sub-prime” loans in the news. The term “sub-prime” refers to the qualification, or credit rating, of the borrower. This type of loan is most commonly used when a borrower’s credit rating is in the lower range. Since a lower credit rating means a higher risk of borrower default, interest rates on sub-prime loans are generally higher. The higher the risk, the higher the rate.
Besides higher interest rates, there are other minefields awaiting the unwitting sub-prime borrower:
Loan Adjustment Interval. Virtually all sub-prime loans have a variable interest rate that will change over the life of the loan at pre-determined intervals. Often there is a low “introductory rate” or “introductory payment” for the first few months of the loan or, in some cases, for only the FIRST payment!
Index and Margin. The Index and Margin determine how much your payment will be. There are many different indexes used. The margin is the amount you’ll pay over the index. For example, if an index is 4.5% and the margin is 4.0%, your actual interest rate is 8.5%. If the index moves to 5.5%, your new interest rate is 9.5%. Some index rates are more stable than others so it’s important to know which one your loan is tied to. Your margin rate is usually negotiable so be sure to pay attention to that number.
Negative Amortization. Standard, fixed-rate thirty year home loans typically are fully “amortized,” meaning the home is fully paid off by the end of the loan term. Many sub-prime loans have artificially low introductory payments that do not fully cover the interest owed. That unpaid interest gets added to the loan balance so that, after making payments for a period of time, the homeowner actually owes an amount greater than what was initially borrowed. This creates a real problem in a declining market where homeowners discover they not only owe more than they paid for their home – but more than it is now worth.
Prepayment Penalty. This critical loan feature is essentially a penalty for an early loan payoff. Prepayment penalties generally apply for the first two to three years of a loan. The penalty is typically the equivalent of six months interest. For example, if your payment is $1,500 per month, you may be charged $9,000 for the privilege of paying off your loan early!
Imagine now a homeowner who purchased a home for $400,000 with 5% down ($20,000), and now must sell after two years. Their initial subprime loan balance of $380,000 has ballooned to $392,000 (negative amortization) and their prepayment penalty is $10,000, for a total loan payoff of $402,000. The house is presently worth $350,000. They have to sell because their monthly payment has just increased from $2000 to $3000. After sales commissions and closing costs, their net proceeds would be about $325,000, meaning they will have to come up with over $75,000 just to SELL their home! What to do?
This exact scenario is playing itself out all over America right now. These are good people who chased the American dream and now find themselves engulfed in a nightmarish circumstance with few options. How did this happen?
When closing escrow, borrowers are typically confronted with dozens of documents to sign. If they were to read every document, closing would take days! It’s easy to feel rushed and there simply isn’t time to properly review every document. Borrowers must sign or risk losing their financing. Do borrowers really understand what they’re signing? Did you really fully understand every aspect of your last real estate transaction? Is this a fair process? You decide.
The Federal Truth in Lending Laws (TILA) require that lenders fully disclose the cost to finance your home purchase. Borrowers must be provided with a good-faith estimate of closing costs, and all of the costs of financing, before signing the loan documents.
To help avoid the consequences of the rushed signing of documents, TILA requires that the lender provide you with a notice giving you three business days within which to cancel a loan. The borrower must be given two copies which are completely filled out and clearly indicate the final date and time by which a loan can be cancelled. The loan can be cancelled at any time, and for any reason, during the three day period. TILA also provides for extended notice if the notice to cancel is not provided or incomplete. In the case of an improper notice, the borrower’s time to cancel is extended to three years from the consummation date of the loan.
Should you consult an attorney when buying or refinancing a home? It is always much easier, and less expensive, to avoid traps than to climb out of one! You be the judge!
The information herein is intended to be general in nature and does not constitute legal or tax advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
ADR- The Judicial Life Ring
LEGAL MATTERS COLUMN
BENICIA HERALD
September 21st 2007
By: Stephen Gizzi
ADR – THE JUDICIAL LIFE RING
In a recent column, I referenced the fact that only 10% of civil cases filed ever get tried in court. Several readers were curious about what became of the remaining 90%, which clearly represent the vast majority of those filed. While some cases simply fade away as the litigants lose interest or confidence in their case over time, most get resolved through one of the many alternative dispute resolution (ADR) processes. ADR is the umbrella term covering a wide variety of dispute prevention, management and resolution processes that are currently available to those in conflict, before or after litigation is initiated.
The Constitution mandates that every criminal defendant is entitled to a speedy trial. Therefore, criminal cases are given priority use of judicial assets. This means that civil cases must wait until courtrooms are available. Due to heavy criminal calendars, this has created a backlog of civil cases. Add to this fact the reality that there is a shortage of judges – nine alone just in Solano County – and it is easy to see why ADR has been embraced by the judicial system in a big way for the past 20 years or so. Frankly, without ADR, the civil justice system would have fallen apart years ago.
Obviously, the best way to avoid a lawsuit is to prevent one from occurring in the first place. We always advise business clients for example, to examine their operations to look for areas of repetitive conflict. In that way, if they can identify and plan out those operational challenges through intelligent system design, they will reduce the likelihood of future litigation. In a sense, this preemptive action is a form of ADR. Unfortunately, most people are too busy or simply aren’t proactive enough to think that far ahead.
When a dispute does arise, often an attorney is consulted. A diligent attorney will contact the other side, or the legal representative for the other party, and attempt to resolve the matter prior to initiating litigation. This form of counseling and prelitigation negotiation is also a form of ADR.
Once a lawsuit has been filed, the attorneys are required to provide clients with an ADR information package. This contains details concerning the many alternatives to a court trial that are available for resolving lawsuits. Some of the more common forms of ADR include:
- Early neutral evaluation –in this form of ADR, an experienced, impartial attorney, with an understanding of the subject matter of the underlying lawsuit, hears a summary of the case, and then writes an evaluation that typically prompts further settlement discussions.
- Private Judging – this is commonly referred to as “rent-a-Judge” and is often utilized by large corporations that are involved in cases involving matters that the parties would rather not litigate in the public eye, or not wait for the lengthy litigation process like ordinary plebeians.
By far the most common forms of ADR are mediation and arbitration. Often these two are used interchangeably. However, they are quite different from one another.
Arbitration is similar to the trial court process in that a neutral third party, such as an attorney, retired judge or an individual with subject matter expertise, listens to the parties present evidence, weighs that evidence and then renders a decision, or arbitration award, in favor of one party or the other. Depending on the circumstances, the arbitration award can be binding or nonbinding.
Mediation is a process whereby a neutral third party assists disputants in better understanding all aspects of the conflict between them, and then by utilizing that knowledge, helps the parties develop an acceptable resolution of their differences.
The key distinction between these two forms of ADR is that arbitration results in a decision being imposed on the parties, following an evaluative analysis by a finder of fact. Mediation, on the other hand, produces an outcome that is entirely of the parties’ making. The parties have full control of any outcome – or whether there is to be an outcome. It is no wonder that 80% of the cases brought to mediation settle during that process.
Finally, civil cases that have not settled during the course of litigation typically have one last chance to be resolved short of trial. Almost every civil case must include a mandatory settlement conference before the trial judge or a settlement mentor. During this conference, the judge or settlement mentor strongly encourages the parties to settle rather than taking the case to trial. Settlement conferences have several benefits. First, the case might settle. Second, the trial judge is able to get a preview of the issues and is therefore in a better position should the case proceed to trial.
It should be clear that without ADR, the 90% of cases that currently vanish during the litigation process would be clogging our trial courts, and it would likely be our grandchildren who would be trying these cases many years down the road.
The information herein is intended to be general in nature and does not constitute legal or tax advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
BENICIA HERALD
September 21st 2007
By: Stephen Gizzi
ADR – THE JUDICIAL LIFE RING
In a recent column, I referenced the fact that only 10% of civil cases filed ever get tried in court. Several readers were curious about what became of the remaining 90%, which clearly represent the vast majority of those filed. While some cases simply fade away as the litigants lose interest or confidence in their case over time, most get resolved through one of the many alternative dispute resolution (ADR) processes. ADR is the umbrella term covering a wide variety of dispute prevention, management and resolution processes that are currently available to those in conflict, before or after litigation is initiated.
The Constitution mandates that every criminal defendant is entitled to a speedy trial. Therefore, criminal cases are given priority use of judicial assets. This means that civil cases must wait until courtrooms are available. Due to heavy criminal calendars, this has created a backlog of civil cases. Add to this fact the reality that there is a shortage of judges – nine alone just in Solano County – and it is easy to see why ADR has been embraced by the judicial system in a big way for the past 20 years or so. Frankly, without ADR, the civil justice system would have fallen apart years ago.
Obviously, the best way to avoid a lawsuit is to prevent one from occurring in the first place. We always advise business clients for example, to examine their operations to look for areas of repetitive conflict. In that way, if they can identify and plan out those operational challenges through intelligent system design, they will reduce the likelihood of future litigation. In a sense, this preemptive action is a form of ADR. Unfortunately, most people are too busy or simply aren’t proactive enough to think that far ahead.
When a dispute does arise, often an attorney is consulted. A diligent attorney will contact the other side, or the legal representative for the other party, and attempt to resolve the matter prior to initiating litigation. This form of counseling and prelitigation negotiation is also a form of ADR.
Once a lawsuit has been filed, the attorneys are required to provide clients with an ADR information package. This contains details concerning the many alternatives to a court trial that are available for resolving lawsuits. Some of the more common forms of ADR include:
- Early neutral evaluation –in this form of ADR, an experienced, impartial attorney, with an understanding of the subject matter of the underlying lawsuit, hears a summary of the case, and then writes an evaluation that typically prompts further settlement discussions.
- Private Judging – this is commonly referred to as “rent-a-Judge” and is often utilized by large corporations that are involved in cases involving matters that the parties would rather not litigate in the public eye, or not wait for the lengthy litigation process like ordinary plebeians.
By far the most common forms of ADR are mediation and arbitration. Often these two are used interchangeably. However, they are quite different from one another.
Arbitration is similar to the trial court process in that a neutral third party, such as an attorney, retired judge or an individual with subject matter expertise, listens to the parties present evidence, weighs that evidence and then renders a decision, or arbitration award, in favor of one party or the other. Depending on the circumstances, the arbitration award can be binding or nonbinding.
Mediation is a process whereby a neutral third party assists disputants in better understanding all aspects of the conflict between them, and then by utilizing that knowledge, helps the parties develop an acceptable resolution of their differences.
The key distinction between these two forms of ADR is that arbitration results in a decision being imposed on the parties, following an evaluative analysis by a finder of fact. Mediation, on the other hand, produces an outcome that is entirely of the parties’ making. The parties have full control of any outcome – or whether there is to be an outcome. It is no wonder that 80% of the cases brought to mediation settle during that process.
Finally, civil cases that have not settled during the course of litigation typically have one last chance to be resolved short of trial. Almost every civil case must include a mandatory settlement conference before the trial judge or a settlement mentor. During this conference, the judge or settlement mentor strongly encourages the parties to settle rather than taking the case to trial. Settlement conferences have several benefits. First, the case might settle. Second, the trial judge is able to get a preview of the issues and is therefore in a better position should the case proceed to trial.
It should be clear that without ADR, the 90% of cases that currently vanish during the litigation process would be clogging our trial courts, and it would likely be our grandchildren who would be trying these cases many years down the road.
The information herein is intended to be general in nature and does not constitute legal or tax advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
Good News/ Bad News
Good News/Bad News
This week’s column is by Jeff Hall, CPA and attorney at Gizzi & Reep.
So, you just sold your Benicia home for a significant gain! (The good news) Now, the question is, how much of that gain is reportable as taxable income to the Internal Revenue Service? (the bad news)
One client recently told me he had sold his home and needed a “replacement” property that was at a cost “equal to” or “greater than” the cost of his previous home, so as to avoid taxes on the sale. What surprised me about his comment was that he seemed to be referring to the old tax law, and not the relatively new IRS Code 121 exclusion governing personal residence sales.
Under I.R.C. 121, a homeowner can now exclude from income up to $250,000 of gain from the sale of a personal residence as often as every two years. If married, the exclusion increases to $500,000. No longer does the homeowner need to look for replacement property as under the old law. What’s fantastic about this is that the proceeds from the sale can be used for anything - an around the world cruise, a lifetime trip to Vegas, plastic surgery – there are no restrictions. However, to take advantage of I.R.C. 121, the taxpayer must meet the following two tests:
1) Ownership and Use. The homeowner(s) must have owned and used the home as a principal residence for at least two out of the five years prior to the sale.
2) Frequency limitations. The exclusion applies to only one sale every two years.
The IRC 121 combined $500,000 exclusion even applies to a married couple where only one spouse holds title, provided the non-title holder satisfies the occupancy test above. Property held in a living trust also qualifies. However, if two unmarried people are co-tenants in the property, then both must be on title to take advantage of the $500,000 exclusion. This unmarried rule also applies to domestic partners since federal law does not recognize state domestic partnership laws.
The IRS allows the I.R.C. 121 exclusion provided that the owner occupied the residence for at least 24 months at anytime within the 60-month period. The use period doesn’t need to be consecutive, nor does the period need to immediately precede the date of sale. If this use-test is met, the exclusion is allowable. This is particularly beneficial to individuals who convert a rental property to their personal residence for at least two years prior to the property’s sale.
One interesting aspect of IRC 121 relates to divorcees. Where one spouse moves out of the community property and the other remains to raise the kids, if the I.R.C. 121 requirements are satisfied, the non-resident ex-spouse may exclude half of all gain (not to exceed $250,000) even if the property is sold many years after the 60-month period.
Another exception is for those who had a spouse die during 2007. The surviving spouse is eligible to take advantage of the combined I.R.C. exclusion of $500,000 even though the other spouse is deceased. For the surviving spouse to take advantage of this exception, the spouse must sell the property no later than December 31 in the year of the spouse’s death. After December, the surviving spouse is only eligible for a $250,000 exclusion. There are many non-tax reasons why a surviving spouse may choose not to sell the property at year-end, but this option certainly provides an incentive to do so.
Many clients seek to sell a residence in which their gain far exceeds the I.R.C. 121 exclusion. What then? One way to legally avoid any gain is to convert the primary residence into a rental property before sale. This allows the property owner to take advantage of the I.R.C. section 1031 tax-deferred exchange, also known as the “Starker Exchange.” With a Starker exchange, when an investment property is sold, all of the taxable gain can be deferred provided the owner identifies “like-kind” replacement property of “equal to” or “greater than” the value of the first property within 45 days of the initial sale, and the escrow is completed within 180 days. There is no limit to the number of times the owner may exchange into other properties, nor any time limits for the tax deferral. Note that a rental can be converted back into a primary residence should it become necessary to do so though there may be significant tax implications associated with such a transfer.
When taking advantage of IEC 121 and 1031, a property owner could potentially defer capital gains tax forever. With the estate tax exception currently expected to be repealed in 2010, the property owner just might get away without ever paying Uncle Sam for any capital gains from the sale or exchange of real property. Maybe you really can “take it with you” after all!
The information herein is intended to be general in nature and does not constitute legal or tax advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
This week’s column is by Jeff Hall, CPA and attorney at Gizzi & Reep.
So, you just sold your Benicia home for a significant gain! (The good news) Now, the question is, how much of that gain is reportable as taxable income to the Internal Revenue Service? (the bad news)
One client recently told me he had sold his home and needed a “replacement” property that was at a cost “equal to” or “greater than” the cost of his previous home, so as to avoid taxes on the sale. What surprised me about his comment was that he seemed to be referring to the old tax law, and not the relatively new IRS Code 121 exclusion governing personal residence sales.
Under I.R.C. 121, a homeowner can now exclude from income up to $250,000 of gain from the sale of a personal residence as often as every two years. If married, the exclusion increases to $500,000. No longer does the homeowner need to look for replacement property as under the old law. What’s fantastic about this is that the proceeds from the sale can be used for anything - an around the world cruise, a lifetime trip to Vegas, plastic surgery – there are no restrictions. However, to take advantage of I.R.C. 121, the taxpayer must meet the following two tests:
1) Ownership and Use. The homeowner(s) must have owned and used the home as a principal residence for at least two out of the five years prior to the sale.
2) Frequency limitations. The exclusion applies to only one sale every two years.
The IRC 121 combined $500,000 exclusion even applies to a married couple where only one spouse holds title, provided the non-title holder satisfies the occupancy test above. Property held in a living trust also qualifies. However, if two unmarried people are co-tenants in the property, then both must be on title to take advantage of the $500,000 exclusion. This unmarried rule also applies to domestic partners since federal law does not recognize state domestic partnership laws.
The IRS allows the I.R.C. 121 exclusion provided that the owner occupied the residence for at least 24 months at anytime within the 60-month period. The use period doesn’t need to be consecutive, nor does the period need to immediately precede the date of sale. If this use-test is met, the exclusion is allowable. This is particularly beneficial to individuals who convert a rental property to their personal residence for at least two years prior to the property’s sale.
One interesting aspect of IRC 121 relates to divorcees. Where one spouse moves out of the community property and the other remains to raise the kids, if the I.R.C. 121 requirements are satisfied, the non-resident ex-spouse may exclude half of all gain (not to exceed $250,000) even if the property is sold many years after the 60-month period.
Another exception is for those who had a spouse die during 2007. The surviving spouse is eligible to take advantage of the combined I.R.C. exclusion of $500,000 even though the other spouse is deceased. For the surviving spouse to take advantage of this exception, the spouse must sell the property no later than December 31 in the year of the spouse’s death. After December, the surviving spouse is only eligible for a $250,000 exclusion. There are many non-tax reasons why a surviving spouse may choose not to sell the property at year-end, but this option certainly provides an incentive to do so.
Many clients seek to sell a residence in which their gain far exceeds the I.R.C. 121 exclusion. What then? One way to legally avoid any gain is to convert the primary residence into a rental property before sale. This allows the property owner to take advantage of the I.R.C. section 1031 tax-deferred exchange, also known as the “Starker Exchange.” With a Starker exchange, when an investment property is sold, all of the taxable gain can be deferred provided the owner identifies “like-kind” replacement property of “equal to” or “greater than” the value of the first property within 45 days of the initial sale, and the escrow is completed within 180 days. There is no limit to the number of times the owner may exchange into other properties, nor any time limits for the tax deferral. Note that a rental can be converted back into a primary residence should it become necessary to do so though there may be significant tax implications associated with such a transfer.
When taking advantage of IEC 121 and 1031, a property owner could potentially defer capital gains tax forever. With the estate tax exception currently expected to be repealed in 2010, the property owner just might get away without ever paying Uncle Sam for any capital gains from the sale or exchange of real property. Maybe you really can “take it with you” after all!
The information herein is intended to be general in nature and does not constitute legal or tax advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
I Have a Judgment....What's Next?
I have a Judgment . . . What’s Next?
By Scott D. Reep, Esq.
Last week, Steve wrote about the expense of litigation. It is expensive in terms of time, emotions and money. Each week, we consult with people who have gone through the litigation process and now have a piece of paper saying that the other side now owes them money. People are often surprised to learn that the court does not actively force the defendant to pay the judgment. Some people find out for the first time that we don’t have debtors’ prison in the United States and that the court will not be putting the defendant in jail until the judgment is paid. To the contrary, in the United States, we have bankruptcy court where we forgive people’s debts and give them the opportunity to enjoy a new debt-free start.
Here is some basic information about California judgments: (1) judgments are good for 10 years and are renewable, if renewed before the 10-year period ends; (2) the unpaid portion of the judgment collects interest at the rate of 10% simple interest per year; (3) if the judgment is renewed, the accrued interest is compounded; (4) if the judgment is against a person, it will likely show up on their credit report and lower their credit score; (5) it is possible to collect an out-of-state judgment in California by converting that judgment to be a California judgment.
There are a number of unusual words that are used in the judgment collection process. The party that won is called the “judgment creditor” and the losing party is referred to as the “judgment debtor.” The term “levy” means to seize or take.
Although the court does not actively force the debtor to pay the judgment, the court has a number of procedures to help the creditor collect. Because each debtor is in a different position relating to the assets that they have, it is up to the creditor to determine the best procedure for collection.
The first step to collect a judgment is to determine what assets the debtor has. Sometimes you are lucky enough to know where the debtor works, where they bank and where the house that they own is located. Sometimes, you may have a judgment against a person that survives on government assistance, lives in an apartment and keeps what little money they have under their mattress. Good luck collecting a judgment if that is your situation. Some people simply don’t have any assets. If you find yourself in that situation, it may be best to renew the judgment and hope that the debtor wins the lottery or that their rich Uncle Thurston leaves them money. If you know little about the debtor’s assets there is a procedure, called a “debtor’s examination” where you can force the debtor back into court and ask the debtor to produce information about their financial condition.
Once you have an idea of what assets the debtor has, we usually follow these steps: (1) contact the debtor and work out a voluntary payment plan. It is better to receive the judgment in payments over time than to have a piece of paper stating that you are entitled to the whole amount; (2) put liens on the debtor’s real property and personal property; (3) have the court issue a writ of execution [sounds ominous, but is merely a court order authorizing the sheriff to seize the debtor’s personal property]; (4) decide whether to go forward with a bank levy, a wage garnishment or perhaps a third-party levy.
You may see the debtor driving around town in a new car . . . perhaps even a car that you would like to own yourself. We do not usually recommend levying on a vehicle . . . it is an expensive process, typically costing the creditor $1,500 to $1,800 out-of-pocket with little hope of actually recovering anything. The sheriff’s fees are expensive because the car has to impounded, stored, advertised for sale and then sold at public auction. Vehicles often have little equity, so after the court and sheriff’s fees are paid, the lien holder (lender) is paid and the debtor is paid their $1,900 exemption, there is probably nothing left to pay the judgment. However, even though you may not recover any money from the sale, you may get satisfaction in seeing the debtor walking or on their bike.
For more information about collecting judgments, visit the State Court’s website at www.courtinfo.ca.gov .
The information herein is intended to be general in nature and does not constitute legal advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
By Scott D. Reep, Esq.
Last week, Steve wrote about the expense of litigation. It is expensive in terms of time, emotions and money. Each week, we consult with people who have gone through the litigation process and now have a piece of paper saying that the other side now owes them money. People are often surprised to learn that the court does not actively force the defendant to pay the judgment. Some people find out for the first time that we don’t have debtors’ prison in the United States and that the court will not be putting the defendant in jail until the judgment is paid. To the contrary, in the United States, we have bankruptcy court where we forgive people’s debts and give them the opportunity to enjoy a new debt-free start.
Here is some basic information about California judgments: (1) judgments are good for 10 years and are renewable, if renewed before the 10-year period ends; (2) the unpaid portion of the judgment collects interest at the rate of 10% simple interest per year; (3) if the judgment is renewed, the accrued interest is compounded; (4) if the judgment is against a person, it will likely show up on their credit report and lower their credit score; (5) it is possible to collect an out-of-state judgment in California by converting that judgment to be a California judgment.
There are a number of unusual words that are used in the judgment collection process. The party that won is called the “judgment creditor” and the losing party is referred to as the “judgment debtor.” The term “levy” means to seize or take.
Although the court does not actively force the debtor to pay the judgment, the court has a number of procedures to help the creditor collect. Because each debtor is in a different position relating to the assets that they have, it is up to the creditor to determine the best procedure for collection.
The first step to collect a judgment is to determine what assets the debtor has. Sometimes you are lucky enough to know where the debtor works, where they bank and where the house that they own is located. Sometimes, you may have a judgment against a person that survives on government assistance, lives in an apartment and keeps what little money they have under their mattress. Good luck collecting a judgment if that is your situation. Some people simply don’t have any assets. If you find yourself in that situation, it may be best to renew the judgment and hope that the debtor wins the lottery or that their rich Uncle Thurston leaves them money. If you know little about the debtor’s assets there is a procedure, called a “debtor’s examination” where you can force the debtor back into court and ask the debtor to produce information about their financial condition.
Once you have an idea of what assets the debtor has, we usually follow these steps: (1) contact the debtor and work out a voluntary payment plan. It is better to receive the judgment in payments over time than to have a piece of paper stating that you are entitled to the whole amount; (2) put liens on the debtor’s real property and personal property; (3) have the court issue a writ of execution [sounds ominous, but is merely a court order authorizing the sheriff to seize the debtor’s personal property]; (4) decide whether to go forward with a bank levy, a wage garnishment or perhaps a third-party levy.
You may see the debtor driving around town in a new car . . . perhaps even a car that you would like to own yourself. We do not usually recommend levying on a vehicle . . . it is an expensive process, typically costing the creditor $1,500 to $1,800 out-of-pocket with little hope of actually recovering anything. The sheriff’s fees are expensive because the car has to impounded, stored, advertised for sale and then sold at public auction. Vehicles often have little equity, so after the court and sheriff’s fees are paid, the lien holder (lender) is paid and the debtor is paid their $1,900 exemption, there is probably nothing left to pay the judgment. However, even though you may not recover any money from the sale, you may get satisfaction in seeing the debtor walking or on their bike.
For more information about collecting judgments, visit the State Court’s website at www.courtinfo.ca.gov .
The information herein is intended to be general in nature and does not constitute legal advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
To Sue or Not to Sue?
LEGAL MATTERS (Column for 8/31/07)
To Sue or Not to Sue?
By Steve Gizzi, Esq.
To sue or not to sue - that is the question. Whether tis nobler to seek justice for every wrong; or suck it up and move on. Now THAT is the real question.
For many attorneys, the sweetest words ever spoken by a client are “I don’t care what it costs, I just want to get the * &%$#*#!” At that point, the attorney usually excuses himself to call his spouse and inform her that yes, in fact, we will be buying the new Lexus after all.
Litigation is very expensive – often prohibitively so. The decision of whether or not to litigate against a perceived wrongdoer is one that must be given thoughtful consideration. Sometimes, of course, you won’t have a choice if you’re the one being sued. But generally, if you’re in a dispute or otherwise feel wronged, explore all viable alternatives before deciding to bring a lawsuit.
When prospective litigants come into our firm for a case evaluation, the first line of inquiry is “Can you win?” (We never answer the question “Will I win” because no attorney in her right mind would try to predict what a judge or jury will do.) If the response to the first question is positive, the next is “Can you collect?” Does the prospective defendant have sufficient assets to pay any judgment that our client is awarded? Will the prospective defendant file bankruptcy in response to an adverse judgment? Unless the first two questions can be answered affirmatively – the client can win and can collect - other options should be considered because litigation is very expensive and will likely be a waste of time and resources.
If the client decides to proceed with litigation, an upfront retainer is collected for time and expenses, a complaint (lawsuit) is filed and the parties are off to the races. As the parties proceed down the “litigation highway” there are many exit ramps. Sometimes attorneys negotiate a settlement directly, or are assisted by an arbitrator, mediator or judge. Despite how it appears in the glamorous world of LA Law, Boston Legal and their television progeny, in the end, less than 10% of cases filed ever are tried in court, because the parties become weary of the burden and expense of litigation and settle or drop their case.
Did I mention that litigation is very expensive? An average one-day deposition costs approximately $4000 – and that’s for each witness! Written interrogatories (questions for the other side to answer) can easily total $2500 in fees. Add to that expert witnesses, trial exhibits, filing fees, etc.
It’s not my intent to discourage readers from pursuing legitimate claims. After all, suing people is part of my job. I like my job and I have two kids to put through college! However, attorneys have a legal, moral and ethical obligation to ensure that prospective litigants know exactly what they’re getting into when choosing the litigation path. And if the case is weak, the defendant judgment proof, the amount in controversy small or the client lacks the physical and emotional strength to deal with what is often a lengthy, roller coaster process, then other alternatives should be considered because litigation – is very expensive.
The information herein is intended to be general in nature and does not constitute legal advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
To Sue or Not to Sue?
By Steve Gizzi, Esq.
To sue or not to sue - that is the question. Whether tis nobler to seek justice for every wrong; or suck it up and move on. Now THAT is the real question.
For many attorneys, the sweetest words ever spoken by a client are “I don’t care what it costs, I just want to get the * &%$#*#!” At that point, the attorney usually excuses himself to call his spouse and inform her that yes, in fact, we will be buying the new Lexus after all.
Litigation is very expensive – often prohibitively so. The decision of whether or not to litigate against a perceived wrongdoer is one that must be given thoughtful consideration. Sometimes, of course, you won’t have a choice if you’re the one being sued. But generally, if you’re in a dispute or otherwise feel wronged, explore all viable alternatives before deciding to bring a lawsuit.
When prospective litigants come into our firm for a case evaluation, the first line of inquiry is “Can you win?” (We never answer the question “Will I win” because no attorney in her right mind would try to predict what a judge or jury will do.) If the response to the first question is positive, the next is “Can you collect?” Does the prospective defendant have sufficient assets to pay any judgment that our client is awarded? Will the prospective defendant file bankruptcy in response to an adverse judgment? Unless the first two questions can be answered affirmatively – the client can win and can collect - other options should be considered because litigation is very expensive and will likely be a waste of time and resources.
If the client decides to proceed with litigation, an upfront retainer is collected for time and expenses, a complaint (lawsuit) is filed and the parties are off to the races. As the parties proceed down the “litigation highway” there are many exit ramps. Sometimes attorneys negotiate a settlement directly, or are assisted by an arbitrator, mediator or judge. Despite how it appears in the glamorous world of LA Law, Boston Legal and their television progeny, in the end, less than 10% of cases filed ever are tried in court, because the parties become weary of the burden and expense of litigation and settle or drop their case.
Did I mention that litigation is very expensive? An average one-day deposition costs approximately $4000 – and that’s for each witness! Written interrogatories (questions for the other side to answer) can easily total $2500 in fees. Add to that expert witnesses, trial exhibits, filing fees, etc.
It’s not my intent to discourage readers from pursuing legitimate claims. After all, suing people is part of my job. I like my job and I have two kids to put through college! However, attorneys have a legal, moral and ethical obligation to ensure that prospective litigants know exactly what they’re getting into when choosing the litigation path. And if the case is weak, the defendant judgment proof, the amount in controversy small or the client lacks the physical and emotional strength to deal with what is often a lengthy, roller coaster process, then other alternatives should be considered because litigation – is very expensive.
The information herein is intended to be general in nature and does not constitute legal advice. Send column suggestions to info@SolanoLawGroup.com, fax to Gizzi & Reep, LLP at 707-748-0921 or mail to 940 Adams Street, Ste. A, Benicia.
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