Lanigan & Lanigan, P.L.
831 W. Morse Blvd., Winter Park, Florida 32789
407-740-7379
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Bankruptcy
The San Bernardino City Council recently filed for Chapter 9 bankruptcy after learning it only had $150,000 left in its bank account, according to city officials. Although there are continuing reports of the economy creeping back to life some cities are still struggling to pay its debts. Many in San Bernardino are worried that the town may have to shut down if it can’t find the money to pay its employees. However, Chapter 9 bankruptcy protection is a special form of federal law for insolvent municipalities that will allow the city to renegotiate labor contracts and avert lawsuits by its creditors. Hopefully, these protections will enable the city to restructure its budget and forestall creditors enough to get back to financial stability. Yet, San Bernardino is looking at a $46 million deficit despite significant cuts in benefits and employees over the last few years. After years of a recession and growing labor costs the city has finally hit a wall, according to city officials. This only adds to the concerns of several other California cities that are also cutting jobs and facing the same problems. Like Florida, California, was one of the hardest hit states in the foreclosure crisis. As a result, several cities across California have gone bankrupt. Because of the mass foreclosure, the cities collect less in taxes which force them to make cuts to pension and health plans. Add this to increasing labor costs and you have a recipe for insolvency. Sometimes when facing a financial crisis the best thing to do is reorganize. Although Chapter 9 is reserved strictly for municipalities, Chapter 13 allows individuals...
The Law
While the housing market in Florida is starting to stabilize, many first time home buyers are struggling with stricter standards imposed by banks and lenders. Despite incredibly low mortgages rates and reduced housing prices, many aren’t getting approved due to new financing restrictions in their contracts. Because first time buyers are a significant part of nation’s housing market, many experts believe this could be a serious issue for the economy. Possible Easing of Tough Buyer Restrictions According to the National Association of REALTORS, first-time buyers should account for 40 percent or more of home sales nationwide in a healthy economy. However, last May, they only accounted for roughly a third of home sales throughout the country. As a result, both the Federal Housing Financing Agency (FHFA) and the Federal Housing Administration (FHA) are taking steps to persuade lenders to alter tougher restrictions. Many experts in the industry say the reason banks and lenders are putting in more rigorous standards is because they are practicing so-called “defensive lending.” Much like what doctors due to reduce the risk of litigation, lenders are running more requirements and checks than necessary. Moreover, banks are uncertain about upcoming mortgage regulations that will occur for future lending when new legislation kicks in. Higher FICO Scores, Fees, Down Payments For instance, The FHFA oversees Fannie Mae and Freddie Mac which combined with the FHA make up about 90 percent of all home loan funding. They generally accept FICO credit scores anywhere between 660 and 680, however, many lenders are requiring some 100 points higher. In addition, lenders are requiring extra fees and larger down payments. Lenders...
Bankruptcy
Although closely related debtors other than spouses cannot file a joint petition, the court can order joint administration of their cases. Filing bankruptcy jointly is different than the joint administration of cases: only spouses can file jointly. But joint administration keeps estates separate so that each filing party has their own assets and liabilities. However, the estates are under the administration of the same trustee which cuts down the administrative costs and allows more convenient disposition of the cases. Joint administration is therefore an administrative device to save costs and allow for more efficient handling of separate estates. On the other hand, consolidation is another way to save costs. Sometimes, the court will consolidate the cases for procedural reasons such as where two sets of creditors have both filed involuntary petitions against the same debtor. Yet, the court also has the power to order the substantive consolidation of a case against separate debtors. Substantive consolidation is not provided for in the bankruptcy code but is a judicially created device based on the courts equitable discretion. For instance, where spouses or other closely related debtors, such as an individual and his or her corporation/subsidiaries are in bankruptcy, the court can combine their estates so that assets are pooled and creditors of each become creditors in the consolidate estate. However, substantive consolidation is different from joint administration because it combines the two separate estates into a single bankruptcy estate. As a result this may prejudice creditors of the debtor with the higher asset-to-debt ratio. Thus, substantive consolidation is not routinely permitted unless the party seeking consolidation can prove the overall equities...
The Law
Right now may be an excellent time to consider a mortgage workout. For the sixth straight week, the average rates on 30 year and 15 year fixed mortgages fell to a record low, according to Bloomberg. Yet, experts say cheap mortgages may help boost home sales this year. Nevertheless, reports from Freddie Mac say the average rate on the 30-year loans dropped to 3.67%. This is a sharp decrease from last week which was 3.75% and the lowest since the beginning of long-term mortgages. Furthermore, the 15-year mortgage declined to 2.94% which is down from 2.97% last week. Since last December rates on the 30-year loan have been below 4%. However, these low rates are a major reason the housing industry is showing modest signs of a recovery this year. Dropped Rates Could Help Economy Many experts say that if more people start to refinance, the drop in rates could provide some help to the economy. When people refinance at lower rates, they pay less interest on their loans and have more money to spend. Last April, sales of both previously occupied homes and new homes rose near two-year highs. This is good news because builders are requesting more permits to build and are regaining confidence in the market. In addition, the Mortgage Bankers Association stated that mortgage applications rose by 1.3% last week. While this is most likely because more people applied to refinance their homes, applications to buy a home actually fell for the fourth straight week. Although more people are starting to consider buying a home, dismal jobs report from the government are spreading fears that...
Bankruptcy
While involuntary bankruptcy cases make up a small percentage of bankruptcy filings each year, it is important to understand the restrictions and limitations if you are forced into bankruptcy. Involuntary relief is only available in a narrow range of circumstances. Rare, But Available to Some To obtain an involuntary order for bankruptcy relief, petitioners must satisfy two different sets of requirements. First, the qualifications under 303(a), (b), and (c) must be met. Second, at the hearing of a controverted involuntary case, the petitioners must establish grounds for relief under 303(h). If the involuntary petition is not successful, the petitioners could be liable to the debtor for attorney’s fees, costs, and/or damages. Section 303(a), (b), and (c) address the nature of the debtor and creditor as well as the actual number of creditors. First, the debtor cannot be involuntarily placed into bankruptcy under chapter 12 or 13 and can only be placed in a Chapter 7 or 11. Second, the aggregate amount of claims must be within the code’s limits and excludes claims that are contingent as to liability (look to previous blog regarding “non-contingent debt”), the subject of a dispute as to the liability or amount, or fully secured by a lien. This means that if there is a bona fide dispute as to the amount owed or if a creditor is fully secured, an involuntary case may not be allowed. Third, if the debtor has 12 or more creditors, at least three must join in the petition. If the debtor has 11 or fewer creditors, only one petitioner is needed. Must Show Two Alternative Grounds Lastly, 303(h) permits...
The Law
Each article of the Uniform Commercial Code is specific to certain transactions and plays a major role in the interpretation of contracts. Article 2 is a series of default rules predominately used in the sale of goods. The reason it is a series of default rules is because parties are allowed to contract out of them and courts only use the Article 2 rules if the contract itself is not clear. Therefore, it is very important for businesses to know and understand these default rules because they apply to various commercial transactions. Four Ways Around Uniform Commercial Code Rules Accordingly, there are really only four ways in which the UCC gap filler rules are superseded. As already stated, if the contract itself specifics what the terms should be then a court is unlikely to apply the UCC. If there are repeated occasions of performance within a contract, known as course of performance, then a court most likely will rule in accordance with the past performance. Similarly, the course of dealing between parties who have established a particular way of dealing with each other through previous contracts also supersedes the UCC. On the other hand, if there is well known trade usage within an industry this may also prevent a court from applying the UCC. Mixed Contracts However, the Article 2 provisions are most deficient in the coverage of mixed contracts. Mixed contracts are those that are a combination of goods and services. For instance, if you hire a painter to paint your house in which you pay for the actual paint as well as the service of painting, it...
The Law
For most corporations the directors and officers have the authority to make the major decisions for the company. However, this power is not absolute as they have to answer to the shareholders for any important changes. When the shareholders feel that the directors or officers are abusing their power, the shareholders have the ability to sue the company in a derivative suit for mismanagement or negligence. Although the shareholders are the “owners” of the company, the directors and officers are protected by the business judgment rule. Business Judgment Rule The business judgment rule is a principle of corporate governance that has traditionally operated as a shield to protect directors from liability for their decisions. The idea is that if the directors are entitled to the protection of the rule, then the courts should not interfere with or second-guess their decisions. If directors are not entitled to the protection of the rule, the courts scrutinize the decision as to its intrinsic fairness to the corporation and the corporation’s minority shareholders. The rule is a rebuttable presumption that directors are better equipped than the courts to make business judgments and that the directors acted without self-dealing or personal interest and exercised reasonable diligence and acted with good faith. Accordingly, the application of the business judgment rule operates in conjunction with the fiduciary duties of corporate directors and officers. A fiduciary duty is a legal relationship based on trust and confidence between different parties. Thus, the officers and directors have fiduciary duties to the shareholders and the company as an operation of the law. These duties include a duty of loyalty, due...
The Law
In every secured transaction the collateral carries a special importance for the different rules that apply. While most people think of collateral as some valuable piece of personal property, there are several different classifications that make a significant difference within a legal dispute. Hence, it is imperative to identify and categorize the collateral before any security interest can be analyzed. Security Agreement Mistake Problems For purposes of the Uniform Commercial Code, all collateral can fit within only one of the meticulously defined types. Each category dictates how and when each security interest is perfected so that other creditors are aware of any encumbrances that may exist. If a mistake is made in the security agreement or the financing statement in the listing of collateral it could cause serious problems down the road for both the debtor and creditor. Collateral Category Can Change However, the only way to understand the various types of classifications is to read the exact definitions that the drafters of the UCC have established. Although there are over 12 different categories with specific conditions for each one, there are a few principal subsets that encompass the others. For instance, the collateral may be defined as “goods” but within this category are 4 other definitions: consumer goods, farm products, inventory, and equipment. Each one these is a type of good, but they are all mutually exclusive of each other. Equipment cannot be inventory and inventory cannot be consumer goods, etc. Depending on whose hand the collateral is in, the category can change over time. Thus, there can only be one classification at a time but there...
The Law
While compensatory damages provide a plaintiff with a monetary recovery, sometimes the remedy of unjust enrichment is an excellent solution to a legal dispute. Unjust enrichment, known as restitution, is based on the general equitable principle that a person should not be permitted to profit at another’s expense without reasonable compensation for any property, services, or other benefits that have been unfairly received and retained. Three Reasons for Unjust Enrichment Generally, there are three reasons why a plaintiff would seek unjust enrichment instead of damages. First, depending on the situation, it may allow the plaintiff to recover more money than normal compensatory damages. This is because the market value of the damages may not compare to the actual amount the defendant was enriched. Second, it may be the only way to win the case when there is no oral or written contract. The court may find that there is a “quasi-contract” or contract implied in law. Because contract law won’t allow recovery without an enforceable oral or written contract, the law creates a “pretend” contract so that the plaintiff can recover. Third, certain types of recovery through unjust enrichment will allow priority in bankruptcy. If the defendant is insolvent the law creates a constructive trust which provides that the defendant was holding something that never really belonged to him or her, but really belonged to the plaintiff. Thus, the law puts the plaintiff ahead of other creditors because that money is rightfully the plaintiff’s. Unjust Enrichment in Some Situations There are a handful of situations where the law allows recovery based on unjust enrichment. For instance, unjust enrichment may be...
The Law
Corporations can be structured in a variety of ways but each business requires its own form based on its own particular circumstances. In the beginning stages of forming a company, it is vital to consult the state’s applicable corporate law. Because Delaware developed body of case law and lenient attitude towards upper management, many companies are based out of that state. However, many states, including Florida, follow the Model Business Corporation Act (MBCA) which provides the general rules of corporate structure. One way to think of the articles of incorporation is to imagine it is the Constitution while the bylaws are akin to statues passed by Congress. Generally, after the incorporators file the articles of incorporation, they have a meeting to vote on a board of directors. This decision is of vital importance because the board is the usually the central source of decision making and authority within a company. The board of directors is usually the only group that may propose amendments to articles of incorporation which make them much harder to amend than the bylaws. Thus, the articles are designed to give consistency to a company and help protect minority shareholders. After the directors are elected, the board must decide how many shares to issue which can vary depending on the type of company. Because the shareholders are the “owners” of the company, they too are not without power. Generally, shareholders as a whole have a right to propose bylaws even if board of directors disagrees. While shareholders and the board can both amend the bylaws, the board can be limited by a provision in the articles...
