All Forum Posts by: Jerel Ehlert

Not your lawyer, but I'm not entirely sure the paragraph starting "Any liability of..." is enforceable.  Might be voidable as against public policy.  Mostly because it is WAY too broad.  Could definitely put more issues into play (for trial) than if it were not in the contract.  I would strike that paragraph or find someone else.

The next paragraph ("You agree to hold harmless...") seems relatively reasonable.  They are listing items that you won't go after the GC and defend the GC from other.  Looks perfectly reasonable in scope.

As for PI from GC's subs....complex topic, but 1) make sure the GC has an active insurance policy, naming you as additional insurred (verify day of job and randomly through out). 2) have GC sign affidavit that they will adequately supervise their employees/contractors. 3) have a policy yourself that covers contractors.  OR, 4) hire someone else.

"Specialized" means a lawyer has taken a 2nd bar exam to get a designation by the state board of legal specialization.  Most lawyers never do this.

"Interviewing" lawyers is mostly unprofitable for both. Asset protection is a very narrow activity. Look at your local REI clubs and talk to other investors for attorneys that work with investors. You will have more use for clearing up title issues from sellers, drafting contracts (don't just pull something from the internet, that's our job security), LL/T disputes, and breach of contract cases.

For details, see Real Estate Securities by Levine and Feigin.  Your google terms are "investment contracts", "Howey test", "Reves test", and "Forman test".

The economic realities determine whether it is a security.  Pooling money from others where profits are generated by efforts of others, and no control over major decisions = a security.  The default rule is that all securities must be registered, unless the issuer (you), the security, or the investor qualifies for an exception or exemption.

Federal regulations cover the security side (PPM, syndication, issuing securities), but the state laws determine the local instruments (notes, deeds, lien instruments, entities).

Even the lightest capital raise starts, for me, at a $10,000 retainer and can climb to $50K+ depending on how involved I have to get.  This is one area you don't want to go cheap.  Investors have money, not only to invest, but sue if things go sideways and think they were defrauded. 

All issues of legal liability are going to be determined, at least in part, by the laws of the state where the property is located - and each state is different.  Some part of it will be determined by federal rules.

In TEXAS, the only state I'm licensed in, non-consumer loans have relatively few regulations with which a lender must contend.

Most regulations are around fraud or misrepresentation.  Breach of contract tends to come up (promised one thing, but loan terms something else, delays causing deal to fall apart on unusual facts).  Knowingly financing the same, or any criminal enterprise, will have liability to you.  It is not just "knowing", but also what a reasonable party would inquire about (given the totality of the circumstances, what would a reasonable person do when presented with indicators of __?).  First, last, and always - know what the usury rate is for the jurisdiction that applies.  It includes not just the interest rate, but also all fees, points, penalties, etc.

Don't try micro-managing borrowers or you will void lender protections.  Start acting like an owner, be held liable as an owner.

Re: CPA.... meh. Depends on how many loans you plan on making/funding and your entire financial picture. An LLC can act like a bucket to hold all the transactions (income/expense, assets/liabilities) so can simplify accounting because the net profits/losses can pass through as a single number to your personal. You pay additional fees to prepare the added form. In the event you must foreclose and take back the property, an LLC will provide additional shielding from liability of ownership.

As for "legal advice"....well, the CPA's entire job is interpreting legal code.  In TEXAS, there is an exemption from UPL for CPAs for tax and entity formation (and advising).  This topic might be a bit more complex than just the tax side, though.

Not anti-1031, just pro-facts.  Sure, it can do a lot of good, but put it in perspective: it is an exemption from the rule.

 Typical lawyer response: It depends.

Seriously.  You look at the lease in place.  Sometimes you can move the non-paying T to a different unit to do renovations.  This doesn't have to be a newly renovated unit.  But for a straight up eviction for non-payment - not going to happen until the moratorium is up.  Especially if it is a "covered unit" (there's a list, but basically, if it is a government backed or paid loan).

In Texas, my 1st lien set of docs includes a warranty deed w/ vendor's lien, promissory note, deed of trust, business purpose affidavit (for entity borrower) OR personal guaranty (for individual borrowers), lender's instructions to title closer, and a letter of non-representation (mandatory).  I have a doc prep worksheet that gathers all the required info.  Without a rush and no "customization", cost is $500.  As big as Texas is, I've drafted for clients like this state-wide.

Having title company hire this done will do in a pinch, but that lawyer works for the title company, not lender or borrower.

For attorneys that draft this sort of thing, a 10-15 minute call is all it takes to get the ball rolling.  If you get fancy or complicated, that's where you NEED to spend money on a lawyer.

Put the fear mongering back in the box.

First, the DEFAULT is to pay taxes on sale.  Section 1031 is an EXEMPTION to the rule.  It is not a right you are guaranteed.

Second, there are lots of things an incoming administration might want to do but can't/don't/won't.  Until a bill makes it through all the committees and on the floor of both chambers for signing, I'm not going to get excited.  There are too many places in the process to kill a bill.

Talk to a lawyer.  There are as many ways to structure your capital stack as you can (literally) imagine.  Debt? Equity? Hybrid? Equity kicker? Convertibles? 

Commission paid by Seller.  You can negotiate taking the "buyer's agent" commission off the sales price by offering to not bringing in a buyer's agent.  If the seller's agent refuses, you bring in any buyer's rep and the seller's agent will be forced to split the commission.

Same happens with lawyers and RE agents/brokers.  Texas bar licensees are exempt from TRELA.  Brokers are prohibited from paying commissions to anyone but a TREC licensee.  But attorney's fees can be paid on a settlement statement by the buyer/client with a credit to the buyer from the seller.  Seller's broker commission reduced to what they would get if there was a buyer's broker.