The Rise of the Virtual Law Firm
August 30, 2009.
Puget Sound Business Journal (Seattle) - by Richard Seward
Tough economic times have sped up a trend that was already in the works for the legal industry: the virtual office. Advances in technology allow attorneys to work remotely, an important, cost-effective convenience in an increasingly globalized and cost-conscious market.
Before tearing up the lease on the fancy Class A office space, however, attorneys need to carefully consider what it will take to create a successful virtual firm.
[Read the article in its entirety as published by PSBJ.]
One-third of U.S. companies expect more lawsuits in ’09
December 5, 2008.
Puget Sound Business Journal (Seattle) - by Elaine Porterfield Contributing Writer
[Excerpts from an article published by PSBJ, for which Mr. Seward was interviewed.]
Many in-house attorneys at U.S. companies believe lawsuits will increase as economic conditions worsen.
Such is the finding of the 2008 Litigation Trends Survey by international law firm Fulbright & Jaworski. It’s the fifth annual survey by the firm, which claims this is the largest survey of corporate counsel on litigation trends.
The survey polled 358 in-house counsel in the United States and the United Kingdom. Of those, 251 were U.S. respondents.
“I certainly am seeing a trend in terms of more these disputes,” said Richard Seward, an attorney with offices in Port Orchard and Seattle who represents small business. “And I think the consensus is that it’s going to get worse… There’s going to be an increase in the number of bankruptcy filings. Commercial disputes will continue to increase, and foreclosures will increase. I’m certainly seeing it in my practice.”
The survey did hold some interesting information, Seward said.
“What really surprised me is 27 percent of U.S. companies had more than 20 lawsuits commenced against them in the last year,” he said. “That tells me a lot of companies are suffering from monetary defaults.”
THE NEW WASHINGTON DISTRESSED HOME LAW
June, 2008.
Washington State Legislature has just passed a new law that will go into effect in June 12, 2008, known as THE NEW WASHINGTON DISTRESSED HOME LAW with a goal to protect “Distressed Homeowners” (or “DPO”) (as that term is defined) from foreclosure rescue “equity skimming” scams. Equity Skimming was criminalized under RCW 61.34.010 in 1988, but it only applied to the fraud perpetrator. Under this new law, it also applies to “Distressed Home Consultants” (“DHC’s) which are defined in broad terms to include real estate agents, brokers, and other persons who offer “advice” to the Distressed Homeowner, and the act provides the Distressed Homeowner with a civil action against all DHC’s. (Why real estate agents and brokers were not exempt (attorneys and mortgage brokers were exempt) is a question that puzzles the real estate community. The law provides that DHC’s owe a statutory fiduciary duty to Distressed Homeowner and includes specific contractual requirements and notices provisions that give rise to automatic liability if they are not complied with.
For the DHC’s the exposure is high. The legal community is currently “circling the wagons” creating boutique law firms that will specialize in initiating lawsuits on behalf of Distressed Homeowners, because the financial incentives are built-in to this new law and the DHC’s will be the “deep pockets” because the criminal perpetrators generally avoid responsibility in these circumstances. Civil suits will be brought under the Consumer Protection Act, which provides for treble damages in some cases, as well as attorneys fees and costs.
The reactions in the real estate community are mixed. Some brokers are scurrying to revise their forms to comply with the new act, while others are taking a wait and see attitude. How do you know if someone is a DPO? It is not clear. Outside of a clear foreclosure action pending, the act only requires that they “have a good faith belief that he or she is likely to default on the mortgage within the upcoming four months due to a lack of funds, and the homeowner has reported this belief …” The list of “reportees” includes their mortgagee, their attorney, or any DHC.
The new act is not without controversy. Also, could a real estate agent be committing a felony if they increase a DPO’s sale price to include closing costs? What is a Dwelling? The definition of a “Dwelling” is not clear. Under the act it means, “a single, duplex, triplex, or four-unit family residential building.” Does this include an individual that resides in a high-rise condominium project or someone who lives in an apartment complex converted into condominium ownership? Does it include a double-wide trailer?
---------------------
OTHER NOTES:
Contract Requirements - If there is a contract to convey interest in the Distressed Homeowner’s property, the contract also must be in writing and must conform to all the requirements set by the law.
A Distressed Property Conveyance - is a transaction in which: (1) a foreclosed homeowner transfers an interest in the distressed property to a distressed property purchaser; (2) the distressed property purchaser allows the foreclosed homeowner to occupy the property; and (3) the distressed property purchaser or a person acting in participation with the distressed property purchaser conveys or promises to convey the property to the foreclosed homeowner; or provides the foreclosed homeowner with an option to purchase the property at a later date; or promises the foreclosed homeowner an interest in, or portion of, the proceeds of any resale of the property.
What Fiduciary Duties Imposed on DHC’s? - As a fiduciary, the DHC has a duty, among other things, to act in the DPO’s best interest, even if that is contrary to his or her own interest and must use reasonable care in everything he or she does concerning the DPO. Also, the DHC engagement terms must be in writing and must contain specific language and format set by the law. Failure to do so gives rise to liability.
Other Provisions - The new law provides to the distressed homeowner, in addition to any other right of rescission, to cancel any contract with a distressed home purchaser until midnight of the fifth business day following the day on which the distressed homeowner signs a contract that complies with this act or until 8:00 a.m. on the last day of the period during which the distressed homeowner has a right of redemption, whichever occurs first. Distressed home purchasers are prohibited from certain acts provided in the new law.
Enforcement - A violation of this new law is a per se violation of the Consumer Protection Act and any legal action could be brought by a foreclosed homeowner against whom the violation was committed or by the Attorney General. The legal action must be commenced within four years after the date of the alleged violation.
Kitsap Sun - Business News Brief
May 12, 2008. PRESS RELEASE published in the Kitsap Sun. [excerpt] Attorney Launches Blog to Help Victims of Fraud. After encountering several mortgage fraud victims whose financial situations left them unable to afford legal counsel, Richard Seward, founder and president of Law Offices of Richard D. Seward, has launched a public service blog to help victims of mortgage fraud understand their rights.
Seward said that he cannot use his blog site to dispense legal advice, but he can use it to empower others to make informed choices.
Forclosure Victims Hotline
April 23, 2008. Many families are considering or experiencing home foreclosure. To help people avoid becoming victims of fraudulent schemes, and as a forum for solutions, Rick started a blog titled "Foreclosure Victims Hotline".
Published in the Kitsap Peninsula Business Journal in July 2006
Seven keys to successfully buying or selling a business
By Richard D. Seward
The IRS places a “value” on your business and taxes your surviving family members on this “value” when you die. Consequently, it becomes important for owners of businesses to know what their business is worth and learn how to “cash in” on this “nest egg” before they die. Buyers Beware! Whether you are buying or selling a business, now, or in the future, this article is designed to help Sellers “cash in” and Buyers avoid the hidden risks that are lurking for the unwary.
1) Recognize and Protect the Inherent “Value” of Your Business —
If your business comfortably supports your family, then it has “value”, even if the “assets” walk out the door every night at five o’clock! What is it worth? With the many methods of valuation, there is one rule of thumb — A purchaser wants to recoup their investment, on average, in 5 years. That is, given the average risk, they want an annual return of 20 percent. You need to put yourself into a Buyer’s “shoes” and determine the “real” annual cash flow by eliminating unnecessary expenses and other “perks” of ownership.
Then determine the Earnings Before Interest, Depreciation and Taxes, or the “EBIDT.” Then multiply this number by 5. This will give you a rough indication of “value.” Multiples range from a high of 8 or 10 times to a low of 3 times EBIDT, depending on the relative risks and other intangibles. How do you protect this “value?” One way is with Key Employee agreements on confidentiality and non-competition. In exchange for these covenants, you provide incentive compensation packages. As your business grows in “value,” everyone benefits.
2) Agree Up Front to “Key Terms” —
Buyers and Sellers need to quantify their “bottom line” and agree up front on the “Key Terms” to achieve the expected result. For example, a Seller generally prefers to sell stock rather than assets, because the profits from the stock sale are taxed at favorable capital gain rates (currently 15 percent). Buyers, though, prefer to purchase assets and allocate the bulk of the purchase price to depreciable assets, to gain the tax advantages of accelerated depreciation. Sellers prefer to allocate the purchase price to assets such as real estate or goodwill (15 percent tax rate). These issues need to be negotiated up front to avoid unpleasant surprises as the transaction unfolds.
3) Set a Realistic Purchase Price —
As unusual as this may sound, the last thing a Seller wants is a sale price that is too high. Why? Because if the Buyer is unable to service his debt, the Seller may be faced with breach of warranty claims. Also, many times, Sellers finance the sale by carrying notes from the Buyers and the Seller’s problems are compounded. Buyers need to make sure there is enough cash flow to service the debt. For Sellers, a sufficient down payment and collateral for the notes (preferably with assets outside of the Business) are important considerations. Better yet, don’t be the bank.
4) Anticipate the Best Deal Structure Given the Nature of the Assets —
Does the business have a lot of service contracts with third parties that represent an important part of the future revenues of the business? If so, will these parties agree to an assignment of these contracts to the Buyer? This is an important question in an asset sale for several reasons. First, you no longer have control of the transaction because you need the consent of these third parties. Also, it will take longer to complete the transaction and added expenses will be involved. These types of businesses generally work better as a stock sale to avoid these issues.
5) Beware of Hidden Liabilities —
Buyers of stock take on the liabilities of the entity, whether known or unknown. These can include product warranty claims, as well as suits from disgruntled employees or unhappy customers. Insurance can be helpful to provide protection from certain liabilities during these transitional periods, but generally, a Buyer must do his due diligence in this area and/or rely on an asset purchase to minimize such liabilities.
Washington state law provides for “Successor Liability” which places the burden (and liability) on Buyers to make sure Sellers have paid their Washington state tax obligations. In asset transactions, Buyers (without proper tax planning) will generally be responsible for Washington sales tax on the value of the tangible personal property purchased in the transaction. Another area of risk is when the Seller is a C corporation in an asset sale. Care must be taken to avoid a double tax. Again, allocation of the purchase price and the deal structure can be very critical.
6) Pay Attention to Intangibles —
Patents, licensing rights, covenants not-to-compete, goodwill, phone numbers, customer lists, addresses, and other customer data represent valuable intangible assets that a Buyer wants to purchase. They also are very important assets for purchase price allocation considerations.
7) Value Good Professionals —
Buying and selling a business, regardless of the size of the transaction, is very complicated and it presents challenges to the best tax, insurance, legal, and accounting professionals. A business is a moving target that is constantly changing. The trick is to structure the transaction so that there is minimal interruption in the normal operations of the business and a clear understanding of the assets and liabilities being transferred. In many cases, ownership of the business may transfer on one day, and possession may transfer several days later, after cut-off statements can be prepared. Funds can be held in escrow until these adjustments are completed and all documentation can be finalized. Also, for small transactions, consider using one attorney in a neutral role as a facilitator for document preparation and escrow services. Each party saves a lot of money in legal fees and stress levels are greatly reduced.
Conclusion —
Buying or selling a business is generally a critical, life-altering transition for the parties involved. Pay attention to these Keys and make your transition both enjoyable and lucrative.
INFORMATION ABOUT FORECLOSURES
What is foreclosure? If you are a homeowner currently in default on a loan secured by your home, your lender might choose to foreclose against your home, which is a remedy available to them. It means that they start the process of providing notice to the public that your home will be sold at auction to the highest bidder. The proceeds from this sale would go to pay off the indebtedness secured by your home.
Who usually is the highest bidder? It is usually the Lender unless there is significant equity in the Property. They just bid their loan amount, plus default interest and other costs of the sale.
What happens then? The Lender then has the trustee deed the property to them. With all of the foreclosure documentation in place, the Lender has a local title company insure the title in the Lender. The Lender then can sell the Property to pay-off the loan and pursue other legal remedies against you for any amounts still owed after applying the sale proceeds.
Does foreclosure damage my credit? Yes.
What can I do as a foreclosure victim? There are several options available to you.
- Stay for Free. One benefit is that you can live in the home without making loan payments for up to 9 months or even 18 months. Foreclosure usually does not start until you have missed 3 monthly payments and it takes 6 months to complete the foreclosure process in Washington. That time can double if you file for personal bankruptcy. The bankruptcy damages your credit for 10 years, but you can keep non-defaulted credit cards and other leveraged assets if you chose to keep the loan current on these assets.
- Negotiate a Short Sale. You can go to your Lender and negotiate a “short sale.” If the fair market value of your home is less than the loan amount, you can ask your Lender to take less. They will take the property immediately and the loan is deemed to be “satisfied.” This does, however harm your credit rating.
- Apply for an FHA loan. This can give you from 3 to 12 months of a break on your payments, with the payments tacked onto the end of the FHA loan.
- Ask for a Break. You can go to your Lender and ask for reduced monthly payments. Ask for either a downward adjustment in the note rate or an increase in the amortization term. If you have been a good paying customer for some time, they may be willing to do this to keep you as a good paying customer.
- Offer a Deed in Lieu of Foreclosure. This is a quick swap with your Lender. Your Lender forgives your Loan in exchange for title to your home. This also harms your credit rating.
- Rent out your home. Use the rent to make the loan payments. You then can move to a smaller, more economical place.
