Is Your Property Insured Against a Riot?

The current unrest facing the St. Louis metropolitan region carries with it the elevated risk of damage and/or destruction of both real and personal property. While everyone intends and hopes their insurance policies cover all eventualities that may arise, the truth of the matter is that not all eventualities are covered by insurance.

Unfortunately, it is generally only after something truly unexpected happens that policies are reviewed and tested for actual coverage. At that moment, it may be too late to both prepare for the event and/or adjust coverage.

As a result, it may be wise now to pull out your current auto, homeowners, renters, commercial or other similar policies to review each policy’s specific language.

One of the coverage limitations to consider are so-called “force majeure” clauses. “Force majeure” is a contractual term that relieves parties from performing their contractual obligations when certain circumstances beyond their control arise, often making their performance under the contract impractical or impossible. Examples of these circumstances can include earthquakes, war, strikes, epidemics, acts of God, and riots. Continue reading »

Condo Association Embezzlement Case Demonstrates Need for System of Financial Checks and Balances

A St. Louis bookkeeper recently pled guilty to wire fraud for embezzling more than $70,000 from his condominium association. His scheme spanned more than two years and involved more than 50 unauthorized wire transfers from the association’s financial accounts to the bookkeeper’s own personal bank accounts.  Unfortunately for condominium and homeowner associations, this type of activity is all too common and demonstrates the critical need for associations to prepare and implement systems of financial checks and balances.

What each association’s system should entail to sufficiently reduce the risk of improper financial activity (while also recognizing the need for effective and responsive management) will vary from association to association depending on several factors, including association size, level of involvement from the homeowners, and governing rules. However, many effective systems begin with distributing financial supervision and actions between several individuals. This practice includes: Continue reading »

New Illinois Recording Law Designed to Combat Fraudulent Filings Likely to Have Immediate Impact on Title Insurance Industry

Illinois recorder of deeds offices are now authorized to implement fraud referral and review processes to detect and address fraudulent recorded instruments in their counties with the recent passage of Illinois House Bill 2832 (55 ILCS 5/3-5010.5).

The new law identifies 19 separate indications of potential fraud, but county recorders are each free to create a unique detection system for their county. Under these systems, once the recorder reasonably determines an instrument to be “fraudulent, unlawfully altered, or intended to unlawfully cloud or transfer the title of any real estate property,” the law affords the recorder two distinct courses of action.

First, recorder personnel may, at their own discretion, notify law enforcement officials, including the Department of Financial and Professional regulation, of the suspected fraud and request assistance for further review and potential criminal investigation.

Second, the recorder may, upon notice and confirmation of the potential fraud with the last owner of record, flag and refer the instrument to a local administrative law judge for hearing. If that judge determines the instrument to be legitimate, a judgment stating so would then be recorded along with the original instrument. However, if determined to be fraudulent, a judgment stating “that the document in question has been found to be fraudulent and shall not be considered to affect the chain of title of the property in any way” would then be recorded with the original instrument. No documents, regardless of legitimacy, would be “unrecorded” or struck from the county records.

Like many new laws, this new recording law is not without controversy. Proponents praise the law as an expedited and cost-effective alternative to filing a lawsuit to clear a victim’s title. However, critics complain the law unconstitutionally expands the powers of county recorders and may lead to unforeseen consequences in the recovering real estate industry.

While the ultimate effect (and constitutionality) of the new law remains to be seen, the law will almost certainly have an immediate impact on Illinois title companies. In some cases, it may lead to longer and more expensive administrative review and closing periods as title companies may be reluctant to insure any title during an active review/referral process. However, in others, the law’s finality in determining the legitimacy of unusual instruments in a chain of title may lead to decreased risks borne by title companies and thus decreased costs borne by the consumer.

Either way, the new law’s application and effect will certainly need to be considered by companies seeking to insure title in Illinois.

Missouri Supreme Court Upholds Foreclosure Laws

On April 12th, Missouri’s highest court granted lenders across the state a victory by ruling that banks only need to give defaulted borrowers, in foreclosure, credit for the amount of the foreclosure bid, as opposed to the fair market value of the property. The ruling is consistent with existing Missouri precedent, which, for decades, has maintained that the sale price of a foreclosed property is determinative with respect to the deficiency owed by the borrower to the bank, which is the remaining balance on the loan for which the lender can sue.

In the case, First Bank v. Fischer & Frichtel, the borrower, Fischer & Frichtel, a Missouri real estate developer, defaulted on loans to First Bank, which then foreclosed on properties securing the loan. First Bank purchased the property at the foreclosure sale. The lender proceeded to sue the borrower for the deficiency balance remaining on the loan. The borrower defended the case by alleging that the proper method of determining the deficiency was not the sale price at the foreclosure sale, but rather, the fair market value of the property. In so doing, the borrower essentially sought a modification of existing Missouri law with respect to calculations for suing on deficiency against a defaulted borrower. Fischer & Frichtel maintained that Missouri should align itself with other states which require a lender to determine the fair market value of the foreclosed property and apply that amount, which is generally higher than the foreclosure price, to the loan balance before suing a borrower.

The borrower argued that the current law often grants lenders a windfall after a foreclosure. Foreclosure sales require cash buyers on the day of the sale, except that the foreclosing lender can simply bid as a credit against the amount of the indebtedness owed by the borrower. This allows lenders to often easily outbid potential purchasers who may not have cash readily available. If the lenders obtain the properties at a depressed sale price at the foreclosure, they can then resell the property to a third party, in an arms-length transaction, and are entitled to keep any profits from the resale of the foreclosed property, without applying those profits to the borrower’s loan balance.

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Is This by Consent? Changes to Missouri Supreme Court Rule Affect Use of Non-party Subpoenas

Part of a series on issues related to Manufacturers, Distributors and International Trade

A major change involving subpoenas to non-parties has hit the business world in the state of Missouri.

A new amendment to the Missouri Supreme Court Rules now requires non-party record custodians to physically appear at deposition to produce subpoenaed items, unless all parties to the litigation have agreed that the subpoenaed party may produce the items without appearing.

The amendment changes the prevailing practice where parties send out subpoenas to third parties with a letter explaining that they will be excused from appearing at deposition if they produce the requested items along with what is known as a business records affidavit.

Rule 57.09, as amended, now requires parties to first obtain consent from all other parties to the litigation before a subpoenaed witness may produce documents without attending the deposition. This agreement must be communicated to the witness in writing. Absent this agreement, a witness must appear to produce subpoenaed items at deposition.

What does this mean to you? If you receive a subpoena, you may only produce the documents to the party serving the subpoena without appearing at deposition if that party represents to you in writing (e.g., in a letter) that all other parties have consented to production of the docume

nts without need for you to appear at the deposition. Such a letter should protect you from allegations that you improperly produced records by mail, instead of bringing the documents to the deposition. You do not need to see the actual agreement. If you have any questions as to whether you can simply mail the documents, instead of appearing at deposition, you should either call your attorney for advice or simply wait and bring the documents at the time and place designated in the subpoena.

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Is Your Condominium Building Compliant With The Americans With Disabilities Act?

An aging baby-boomer generation and the increasing choice by empty-nesters to lower maintenance responsibilities and move into multi-unit residential buildings pose an interesting question for property managers and condominium board members. As a building’s age demographic increases, does a condominium association have an obligation to make the units or common areas accessible to persons with disabilities? Condominiums and other multi-unit residential developments present unique issues, because the building includes both private dwellings and public places. Some developments even include public commercial spaces as well. Given this dichotomy, building management will have to consider if, and what parts, of the building need to be accessible.

The Americans With Disabilities Act of 1990 (“ADA”) prohibits discrimination on the basis of disability in employment, public services, public accommodations and services operated by private entities and common carriers. However, according to a supplement issued by the U.S. Department of Housing and Urban Development, strictly residential facilities are not covered under Title III of the ADA. What may pose a dilemma for a condominium, though, is that certain common areas, which are located in residential facilities, are considered places of public accommodation in some circumstances. The ADA identifies 12 categories of places of public accommodation:

1. Inns, hotels or places of lodging;
2. Restaurants, bars or establishments serving food and drink;
3. Movie theaters, concert halls or stadiums;
4. Auditoriums, lecture halls or convention centers;
5. Bakers, grocery stores or other sales or rental establishments;
6. Laundromats, dry cleaners, banks, barber shops or other service establishments;
7. Terminals, depots or public transportation stations;
8. Museums, libraries or galleries;
9. Parks, zoos or amusement parks;
10. Nurseries and schools;
11. Day care centers, senior centers or other social service establishments; and
12. Gymnasiums, health spas or places of exercise or recreation.

Depending on the nature of the condominium building, some of these categories of places of public accommodation may be applicable. Property managers and the building’s board must consider the possibility that federal law imposes obligations to provide reasonable accommodations with persons with disabilities, whether residents or members of the general public. This is especially important if a building is considering renovations to common areas or commercial portions of a building.

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Buying a House? A Quick Look at Legal Issues You Should Consider

Part of a monthly multi-part series of discussions aimed at explaining legal and financial considerations for young professionals as they establish and develop their careers, relationships and lives.

The decision to purchase a home may be one of the biggest financial decisions you will ever make. Chances are, you will be looking at two or three times your annual income in debt, a small forest’s worth of paperwork, and a host of terms and phrases you may not be familiar with. Unfortunately, a misstep or two in your purchase can have serious ramifications on both your home and your investment. This discussion sets forth several legal considerations to keep in mind before you sign the contract.

How Should I Take Title to the Property?

This choice can be pretty easy when you are single – you purchase it and title yourself as the sole owner. The property is yours (subject to the mortgage) and you are free to sell it as you please or have it pass pursuant to estate plan.

However, if you are married or purchase the property with a friend or investor, you will need to title the property differently and different titles may be more appropriate for different marital and financial relationships. For example, a joint tenancy with right of survivorship may be ideal for family situations in which an older family member wants the property to automatically pass to a younger sibling upon death. A tenancy by the entirety, reserved for married couples, can prevent one of the spouse’s individual creditors from reaching the property. Where business partners are purchasing a property, it may be wise to hold title as tenants in common which would allow either partner to freely sell his/her interest in the property without the permission of the partner.

The Basement Is Dry, The Roof Does Not Leak: Seller Representations

Most states require the seller to disclose to you “material” facts which may affect your decision to buy the property. What is “material” may vary from state to state, but typical items for disclosure and warranty address termite or water damage as well as issues relating to appliances, the roof, and sewage systems. Should the seller misrepresent the extent of a known problem or fail to disclose something known to them, you may have a cause of action against the seller for any damages caused thereby. It is important to note, however, that the seller’s disclosure typically only covers known issues. For this reason, it is still strongly suggested that you obtain your own independent property inspection.

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Four Points to Follow When Your Lease Term is Ending

Your lease may be the most important asset of your business. Commercial leases are complex transactions and should not be taken lightly.

Following these basic points will make the lease renewal or new lease go smoothly.

1. Know your dates. I have seen many cases where tenants allow their lease renewal deadline to pass or, even worse, have their lease automatically renewed by failing to follow these important deadlines. You should check your lease to see exactly what options you have to renew and the deadline specified in the lease to notify the landlord of your intention to renew. These deadlines are usually strictly enforced by the courts.
2. Start early. You should start your decision process well before the deadline in the lease. The earlier you start, the more time you have to test the market, review potential alternative sites, and make your decision. Many renewal provisions have a market rent adjustment, so you will need to find out what your landlord proposes as “market rent” well in advance of the deadline to give you time to negotiate or to consider alternatives.
3. Consult the experts. You should consult a commercial real estate broker familiar with your type of property to assist you in determining the options available in the market including rent and other terms landlords are providing. They know the market, the players and concessions generally available. Brokers generally work on a commission basis and your landlord will most probably be consulting with his broker so you need to even the playing field. At the same time, you should consult with a real estate attorney so that your attorney will be on board when the lease proposal is made and when you are presented with a lease or renewal document.
4. Carefully review the lease documents. Depending on the type of property, whether construction is contemplated and many other factors, leases are lengthy and complex. Much legalese is involved and terms have meaning and importance that are not apparent to someone not experienced in reviewing and negotiating leases. The lease or renewal document should be carefully reviewed by your attorney and revised to include provisions necessary to protect your interests. Most landlords have lease formats that are not favorable to tenants but landlords are willing to negotiate lease terms especially now when it is still a tenant-oriented market.

If you follow these steps you should be able to navigate the lease renewal minefield. If not, you risk a blow up!

Posted by Attorney Michael J. McKitrick. With over 30 years of hands-on commercial litigation and transactional law experience, McKitrick’s practice encompasses business and transactional advice, commercial real estate matters, and regulatory and practice management guidance for health care professionals. Most of his clients are in the medical, financial services, and manufacturing sectors.

Consumer Financial Protection Bureau releases Supervision and Examination Manual

Established in 2010 by Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau (“CFPB”) has released its first edition of the Supervision and Examination Manual. The Manual is a guide to how the CFPB will supervise and examine consumer financial service providers under its jurisdiction for compliance with Federal consumer financial law.

As stated on the CFPB’s website, the Manual is divided into three parts:

• Part One describes the supervision and examination process.
• Part Two contains examination procedures, including both general instructions and procedures for determining compliance with specific regulations.
• Part Three presents templates for documenting information about supervised entities and the examination process, including examination reports.

While the Manual is designed in large part to supervise the nation’s largest mortgage servicers, it will impact all lenders who deal with consumer loans.

How Long Should You Stay in Your Commercial Lease?

Lease Term, Renewal Options, Lease Purchase Options

Part 2 in Series – “10 Lease Traps & Tips for the Small Business Owner”

When contemplating new lease space, the small business owner understands the need for flexibility. The term, or length of time, you will remain in the leased space is a chief concern of any entrepreneur. You don’t want to be forced to look for new space after only a few years, on the other hand, you want to be able to leave if after a period of time you learn the space is not right for your business.

One of the most important aspects of a lease for the small-to-medium sized business owner is flexibility. How much space do you need? Will you grow? Was your initial assessment too ambitious?

Lease Term – Most commercial landlords will insist on a lease term of at least 3 – 5 years. Depending upon your industry, this very well could be a good place to start. For example, if you’re looking for office space, the initial investment on fixtures and other start up costs can be minimal; conversely, if your space is going to be used for heavy manufacturing, just getting the machinery situated can be a huge expense, warranting a longer term lease.

Renewal Options – The more the better. Renewal options allow you to choose to remain in a space, usually under the same lease terms, or to look for a new space after the term has expired. One term that often does change is rent. You’ll want to either include a percentage rental increase for the renewal term, attach the increase to a Consumer Price Index, or agree to negotiate using the future “market rate”. A renewal option doesn’t do you any good if you don’t exercise it per the lease’s requirements – be certain to develop a system to calendar the date by which you must provide notice to your landlord.

Lease Purchase Options – Sometimes it makes more sense for a tenant to own their space rather than pay rent. While this decision inevitabely involves important tax consequences, it allows you to test drive the property before buying. It also gives you the ability to build some equity towards the purchase price if the lease is properly negotiated; meaning, you need to make certain some portion of your monthly lease payment will be applied to the purchase price. The potential downside of a lease purchase option is that the landlord will probably make you pay a premium for it. Again, be certain to calendar the date by which you must give notice to landlord in order to exercise your option.

Part 1 in Series – “10 Lease Traps & Tips for the Small Business Owner”