Posted on August 28, 2012
One of the most useful collection mechanisms available to contractors is the mechanic’s lien. I have previously talked generally about what a mechanic’s lien is and how your attorney goes about drafting and recording it. Getting the lien recorded against the recalcitrant homeowner’s property is not the end of your duties, however.
A mechanic’s lien encumbers the property you performed work on, but only for a limited amount of time. You have only six months from the last day of work to get a lawsuit filed to foreclose it. The last day of work is not necessarily the day the job passes inspection — it is more likely the last day your crew legitimately “put hammer to nail” on the property subject to the lien as part of the same job. You did remember to have your crew write down that date so you could record it in your customer files, right? Until this six month deadline runs, your lien is enforceable.
If the homeowner tries to sell or refinance the home while the lien is enforceable, the title company will likely notice the lien and ask for a payoff figure before the transaction can close. Some title companies will still ask for payoffs to clear liens that are stale or have expired, just to be safe, but some will simply ignore a stale lien.
To be safe, don’t let your lien expire. Within the six months, hire an attorney and start a lawsuit. It has to be filed in a particular kind of court in a particular jurisdiction, and you need a special document called a “Notice of Lis Pendens” drafted and recorded, as well. I will discuss some of the details on this issue in future blog posts.
This post does not constitute legal advice. If you need legal advice, please contact our office to set up an appointment.
Posted on August 23, 2012
Perhaps the most important and oft-neglected part of a bankruptcy is the pre-bankruptcy planning. You may not have control over the Bankruptcy Code, but you do have control over when you file and how you arrange your affairs before you are forced to take that step. You cannot hide anything from the Trustee or the Court, so if you want certain results in bankruptcy (an exemption, retaining an asset) your affairs must legitimately be arranged so that the law requires the result you want. The ideal bankruptcy is one where the dog doesn’t bark: the bankruptcy paperwork is all in order, the debtor’s affairs are all sensibly arranged and disclosed property. When there is nothing for anyone to complain about, the can bankruptcy simply proceeds quickly to discharge.
You probably should not drastically change your circumstances intentionally to affect your bankruptcy. Nor would you want to, as the bankruptcy system is designed to catch people who are trying to game the system by hiding assets, intentionally earning less money, and so forth. Nevertheless, you can always control when you file, and this can have a lot to do with how the bankruptcy works.
One area where pre-bankruptcy planning can help you avoid complications in a bankruptcy is the six-month lookback period. When you file bankruptcy, the Court looks back to the last six months to see what your monthly income will be for many purposes, such as whether you qualify for a Chapter 7 or a 13.
Being aware of the six-month lookback can help prevent pitfalls and ensure the Court has an accurate picture of your actual finances. For example, say that you are a high-income earner who just got laid off. If you file bankruptcy on the day you were laid off, you will have to report the last six months of your income at the previous high level. This warped view of your current finances may disqualify you for certain kinds of bankruptcy relief, at least until you pay an attorney additional money to try to explain the situation to the bankruptcy trustee or argue about it in court. If you can afford to wait to file, you might be able to
You might have an alternative, though. In this economy, it typically takes many months to find a new job. If you wait a few months while diligently searching for new employment, the six month period when you file will show a greatly reduced income. This may qualify you for a Chapter 7, where you previously did not, or otherwise change the relief available to you in bankruptcy.
This post does not contain legal advice. If you want legal advice, please contact our office to set up a consultation.
Posted on August 17, 2012
A personal bankruptcy is not always the answer to a business debt problem. Particularly in the case of high-income earners, a bankruptcy sometimes creates more problems than it solves. If you have a lot of debt related to a business, you might be able to deal with it through a dissolution rather than a bankruptcy.
Some people just allow broke companies to go defunct. You can, however, go through a formal dissolution process, called “winding up.” This involves filing some paperwork with the State of Colorado, and then adopting a wind up plan. The plan lists off the company’s assets and debts, and proposes how to distribute those assets according to a certain set of rules and priorities. There are things that can be done in the dissolution process to deal with your business debts (even those the owner may have personally guaranteed) and, hopefully, avoid the need for a personal bankruptcy.
Be aware, however, that this kind of procedure requires an experienced attorney to draft the documents and explain the procedure. A successful dissolution has a lot to do with the specifics of the plan and the correspondence to creditors, and I would not recommend anyone doing this on their own.
This post does not constitute legal advice. If you need legal advice, please make an appointment with our office.
Posted on August 6, 2012
Many companies, particularly contractors, use independent contractor salespeople to market themselves to the public. This can be a cost-effective way of doing business, but is laden with pitfalls. The one I wanted to focus on today concerns controlling what exactly your salespeople are doing and promising in the field on your behalf.
An independent contractor is, by definition, more independent than an employee. That does not mean you have no influence whatever over what he or she does, of course. The foundation of a good independent contractor relationship is a contract that clearly spells out the duties and obligations of the contractor and the business. Does your salesperson just get a signature on a customer contract, or are they also expected to organize subcontractors, collect money for the job, or other tasks? Is there something in writing to which your office staff can refer to figure out what the contractor is supposed to do as opposed to what the office is supposed to do?
Telling the salesperson what her authority is may not be the end of the story. You should communicate this to the customer as well. This can happen in the contract that you allow the salesperson to distribute. Your customer contract, for example, can explain whether or not the salesperson have authority to sign contracts for your company. It can (and probably should) explain that the salesperson has no authority to vary the terms of the agreement, such as price, and no modification to the contract is effective unless made in writing signed by your company and the customer. If you do not warn customers that the salesperson does not have this authority, they might defend against a collection action by arguing that it appeared the salesperson had authority to change your contract — even if your contract with the salesperson forbid them from doing so!
Even if you carefully define the salesperson’s duties and warn the customer about what the salesperson cannot do, you still must be vigilant about what the salesperson is doing in the field. Are they creating a paper trail that a wily customer will use to try and get out of paying you? Are they cutting deals (such as paying the customer’s deductible) that are going to cause a problem with the insurance payment? Particularly if they get paid on commission, the salesperson might have an incentive to sweeten a customer’s deal in unlawful ways without your knowledge. You may wish to hire a law firm, like ours, that offers classes to your contractors and employees on a regular basis to remind them of what they cannot do.
This post does not contain legal advice. If you need legal advice, please contact our firm to schedule an appointment.
Posted on August 2, 2012
A bankruptcy can be a quick, clean, and cheap way to deal with unmanageable debts. However, as I’ve mentioned in prior blog posts, sometimes a high income earner will find himself or herself stuck in a situation where he or she cannot qualify for a Chapter 7, but cannot afford a Chapter 13.
Where the problem debts are mostly unsecured, another option in this kind of case is to hire an attorney to conduct debt-settlement work. While each individual creditor is unique, the large banks and credit card providers typically have many departments that handle collections. Your credit card debt starts life in the customer service or billing department, for example, and moves on to a delinquent department after you miss a few payments, then on to collections if payment still is not made. Eventually, the debt is referred to an attorney who files a lawsuit against you.
Sophisticated creditors understand that they cannot violate a bankruptcy stay – the injunction that stops anyone from collecting against you while you are in bankruptcy – and so typically have special bankruptcy departments or a bankruptcy flag they can attach to an account. In this case, when an attorney announces that you are planning for bankruptcy, many employees are trained to simply refer the matter to that department.
Once there, your attorney can be a very strong position to settle your debt. The bankruptcy department of your bank probably understands that this is their last chance to get anything out of you, because they may get nothing in a bankruptcy. I have helped clients settle their debts for pennies on the dollar at this stage. This may prevent you from having to file bankruptcy at all.
There are many non-attorney businesses that advertise these kinds of debt settlement work, often for less than you would pay an attorney. Be aware, however, that not all of these businesses are created equal. Some will do little more than help you save money towards paying the debts, and charge you a great deal for that service. Even companies that work actively to settle your debts are not as effective as a law firm, for the simple fact that an attorney can credibly threaten to file a bankruptcy, resist court actions to enforce a collection, and otherwise actively protect the client.
This post does not contain legal advice. If you need legal advice, please contact us to set up a consultation.
Posted on July 30, 2012
If you are in business long enough, it is going to happen. Perhaps you did not get information to your collection attorneys on time. Maybe you miscalculated the last day of work and missed your deadline. Perhaps the lien is in the wrong name, or wrong amount.
For these or many other reasons, you may find that you cannot enforce your mechanic’s lien (or that it is unwise to do so). In this case, you are not necessarily without options. Your right to collect against the non-paying homeowner under your contract remains intact. If you are a subcontractor, your Trust Fund remedies against the general contractor might still be available. You can also attempt to collect under theories of unjust enrichment or others that do not necessarily rise and fall with the validity of the lien. That is, if the homeowner owes you money, you can sue on the contract independent of the mechanic’s lien itself.
Of course, without a lien, you are typically in the same position as a credit card company. You are an unsecured creditor. The biggest difference between suing the homeowner individually on the contract and suing to foreclose your lien is basically the time it takes you to get to the property. If you successfully foreclose a lien, you typically get a judgment for foreclosure immediately upon judgment and you can begin foreclosure proceedings. The case might also be more limited, letting your attorney move it more quickly through Court. Without the lien, it might take longer to get to a judgment, and then you have to perform collection activity after the judgment to finally attach the house and foreclose. Even worse, if you have no lien or lis pendens on file during the lawsuit, the property might be sold to someone else before you get to a judgment!
Depending on the facts of the particular collection, our firm has many ways to keep you and your collateral protected during the proceeding. Whether you can use these protections — and whether there is actually enough value in the collateral to make it worthwhile — are important questions we can only answer after a consultation. So, while nothing in this post is legal advice, you can contact us to set up a meeting to discuss your situation if you need legal advice.
Posted on July 27, 2012
In Colorado, employers are generally free to hire and fire for any reason, or no reason at all. That’s called at-will employment. There are limitations, however. Among other things, the employer cannot discriminate against employees on the basis of race, gender, disability, or other protected categories. You are probably familiar with these Civil Rights concepts.
What might surprise you is that a Colorado employer also face consequences for terminating someone because of their off-duty conduct. Colorado statute states that it is a discriminatory and unfair employment practice for an employer to terminate the employment of any employee due to that employee’s engaging in any lawful activity off the premises of the employer during nonworking hours. There are some exceptions for off-duty conduct that hurts or reflects badly on the employer.
What does this mean? Generally speaking, it means a Colorado employer should not be firing its employees for what they do off the clock unless the behavior is hurting the employer. For example, I recently dealt with a case where a cell phone company terminated an employee for sending crass jokes to his friends while they were both off duty. In that case, the Colorado Unemployment Insurance Appeals department found that the employee was not at fault for the separation, and he collected unemployment. He even had the potential to bring a claim for discrimination against his employer!
In future blog posts, I will talk a bit about how to avoid these kinds of problems. This post does not constitute legal advice. If you want legal advice, please contact our office to set up a consultation.
Posted on July 24, 2012
If you have properly recorded a mechanic’s lien, you have a lien against the property. However, you need to take additional steps after recording the lien, or your rights go away by operation of Colorado statute.
In Colorado, no mechanic’s lien can encumber a property longer than six months after the last day work was performed on the property. To keep your lien alive beyond this point, you need to start a lawsuit to foreclose the lien in the Colorado courts. You also have to go back to the Clerk and Recorder’s office and record a notice that the lawsuit has been filed on the lien. Attorneys (still in love with latin) call these notices “Notice of Lis Pendens.”
The Lis Pendens document is not itself a lien on the property. Instead, it is notice to the world that there is a dispute pending over who owns the property. In this case, it tells people that you are foreclosing your mechanic’s lien. The owner is still technically free to buy and sell the property, but he or she will find it very difficult to find a buyer. That is because the new buyer will be bound by the lawsuit, and will lose the house if you win the foreclosure! Similarly, title companies and lenders typically will not help someone buy a house stuck in a lawsuit over ownership.
There are times where, due to mis-communication or clerical error, your staff will not get a mechanic’s lien filed on time. This is particularly true where you do not have corporate or collection counsel handling these issues. In that case, all is not necessarily lost. You still have options, and a good attorney can even show you how to go after the value your company has sunk into the house even without a mechanic’s lien. I will talk about this issue in future blog posts.
Posted on July 19, 2012
In previous blogs, I’ve written about the special problems of high-income earners in bankruptcy. Generally, people who make too much money can’t file a Chapter 7 bankruptcy, but, instead, have to qualify for a Chapter 13 bankruptcy. And in some circumstances they may not qualify for a bankruptcy under Chapter 13 of the Bankruptcy Code. One of the important ways to solve this problem is figuring out whether the debtor’s debt is mostly consumer debt (generally household debt), or mostly non-consumer debt (generally debt incurred for profit).
A typical example of consumer debt is a personal credit card charge to buy groceries, while the typical example of a non-consumer debt is a personal guarantee on your business’ line of credit.
High-income earners frequently own rental properties. If so, are the mortgages on those rental properties counted as consumer debts or non-consumer (business) debts in bankruptcy court?
As with so much in law, that depends. In the Tenth Circuit (the federal court region that includes Colorado’s bankruptcy court), there are some court decisions talking about this issue. According to those decisions, if you got the mortgage on a rental home while you were still living there, and then you moved out and rented the house, then that debt probably is a consumer debt. If, however, you purchased the property as a rental investment and have always used it as a rental, it is probably non-consumer debt. If the mortgage was originally a consumer mortgage, but you refinanced to keep the rental business running after you moved out, you may have an argument that it is now a non-consumer debt.
Why does this matter? It matters because mortgages on real property are usually the largest debts that an individual debtor holds. If some or all of this debt is non-consumer in nature, you might be able to file a Chapter 7 bankruptcy even if your income would otherwise push you into a Chapter 13.
This approach is not without risk, however. If you have equity in a rental property, it might be hard to keep that property in a Chapter 7 bankruptcy. A seasoned attorney can analyze your situation and help you plan for a bankruptcy that makes the most sense for you.
This post does not constitute legal advice. If you need legal advice, please contact the bankruptcy attorneys at Underhill & Underhill, P.C. to set up an appointment.
Posted on July 16, 2012
If a homeowner has not paid you for your work on the property, you can use a mechanic’s lien to secure payment as a lien against the property. Your lien is only as good as its place in line against the property, however.
Typically, a mechanic’s lien is “junior” to all previously filed liens against the same property. (There are times, of course, when the mechanic’s lien actually is “senior” to the other liens.) I usually see this come up when a homeowner has first or second mortgages pre-dating the mechanic’s lien. If your lien is junior, then you have some problems. If any of the parties holding a senior lien forecloses against the property, they might wipe out your lien entirely. And, before you foreclose your lien, you have to make sure there is enough equity left in the property after these liens to make dealing with the foreclosure worthwhile. Finally, if you do foreclose, you might be stuck having to service the senior liens – pay the mortgages – if you want to keep the property.
Thus, there are times when you have the right to file a mechanic’s lien, but it might not make economic sense to actually sue to foreclose the lien. This is particularly true since 2008, after the housing market crashed and took many people’s equity with it.
Even if your lien is junior to other liens against the propoerty, it still might make sense to record your mechanic’s lien. The lien is an encumbrance on the homeowner’s title to the property. If done properly, a recorded mechanic’s lien typically will prompt title companies to require that the homeowner pay it off before they can convey the property to a new owner or refinance. Title companies will typically ask for payoff figures when they see a live lien on property.
Recording the mechanic’s lien is not the end of the story in keeping your lien “live,” however. If you simply record the lien and do nothing, it may end up unenforceable. I will talk more about that in future blog posts.
This post does not contain legal advice. If you need legal advice, please contact the real estate attorneys at Underhill & Underhill, P.C. to set up a consultation.