The Fine Print

THE FINE PRINT — What is a reverse mortgage?

October 1, 2013

By Jan Pierce

janpierce

A reverse mortgage is a special kind of home equity loan that allows seniors to take advantage of equity they have built up in their home. The home needs to be owned free and clear at the time of the loan closing, but small balances can be paid off with the proceeds of the reverse mortgage.

One of the main differences between a reverse mortgage and a regular home equity loan is that there is no income requirement.  There are no loan payments, but you do have to keep paying property taxes and insurance. The loan is paid off when the home is sold, usually after the borrower dies.

In a perfect world,  homeowners would borrow all the equity from the home, in small amounts, over a long period of time, having exactly what was needed to live on for the remainder of their life, and using up the equity just as they passed away. But it rarely works that way, and even if it does, reverse mortgages are a very costly option. Often, seniors take the cash out in a lump sum, using it up long before the end of their lives, and even defaulting on the tax and insurance payments, forcing the home into foreclosure.

Reverse mortgages are marketed aggressively to seniors. Lenders take advantage of the fact that seniors may have lots of equity in their home, but little or no income. Reverse mortgage lenders offer their products as the perfect answer, but fail to point out the numerous drawbacks, such as large up front fees in the form of mortgage insurance.  While there are some newer, less expensive products, one should expect to pay 2% of the value of one’s home, no matter how much one borrows. Elderly homeowners, often with their backs to the wall financially, are routinely taken advantage of.

Because one still owns one’s home with a reverse mortgage, one can technically leave it to the heirs. But since the loan will have to be paid off by selling the home, reverse mortgages are not appropriate for people who want to pass the home to their heirs. Rather than encumbering the home with any kind of mortgage, it may make much more sense to sell it outright, downsize to an apartment, and invest the proceeds to create a stream of fixed income.

Borrowing with a reverse mortgage can be one of the biggest financial decisions of one’s life. It’s important not to make it based on what could be only a short-term cash crunch. Other options, including other sources of income, should be explored first, and one should seek advice from a professional — a CPA, a lawyer, or a trusted financial advisor who doesn’t stand to benefit from the reverse mortgage transaction.

Send your question to jan@janpiercelaw.com. To protect your privacy, your name will not be published.

Jan Pierce, S.C. is a law firm In Milwaukee that was founded with the belief that people can make a positive difference in the world and make a profit. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures. Disclaimer: Advice in this column is general legal information and does not constitute, nor is it intended to be, legal advice.


THE FINE PRINT: How do construction liens work?

August 31, 2013

By Jan Pierce

janpierceConstruction liens are a very special kind of lien*. Unlike liens on your car or home, they do not require your consent. And unlike judgment liens, they don’t require the filing of a lawsuit. They are strong medicine, and they are intended to protect contractors and suppliers who do not get paid by owners or by other contractors. They arise by way of a simple filing at the Clerk of Court.

The other thing that sets construction liens apart is that they can be filed up to six months after the last date of work on your home. Upon filing, they relate back to the last date of work, and take priority over any subsequent liens or mortgages. This means that if you buy a home, you could get stuck with the prior owner’s lien problems if the work was done within the six months prior to closing.

What makes construction liens even more frustrating is that they can be filed by a subcontractor or material supplier even if you have paid the general contractor. The fact that it is the general contractor’s fault for not paying his contractors or suppliers doesn’t matter. The only thing that matters is that they didn’t get paid. And until they do get paid, your home will be encumbered by the lien.

Like other liens, construction liens can be foreclosed on. They can also just sit there until you try to refinance or sell your home. Then, just as with any other lien, the lienholder will be waiting at closing with its hand out. You won’t be able to refinance or sell your home until you resolve the lien. Therefore, you’re much better off doing so early, before the lienholder has so much leverage.

Protection

In order to protect yourself, make sure you ask for lien waivers every step of the way, from all contractors, and all suppliers. A lien waiver is an affirmative statement that no money is owed for work done, or materials purchased, up to that point in time in the construction process. Partial lien waivers are issued during the project in return for progress payments, and a final lien waiver is issued when the project is complete.

General contractors aren’t always the best businesspeople, so it’s not uncommon for them to run out of cash. Asking for lien waivers from suppliers and subcontractors early on will allow you to pay the suppliers and subcontractors directly, should the need arise.

Use cashier’s checks, which give you the right to ask for unconditional lien waivers. If you use personal checks, you will only be able to get conditional lien waivers.

You won’t have piece of mind until you’ve received final, unconditional lien waivers for the entire project.

*A lien is an encumbrance on one person’s property to secure a debt the property owner owes to another person.

(Source: legal-dictionary.thefreedictionary.com)

Send your question to jan@janpiercelaw.com. To protect your privacy, your name will not be published.

Jan Pierce, S.C. is a law firm In Milwaukee that was founded with the belief that people can make a positive difference in the world and make a profit. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures. Disclaimer: Advice in this column is general legal information and does not constitute, nor is it intended to be, legal advice.

 


THE FINE PRINT — How does the foreclosure process work?

August 1, 2013

By Jan Pierce

janpierce

There are many stakeholders in the foreclosure crisis that resulted from the 2008 crisis (owners, renters, borrowers, lenders, and entire neighborhoods). Each stakeholder is affected differently, and not understanding the process creates anxiety and wastes money for all parties.

Understanding the foreclosure process — what occurs when and why — is empowering for everyone. To that end, is a list of the important events, along with a brief description and timeline. Once a case is filed, it can be tracked on the court system website. http://wcca.wicourts.gov

Summons and Complaint filed (2-3 months after mortgage payments stop). After an owner stops paying the mortgage for a few months, and after receiving a few threatening letters, the Summons and Complaint (lawsuit) will be filed by thefplaintiff. The owner has 20 days to answer the lawsuit. The main reason for the owner to answer would be if he or she had a defense, such as being able to prove that payments had been made.

Getting served (usually a matter of days AFTER WHAT?after the lawsuit is filed). The 20-day waiting period to respond does not begin untilethe owner is served with a copy of the lawsuit.

Default judgment (at least 1 month after getting served). If an owner does not answer the lawsuit, the plaintiff will file a Motion for Default Judgment with the court. This essentially explains to the cour  that it should win because there is no defense.

Redemption period (6 months after default judgment). Wisconsin law treats taking a home very seriously. When a foreclosure action relates to an owner’s personal residence, he or she has six months to “redeem” it by paying off the entire balance of the mortgage.

Sheriff’s sale (about 1 month after the redemption period). Once the redemption period passes, the plaintiff will set a time for the sheriff’s sale of the property. The sale date must allow for a notice to be sent to the owner at least three weeks prior to the sale. This event sets the price by which the transfer of ownership will occur, but no transfer actually occurs untilnconfirmation, which is when the court approves the sale.

Confirmation (about 1 month after sheriff’s sale). No transfer of ownership occurs until the cour  approves the sale by verifying that the property was sold for “fair value” (70% of fair market value). This used to happen within a few weeks after the sheriff’s sale, but can now take months. Some banks may intentionally wait, not wanting to take on the burdens of ownership.

There is a misconception that an owner relinquishes ownership when judgment is granted, or when the sheriff’s sale occurs. Not true. Ownership doesn’t transfer untilnconfirmation. While the above timeline is approximate, the takeaway should be that an owner could stay in his or her home for at least a year after mortgage payments stop, and often longer.

Send your question to jan@janpiercelaw.com. To protect your privacy, your name will not be published.

Jan Pierce, S.C. is a law firm In Milwaukee that was founded with the belief that people can make a positive difference in the world and make a profit. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures. Disclaimer: Advice in this column is general legal information and does not constitute, nor is it intended to be, legal advice.

 


THE FINE PRINT — What is title insurance?

May 1, 2013

By Jan Pierce

janpierceTitle is a term that refers to your ownership rights in a piece of property. When you buy real estate, you want all of those rights. That is, you want the property to be free and clear of any mortgages, property taxes, judgments, tax liens, easements, and construction liens.

Title insurance covers undisclosed problems with title. A construction lien is a perfect example of such a problem, because a contractor has six months after completing any work to file a lien. This means you could purchase a home that appears free of liens, but then a contractor could file a lien against it that relates to work done for the previous owner. In this example, title insurance would pay the cost of removing the lien.

Like any insurance policy, title insurance is a contract that covers specific problems. Prior to closing, the title insurance company will issue a “commitment” that lists what the company will not cover. Usually, these are items that would be disclosed by a search of public records. The most common examples are the current owner’s mortgage and unpaid property taxes.

Because title insurance only covers problems that are not disclosed to you on the commitment, this document becomes an essential tool in evaluating whether the property is free and clear of any encumbrances (liabilities) prior to purchase. Once you’re satisfied that it is, the title policy covers you against problems that were not discovered in the title search. Such a problem could even be the right of someone to travel across your property, which is called an easement.

In addition to an owner’s title policy, your mortgage lender will also require a separate lender’s policy. A lender’s policy merely protects the lender against any financial loss it would suffer, for the same problems that an owner’s policy insures the owner for. Unless otherwise agreed to, the seller pays for the owner’s title insurance policy. The buyer pays for the lender’s title insurance policy. In both cases, the premium is paid once, and is good for as long as you own the property.

Because of the crucial role that a title company plays in the process of transferring real estate, it is a perfect choice to act as an intermediary and closing agent. As part of the closing process, it can take care of paying off the seller’s liens and mortgages by deducting them from the purchase price, and making sure that satisfactions for those items are properly recorded before the deed that transfers the property to the new owner. Finally, title companies can prepare many of the other documents that one normally associates with a closing. These critical services become particularly important if the buyer is not working with a real estate agent in the property sale.

Thanks to Craig Haskins, Executive Vice President of Knight Barry Title Group, for his assistance with this article.

Send your question to jan@janpiercelaw.com. To protect your privacy, your name will not be published. Jan Pierce, S.C. is a law firm In Milwaukee. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures.

Disclaimer: Advice in this column is general legal information and does not constitute, nor is it intended to be, legal advice.


THE FINE PRINT — What is a land contract?

April 1, 2013

By Jan Pierce

janpierceA land contract is an alternate method for financing the purchase of real estate. It is an agreement that transfers most, but not all, of the rights of ownership upon executing the contract. It’s sort of like buying a property on layaway. The buyer enjoys most of the rights and responsibilities of ownership, including the requirement to pay for homeowner’s insurance and property tax. The seller retains the deed until all the payments are made. After the final payment is made, full legal title is transferred to the buyer when the seller signs over the deed.

Land contracts become more popular when interest rates are high or when qualifying for credit is difficult. The latter is true for many in the wake of the recession due to more stringent lending standards. Additionally, there is a large inventory of hard-to-move real estate on the market, so the conditions are favorable for land-contract transactions.

A land contract option is attractive to a seller who is unable to get the full purchase price up front, or who is willing to take payments over time. In a land contract, the seller is acting like a bank, by financing the purchase to a buyer who may not be able to get a loan from a bank. However, if the seller were truly acting like a bank, the contract would be structured like a traditional real estate transaction: Full legal title would be transferred at the closing, with the seller lending the money for the full amount of the purchase price and securing the loan with a mortgage.

Liabilities

Because full legal title does not transfer until the property is paid in full, which could take years, the buyer may be exposed to risk during the life of the land contract. For example, the buyer could lose the investment if the seller defaulted on the mortgage that encumbered the property and it is taken by foreclosure. An astute buyer will make sure the property is unencumbered before signing a land contract.

The other major risk for the buyer is the possibility that the deed owner might sell the property to someone else, or encumber the property with another mortgage. While it would be wrong for a seller to do this this, the buyer should record the land contract with the Register of Deeds, just like any other real estate transaction, to protect their investment. Recording the land contract puts third parties on notice that someone else already owns the property, which is exactly what happens when a deed gets recorded.

The benefit of a land contract to the seller is that it can help move a piece of property in a difficult market. The benefit to the buyer is that they can buy a piece of property that they may otherwise not qualify for with traditional financing.

Often land contracts have a five or 10-year term, with a balloon payment due at the end of the term. By that time, the buyer has acquired significant equity in the property, making it much easier to get financing. In addition, the buyer’s personal creditworthiness may have improved.

Send your question to jan@janpiercelaw.com.

To protect your privacy, your name will not be published. Jan Pierce, S.C. is a law firm In Milwaukee. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures.

Disclaimer: Advice in this column is general legal information and does not constitute, nor is it intended to be, legal advice.


THE FINE PRINT — Small claims procedure

March 1, 2013

By Jan Pierce

janpierceQ  How do you sue someone in small claims court?

A  Small claims court is a forum for do-it-yourself dispute resolution. The steps are as follows: evaluate the dispute; prepare the summons and complaint; file the complaint; serve the defendant; appear in court; resolve the dispute.

Evaluate the dispute: The jurisdiction of the Small Claims Court is now up to $10,000, and is appropriate for most common disputes, e.g. someone hasn’t paid for something, someone has failed to do something. As a general rule, courts want it limited to money disputes, so reduce the claim to the amount owed.

Prepare the complaint: Complaint forms are available at the Milwaukee County Courthouse, or use the interactive electronic form on their website. Stating the nature of your claim, and/or damages, is very important. Try to reduce the dispute to its bare essentials, e.g. the agreement, your payment, their failure to perform and/or pay. If you have a written agreement, reference it in the complaint and attach it as an exhibit. This will make your case easier to prove.

File the complaint: File the complaint at the Clerk of Courts office. Keep at least three copies for yourself. The filing fee is $99. With the assistance of the Clerk’s office, pick a return date. This is the date you and the defendant must appear in court. It must be within 30 days of filing and allow you time to serve the defendant at least eight days prior. You must also prepare an Affidavit of Non-Military service, which is available at the courthouse or online.

Serve the defendant: Hire a process server to serve the defendant with the complaint, which costs about $45. Give the process server an extra copy, so that he or she can use it as part of an Affidavit of Service, which will allow you prove to the court that it was served.

Appear in court: In Milwaukee County, both parties must appear in court on the return date.

Resolve the dispute: If the defendant does not show up in court, you receive a default judgment. If the defendant shows up, you can agree to resolve the dispute that day through a mediated process, or set the matter for trial. Mediating the dispute requires compromise by both sides, but allows the parties to bring closure to the dispute.

If you go to trial, you risk losing, or winning, and not getting paid. Collecting on a judgment, whether by winning or by default, can be the hardest part of this entire process. If you receive a judgment, make sure you docket it in the Clerk of Courts office, which creates a lien on all of the defendant’s property in the county.

Send your question to jan@janpiercelaw.com.

To protect your privacy, your name will not be published. Jan Pierce, S.C. is a law firm In Milwaukee. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures.

Disclaimer: Advice in this column is general legal information and does not constitute, nor is it intended to be, legal advice.


The Fine Print: Do-it-yourself contracts

February 1, 2013

By Jan Pierce

Q
What’s your opinion of do-it-yourself contracts or ones that you can find on the internet?

A
The problem with downloading contracts off the internet is being able to tell what’s worth using. There’s lots of good stuff on the internet. There’s also lots of garbage. But most of the good stuff probably isn’t relevant to your situation. Mixing and matching text from different contracts can give you a good start, or create a real mess. Even industry-specific form contracts, sometimes available on professional association websites, can be so over-lawyered that an attorney would be afraid to present it to a client.

My idea of the perfect service contract, for example, is one that clarifies the rights and obligations of the parties, defines the relationship of the parties, provides a roadmap about how the parties are to work together, and most importantly, is easy to understand. User-friendly doesn’t mean that a contract doesn’t have teeth.

The key is to keep it simple but effective, retaining only what’s absolutely necessary. There’s a reason that long contracts filled with fine print are scary. It usually means that someone’s trying to put one over on you. People intuitively know that, so they resist signing such contracts unless they don’t have a choice.

If I have a client who really wants to draft his or her own contract, I suggest that we collaborate on the project. I run through my philosophy on contracts, along with some advice on important issues, and then the client puts together the first draft. While this means I often do lots of clean up, it does help me understand what the client thinks is important. If the client does a really good job, what I usually end up doing is reorganizing the sections, tightening up the language, removing superfluous text, and maybe adding a section or two.

What I like to shoot for is a two-page contract that doesn’t need to be modified for different clients or projects. The only thing that changes is the name of the client, and an attachment describing the scope of work and pricing structure. This keeps it simple to use and avoids the temptation of tweaking what should be standardized language. I set section headings in a bold, 12-point font so the client doesn’t have to fight to read it. Sections are short and to the point, with the most important stuff right up front—what you’re doing and how you’re going to get paid.

Everything I covered here all circles back to getting paid. If you’ve got a contract that gets you paid, that’s most of the battle. A good contract is an expression of how you do business. It should clear up misunderstandings before they happen and spell out expectations—all of which adds up to a satisfied client.

Send your question to jan@janpiercelaw.com. To protect your privacy, your name will not be published.

Jan Pierce, S.C. is a law firm In Milwaukee that was founded with the belief that people can make a positive difference in the world and make a profit. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures. Disclaimer: Advice in this column is general legal information and does not constitute, nor is it intended to be, legal advice.

 


The Fine Print: The Milwaukee Justice Center

January 2, 2013

By Jan Pierce

After reading my December column about the importance of consulting a lawyer, Justin A. Metzger, Community Outreach & Marketing Manager of the Milwaukee Justice Center (MJC) contacted me to inform me of its services. MJC serves people facing civil legal problems who are not able to afford an attorney.

MJC is a cooperative project between Milwaukee County, the Milwaukee Bar Association, and the Marquette University School of Law. Their mission is to provide pro se (those who represent themselves in court without the services of an attorney) civil litigants with greater access to justice, whether by assisting with legal forms or providing brief legal advice on a one-time basis. It is currently staffed by volunteer attorneys, law students, and interns Monday through Friday, 8:30am-12:00pm and 1-4pm.

MJC began in 1995 as a self-help desk on the seventh floor of the Milwaukee County Courthouse, staffed by volunteers a few hours per week. The self-help desk became the Milwaukee Justice Center in 2009, and got a new home on the ground floor of the courthouse, in the Clerk of Court’s office. It operated as the Family Law Clinic, but also provided other forms of legal assistance. Beginning in January of 2013, MJC will begin a major expansion on their space, taking over office space no longer used by Clerk of Court staff.

The Milwaukee County Board approved a capital improvement budget in November 2012, allocating $423,000 for newly constructed space directly behind the MJC’s current location. This will allow the MJC and the Legal Resource Center (law library) to be combined in one location. The Milwaukee Bar Association Foundation is committed to raising an additional $375,000 for the MJC portion of the project. The expansion will give MJC a permanent and consolidated home for all of its projects, including the Family Law Clinic and Brief Legal Advice Clinic. The expansion will also allow MJC to serve its quickly-growing client base.

All parties involved with MJC receive a benefit. The attorneys, often from large law firms, get a chance to do limited-engagement work that can make a big difference in the lives of ordinary citizens. Law students get to test their book knowledge with real-world problems. The court system benefits by getting a large number of issues resolved before they go before a judge or commissioner. And most importantly, clients get help with navigating the court system. MJC Executive Director Attorney Dawn Caldart said the services MJC provides, and way it partners with the law school, the county, and the bar association are unique, and it is fast becoming a program without equal nationally.

After spending an hour with Metzger and Caldart, I became just as excited about the program as they are. If you want to join me in volunteering, or if you want to learn more about or donate to MJC, consult MilwaukeeJusticeCenter.org or Facebook.

Justin A. Metzger contributed significantly to this article.

Send your question to jan@janpiercelaw.com. To protect your privacy, your name will not be published.

Jan Pierce, S.C. is a law firm In Milwaukee that was founded with the belief that people can make a positive difference in the world and make a profit. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures.

Disclaimer: Advice in this column is general legal information and does not constitute, nor is it intended to be, legal advice.

 


The Fine Print — Do I really need a lawyer?

December 10, 2012

By Jan Pierce

Q. “I talk to people all the time who seem like they have a great case, but are intimidated by lawyers and the court system. Do you really need a lawyer to file a civil suit?”

A. When I started writing this column, I swore I was not going to turn it into something that only advocated calling a lawyer. However, there are times when that is exactly what you should do. One of those is when you are contemplating filing a lawsuit.

There is a common misconception that “being right” is the most important factor to consider when filing a lawsuit. The truth is that having “a great case” often has very little to do with “being right.” That’s why I compare threatening to file a lawsuit, or even the decision to go to trial after filing a lawsuit, to a game of chicken. Because the expense and risk is always high for both sides, everyone loses if nobody blinks. And lawyers are better at knowing when to blink. So even in small claims court, which is easier to navigate and far less costly, it pays to consult a lawyer before filing a lawsuit.

The best result is to resolve a dispute prior to litigation. But achieving that result requires a keen understanding of the litigation process. Experienced lawyers are able to see an entire lawsuit, with all of its possible outcomes, play out in their head. While they can’t predict how a case will actually end up if it goes to trial, they can give you a fairly accurate estimate of the expense and risk of going to court and taking something all the way to trial. And that will put you miles ahead.

So the most important question isn’t whether to consult a lawyer, but how to find the right one. I’m a big fan of personal referrals from people you trust, and I think they’re the best way to find a lawyer as well. Even if the lawyer you’re referred to doesn’t handle litigation, they will likely be able to refer you to someone who does, and who has the particular expertise you need. And once you find the right lawyer, it probably won’t cost you anything for an initial consultation. Most lawyers I know will give a free consultation, and they probably pay special attention to people who have been referred to them.

Personal injury lawyers generally work on a contingency basis, and get one third of any recovery. Virtually all other lawyers are paid on an hourly or flat-fee basis.

If you don’t know any lawyers, or if you don’t have friends who know a lawyer, you can always call the State Bar of Wisconsin. They operate the Lawyer Referral and Information Service. You can reach them at (800) 362-9082. They can go over the details of your case and help you find the lawyer or legal resources you need, in or near the area where you live.

Send your question to jan@janpiercelaw.com. To protect your privacy, your name will not be published.

Jan Pierce, S.C. is a law firm In Milwaukee that was founded with the belief that people can make a positive difference in the world and make a profit. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures.

Disclaimer: Advice in this column is general legal information and does not constitute, nor is it intended to be, legal advice.

 


The Fine Print — how should a small business collect bad debt?

September 30, 2012

By Jan Pierce

Q.

“What is the best way to collect bad debt after attempts to beg, plead, and cajole fail? Is it a worthwhile investment to work with an attorney? How much should you expect to pay? Or is it better to try to find a collection agency?”

A.

First of all, just because collection agencies are expert in making people miserable, doesn’t mean that you should sic them on someone who owes you money. Collection agencies really only make sense, if they do at all, for a business with lots of delinquent accounts. Their average rate of success is not high. Harassing people over the phone isn’t really all that effective, but it does work some of the time. So if you’re a business trying to collect on lots of debts, you can play the averages and collect some of your debts and pay only a 33% contingency fee. But if you’re only concerned with collecting one debt, you don’t want to play the averages and you don’t want bad odds, no matter what the terms are. You want good to great odds, and a cost-effective method for getting them.

Suing, or threatening to sue, tends to be the most cost-effective way to get money out of someone. That said, the debtor must have the ability to pay the debt, for this method to work. So, the first task is to determine if they are “collectible.” If not, it could mean that they’re “judgment proof,” or in other words, getting money out of them will be like getting blood out of a turnip. If they own a home, have a job, and/or some assets, they’re probably collectible. The next step is to decide whether to use an attorney or not, and that depends mostly on how much you’re owed.

Small Claims Court recently raised the amount you can collect through its system from $5,000 to $10,000. It’s designed to be used by non-attorneys, it’s relatively quick, and can be a very effective method for putting pressure on someone to pay up, or to get a judgment. Even if your debt exceeds $10,000, it still may make sense to use this route because it is so quick and cost-effective. For instance, you could be owed $12,000, but sue for $10,000. The Small Claims Court system is well within the do-it-yourselfer’s capabilities. It’ll cost you $98 to file the lawsuit, about $40 to have it served, and plenty of your time. If you want to save yourself some hand wringing and hair pulling, you can always hire an attorney, but that will easily add $1,000 or more to the cost.

For amounts substantially larger than $10,000, you have to go through “Large Claims Court.” The process is expensive and time-consuming. Unless you get a default judgment—because the person never disputed your lawsuit, cases can easily stretch out to a year or more. You’ll need an attorney and you’ll need to pay him or her lots of money. This is why folks who are owed $20,000-$30,000 are in a particularly tough spot. Unless you get a default judgment, the attorney fees can chew up most of any recovery. And that’s only if you win. If you’re unsuccessful, the loss is even worse.

Considering the collectibility of a judgment is just as important as getting the judgment itself. If you can get the person to settle the lawsuit by paying a substantial amount of what you are owed before trial, that’s often preferable. That’s because getting a judgment is only the beginning of the collection process. Collecting on a judgment, through garnishment or other means, is an arduous and frustrating process.

Disclaimer: Advice in this column is general legal information and does not constitute, nor is intended to be, legal advice. 

Send your question to jan@janpiercelaw.com. To protect your privacy, your name will not be published.

Jan Pierce, S.C. is a law firm in Milwaukee that was founded with the belief that people can make a positive difference in the world and make a profit. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures. 



New column: The Fine Print

September 2, 2012

By Jan Pierce, S.C.

Choosing a legal entity for your new business 

This is the first installment of a Question-and-Answer column dealing with legal issues. I am a business lawyer and will focus mostly on questions relating to business, real estate, bankruptcy, tax, credit, and collections. I will not be providing specific legal advice on specific problems, but rather generalized responses that are intended to be informative to a broad audience.

To get the ball rolling, I thought I’d start with one of the most common questions I am asked.

 

Q. What type of business entity should I choose when starting my new business?

A: The simple answer, and I’m all about keeping it simple, is that you should become a limited liability company (LLC) or a corporation. Operating as a sole proprietorship is crazy. Remember the adage about not putting your eggs all in one basket? Becoming an LLC or corporation allows you to keep your business in a separate basket. And maybe more importantly, it keeps your personal assets insulated from anything that might go wrong in your business.

While tax considerations get lots of attention, what is more important is the structure and purpose of the company. For example, it makes a big difference if the company will be an operating business, or simply used to hold real estate. Equally important considerations are how many owners; the roles of those owners; how the owners expect to get paid; who will put up the cash; and who will run the show.

Corporations make excellent choices for multiple-owner companies. They offer lots of flexibility without the additional cost of extensive operating agreements required for LLCs. On the other hand, an LLC can be perfect for a simple, single-owner business.

Tax talk, like C-Corps and S-Corps, or phrases like “disregarded entity” and “pass-through taxation” can be confusing. Don’t let that freak you out. Unfortunately, there’s no way to get around paying taxes. The business structure is far more important. Once you’ve made the choice between an LLC and a corporation, the tax consequences will fall into place. Your lawyer and accountant can help you equalize the tax ramifications, no matter which direction you go.

Send your question to jan@janpiercelaw.com. To protect your privacy, your name will not be published.

Disclaimer: Advice in this column is general legal information and does not constitute, nor is it intended to be, legal advice.

Jan Pierce, S.C. is a law firm In Milwaukee that was founded with the belief that people can make a positive difference in the world and make a profit. The firm’s emphasis is on assisting small businesses and social entrepreneurs in all aspects of launching and managing their ventures. 



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