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Palm Springs Law Blog

Monday, April 21, 2014

Property Ownership and the Do-It-Yourself Blues

Most married couples and registered domestic partners living in California soon learn about community property. “What’s mine is yours and what’s yours is mine” governs most property ownership here. Pre- or post-marital agreements and state law will provide clear guidance for settling property issues, if the relationships end. 

But what about partners who don’t marry or register? Do California statutes govern their separate and joint property? No. They are two individuals with no recognized legal relationship, and they usually don’t have any legal responsibility for each other or for each other’s property.  

What happens if one of them becomes ill or dies? Or if they just decide to split up? I see

the fall-out from broken relationships every day in my practice. And this is what really worries me. There are far too many unmarried or unregistered couples who do nothing to protect themselves and their assets. Or think there are simple do-it-yourself tools for protecting themselves. Worst of all, some believe that a “palimony” suit can resolve everything, if they split up and disagree about assets.  

Couples often buy a home together, and open joint checking and savings accounts.  They may own cars, buy furniture, make other investments together. Who owns all these things? Both of them? What if one paid a little more of the down payment on their home than the other? Does he or she own a little more of the property? How much more? Is it a gift to the one who paid less?  

One “simple” way to share property is to own it as joint tenants with right of survivorship. Cash accounts, investments, houses and cars can be owned this way.  If one partner dies, the other fully owns the property. No probate. No hassle. It was ours, now it’s mine. But this is a risky way to protect yourself and your property. Here are a few of the very serious pitfalls: 

          If one joint owner has a legal liability, creditor judgment, or is found at fault in an

accident, the entire bank account, house or other property can be taken, even

though the other joint owner is not involved.

           Joint ownership of a house, for example, requires the agreement and signature

of both owners to sell, refinance, rent out, or carry out other transactions. One

owner can act only for his or her share of the property, not the entire property.

Suppose the two owners disagree about selling or managing the property? There

can be deadlock until mediation or some other intervention resolves it.

           If one joint owner becomes mentally incapacitated, the property is in legal limbo.

It might be necessary to go through a lengthy, expensive court process to secure

a conservatorship for the incapacitated partner, so the other can legally manage the entire property.

           If one joint owner dies, even if there is a Will or Trust passing his or

          her ownership share to someone else, the other joint owner automatically

becomes full owner of the property.  Wills and Trusts have no control over

property owned in joint tenancy.

           There may be tax consequences for transferring property into joint tenancy. 

          Adding a joint tenant to your bank account or house title is a gift, subject to your

          annual gift exemption of $14,000.00. If over that amount, you may owe taxes on

          the gift, depending on your financial situation.

Do-it-yourself estate planning rarely works, and simple tools like joint tenancy are very risky. Too often someone is left crying the blues. There are far better ways for couples to manage their assets, and most of them can be easily obtained with a little planning ahead and the good advice of your attorney.


Friday, February 21, 2014

From Lambda Legal: 8 Things Same-Sex Couples Need to Know About Taxes

1) We are married and reside in a state that recognizes our marriage. Do we have to file state income tax returns jointly as married? Do we have to file our federal income tax returns jointly as married?

2) We got married in a jurisdiction where same-sex couples can legally marry, but we reside in a state that does not recognize our marriage. How should we file our state income tax returns? Do we still have to file our federal income tax returns as married?

3) If we are married but live in a state that does not recognize our marriage, do we have to pay federal taxes on medical benefits paid by my employer for my spouse? What about state taxes?

4) We were married before the IRS began to recognize same-sex marriages in 2013. Can we re-file our federal taxes as a married couple for previous years? What is an amended return?

5) If we have a civil union can we file our state or federal taxes as married? Aren’t civil unions supposed to be treated the same as marriage?

6) If we had a civil union in a state that now has marriage equality, are we considered legally married by our state and/or the federal government?

7) Will I pay more federal taxes? What are the major changes to my federal tax filing?

8) Other than income taxes, how are my other taxes impacted?


1) We are married and reside in a state that recognizes our marriage. Do we have to file state income tax returns jointly as married? Do we have to file our federal income tax returns jointly as married?

If you were married in 2013 and continue to live in a state that recognizes your marriage, you should file both your state and federal tax returns as married. However, you can choose whether to file “Married Filing Jointly” or “Married Filing Separately.”

Your filing status is determined on the last day of the year. If you were married on the last day of the year, you will be considered married for the entire year. Likewise, if you were single on the last day of the year (for example, if you got divorced) you will be considered single for the entire year. There are some exceptions to these rules, so check with a tax professional if you have a question about your filing status.


2) We got married in a jurisdiction where same-sex couples can legally marry, but we reside in a state that does not recognize our marriage. How should we file our state income tax returns? Do we still have to file our federal income tax returns as married?

The good news is - the IRS recognizes the legal marriages of same-sex couples, no matter where you now live, so if you were married in the 2013 tax year, you need file your federal income taxes as married. You can choose whether to file “Married Filing Jointly” or “Married Filing Separately.”

The bad news is - if you live in a state that does NOT recognize the marriage of same-sex couples, you will likely need to file your state income tax return as “single,” even though we believe this is unfair and discriminatory. Some people choose to include a note or letter stating that they are married and object to filing as “single.” Such a letter will not affect your state tax status right now, but is a clear statement of your objection to be treating unfairly by the state in which you live.

There are some exceptions where non-recognition states are allowing married same-sex couples to file state taxes as “married” even though they do not generally recognize marriages of same-sex couples for other purposes. And some states have developed special tax procedures or instructions for couples who will be filing as married with the federal government but as single with the state, so you should consult your state department of revenue or a tax professional for more information – and contact Lambda Legal’s Help Desk for more resources.


3) If we are married but live in a state that does not recognize our marriage, do we have to pay federal taxes on medical benefits paid by my employer for my spouse? What about state taxes?

You will probably have to pay state taxes on these benefits if your state does not recognize your marriage, but you will not have to pay federal taxes.

Typically, when an employer provides group health insurance and premium contributions for its employees and their spouses, children and other dependents, the value of those benefits is not taxed by the federal government as “income.” But when all of DOMA was still in effect, the IRS could not recognize same-sex spouses, so this extra “imputed income”was taxed. Married same-sex couples paid more taxes than other married couples. The good news is – now that the core section of DOMA has been struck down, his tax advantage is now available to married same-sex couples for the purposes of federal taxes.

If you were charged federal taxes on this imputed income, you can file a refund claim. For guidance from the IRS on how to claim refunds for or adjust overpayments of certain taxes on benefits provided to same-sex spouses, click here or here. You can also check out the instructions for IRS Form 1040X.


4) We were married before the IRS began to recognize same-sex marriages in 2013. Can we re-file our federal taxes as a married couple for previous years? What is an amended return?

Generally speaking, the IRS allows taxpayers to amend their returns up to three years after they were originally filed. If you were legally married during the 2010, 2011 or 2012 tax years, you may be able to file amended returns as “married filing jointly” or “married filing separately” for those years.

To make a refund claim for income taxes, an individual must complete an amended tax return for each tax year at issue and send it to the IRS with an explanation as to why the original filing was incorrect. The IRS has a precise process and required forms for amended returns. For more information, see the instructions for IRS Form 1040X and GLAD’s Tax Time and Preserving Your Federal Rights. Note that to recover Social Security taxes paid or taxes imputed on health insurance for a spouse, you have to specifically request that such amounts be refunded.

There is some question about the deadline for filing an amended return when a couple could not file a tax return as married but now can. Planning conservatively, you should file any amended return within three years of its original due date, as opposed to the extended due date. For example, for the tax year 2010 (where the return was originally due April 15, 2011), any amended return would have to be filed by April 15, 2014.

You should also consider potential downsides of taking these steps,including an increased risk of audit orthat you may owe more taxes as a married couple and may, therefore, have to pay back taxes for these earlier years. A tax professional can help you determine your best options.

Finally, if your spouse died before DOMA was struck down and you think you paid more in taxes than you should have because of DOMA (e.g., you could not take an inherited IRA as a spouse), you should consult a qualified tax professional for advice.


5) If we have a civil union can we file our state or federal taxes as married? Aren’t civil unions supposed to be treated the same as marriage?

No, marriages and civil unions are two separate legal statuses.

If your state recognizes civil unions, it may grant you all the same state-level rights as a marriage, so you may be able to file state taxes jointly. You should carefully review your state tax instructions for information on how to proceed, or contact a tax professional.

The IRS (and most other federal departments) only recognizes marriages. It does not recognize civil unions, registered domestic partnerships, or similar “marriage-like but not marriage” statuses from foreign countries. Federal law preempts state laws, which means that your state has no control over what the federal government does. Even if your state has a law that says that civil unions must be treated the same as marriage, the federal government will not do so; that law only affects the state (and more local) levels.

If you want to be able to file your federal taxes as married, you will need to get married. However, you should be aware that doing so may affect your eligibility for federal benefits, such as assistance based on need. While we cannot advise you whether or not you should get married, please don’t hesitate to contact our Help Desk or check out our After DOMA fact sheets for additional information.


6) If we had a civil union in a state that now has marriage equality, are we considered legally married by our state and/or the federal government?

That depends on the laws of your state! After achieving marriage equality, some states that offered civil unions automatically converted those civil unions into marriages. In other states, you have to take steps to convert your civil union to a marriage if you want to be married.

These states automatically converted civil unions performed in that state into marriages: Connecticut and New Hampshire. Delaware will also convert all existing civil unions into marriages on July 1, 2014.

These states require some additional step to convert their civil unions to marriages: Vermont, Rhode Island, Delaware (until July 1, 2014), Illinois and Hawaii (in Hawaii, you will need to get married to your partner; no conversion is available).

If you have any questions about converting your civil union to a marriage, please contact our Help Desk


7) Will I pay more federal taxes? What are the major changes to my federal tax filing?

In some instances, joint filing may result in higher taxes because of the so-called “marriage penalty;” there are other instances where joint filing may reduce overall tax exposure and provide opportunities for larger income tax deductions.

As a federally recognized married couple, you must select between a “married filing separately” and “married filing jointly” on your 2013 tax return. By far the most common selection is “married filing jointly.” The more rare “married filing separately” limits deductions and credits you can claim; it is used to separate the tax liabilities of two married people. This is useful if, for example, you are in the process of divorcing and it is not yet final. Generally, joint tax filing helps couples with significantly varying incomes. If, for example, one person is a stay-at-home parent, while the other parent supports the family with her employment, such a couple would “share” the income and the higher earner would effectively be taxed at a lower income level, while the lower earner stays in the same low bracket, for an overall gain for the couple. If, however, the couple is composed of two high-earners, a joint filing may result in the overall income landing them in a higher tax bracket - the so-called “marriage penalty.” You can file jointly with your same-sex spouse even if one of you does not have any income or deductions for that year. If you are concerned about filing jointly or separately with your spouse, we recommend that you discuss your filing situation with a tax planner. Many online tax services and accountants will also give you the opportunity to “run the numbers” and compare the tax consequences of either type of tax filing.

Being treated as married by the federal government impacts other aspects of your overall federal income tax liability. Some of these are complex and it is important to seek out tax advice from a professional with your questions, but here are a few highlights. There are some deductions that joint filing may increase or change, including (1) the standardized deduction; (2) the sale of principal residence exclusion; and (3) if one person is on the other’s health insurance, a joint filing couple will no longer be forced to count that health insurance benefit as taxable income. Tax filers may either take “itemized” deductions or a “standard” deduction, whichever is higher. For an individual “single” filer or one filing as “married filing separately,” the standard deduction is $6,100; however, for joint-filers, the standard deduction rises to $12,200.[1] Here is a sampling of how other itemized deductions add up for joint filing:

  • Exclusion of gain from sale of principal residence: An individual filer may only take $250,000 for this exclusion, while a couple filing jointly may take $500,000.
  • Qualifying Medical and Dental Expenses: If one spouse has a high amount of medical and/or dental expenses in a given tax year, those expenses may be used as a deduction for a joint filing (provided that the expenses exceed a certain percentage of the joint income).
  • Adoption Tax Credit: Qualifying expenses incurred in the course of an adoption, which can be quite costly, may be offset with a tax credit of up to $12,650. This tax credit may be used by a parent who is seeking a second-parent adoption of a child born to their spouse. The dollar amount of the tax credit begins to decrease above an income of $189,710 and disappears entirely for incomes above $229,710.

8) Other than income taxes, how are my other taxes impacted?

With Section 3 of DOMA struck down and the IRS interpreting the ruling broadly according to the “state of celebration,” other taxes beyond your income taxes may be affected. If your spouse died in 2013 and you are entitled to an inheritance from his or her estate, you will no longer be treated as a legal stranger for federal estate tax purposes: you will be allowed to utilize spousal exemptions for some of those assets. At the federal level, estate taxes are not at issue for a transfer to a surviving spouse, where the estate is valued at less than $5.25 million dollars. Similarly, same-sex couples no longer need to worry about gift tax treatment: you can give your same-sex spouse a gift of any amount without incurring any federal gift tax consequences.

[1] All dollar values reflect 2013 tax year amounts. Values in past years (e.g., for amended returns) may be different.


Thursday, October 17, 2013

How Do We Get Married in Riverside County?

RIVERSIDE COUNTY MARRIAGE INFORMATION

 

Marriage Licenses 

A marriage license may be obtained from most branch locations of your County Clerk’s Office.  An appointment may be required, so it is very important to call for instructions before going to the location.  Blood tests are not required.  There is no residency requirement in California.  You do not need a witness to purchase a marriage license.

The couple must appear together with a valid government-issued photo I.D., and must be at least 18 years old.  It is recommended that you also bring a certified copy of your birth certificate, to expedite the identification process.  If you have had a divorce or dissolution of marriage or state-registered domestic partnership (in any state or country) in the past 90 days, you must bring in your final divorce/dissolution judgment. 

The license is valid anywhere in the state of California.  You may write and request a marriage license application be sent to you.  Be sure to include a self-addressed, stamped envelope to return it in.  Or, you may visit the County Clerk’s website to obtain an application.  Fees vary by county, and most counties accept cash, checks, money orders and certain credit cards. 

Ceremonies

The marriage ceremony can be performed the day the license is issued, but must be performed within 90 days of obtaining the license.  The ceremony may be performed anywhere by a priest, rabbi, minister, judge, authorized legislator, or a person authorized by the Commissioner of Civil Marriages.  You may have a civil ceremony performed by a staff member of the County Clerk’s Office.  You must bring at least one witness with you.

Certified Copies

Within 10 days after the ceremony, wherever it is held, the license must be returned to the Recorder’s Office to be recorded.  Certified copies may be obtained one week after recording and there is a fee for each copy.

Name Change

Very Important:  Parties are not required to have the same name, nor are they required to change their name.  If you do wish to identify a new name on the marriage license, it must be entered on the marriage license at the time you apply for the license.  You may not amend the marriage license after it has been issued or add or change the name you wish to be known by after you are married.  The name cannot be changed by the County Clerk.  Any changes or corrections to the name after the marriage license has been issued will require a court ordered name change.

A person may adopt any of the following middle names:

  • The current last name of either spouse
  • The last name of either spouse given at birth
  • A hyphenated combination of the current middle name of the personor spouse
  • A hyphenated combination of the current middle name and the last name given at birth of the person or spouse

A person may adopt any of the following last names:

  • The current last name of either spouse
  • The last name of either spouse given at birth
  • A name combining into a single last name all or a segment of the current last name or the last name of either spouse given at birth
  • A hyphenated combination of the last names

Note:  You may not change your first name using this process.

Parties wishing to use their new spouse’s last name may begin using it right after the ceremony.  Any governmental or financial agency that has your previous name on file should be contacted regarding the name change.   Examples are Social Security, DMV, banks and health insurance companies.  A certified copy of the recorded marriage license may be required.  Generally these agencies do not charge a fee for changing your name on their records.

* THIS INFORMATION IS BEING PROVIDED AS A COURTESY, AND IS NOT INTENDED AS LEGAL ADVICE.  FOR ADDITIONAL INFORMATION, PLEASE CONTACT THE RIVERSIDE COUNTY ASSESSOR-COUNTY CLERK – RECORDER.

Locations:

INDIO                                                                          HEMET

38-686 El Cerrito Road                                             880 N. State Street, Suite B-6

Palm Desert, CA 92211                                            Hemet, CA 92543

(760) 863-7490                                                           (951) 766-2500

 

RIVERSIDE (GATEWAY)                                         TEMECULA

2720 Gateway Drive                                                  41002 County Center Dr., #230

Riverside, CA 92507                                                 Temecula, CA 92591

(951) 486-7000                                                           (951) 600-6200

 

RIVERSIDE (DOWNTOWN CAC)                            BLYTHE

4080 Lemon Street, 1st Floor                                   270 N. Broadway

Riverside, CA 92501                                                 Blythe, CA 92225

(951) 955-6200                                                           (760) 921-7888


Monday, July 1, 2013

The Supreme Court Ruling on the Defense of Marriage Act: What it Means

The Supreme Court’s historic ruling striking down Section 3 of the discriminatory Defense of Marriage Act (DOMA) is an enormous victory for loving, married couples and their families, and affirms that they deserve equal treatment under the law. This victory demonstrates the importance of access to marriage, and gives married same-sex couples
access to the tangible benefits of the federal safety net, allowing them to better protect one another and their children.

Edie Windsor demonstrated tremendous courage in standing up and speaking out for her 44-year relationship and marriage when she was treated unjustly, and her actions have directly improved the lives of all same-sex couples.

Ending DOMA lifts up all LGBT people, even if it does not end our work. DOMA was an official federal policy disapproving of gay people and same-sex relationships, often imitated by states and private actors, and imposed a second-class status on our lawful marriages by negating them for all federal purposes. The Court has now affirmed that equal protection guarantees apply to the relationships of LGBT people and has replaced federal disrespect with federal respect for our lawful marriages. This victory will energize our work moving forward so that we can achieve a reality in which every single same-sex couple enjoys full and equal protections under the law, regardless of where they live.

This historic decision takes effect in 25 days. For legally married couples living outside of marriage state or the District of Columbia, there are still many questions about when they will be equally able to share in federal protections, responsibilities, and programs. This is because the federal government typically defers to the states in determining whether a couple’s marriage is valid. There is no one rule across all federal agencies. Some agencies look to the law of the state where a couple married regardless of the law of the state where the couple now lives, while others look to the law of the state where the couple is living now.

We think the federal government can and should take action, where necessary, to ensure that married couples in all states have access to the largest number of federal programs. The federal government is already looking at how federal agencies can ensure fair and equal treatment of all married couples where possible. However, at this time, there are a number of important federal benefits that depend on whether your marriage is recognized where you live, so couples who live in states with bans on marriage by same-sex couples should proceed with caution before making the decision to marry.

Click here to read more


Monday, July 1, 2013

Marriage For Same-Sex Couples in California

Thanks to the U.S. Supreme Court’s ruling in Hollingsworth v. Perry, same-sex couples in California will very soon have the freedom to marry once again. Prop 8, the California constitutional amendment that stripped same-sex couples of the freedom to marry, will soon be off the books and unenforceable.

On June 26, 2013, the U.S. Supreme Court ruled that the sponsors of Prop 8 had no legal right (or “standing”) to appeal the federal trial court’s decision that Prop 8 is unconstitutional because allowing same-sex couples to marry caused them no harm.

This historic ruling restores the freedom to marry to same-sex couples in California. Additionally, thanks to the Supreme Court’s ruling in Windsor v. United States, all married couples in California – including same-sex couples – must be treated by the federal government as married, equally, and with respect. On June 26, 2013, the Supreme Court struck down Section 3 of the so-called Defense of Marriage Act (DOMA), which had required the federal government to treat same-sex couples as unmarried and prohibited them from granting same-sex married couples any of the federal benefits, protections, responsibilities based on marriage. The Court ruled that DOMA Section 3 violates our Constitution’s guarantee of equality.

Click here to read more


Monday, August 20, 2012

Setting Up and Operating Your Own Business

Are you thinking of starting a business, or do you operate a small business now? The legal structure of your firm and the care you take in setting it up can make a difference in your success down the road.

There are several forms of business organization, and each may have advantages and disadvantages, depending on your personal and/or family situation.  The legal structure will determine how your profits are taxed, and who is liable for business debts.

Sole Proprietorship  -  usually a business owned and operated by one person. You simply begin offering your products or services (obtaining any licenses or permits that might be required) and you are in business. You are personally liable for all of your business debts, and you pay personal income taxes on all income you receive from the business.

Partnership  -  an association of two or more people to run a business as co-owners. There is usually a partnership agreement (very important) which covers all of the aspects of the business operation and finances. The partners are personally liable for all debts of the business, and again, pay personal income taxes on all income.

Corporation  -  one or more individuals draw up Articles of Incorporation, identify a board of directors and issue shares of stock. In California, a corporation must be approved and certified by the Secretary of State. If the corporation does business in more than one state, it must comply with corporation laws in the other states, may have to pay taxes in those states, and must also comply with Federal Interstate Commerce and Securities regulations. In most instances, shareholders are not personally liable for corporation debts or lawsuits. The corporation pays taxes on its income. Shareholders pay taxes on the dividends they receive from the company.

Limited Liability Company (LLC)  -  one or more individuals draw up Articles of Organization and file them with the Secretary of State. An LLC combines some of the advantages of a corporation (limited liability for company debts or lawsuits) and of a partnership (flexible organization, no separate taxes on the business entity). Owners of an LLC are called members. Not all businesses are permitted to operate as an LLC. In California, banking, trust, insurance businesses, and professionals such as doctors, accountants, attorneys and licensed healthcare workers are prohibited from using the LLC structure.

Regardless of the type of business entity you choose, you must meet all federal, state, county and local regulations for operating a business. If you are a sole proprietorship or partnership, you will need a fictitious business name permit if you operate the business under anything other than your own name(s). Counties and cities often require business licenses, vendor permits, safety inspections and other things before you may legally do business there. If you set up a corporation, you must apply for a federal Employer Identification Number (EIN) from the Internal Revenue Service, since it will be taxed as a separate entity from the shareholders.

In partnerships and LLCs, it is crucial to have a business plan and an operating agreement. The agreement sets out rules for splitting up profits, how major business decisions will be made and the process for handling the departure and addition of partners or members. It helps prevent misunderstandings among the owners over finances and management. It shows that the business owners were careful and thoughtful about the security and details of business operation.

For sole proprietorships, partnerships and LLCs, a business plan or formal operating procedures should identify all the elements that will be needed to keep the business healthy if an owner should become incapacitated or pass away. The plan will detail who should succeed the owner or manager, and how the business will stay profitable if a key person is no longer around. It should also provide a process for buying out partners or members who want to leave the business.


Monday, August 20, 2012

What to Do About Upside-down Mortgages

I don’t handle most types of real estate issues in my practice, but so many of my bankruptcy clients are in dire straits because of their mortgage situation that I must try to prevent them from losing their homes. Nearly 10 million homeowners in the U.S. are at risk of foreclosure and need to take action.

We know that lenders contributed to, and sometimes caused the mess by offering risky loans to people, and then by foreclosing on many properties without following the rules.

In fact, a general lack of strict rules in the home loan industry often allowed unethical and predatory lenders to operate freely and without oversight. 

New federal and state guidelines are in place, with more on the way. There are programs to help homeowners avoid foreclosure. If you or someone you know is having difficulty making mortgage payments, or equity in the property is less than the mortgage, here is some information that may help:

  • First, NEVER pay an agency or organization an up-front fee to negotiate a loan

modification for you. In California, such fees are illegal. Even so, there are scam artists everywhere trying to take advantage of distressed homeowners. If you encounter one, report it right away to the California Department of Justice.

  • The Home Affordable Refinance Program (HARP) has been in place for some time for loans backed by Fannie Mae and Freddie Mac (about 60% of all California mortgages). It allows homeowners current on their monthly payments, but unable to refinance because of the drop in value of their homes, to refinance at today’s low interest rates and secure a lower monthly payment. But lenders were reluctant to negotiate with homeowners because of liability and other issues, strict requirements for homeowners’ credit ratings and income, and other tight rules. The original hope to help 3 to 4 million homeowners fell way short, with only about 822,000 actual mortgages refinanced.
  • HARP 2.0 is a redesigned refinance program which is taking effect right now. Many of the limitations and restrictions of the original plan have been removed, so that more lenders are likely to participate, and more homeowners likely to qualify. The program requires Fannie and Freddie to update their automated loan underwriting and approval software, which was to be completed in March 2012. You must have made at least 6 consecutive on-time mortgage payments, and your equity in the home must be less than 20%.
  • The nationwide settlement with 5 major banks, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial a few weeks ago, will reduce home loans for up to 1 million homeowners across the country. California will receive up to $18 billion, to be used to modify loans for homeowners who are behind in their payments, repair blight in neighborhoods where there were multiple foreclosures, and other actions to alleviate the abuses that occurred in the home loan industry. This agreement does not apply to home loans held by Fannie and Freddie.
  • California Attorney General Kamala Harris is promoting a package of bills called the California Homeowner Bill of Rights, which would prohibit many of the unethical and risky practices of lenders, write the terms of the 5 bank nationwide settlement into state law and apply it to all lenders, investigate and prosecute foreclosure crimes, and give homeowners, renters and blighted neighborhoods new rights when properties are underwater and/or subject to foreclosure.
  • The federal government has now negotiated a blanket grant of permission from many large lenders to allow homeowners to refinance their 1st mortgages when they also have a 2nd mortgage or home equity line of credit. Until now, many lenders holding 2nd loans refused to agree to refinancing of a 1st loan.
  • The Small Business Administration has relaxed its rules for refinancing mortgages on small firms’ commercial property. Small businesses can now use refinancing proceeds to turn their real estate equity into working capital, to be spent on salaries, rent, utilities, inventory and other items.

Monday, August 20, 2012

Financial Problems? Points to Ponder...

When you lose a job, become injured or ill, lose a partner or spouse, or suffer any other blow to your finances, things can quickly go from bad to worse. Credit problems can really destroy your life.  Here are a few of the things that you may face:

Liens and Garnishment – If you owe money to a creditor and don’t repay it according to the terms of your agreement, the creditor may go to court and put a lien on your property; or may attach a portion of your earned income. A lien on property must be paid off when you sell the property. Garnished wages are deducted from every paycheck you receive, until the debt is repaid. Creditors are permitted to take up to 25% of each paycheck.

To garnish wages, the creditor must file an action in court, and the court issues you a summons to come to a hearing. You have an opportunity to explain why the debt is not paid, and whether you might be able to pay it soon. If you don’t attend the hearing, it is almost certain that the court will grant the creditor’s request, and the sheriff will be instructed to garnish your wages. The sheriff notifies your employer’s payroll department to start withholding money from your check, usually beginning with the next pay period.

It amazes me that so many people ignore a summons for a court hearing, and then rush in a panic to find an attorney when they receive a garnishment notice. It is often too late to do anything to prevent the garnishment once the sheriff’s notice has gone to your employer. Sometimes, if a person has severe financial problems, filing bankruptcy will stop the garnishment  -  but it takes time to file a petition. It can’t be done overnight. Most garnishment notices are received just a few days before the garnishment starts.

Cancelled or Forgiven Debts  -  Your credit card and other debts may have been written off by lenders, but you may still be on the hook because the amounts are considered taxable income to you. Creditors will send you an IRS Form 1099-C, showing the taxable amounts, and they also send a copy to the IRS, which will compare it to the tax return you file. You may not owe taxes on the amounts if you filed bankruptcy and those debts were discharged. If you did not file for bankruptcy, but your debts exceeded your assets when the debt was forgiven, some or all of it could be exempt from taxes. You must list all debts and all assets for the IRS on the appropriate forms.

Poor Credit Can Affect Employability  -  Some employers are now checking the credit of prospective employees, and passing over those with a prior bankruptcy or poor credit scores. These employers state that they believe poor credit shows a lack of responsibility. More and more states (including California) have now passed laws to restrict this practice, but often with exemptions for employees responsible for handling large amounts of cash. There are many good reasons for bankruptcy or poor credit scores, and financial problems are not necessarily a predictor of an employee’s ability to do the job.

Reverse Mortgages Can Lead to Foreclosures  -  A reverse mortgage loan allows older homeowners to convert the equity in their property into cash. This loan, the fees, and the interest on the loan do not have to be repaid until the house is sold. If any equity remains from the sale, it would pass on to you or your heirs.

But these loans can be risky. What happens if you use up the loan proceeds, and your remaining income is reduced because of medical problems, or your savings or investments run out? It is likely that you can no longer afford to pay property taxes and homeowners insurance, and if you fail to pay these, you will be in default on your loan. The lender can foreclose on your home. Instead of saving your home, you could be losing it after all.


Thursday, December 23, 2010

How To Make Your Life Miserable in One Easy Step

I am pretty sure I could remove my own appendix… but should I?  It takes years of study and training to make a person into a skilled surgeon.  If I had appendicitis, I definitely wouldn’t want an amateur doing the job.  I’ve had no medical training. I’m clueless when it comes to surgical techniques.  I think everyone would think I was crazy if I risked operating on myself. 

So, why is it that so many people think they can do it themselves when it comes to serious legal issues, tax problems or critical financial planning?  It takes years of training and study to become a lawyer, a CPA or a registered financial planner.  These professionals, like doctors, have acquired skills that other people don’t have.  But when there is a legal or financial crisis, people often choose to ignore the experts, and strike off on their own. 

I have noticed over the past few years that many people attempt to file bankruptcy on their own.  I explain to all my prospective clients that filing bankruptcy is a very serious matter, and there are many complex rules that have to be followed.  Every bit of income, every debt, and all assets have to be documented and verified.  Deadlines for filing various documents have to be met.  The bankruptcy petition itself is many, many pages of questions that have to be correctly answered.  There are the federal rules which must be followed, as well as local bankruptcy rules.   An experienced attorney knows how to navigate all of those rules, and understands how the system really works.  Wise debtors let an attorney handle their bankruptcy. 

However, all too often I have to pick up the pieces (if it’s possible to pick up the pieces) after “do-it-yourselfers” who think they know the law as well as an experienced lawyer.  The fall-out is always painful, and often ugly, for the client.  And worse, that person’s actions often affect family members and others.  I’ll tell you about two recent real-life examples which should serve as a strong reminder that legal work should be left to legal professionals:

 A prospective client called me. He was in a panic.  He told me he filed for bankruptcy pro per (meaning by himself and without the assistance of an attorney), and the bankruptcy trustee was selling his house because there was substantial equity.  He wanted me to jump in and “fix it.”  He desperately wanted my help, but it was too late.  In a Chapter 7 bankruptcy, once the process is started it’s extremely difficult to stop it.  This debtor did not understand the rules, and worse, he had relied on advice from his CPA, not an experienced attorney, on how to handle his house in the bankruptcy.  The CPA had little more understanding of the bankruptcy laws than his client.  The debtor’s decision to do it himself, and to rely on advice from a non-attorney, created a very unhappy situation.

 In another sad story of a pro per bankruptcy filer, a gentleman filed for Chapter 7 bankruptcy protection.  He did not properly list his income or his expenses, and used the wrong set of bankruptcy exemptions to protect his few assets.  There were so many red flags in his case that the United State’s Trustee took a keen interest, as well as the Chapter 7 bankruptcy trustee.  This led to numerous court hearings, examinations, and requests for documents.  The debtor wanted to have his case dismissed, to basically undo what he had done, but the Judge said no.  He was denied a discharge of his debts and prohibited from filing bankruptcy again for another year.  His case remains open though, and there is still the possibility that he will lose some of his assets.

 In both of these cases, had the pro per hired an experienced bankruptcy attorney, many of these issues could have been avoided.  In the first example, an attorney hired by the debtor would have immediately identified the equity in the house and the risks associated with filing.  The attorney could have advised the client to wait to file until the house was sold, or at least provided advice on what was likely to happen.  Timing can be everything.

 In the second example, an experienced attorney would have been well aware of all of the red flags.  The attorney would have used the correct set of exemptions and made sure that the income and expense calculations were accurate.  What became a nightmare of a bankruptcy could have been an ordinary, relatively simple route to a discharge of debts and a fresh start in life for the debtor.

 Doing it yourself sounds like a good way to save money and get the job done on your own time.  The first step may look easy…   but it’s all the steps that come after that can trip you up.  And those can be terribly costly and make your life miserable, for sure.


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