Decker Jones McMackin McClane Hall & Bates
This Article was originally published by Building Savvy Magazine (2014)
Most builders are all-too-familiar with the phrase, “Of course we will need a personal guarantor on this note.” Builders in Texas are often expected to ensure the debts of their companies, making them “personal guarantors” for those debts. This practice is not only common in the construction industry, it is expected. But, a bank would never pass up the deep pockets of a business to pursue the personal assets of the individual guarantor, right? Wrong. In Texas, when a personal guarantor waives certain rights under a note, without the same being waived by the guarantor’s company, the bank is left with only one option: sue the individual, not the company!
Texas is generous in protecting borrowers from the sometimes-shady acts of creditors. One of these generosities is Texas’s enactment of anti-deficiency laws. These laws, for example, prevent a bank from foreclosing on a $1-million note secured by property with a fair market value of $1 million, purchasing the property at its own foreclosure sale for $400,000, and then suing the borrower for the $600,000 “deficiency.” The rationale is that, through foreclosure, the bank has recaptured the full amount of the debt—$1 million worth of assets—regardless of the amount it received at foreclosure. A bank is therefore prevented from collecting the same debt twice (i.e., obtaining property at a discounted rate plus a deficiency judgment). Unfortunately however, Texas’s strong preference for “freedom of contract” has allowed banks to utilize language to waive this anti-deficiency protection.
This type of waiver is particularly dangerous for personal guarantors. For instance, imagine that in the situation above, the bank had allowed the original borrower to retain its anti-deficiency protection but had required the personal guarantor to waive the same protection. After foreclosure, the borrower would owe nothing due to the anti-deficiency laws because the bank has received $1 million worth of assets. Technically, however, a “deficiency” still exists on the note because the bank received only $400,000 at foreclosure, which is $600,000 less than the original debt. It is important to understand that nothing prevents the bank from collecting the $600,000 deficiency from the personal guarantor if the guarantor has waived his or her anti-deficiency protection.
So although a guarantor is usually liable only for the amount owed by the original borrower, which in this case is $0, without anti-deficiency protection, the guarantor remains on the hook for the full $600,000 deficiency. It is still unclear whether a court would allow the borrower—the guarantor’s company—to intervene in a suit against the guarantor and assert these anti-deficiency laws on the guarantor’s behalf. It is clear, though, that personal guarantors should seek to avoid this situation altogether. If the bank allows a company to retain its anti-deficiency protection, the personal guarantor should insist that he or she be allowed to do so as well.
Kyle B. Fonville is an associate with Decker, Jones, McMackin, McClane, Hall & Bates, P.C. in Fort Worth. His practice focuses primarily on civil and commercial litigation, including construction matters, and appellate law. He can be reached by phone at 817.336.2400 or by email at firstname.lastname@example.org.
Stephen L. Polozola is a partner with Decker, Jones, McMackin, McClane, Hall & Bates, P.C. in Fort Worth. His practice focuses primarily on construction law matters. He can be reached by phone at 817.336.2400 or by email email@example.com.
What a wonderful explanation of some important common sense!
1. MONEY! If you have become intimately familiar with the billable hour and retainers then you know what I am talking about. Reading billing statements showing entries for lawyer time for discussing who gets “this” or “that” is painful. Clients find themselves asking “I have to pay a thousand dollar bill from my attorney because my ex-spouse’s attorney called her five times to negotiate the china cabinet?” How does that make sense? If spouses are able discuss what assets and debts go with whom, then they will save money. It goes without saying that the attorney’s fees factor can grow exponentially when there are parenting issues.
2. It’s better for the kids. I’m just a family law attorney, but how can children learn to resolve conflict if their parents can’t agree on a pick up time or child support? They may learn how to build walls, ahem, I mean boundaries, but they…
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On the death of the husband or wife, leaving a spouse surviving, the homestead shall descend and vest in like manner as other real property of the deceased.” TX PROB CODE § 283. Also, the surviving spouse is entitled to retain a constitutional survivor’s homestead right for life or for so long as the survivor elects to use the homestead. This right is not affected by the deceased spouse conveying the property to a third party through their will.
Here are a few questions which are regularly asked with regards to surviving spouse’s homestead rights:
1. Can the deceased spouse’s administrator force the sale of the house?
Constitutional rights protect a homestead against forced sale and partition so long as the surviving spouse chooses to use and occupy the homestead. TX PROB. CODE § 284.
2. Does the surviving spouses rights end when move out of the property? Have they abandoned their homestead rights?
The surviving spouse’s right to occupy or use the homestead for life or for so long as the surviving spouse chooses to do so. It is not required that the surviving spouse continuously reside in the property to be considered as using it.
3. Who is responsible for maintenance on the property?
The surviving spouse will be responsible for making repairs and generally maintaining the property, but the duty to repair does not go so far as to require that the property be maintained in the same condition that existed when the homestead right was originally established.
4. Who is responsible for the mortgage on the property?
The spouse is responsible for the mortgage interest and the heirs/beneficiaries is responsible for the mortgage principal. A purchase money lien is not subject to the homestead exemption, thus the property could be foreclosed upon default. TX PROP CODE § 41.001(b)(1).
5. Who is responsible for the insurance premiums on the property?
The surviving spouse is not responsible to insure the property against loss. Even if the surviving spouse did insure the property, the insurance proceeds upon fire or damage would be made to the surviving spouse and not to the heirs/beneficiaries. The heirs/beneficiaries (children) would be responsible to carry insurance on the property to preserve their asset.
6. Who is responsible for paying the taxes on the property? The heirs/beneficiaries are usually responsible for all tax payments, however, if the spouse or minor children retain a homestead right then they would be responsible for the property taxes. The homestead is not exempt from forced sale to pay delinquent taxes. TX PROP CODE § 41.001(b)(2).
Disclaimer: The content of this article is provided for informational purposes only and does not constitute legal advice.
Texas Builder Magazine of the Texas Association of Builders
by Leslie L. Hunt
Most individuals in the construction industry know someone who has been the target of a wage and hour investigation. One of the common issues evaluated during this type of investigation is whether a company’s “independent contractors” have been properly classified. In other words, can the company prove that its “independent contractors” should not be treated as an employee?
Whether a worker who performs services for another person is an employee or an independent contractor is not always easy to determine. The proper classification is important, however, because the distinction between employee and independent contractor affects legal rights and obligations, including liability for employment taxes, the right to workers’ compensation benefits, the employer’s potential liability for a workers’ tortious acts, and wage rights such as minimum wage and overtime. Anyone who performs work for a company is presumed to be an employee by the Texas Workforce Commission, the Department of Labor and the Internal Revenue Service (“IRS”). This means a company bears the burden of rebutting this presumption and convincing the governing authorities that a worker is an independent contractor.
Generally speaking, if a company has the right to control what will be done by a worker and how it will be done, an employer-employee relationship exists giving rise to, among other things, wage reporting and tax responsibility. An independent contractor, on the other hand, is self-employed, bears responsibility for his or her own taxes and expenses and is not subject to an employer’s direction and control. Many companies erroneously believe that so long as you give someone a 1099 and call them an independent contractor, that they are properly classified as an independent contractor. However, this is not the way governing authorities view it. Whether a worker is an independent contractor or an employee depends upon much more than what the parties agree to call themselves. It depends on a thorough analysis of the relationship between the individual and the company.
The Supreme Court of Texas has written that the test to determine whether a worker is an employee or an independent contractor is whether the company has the right to control the progress, details and methods of operations of the individual’s work. The company must control not merely the end sought to be accomplished, but also the means and details of its accomplishment as well. Examples given by the Court regarding the type of control normally exercised by an employer include when and where to begin and stop work, the regularity of hours, the amount of time spent on particular aspects of the work, the tools and appliances used to perform the work, and the physical method or manner of accomplishing the end result.
In order for an independent contractor to be properly classified, he/she must truly be independent; therefore, a business must focus on the degree of control versus the degree of independence when determining how to classify a worker. Analyzing the following factors will increase the likelihood of making an accurate determination: (1) instructions given to the worker; (2) training given to the worker; (3) the extent to which the services rendered are an integral part of the principal’s business; (4) any requirement that the services by the worker be rendered personally; (5) the worker’s ability to hire, supervise, and pay assistants; (6) the continuity or permanency of the relationship between the employer and the worker; (7) whether the employer sets hours of work; (8) a requirement to work full-time; (9) the location of the work (on the employer’s premises or at the worker’s home/elsewhere); (10) setting the order or sequence of work; (11) requiring oral or written reports; (12) paying the worker by the hour, week, or month; (13) the payment of the worker’s expenses (business and/or traveling); (14) providing the worker’s tools and materials; (15) significant investment by the worker; (16) the worker’s opportunities for profit or loss; (17) working for more than one business at a time; (18) availability of the worker’s services to the general public; (19) the firm’s ability to discharge the worker; (20) the worker’s right to terminate the relationship; and (21) the amount of the worker’s investment in facilities and equipment.
Governing authorities’ claim that no one factor listed above is weighted a particular way and that there is no magic formula for determining how to classify a worker. In other words, this is a gray area and even a thoughtful analysis offers no guarantees. In cases where businesses want reassurance, the IRS has a Form SS-8 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding that can be filed requesting that the IRS review certain facts and circumstances and officially determine a worker’s status. Although it can take at least six months to receive a determination, it is a step that could prove beneficial, especially for businesses that frequently hire the same types of workers to perform particular services.
In the past, it was common for a business to receive notice of an investigation through written correspondence from a governing agency. Today, however, more and more investigators, especially those working for the Department of Labor (“DOL”), are showing up at jobsites unannounced, and requesting to conduct immediate reviews of business records. The information requested during a surprise DOL investigation is likely to be the same as the information requested through a more traditional notice of investigation received through the mail.
If a DOL investigator shows up at your worksite, you can expect to be asked to provide the following items: (1) names, addresses and telephone numbers of all business owners and company officers (e.g. President, Treasurer, Secretary, Board of Directors and other Corporate Officers) along with a company organization chart if one exists; (2) legal name of the company and all other names used by the company (e.g., “Doing Business As” names); (3) records demonstrating your gross annual dollar volume of sales for the past three years; (4) a list of all employees with their address, hourly rate or salary, descriptive job title, shift and whether you consider that employee exempt from overtime for all current and former employees for the investigative period; (5) payroll and time records for the investigative period, including a copy of the last two payroll completed and time records; (6) birth dates for all employees under age 18 who have performed work during the past 24 months; (7) 1099 forms and contract documents with any independent contractors, subcontractors or day laborers; and (8) federal employer identification number.
One of the best ways to prepare your business for a worker classification investigation is to maintain organized records and be able to demonstrate a good faith, reasonable basis for classifying a worker as an independent contractor. Businesses that demonstrate a reasonable basis for its classifications may be relieved from certain monetary consequences depending on which governing authority oversees the investigation.
The IRS recently added an optional program called the Voluntary Classification Settlement Program (VCSP) intended to encourage voluntary compliance with worker classification rules. The VCSP permits employers to prospectively reclassify workers as employees in exchange for limited federal employment tax liability, no interest or penalties, and without an IRS audit or administrative correction procedure. This is something to consider for businesses that become aware that they are currently treating a class of workers as independent contractors but want to voluntarily reclassify the workers as employees going forward.
I am often asked whether it is a good idea for businesses to have contractual agreements with workers designating them as independent contractors. The answer to that question is an unequivocal yes. Using a contract that clearly sets forth the worker’s status as an independent contractor, such as the Texas Association of Builders’ Independent Contractor Base Agreement, can be dispositive of the parties’ relationship, so long as there is no outside evidence contradicting the terms of the contractual provisions. For example, if the contract states the worker will dictate his own hours of performing services, there cannot be evidence that the hours of work were actually controlled by the company. So long as the contractual agreement accurately reflects the independence of the relationship between the company and the worker, it will bolster the likelihood of being able to establish proper classification of the worker as an independent contractor.
Companies can decrease their chances of misclassifying workers in a variety of ways such as (1) routinely reviewing payroll records to determine how many workers are classified as independent contractors and to confirm that a reasonable basis for such classification exists; (2) allowing workers to control the details of a project such as starting and stopping time and the ability to delegate work duties to others individuals under the control of the worker; (3) paying the worker by the project; (4) having worker use his/her own tools or equipment; and (5) avoiding ongoing, continuous relationships with workers.
Companies should strive to maintain a good relationship with their workers. It is important to listen to concerns or questions raised by workers relating to their classification. These questions can often come in the form of questioning whether a worker or class of workers should be receiving overtime pay. If a worker voices concerns over overtime pay, take it seriously and analyze whether that worker is properly classified. If you discover the worker is misclassified and is owed overtime wages, it is advisable to consult with an employment attorney.
Companies should also encourage workers to come discuss any questions or concerns they have about classification or wage issues. Taking this step can prevent a disgruntled worker from filing a complaint with the Texas Workforce Commission or the Department of Labor, which would likely trigger a wage and hour investigation.
Businesses that take a closer look at existing worker classifications and that take proactive steps to comply with state and federal laws are less likely to be found liable for taxes, wages or other damages and penalties down the road.
About the author: Leslie L. Hunt is a shareholder at Decker, Jones, McMackin, McClane, Hall & Bates, P.C. in Fort Worth, Texas. She earned her J.D. from Baylor Law School and her primary practice areas include employment law and business litigation.
Disclaimer: The content of this article is provided for informational purposes only and does not constitute legal advice.
 Thompson v. Travelers Indemnity Co. of Rhode Island, 789 S.W.2d 277, 278 (Tex. 1990).
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BUILDERS’ RADIO BLOG
by Matthew L. Motes
“Sticks and stones may break your bones, but words will never hurt you”. True, unless you sell homes then “words” become misrepresentations and deceptive acts in court. Nowhere is this more dangerous than in green building. Based upon an hour on the internet, buyers believe they are armed with expert knowledge in green building and they will immediately quiz you about it. This blog provides a few tips about when and how to protect you from potential liability.
The first five minutes with a potential buyer is the most dangerous. It is during this introductory time the buyer will ask: “Are you green builder?”, “Is this home certified?”, “Do you have an Energy Star rating?” Give a wrong or incomplete answer to any of these typical questions may result in a lawsuit. A buyer will later swear under oath that they only relied upon your initial answers to these simple questions and none other to buy a half-a-million dollar home.
Green liability lawsuits have increased rapidly over the past few years. They started with multi-million dollar commercial projects; however, are now common place against consumer products such as: appliances, light bulbs, and memory foam mattresses. Unfortunately, all too often home builders get caught in the middle of the consumer product case. One example is the current class action against Whirlpool where the consumers complained that the refrigerators they bought were represented as “Energy Star” when a check of the model numbers revealed they had been removed from the “Energy Star” program. A second example involves the CFB light bulbs. There are current articles warning of the cancer risk from these bulbs because they contain mercury. The moral of the story is to keep up with as much information as you can about green materials. In the past, home builders have been caught in the middle between consumers and manufacturers of Chinese dry wall, polybutylene pipe, EIFS (synthetic stucco) to name a few. It is not unreasonable to expect consumers to make claims against builders for green building materials and process.
To protect yourself and your builder, verify even the most basic of claims. For instance, confirm the appliances do all have an “Energy Star” rating, and if not all of them find out which ones do and do not. Collect, then handout written materials about green attributes to potential buyers when they ask the green questions. Instead of representing the air conditioning system will save them money, give them a brochure from the manufacturer explaining the benefits of their technology. Do not ever state something is “Free of”, or “100%” because it is rarely true. As a final tip, when the buyer asks the green questions, answer them with asking for additional information from the buyer to make sure you have as much detail as you can before providing an answer- or more preferably providing them written information.
Additional ways to protect the builder is to include no oral representation disclaimers in all contracts in the form and manner required by each state. Many builders and builders’ association contracts now also include a green building disclosure addendum which limits liability to some extent. Another way to provide protection is to know the local ordinances. Cities like Dallas, Texas have recently enacted green building ordinances that establish the type of testing and requirements necessary to qualify for and meet green standards. The more specific the testing and scoring used to establish certain standards the less reliance can be placed on your representations, whether they are ultimately found to be true or not.
Green is the most popular phrase going. However, if you make a false representation “green” could be the dollars collected by the buyer and their attorney making the “green” claim.
Matthew L. Motes is a Shareholder with DECKER, JONES, MCMACKIN, MCCLANE, HALL & BATES, P.C. in Fort Worth, and focuses his practice on residential and commercial construction matters. He can be reached by calling 817.336.2400 or by emailing firstname.lastname@example.org.
This article is provided for informational purposes only and is not a substitute for specific legal advice, and is not intended to create an attorney-client relationship between Mr. Motes, his firm, and the readers of this publication.
November 16, 2012
By Kelly Decker
Texas Family Law and Divorce Blog
There are two types of subpoenas that can command two types of actions. Trial subpoenas command appearance at a trial or hearing and discovery subpoenas command appearance to give testimony for the purpose of discovery of evidence. Either way, the subpoena can also ask for production of documents or tangible items for trial, a hearing or discovery.
The subpoena power can reach beyond the parties in a lawsuit. It can also compel non-parties or entities to comply. Although there are some limits, generally speaking, someone can be compelled to testify or produce documents in a case that they are not directly involved in. For example, Denise Richards could have been subpoenaed in Charlie Sheen’s criminal assault case for his alleged attack on Brooke Mueller. In his suit against Kim Kardashian, Chris Humphries (her 72 day husband) subpoenaed Kanye West (her boyfriend) to appear and give testimony at a deposition, purportedly to show she didn’t intend to marry Chris for legitimate reasons.
Oftentimes, the only way to obtain admissible evidence in a case and prepare for trial is to seek information from third parties using a subpoena. Bank records, computer files, corporate books and records, report cards, medical records, phone records and so forth are good examples. Note: Facebook and other social media sites are protected by federal law from the subpoena power.
Failing to comply with a subpoena could result in contempt charges. The statute allows for a court to assess fines or require the non-appearing party to be confined. Texas Rule of Civil Procedure 176.8.
Kelly Decker practices family law and civil litigation. Ms. Decker specializes in complex divorce cases that require experience and knowledge in real estate, business and probate law. Her background is distinguished by years of trial and appellate experience in real estate, oil & gas, contract and fiduciary duty litigation.
Disclaimer: The content of this article is provided for informational purposes only and does not constitute legal advice.
I was recently asked a specific question as to how the Transfer on Death deed affects the spouses homestead rights.
Example: A party is married and they execute a transfer on death deed to their children on their separate property which is their homestead.
The deed would not displace the spouse at death because the homestead right is attached to the separate property and community property. Therefore, while the children might own the property upon their parent’s death, the spouse has the right to live in the house.
Marvin Blum (pictured on the far left) generated quite a bit of media coverage this past weekend when he posed a question to Warren Buffett at the Berkshire Hathaway annual meeting, where an estimated 35,000 shareholders gather each year in Omaha. Marvin’s question and a summary of Warren Buffett’s comments are below.
“I’m an estate planning lawyer, and it’s interesting as we wrap up today to ponder that the baby boomer generation is about to pass along the greatest transfer of wealth in history. I can design plans that eliminate estate tax and pass down great amounts of wealth to the next generation, but many of my clients come to me and say they want a plan like Warren Buffett’s, leaving their kids enough so they can do anything, but not so much that they can do nothing. Now they ask me, and I am asking you, ‘How much is that, and how do you keep from ruining your kids?'”
The following is a brief summary of Mr. Buffett’s insightful response:
• I think that more of our kids are ruined by the behavior of their parents than by the amount of the inheritance.
• I rewrite my will every five or six years.
• When your children are old enough (mid-thirties or thereabouts), you should explain your estate plan to them – It’s crazy for them to read the will for the first time after you’re dead.
• If your child is named as executor, your child should understand how to carry out his or her obligations that are embodied in the will before I sign that will, and we should talk it over.
• Rather than creating a dynasty of sorts, if you’re very wealthy, the money can have far more utility to society than to create a situation where your kids don’t have to do anything in life except call a trust officer once a year and tell him how much money they want.
• If you’re going to leave each of your children different mixes of assets, you want to make sure your definition of equality is understood by the children.
Marvin’s question drew immediate attention in the news media with coverage in The Wall Street Journal, The New York Times, The Washington Post, Bloomberg Business Week, The World-Herald, and commentary from these sources was syndicated and reprinted globally by many other outlets.
Article was provided by the Blum Firm, P.C.
Many of you know I am very adamant that all my clients have a Physician’s Directive (Living Will), so I never charge for the document. Why is it so important you ask? Well, there are various reasons and scenarios that come into play that many people just do not think about. Here is a wonderful article by attorney Harvey Cox that does a great job of illistrating why end of life decisions are so important, regardless of your age!The Difficulty of Life or Death Decisions By: Harvey Cox