Flipping Houses - Mitigating Risk and Exposure

The Twin Cities is a very expensive market for an aspiring real estate investor and flipping is, often, one of the best ways to create value for the investor. The big legal concerns that come in with flipping, and what you have to watch out for, is the financing part of it and the risk exposure.

Financing

Generally, with non-flip properties (I will refer to them as wholesome properties) you are looking at properties that either require minor touch ups or nothing at all. The reason is that Sellers know if they do not fix up and preen their properties they are missing out on the biggest chunk of the market – which are first-time home buyers. FHA loans, and other conventional loans, used by first-time homebuyers and the like, generally have stringent requirements when it comes to the quality of property. Wholesome properties are usually trouble free and as a potential flipper, exactly what you don’t want. What a flipper is looking for are not wholesome properties but properties that require some work, changes, and most importantly vision — of course, I’m referring to ugly houses.

Entering the world of ugly houses also necessitates your departure from the world of conventional financing (there are still some loans available out there but they can be tougher to obtain). Ugly houses purchases tend to be financed by private hard money, seller financing, and of course cash.  Most financing options for ugly houses tend to utilize a (1) rent to own arrangement, or a (2) contract for deed arrangement. Obtaining these types of financing is easier for a flipper than working with banks and their bloated underwriting departments, but it is significantly harsher when it comes to default and payment terms.

As investors ourselves (Note – my wife and I operate a real estate company – Nomad Real Estate), my advice is to look for seller (owner) financing rather than working with companies that specialize in private financing. Our experience investing in real estate has shown us that owners are generally much more reasonable when it comes to terms than full-fledged operations. The typical owner looking to sell his property on a contract for deed is an older investor who has a case of landlord fatigue — sick of dealing with tenants, the building, mowing, snow care etc. — but wants to continue to supplement his/her/their income through owner financing and enjoying the interest in his/her/their retirement. A contract for deed or lease to own are both based on contract law. It is essential to have an attorney review and draft a contract that (1) establishes the agreement of the parties, (2) clearly outlines both parties’ rights under the contract, and (3) clearly outlines both parties’ obligations under the contract.

Risk Exposure

To understand the risk exposure that I am talking about consider this hypothetical situation: you locate an unloved duplex that needs some rehabilitation. You begin making your repairs starting one unit at a time. You finish the lower unit and the upper unit needs more work than what you budgeted for (pretty likely) so, you decide to rent out the lower unit to help out with your cash flow issues. While lugging some lumber upstairs one day, a 4x4 comes loose and falls on your lower level tenant!

While other real estate investment strategies might not require an LLC initially, a flipper needs LLC protection right from the jump. Without the protection of an LLC, that injured tenant can come right after your personal assets! To ensure that the LLC serves its purpose of protecting you, you must maintain as much separation as possible between your personal identity and corporate identity.

The liability protection offered by an LLC is a great shield from risk but remember if your individual identity start to merge (mixed bank accounts, mixed emails, and generally sending mixed signals to the public) the Courts could “pierce the veil” and allow a litigant to come after you in an individual capacity. As a flipper keep that in mind. You could just be fixing and flipping single families and that would likely lower your risk, however, if you move into multi-family buildings, then be aware that potential tenants will be living in a construction area that definitely creates some risk you would be wise to mitigate.

What You Need to Know About Probate Estate Administration in Minnesota

What is Probate?

When a person dies, he or she often leaves assets and debts, “the estate”, behind. Probate is a process whereby these assets are divided and distributed, and debts are paid through the court system. Probate is not necessary in all cases. A person’s estate will only need to be probated if that person’s assets were worth over $75,000.00 at their death or if he or she was the sole owner of real property at the time of death.

Where do I start if I need legal help related to a probate matter?

Probate law in Minnesota is specific to Minnesota, and is not federal law. So, if you are seeking to retain an attorney to assist with a probate matter, you should seek out an attorney who is licensed to practice in the proper jurisdiction; in most cases this will be the state in which the person who passed away resided. The statutory authority for probate administration in Minnesota is found predominantly in Minnesota Statutes Chapter 524, Uniform Probate Code, and Chapter 525, Probate Proceedings.

There are different types of probate processes: formal and informal. It is also possible that, as mentioned above, the estate in question may be small enough to avoid probate entirely. In those instances, an Affidavit for Collection of Personal Property form can be filed with the court, allowing heirs to collect property of the person who passed away. It is best to consult with an attorney to determine which process is appropriate in your unique situation. At El-Bashir Law we offer free consultations and modest initial retainers for clients who would like us to provide assistance or advice with a probate matter.

A good starting point for a person who is not able to retain an attorney, or is curious about the law is the Minnesota Judicial Branch Website. Follow this link to go to the website where you can assess forms and instructions: http://www.mncourts.gov/Help-Topics/Probate-Wills-and-Estates.aspx

Another helpful resource is lawhelpmn.org, a free online resource in Minnesota which is administered by Legal Services State Support of Minnesota. Follow this link to gain access: https://www.lawhelpmn.org/self-help-library/fact-sheet/questions-about-probate

Implications for estate planning: How can I prepare my estate so it is easy to administer after my death? Can I avoid probate?

Avoiding probate is desirable in some circumstances because it means that your heirs don’t have to go to court. A good example of this was a case we recently handled in which we represented the heirs of a man who had passed away and only had a very modest estate but he also owned real property. Because he owned that real property by himself, the heirs had to wait for the estate to go through probate. There are a number of estate planning tools which could have been employed before he passed away to avoid probate. For example, property can be owned jointly with another person; this is called joint tenancy, and it is a way to avoid probate and easily transfer real property. Other common estate planning mechanisms include certain trusts, gifts made before death, and life insurance.

Where do I start my own estate planning efforts and what should my goals be?

Probate is a process which individuals (called Personal Representatives) go through on behalf of the person who passed, and is not something you will need to worry about if your goal is to plan for your own estate. A starting point for all estate planning is a consultation with an attorney who can assist you in determining which estate planning tools to use. It is always better to do some estate planning, even if your estate is small. It can be helpful, meaningful, and even fun for you to know where your material possessions will be passed on to after you pass. Additionally, it is equally important to have a plan for end of life health care and burial. There are various tools, including power of attorney, health care directives, and wills, which can accomplish these important planning goals.

Harassment Restraining Orders In Minnesota

Today we received notice that—after a hard fought trial—we had succeeded in defending our client against a harassment restraining order; the court order denied the harassment restraining order and agreed with our arguments that our client had not harassed the other party. We were so happy for our client, who now will not have to suffer the negative collateral consequences associated with having a harassment restraining order on one’s record, including but not limited to: the risk of being forced to leave a dwelling which you share with the protected party, losing rights that were previously enjoyed, and the risk of being charged with a crime if the other party alleges that the harassment restraining order has been violated.

So what is a harassment restraining order?

A harassment restraining order is an order prohibiting the offending party from contacting the victim. If the order is violated, the offender may be criminally charged with violation of a harassment restraining order.

A Harassment restraining order (HRO) may be obtained because of assault, stalking, or repeatedly pursuing or badgering. Under Minnesota statute 609.748, harassment includes even a single incident of physical or sexual assault, stalking, non-consensual dissemination of private sexual images, or repeated incidents of intrusive or unwanted acts, words, or gestures “that have a substantial adverse effect or are intended to have a substantial adverse effect on the safety, security, or privacy of another.” An HRO can also be obtained due to targeted residential picketing or attending a public event when the offender has been notified his or her presence is harassing to someone else.

Who can obtain a harassment restraining order?

  Unlike a domestic violence order for protection (OFP), an HRO can be brought against “any adults or juveniles” who have engaged in harassing conduct; there is no requirement that the parties have any relationship (ex. Housemate or relative) to one another.

What to know if you receive harassment restraining order papers?

If you are the alleged harasser, the main thing to know is that you will need to act quickly; in cases where the court has issued an ex parte (without an appearance) harassment restraining order, you only have a limited number of days to respond or you will give up your right to contest harassment. It is always better to request a hearing, even if you think that you will not win, because you may be able to settle at the hearing and receive better terms on the harassment restraining order.

What to know if you are the party seeking a harassment restraining order?

Harassment restraining orders can be great protection for those who need it because it can provide you with a means to prohibit someone from bothering or scaring you and you can enforce your rights by calling the police. Additionally, if the offender continues to harass you, he or she could be charged with a crime and put in jail.

You can go to the courthouse, or go to the Minnesota Judicial Branch website and find forms to fill out requesting a harassment restraining order. The forms are simple and you can find directions on how to fill them out. You will have a better chance of succeeding if you hire an attorney, and hire him or her early on so he or she can review the paperwork you submit.

The paperwork you will fill out will include a sworn affidavit in which you record the details of the harassment and why the applicant believes the HRO is necessary.  The judge will then examine the paperwork you file and can decide to grant an HRO or to grant you a hearing to prove that you need the HRO.