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How to Choose an Estate Planning Attorney

What will happen to your asset when you pass on? Have you put in place measures that authorize someone to make financial, legal, or medical decisions on your behalf should you become incapacitated and can’t make these decisions yourself?

While these questions are not fun to think about, you should be able to answer them. If you can’t, you need to find yourself an estate-planning attorney to help you establish an estate plan.

An estate plan is a set of legal documents that outline how your asset will be managed or disposed of should you die or become incapacitated. A good estate plan usually has four key things:

The last will. This document states who you would like to inherit or manage your property when you pass on. If you don’t have a will before you die, the state could distribute your assets. This process can take years and is expensive, which can cause family conflicts or legal battles over your assets after your death.

A living will states among other things, what type of life-sustaining treatment you would like to be given should you have a terminal disease and are incapable of making medical decisions.

Healthcare power of attorney. You should have this document done with the living will. It allows a spouse, relative, or anyone you choose to make medical decisions on your behalf when you’re unable to do so.

Financial power of attorney. Similar to the healthcare power of attorney, this document authorizes someone you choose to make financial decisions for you when you can’t. If you don’t allow someone to do this, your financial obligations may remain pending until you’re able to handle them yourself, something that could cost you.

From the above information, I’m sure you can see why having an estate plan is important.

Most people, however, delay creating an estate plan or never have one because they think they’re too young or don’t have enough money or assets.

Estate planning attorneys and financial experts recommend you start estate planning on reaching 18 years, which is the age you become legally responsible for your health care and finances in several US states, and review the plan every two to five years.

So, if you don’t already have an estate plan, you should organize to get one soon.

In the following section, I’ll share with you a few tips to help you choose a good estate planning attorney.

3 Tips for Choosing the Best Estate Planning Attorney for You

Planning your estate is an important responsibility that you cannot leave to just any lawyer. To ensure you work with the right estate planning attorney, use these tips to choose one.

Look for an attorney that specializes in estate planning

Any attorney can help you with your estate planning because they’re knowledgeable in law. However, you want to avoid a lawyer who is a jack of all trades and look for one whose primary practice area is estate planning.

Such an attorney has most likely mastered the main areas of estate planning and is up to date with current laws and issues in this field. They’re therefore better placed to help you plan your estate.

If you don’t know any estate planning attorney, ask your family, friends, colleagues, etc., if they know one they can recommend.

You could also use websites like the American Academy of Estate Planning Attorneys and the National Association of Estate Planners & Councils to find an experienced estate planning attorney in your area.

Ask about the estate planning attorney’s experience

Once you settle on a short list of estate planning attorneys you would be interested in working with, question them about their experience to find out if they’re qualified to handle your estate.

The attorney could be experienced in handling vast and complex business estates or family and small business estates. Others are also well versed in dealing with estate planning for the elderly.

The number of years the estate attorney has practiced should also interest you. I would recommend that you choose an attorney that has at least 3 years of experience. This is enough time for them to have mastered estate planning laws.

Apart from their experience, other questions you what to ask an estate planning attorney include:

How much do they charge? Factors such as the attorney’s experience, size, and complexity of your estate will determine what you pay for estate planning. The attorney could bill you a flat fee or per hour. Ensure you know which billing methods they use.

Do they have any clients you can talk to? It is important to talk to several people who have worked with the estate planning attorney to find out what it is like working with them and the quality of their work.

Do they work alone or with a team of highly skilled individuals? An attorney that works independently may be slow in preparing estate planning documents, but with a team, this process may have a quick turnaround. Also, an estate planning attorney who has assistants may be preferable because if something happens to them, someone conversant with your estate plan may take over.

Do they belong to any professional organizations? Professional organizations provided extensive education and lots of networking opportunities. If the attorney you’re considering is a member of an estate planning attorney’s body, it could be a sign that they’re committed to staying up to date with the latest developments in their industry, which is important if they’re to advise you well.

Know this is a long-term relationship

Estate planning is not a one-off thing. You’ll update your plan over the years as your family grows, go up the corporate ladder, divorce, etc. So, after questioning the estate planning attorneys, choose the one you like and feel most comfortable with because the two of you could begin a long relationship that ends at death.

Gallagher Krich, APC: Experienced Estate Planning Attorneys

To give you peace of mind that your assets will be well taken care of, and to avert potential family conflict should you die or become incapacitated, let Gallagher Krich, APC, help you come up with a comprehensive estate plan.

Our attorneys who have over 30 years of combined estate planning experience can take you through creating a will, establishing a trust, and drafting other estate plan documents. Call us at [phone] or book an appointment online with one of our experienced estate planning attorneys today.

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What is Asset Protection: Do You Need an Asset Protection Plan?

Imagine losing everything you own from your house to your savings within a few days or months. This could happen if a creditor, former spouse, employee, etc., successfully sues you.

You could face a lawsuit because of negligence, contractual disputes, vehicular accidents, family disputes, inability to meet financial obligations, partner disputes, professional malpractice, employee harassment, etc.

The only way to stop anyone from legally seizing your individual or business asset is to secure them from court rulings.

What does asset protection mean? Asset protection involves using legal strategies to protect your valuable assets from seizure, taxation, divorce, lawsuits, civil money judgments, or other losses. It is an important part of financial planning used by businesses and individuals to guard their wealth without getting involved in tax evasion or perjury.

Now that you have the quick answer to “what is asset protection,” read on and I’ll answer some of the key questions you might have about this topic.

What does asset protection do?

The key thing asset protection does is that it gives you a legal way to protect your personal and business assets from creditors should you face a lawsuit.

With asset protection, individuals or businesses don’t have to engage in illegal activities like hiding assets (concealment), fraudulent transfer, bankruptcy fraud, and tax evasion, to safeguard their valuable assets.

Asset protection also ensures you’re not an easy mark for those targeting your assets. For example, if a creditor or former spouse knows you have protected your assets, it may deter them from suing you because they know they can’t put a claim on your investments, property, bank account, etc.

Also, the first thing a lawyer does when looking to file a claim is to search public records to see what assets you own. If they can’t find any because they are held jointly with family members, for example, they’re unlikely to take up the case.

When is the right time to initiate asset protection?

If you’re likely to be sued and you have lots of assets, you should be proactive and establish asset protection now if you haven’t already done so. At Gallagher Krich, APC, we believe asset protection should be set up before a liability or claim arises because doing so when creditors are already looking to seize your assets is too late and unlikely to provide you with any worthwhile asset protection. From our experience, the longer you have asset protection, the safer your assets are.

If you’re a debtor with few assets, filing for bankruptcy could be a better legal route to take than setting up an asset protection plan. Also, if the only assets you have are your retirement plans you don’t have to set up asset protection as this cannot be used to pay a debt or claim under the Employee Retirement Income Security Act of 1974 (ERISA) and the United States federal bankruptcy law.

What is the best asset protection?

There are several asset protection strategies, however, the most common are:

Family Limited Partnerships (FLP)

This happens when you have assets jointly owned by family members under a business name. Because the assets are not in your name and are owned by several individuals, they cannot be seized even if you lose a lawsuit.

Asset Protection Trust (APT)

This is one of the best ways you can protect your assets from judgments made against your estate, creditors, lawsuits, etc. It involves creating a trust to hold your assets. When you create a trust, the assets you own will no longer be in your name and will be under the authority of a trustee.

An APT can be domestic or foreign. Currently, only 17 US States including Alaska, Ohio, Rhode Island, Virginia, and Utah can allow you to set up a domestic asset protection trust. As the name suggests, a foreign asset protection trust is established outside of the US jurisdictions like the British Virgin Islands and the Cook Islands, which are known offshore tax-havens.

The key difference between a domestic and foreign asset protection trust is a domestic ATP may be at risk of federal bankruptcy laws, court orders, state laws because the assets still reside within the US court’s jurisdiction. A foreign asset protection trust will cost you more to create, but it will provide you with more protection of your assets because offshore tax havens rarely enforce US court orders against assets held in trusts in their jurisdictions.

Learn more about how our San Diego attorneys can help you with setting up a trust as part of your estate plan.

Use of a Limited Liability Company (LLC)

This is the easiest asset protection strategy. A limited liability company separates your individual and business assets, therefore protecting your personal assets from seizure should a lawsuit be filed against you for failing to honor a business loan.

Transferring your assets

To protect your assets from creditor claims, you could transfer them to a spouse, child, relative, or trusted friend. The person you transfer the asset to should be unlikely to have a lawsuit filed against them.

This strategy is, however, risky because if you disagree with the person you transfer the property to, for example, because of a divorce, you could end up losing the assets you’re trying to protect because they don’t legally belong to you.

Let Gallagher Krich Help You Protect Your Assets

If you know or think you’re likely to be sued, call Gallagher Krich, APC, now to let our attorneys help you establish an asset protection plan. Our attorneys have years of experience in asset protection, so we can work with you to secure your real property, savings, investments, wealth accumulated over a lifetime, and even your future income.

When you get in touch, we will assess your financial situation, assets, and risks to come up with the best asset protection plan for you. Working with an attorney from Gallagher Krich, APC, the asset protection plan we set up will make it impossible for creditors, former spouses, or court judgments to take your assets.

Call us at [phone] or contact us online today to schedule a free consultation with an experienced asset protection attorney.

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What You Should Know about Breach of Contract as a Business Owner

Your business is hired to perform a job for a client. You respect your part of the deal, you do the job, but the check does not come. The client broke the agreement you had, and your business might be financially strongly affected. Dealing with clients or suppliers who do not keep their promises is something that occurs too often to businesses.

Protect your business and learn the essentials on breach of contract.  

Evaluate the type of breach of contract

A breach of contract wastes your money and time and certainly leads to frustration and maybe serious damages for your business. Before you start filing a lawsuit, check which of the following situations you are in:

A material breach: let’s say you order a website for your business and the web designer delivers you something significantly different from what was specified in your contract. In this case, you have the right to remedies for the material breach.

A minor breach: taking the website case, in the situation of a partial breach, the web designer delivers the website, but with a delay. The breach might be considered minor unless you put in your contract that “time is of the essence” and show how much profit you lose from not having the website ready. Otherwise, small delays are considered minor breaches.

Anticipatory and actual breaches: if the web designer announces you, in advance of the deadline you agreed upon, that he/she intends not to deliver the promised work, then you are in the situation of the anticipatory breach. If the web designer refuses to deliver the website on the due date or at a later date, or he/she delivers the website incompletely, then you are in the situation of an actual breach of contract. Even if the contract breach is announced in good faith, it is still bad news for you and can hit your business.

  What to do in a breach of contract situation

There are many remedies or damages available to you, which come as monetary rewards intended to make up for any loss you had because of a contract breach situation. Talk with a lawyer to advise you on the damages you could collect, such as:

Expectation damages: for instance, you could get from the web designer the market value of your website. In other words, you can ask for damages that cover what you intended to get out of that specific contract.

Consequential damages or indirect damages: if your website also hosts an online shop for your business, and you lose profit for a week because of the delivery of the the website was delayed, you are entitled to consequential damages.

Liquidated damages: if the breach of contract situations are well defined in the agreement, you can collect the agreed damages specified in there.

  Before starting a lawsuit

Review the contract to see what breach of contract situations was built into the contract and act accordingly;

Inform the other party, officially, that there has been a breach of contract;

Keep all the communication and documentation related to the contract.

Get our help today to review the contract, draft the communication with the other party and file a lawsuit, if it is needed.

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How to Close a Business in California

Did you know that close to 50% of new small businesses don’t make it past five years — and 65% fail before their tenth year? Sometimes all the money, time, hard work, and perseverance you put into your business doesn’t pay off, and after an exhausting journey of slow sales, financial losses, stiff competition, etc., you might be thinking of closing your business.

Shutting down a business in California is not as simple as shutting your office doors and putting a closed sign, or taking down your company website and walking away. There are a few legal steps you have to take to dissolve a business in the Golden State.

In this post, I’ll share with you a rundown of how to legally close your business in CA. You should know from the start that working with an experienced business attorney will make the process of closing your business much easier. An attorney will be able to explain and deal with the legal issues associated with shutting your business.

When does closing a business make sense?

One of the main reasons a lot of businesses close down is because the owners aren’t making money from the venture. However, a business doesn’t have to be making losses for it to shut down. Other factors that can lead to business closure include:

The business partners are having unresolvable disputes over how to run the business

The business was intended to run for a short period, so once the specific purpose is met, dissolving the company makes sense

The business owner is retiring and doesn’t want to sell the business

The owner wants to try their hand at another business

The owner is no longer excited about their company

The process for closing a business in CA

When you decide to close a business you must legally terminate its existence as an independent business entity in California. Businesses incorporated in the state can legally dissolve, while companies incorporated outside of California can legally surrender. Limited liability businesses local and foreign may legally cancel.

To dissolve, surrender, or cancel a business entity you’ll have to deal with two agencies, the California Franchise Tax Board and the California Secretary of State (SOS).

Without further delay, here are the steps to legally shut down your CA business.

1) Vote to close the business

If you’re a sole proprietor this is not necessary because the decision to shut down the business is entirely up to you. If you’re in a business partnership, all or majority of the business associates must agree to close the business. To decide to dissolve you might have to take a vote among the partners.

Your business agreement most likely outlines how this vote should be taken, If it doesn’t look at the state business statutes to find out how to conduct a partner’s vote correctly. Once the vote is taken ensure you record the outcome in the company meeting minutes or through a written consent form.

2) File your final tax return

When winding down your business the California Franchise Tax Board (CFTB) requires you to pay all taxes balances due and file the final year tax return. When filling the tax return form check on the “Final Return box” on page one of the return, and also write “final” at the top of the page.

Once filed the tax returns will be subject to an audit. If everything is in order, you’ll get tax clearance or consent to dissolution from the CFTB.

3) File the appropriate dissolution, surrender, or cancellation forms

To do this you’ll have to get the appropriate forms from the California Secretary of State. For example, if you’re closing down a company incorporated in the state, you’ll fill the dissolution forms; for a business incorporated outside of the state you’ll fill the surrender forms.

You can access the necessary forms to dissolve a business in CA online from the state’s Secretary of State’s website. There are two things you should know,

You’ll be required to show proof that you have cleared all your taxes with the California Franchise Tax Board before you’re allowed to formally close your business.

You should file the necessary dissolution, surrender, or cancellation forms with the Secretary of State within 12 months of doing your final tax return.

The above three steps are the most important. Additional steps you should take include:

Informing your employees, suppliers, creditors, vendors, customers, and anyone else you deal with of your intention to go out of business

Closing your bank accounts and credit facilities linked to your business

Canceling all business licenses and permits

Publishing a statement in your local daily or online on your intended closure

Pay any outstanding business debts. If you can’t pay the debts owed you need to look at the legal options you have to protect your personal property from being used to recover any debt

Why is it important that you follow the legal process of closing a business?

If you don’t formally close down your business in the state, you may still be liable to pay taxes and file returns. So to avoid this, legally dissolve your business. Doing so will also let creditors know that you cannot incur business debts.

Let Gallagher Krich, APC, help you legally shut down

The process of shutting down a business can be intimidating, particularly if you’re not conversant with the legal jargon involved. Fortunately, the attorneys at Gallagher Krich, APC have helped hundreds of business owners dissolve their business and can help you do the same.

When you make the decision to shut down, get in touch with us, and we will help you deal with the paperwork required, notify all the interested parties about the dissolution, terminate business licenses, and a lot more.

You can get in touch today at [phone] to schedule a free consultation with a business attorney who will take you through the steps to wind down your business quickly and smoothly.

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Why are contracts important?

As a small business owner, one thing that you might be wondering is why it is important to have contracts with the people and companies you do business with. To put it simply, contracts are the backbone of your business — and your business relationships.

They’re important because they outline the full expectations for both parties, and what will happen if those expectations aren’t met. In other words, they PROTECT your business by documenting the full understanding of the relationship so that there aren’t any misunderstandings later down the road.

Nobody wants a misunderstanding. Business disputes can lead to a lot of wasted time and money on your end — not to mention, they’re a huge headache. And should something go wrong, your contract is enforceable by law and will be able to support you if you decide to take legal action.

What should a business contract include?

Here’s what a standard contract includes:

Scope of work

Timeline

Payment amounts and terms

Circumstances under which the contract can be terminated and how that will be handled

Terms related to failed obligations

A word to the wise: Always have an attorney review or draft your contracts. Many business owners mistakenly think that using an online template, or writing a contract themselves, will save them money — but that’s the furthest from the truth. Although it may be tempting to use an online template, hiring an experienced lawyer will ultimately save you money in the long run, and here’s why.

You should have contracts with anyone you do business with, whether it’s your employees, clients, partners, shareholders, service providers, contractors, vendors, or insurers.

Contract development is just one thing that our team can help you with.

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What is an Employment Agreement?

Most US states are at-will employment states. What that means is, an employee can quit their job without giving a reason and notice. An employer can also fire an employee at any time with or without cause.

Several factors, however, can protect an employee from being sacked with or without warning or reason. First, an employee cannot be dismissed for unlawful reasons. For example, an employer cannot fire an employee because of their gender, race, or sexual orientation. Second, if an employee belongs to a union, they’re most likely protected by a collective bargaining agreement from unfair termination.

Third, if an employee doesn’t belong to a union, a well-negotiated employment agreement could limit their employer’s right to terminate them and give them certain benefits if they’re fired without cause or warning.

In this post, I would like to focus on what an employment agreement is and what are its benefits.  

Do I need an employment agreement?

Before you start a new job or hire a new employee you should enter into an employment agreement. The employment agreement can be oral or written, but as experienced employment contract lawyers we highly recommend the agreement be written because these types of contracts are easier to enforce than oral agreements.

Your employment agreement will be a legally binding document that outlines the responsibilities, rights, rules among other things of both the employer and employee. It will run throughout the employment period.

Some of the key details included in an employment agreement include:

Employee responsibilities. This states what the employer expects from the employee. For example, if you are hired as a financial manager part of your responsibility could be ensuring the company maintains a positive cash flow.

Employee salary. This will cover the base salary, bonuses, or commissions to be earned on the job.

Employee benefits. This will state if an employee is entitled to benefits such as medical and life insurance, paid vacations, club membership, etc.

Probation period. During this period an employer can fire the employee at their discretion. The probation period usually lasts 90 days and is used by the employer to assess if an employee is a good fit for the job.

Employment duration. The agreement will include the time an employee will work for a given company, and if there is a possibility of a time extension once the period lapses.

Performance reviews. This section of the employment agreement outlines when and how an employee will be reviewed.

Confidentiality clause. This is included in the employment agreement to ensure employees don’t share any sensitive company information with outsiders.

Non-compete clause. This is not always included in an employment agreement. If it is, an employee is prohibited from working for another company in direct competition with their current employer should they choose to leave their current job for a while, for example, one year.

Termination clause. This clause details how an employee can quit their job, if an employer has to have a reason to dismiss an employee, employment termination notice period, information and property an employee must return when they leave, etc.

The details that are included in an employment agreement depend on the job position and the company recruiting. For example, an employer may see no reason to include a non-compete clause when hiring a receptionist, but this clause would be necessary if they’re hiring an innovation manager.  

Is an employment agreement the same as an employment contract?

Yes, employment agreement and employment contract are the same thing. They both are binding documents between an employee, freelancer, or contractor and an employer detailing the terms of employment.

Other names used to refer to an employment agreement are contract of employment, employee contract, or job contract.  

What are the advantages of an employment agreement?

Employment contracts are valuable documents for both the employer and employee. Here are a few reasons why:

An employment agreement gives clarity on what is expected of both the employer and employee. For example, when an employee starts a new job it is clear to them what their salary, perks, and responsibilities are.

The agreement protects both the employer and the employee. For example, if an employee quits abruptly yet they’re supposed to give a one-month notice, the employer could sue them for breach of contract.

If a dispute arises between an employee and employer it is likely the problem could be resolved by going through the employment agreement.

Once an employment contract is signed, an employee and employer can work together comfortably for the foreseeable future knowing both their needs have been taken care of.

The employment contract can be used as a basis for negotiating new and better contracts between the employer and employee.

  Disadvantages of an employment agreement

The key disadvantage of an employment agreement for an employee is that it gives them less flexibility. For example, if you have entered into an agreement with an employer for three years, you can’t wake up and leave even if the job is frustrating or because you got a better job offer. Doing so could land you into legal problems.

An employer may also see the employment agreement like it is cast in stone and may not be open to negotiating terms. That is why before you get into an employment contract as an employee or even as an employer, you should have an experienced contract attorney look at your contract of employment, or help you draft it.  

Gallagher Krich, APC: Experienced Employment Agreement Attorneys

Whether you’re just about to hire a new employee or received a new job offer, get in touch with Gallagher Krich, APC for a review, or assistance in the drafting of your employment contract. Our attorneys have over 26 years of experience in contract law and are well versed with employment contracts. So, we can help you come up with a well-crafted and strong employment agreement that will give both the employer and employee peace of mind once they sign the document.

You can get in touch today at [phone] to schedule a free consultation with an attorney to ensure you don’t agree to an unfavorable employment agreement.

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What is an estate plan? (And do I need one?)

Estate planning is essential to protecting your assets and beneficiaries upon your passing. If you own a home in California or own over $150,000 in assets (i.e., bank accounts, stocks, cryptocurrency), then you should strongly consider an estate planning package. Having these documents in place will avoid the process of probate which can take years and cost thousands of dollars. Estate planning also allows you to control how and to whom your assets are distributed upon your passing.  

What does an estate plan include?

A full estate plan includes a living revocable trust, a pour-over will, an advance healthcare directive, a HIPAA release, and a durable power of attorney. Even if you do not own over $150,000 in assets, these documents are important to protect you in the event that an accident or illness occurs.

Living Revocable Trust

A living revocable trust, more simply known as a revocable trust, is a document that determines how your assets will be handled during your lifetime and after your passing. You (the grantor) may place any assets you have in the revocable trust and those assets are then transferred to your designated beneficiaries (individuals or organizations) upon your passing. The revocable trust can be changed, amended, or revoked at any time during your lifetime and avoids probate by having a successor trustee pass your assets to your beneficiaries without having to wait for a court order.

Pour-Over Will

A pour-over will is a will that transfers property or assets held at your death to the trustee of your revocable living trust. The pour-over will is a “catch all” of non-trust property or assets that you own at the time of your passing and is an extra layer of protection for your assets. If you have children, the pour-over will also ensure that your children are protected, and you may appoint a guardian for your minor children.

Advance Healthcare Directive

The advance healthcare directive allows you to determine how you want medical decisions to be made for and about you in the event that you are unable to make the decisions for yourself. You can also appoint an agent who will use the advance directive as a guide to make decisions according to your wishes.

HIPAA Release

The HIPAA release works in tandem with your advance healthcare directive and allows an agent to access your medical records and information. Your medical history and information are private and protected by law, and this document will authorize your agent to receive important information related to your health.  

What is a Durable Power of Attorney?

The durable power of attorney is a document in which you select an agent who acts as an “attorney-in-fact” and acts on your behalf in business or financial matters if you cannot act yourself. This document protects you from being declared incompetent by the court and allows your family or designated attorney-in-fact can take care of your finances or business without a court order.

Reasons why people need a durable power of attorney

Your attorney-in-fact will be able to make financial decisions on your behalf should you become incapacitated or unable to make those decisions for yourself. These responsibilities may include buying and selling property, filing tax returns, and managing bank accounts and investments. The attorney-in-fact will assume these responsibilities should you become incapacitated, and the power is removed or revoked once you regain capacity.

Do I need a durable power of attorney?

Yes! Everyone should strongly consider having a durable power of attorney in place regardless of age. No one plans to be in an accident or become ill; however, there is a possibility it could happen, and you want to protect yourself as early as possible in the event that an accident or illness occurs.

It’s important that you select someone who can act as a trustworthy and responsible attorney-in-fact. It is equally important to think of one or two alternate attorneys-in-fact in the event that your selected agent is unable or unwilling to accept the role or responsibilities.

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What is the breach of contract statute of limitations in California?

If you run a business you most likely have entered into a contract with suppliers, clients, employees, financial lenders, etc. As an individual, you also have probably gotten into a contract, for example, with a landlord or personal health insurer at some point.

A contract, which can be oral or written, is a legal agreement between two or more parties which among other things outlines what is expected of all parties, the rights of each party, and how disputes can be resolved if issues arise between the parties that agreed to the contract. With a good contract, you’re protected if one or all parties fails to live up to the terms of the agreement.

Before agreeing to a contract it is advisable that you have a contract attorney negotiate, draft, or go through the contract. This is the only way you can be sure your rights are taken care of should a breach of contract occur.

What Amounts to a Breach of Contract in CA?

If an individual or a company you have a contract with doesn’t honor any of their obligations as per the terms of your agreement, without a legal reason, they’ll have breached the contract. A breach of contract could be as minor as delayed payment, or an extreme violation like a failure to deliver products.

A breach of an oral or written contract can have serious implications for you or your business. For example, if a supplier doesn’t deliver raw materials, you might have to stop the manufacturing of your products and not be able to meet your product’s market demand. This will lead to loss of revenue which could affect cash flow and threaten the success of your business.

What Action Can You Take When a Breach of Contract Occurs?

If you can prove a breach of contract happened you can try resolving the issue among the parties involved or file a lawsuit against the party that didn’t honor their obligation under the contract. To do so you should get in touch with a California contract attorney immediately after the breach of contract happens because there is a time limit, known as the “Statute of Limitations”, within which you can sue for a contract dispute.

The California breach of contract statute of limitations was created to ensure important evidence doesn’t get lost, which can happen if you wait too long before filing a lawsuit, and that witnesses in a legal case have reliable and recent memory on the matter before the court.

The statute of limitations used will depend on whether you entered into an oral or written contract.

Statute of Limitations for Breach of Oral Contract

Section 339(1) of the California Code of Civil Procedure states that the statute of limitations for breach of an oral contract is two years.

Statute of Limitations for Breach of Written Contract

For a written contract, under the California Code of Civil Procedure section 337(a), the time given to file a lawsuit is four years.

How Does the CA Breach of Contract Statute of Limitations  Impact Your Legal Case?

The time limit an aggrieved party has to file a breach of contract lawsuit in California begins to run when they realize there has been a breach of contract. For example, if your supplier doesn’t deliver your products on June 1, 2021, and you can’t sort the issue out, you have until June 1, 2025, if you have a written contract with them, or June 2, 2023, for an oral contract, to take legal action if you choose to.

If you try to file a breach of contract lawsuit outside the statute of limitation, a California court is unlikely to hear your case. Even if the court hears it there is a high chance you’ll lose because the defendant is likely to bring a motion to dismiss on grounds that you didn’t comply with the breach of contract statute of limitations in California. The court is likely to accept their motion to dismiss and you’ll have lost out on any compensation you would have received from the breach of contract.

It is possible to pause the statute of limitation for a certain period, for example, an year. This is known as tolling. You, however, have to have a very valid reason why the time limit for you to take legal action when a breach of contract occurs should be temporarily halted.

Possible reasons for tolling could be the defendant is in prison, has left California, or is a minor. If you’re successful in tolling the breach of contract statute of limitations in California, once the tolling period ends the time limit to file a lawsuit continues again.

Gallagher Krich, APC: Your California Breach of Contract Attorneys

If you find yourself in a situation involving a breach of an oral or written contract you’ll need a good contract lawyer. The attorneys at Gallagher Krich, APC have handled numerous contract disputes, so our expertise can be of great value in your California breach of contract lawsuit. We can represent you in legal cases involving sales, employment, and service contracts, non-compete agreements, contractor/subcontractor contracts, and many more types of contract litigations.

When you contact our law firm an attorney will look at your contract and investigate the facts to see if there has been a breach of contract. They’ll then advise on the legal cause of action you can take to get compensation for the breach of contract. Our attorneys are certified mediators so before filing a breach of contract lawsuit we can help with alternative dispute resolution methods.

Don’t wait too long after a breach of contract has happened because as you have read you have to file a lawsuit within the breach of contract statute of limitations in California. So time is of the essence. Get in touch today at [phone] to schedule a free consultation with an attorney.

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Why Operate Your California Business as an LLC?

An LLC, or limited liability company, is a flexible business structure that is well-suited for small to medium-sized business. It is less formal than a corporation, but still offers the business owner the benefits of limited liability.

Limited Liability Companies and corporations can trace their origins to European venture capitalism in the 17th century when shipping companies pooled investor money together and limited the investors’ liability to the stake of their investment. If a ship had a successful venture, its investors would enjoy the same percentage of profits as their percentage investment stake in the company. If, unfortunately, the ship was lost at sea or incurred debts to others, the investors were limited in liability to losing the money they invested.

Benefits of an LLC Business

In today’s world, business owners can form an LLC to limit liability from a business to their investment and enjoy pass-through treatment under IRS tax regulations. Another benefit of the limited liability company is that you don’t need to hold as many records, board meetings and approvals as a corporation.

For example, a corporation has to have an annual meeting of the Board of Directors. The company appoints executives to serve as directors of the company and vote on how the business will be operated. When changes are needed to the way the Company operates or it has significant changes in its ownership or management compensation, it needs to vote on and approve those transactions by a majority vote of the Board of Directors. A Limited Liability Company is not required to have annual meetings. Typically, the LLC files Articles of Organization and then, shortly after that, drafts an operating agreement. LLC members are free to run a business without the strict formality of a corporation.

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LLC Operating Agreement

Usually, an LLC will draft an Operating Agreement that will dictate the contributions of its members and establish its ownership. Some managers may run the company daily and contribute “sweat equity”, while others may only contribute financial investment with limited involvement in the company and its day-to-day operations. Sometimes there will be a mix. The Operating Agreement can help the company and its managing members outline how the business will be structured, how it can determine its value, and who has the authority or responsibility to serve in different roles for the company. The operating agreement can establish methods to value the Company at a later date when members may wish to exit the company and be “bought out.”

California LLC Statement of Information

When there are significant changes in the management of a corporation, it needs to update its statement of information with the State of California. Corporations must file a statement of information every year, whereas an LLC needs to file a Statement of Information every other year.

Ownership Changes

When ownership changes in an LLC, it simply needs to update its operating agreement through an amendment reflecting the changes in the company’s ownership. When a corporation changes ownership through stock transfer, it needs to keep diligent records of that transfer, agree upon methods of company stock valuation, and major developments in corporate governance by director approval or their unanimous written consent.

LLC vs. Corporation

A corporation may be a better idea for your company if you plan on issuing stock or plan on growing the business in the future to take on investors. Also, in California a corporation is mandatory if your company is a professional corporation of state-licensed professionals (for example, doctors, lawyers, engineers or accountants) that cannot be organized as a limited liability company.

LLC managers should be given a reasonable salary while working at the company, and the company may retain or distribute its profits or losses to its owners, pro rata. Pass-through tax treatment allows the business to have its tax liability pass through the business, which may pay nominal taxes, to its control person, usually its owners, in proportion to their ownership stake in the company.

For more information on tax issues, our firm can refer you to local accountants.

As you can see a LLC will give a small to medium sized business much greater flexibility and less red tape than you would encounter operating your business as a corporation.

To get your California LLC or S-corporation started, give us a call at [phone] or contact us here. We can assist you with:

Filing your Articles of Organization

Drafting your Company’s Operating Agreement

Getting an EIN number

Opening a company bank account

Drafting Employment Agreements

Drafting and reviewing contracts

Transferring ownership of your company

Insuring against risk

Winding up your company

Serving as General Counsel to your company

Thank you for watching this brief informational video. If you would like to learn more, contact us today to develop a strategy to grow and organize your business into its ultimate potential.

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Why should I use an LLC or INC to protect my business?

Hey everyone, one simple question that I get often is what’s the difference between a Limited Liability Company (LLC) and a Corporation (INC)? In short, these are what we call “legal entities” that give the corporation or LLC its own legal status separate and apart from its owners.

What’s the Difference Between a Limited Liability Company (LLC) and a Corporation (INC)?

An LLC is best if you want the most informal company possible, while the INC is a better tool if you want to grow the business into a bigger company with shares that can be bought, sold or transferred to investors.

If you start a business yourself without a “LLC” or an “Inc”, the default is what we call a “sole proprietorship” or a d/b/a (short for “doing business as”). If you and a business partner(s) join forces to form a business, it will be a general partnership.

Generally, the reason why people use a LLC or an INC is so that the company can have its own bank account and legal standing (the ability to sue and/or be sued) separate and apart from the owner.

This is a very general explanation, but give us a call today at [phone] and we’d be happy to explain more! If you’re considering one of the above options, you can also see our “Starting a Business” page for more on how our business lawyers at Gallagher Krich, APC, can provide assistance to fit your needs.

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How to collect past due money for your business

In this video (see Tom’s YouTube video below), we’re going to cover how you can make sure that your business is going to be paid in a timely manner and that you’re going to get the most dollar-for-dollar that you possibly can from your customers.

We’re also going to explain how we’re going to be able to incentivize customers to pay you sooner rather than later, and how the whole system works when you go to court – if you need to, as a last resort.

Now obviously, customers sometimes fall behind, and you may need to send them a “past due” letter. You may wait a certain amount of time, perhaps 60 to 90 days, before you go to an attorney and the attorney may help you say, “Well, we need to send him a demand letter and we need to think about ultimately filing a lawsuit if the amount in question is high enough to make it worthwhile to do so.”

Include an attorney’s fees provision

The problem that clients run into most often is that if you don’t have a written fee agreement with your customer to be able to recover your attorney’s fees and costs, you’re not automatically going to get that recovered.

So you need to have in your contract with your customers an attorney’s fees clause that specifies that in the event that you have to resort to the courts and file a collection action, you are going to be able to recover those attorney’s fees and costs, and you’re not having to pay them out of pocket.

Need legal assistance? See all contract law services here that Gallagher Krich, APC lawyers offer to greater San Diego businesses and individuals.

Any questions? We are happy to help – contact us online.

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Lending money? Have a promissory note created first

One of the most frequent issues people face is recovering money they are owed from others. However, there are a few things someone can do before lending money to make collecting a debt less of a headache. A very important and easy thing to do is to create a promissory note to memorialize the important terms such as how much money is being loaned, when the borrower is expected to begin making payments, in what partial amount or “schedule” of amortization of the loan and the interest rate to be applied.

Promissory Notes

A promissory note is a contract that evidences a debt. A promissory note outlines the terms by which the debtor will pay the lender. Promissory notes can be a useful tool for someone who wants to increase the likelihood they are paid back money they loan to others.

A properly written promissory note is clear evidence of a debt and its terms, which makes it easier to collect a debt through a judicial proceeding.

Collection of Attorney’s Fees & Costs by Written Agreement

People who are owed money can be faced with the tough decision to spend money on legal fees to try to collect the debt, or just cut their losses. Unfortunately, the costs involved with pursuing the debt make pursuing the debt a less attractive option.

An attorney’s fees and cost provision, which awards the prevailing party their attorneys’ fees and costs incurred after any action taken to collect a judgment from the debtor, is not automatic but can be negotiated into a promissory note. It allows the parties to contractually agree to have the losing party pay the prevailing party’s legal fees in the event of a dispute. Adding an attorneys’ fees and costs provision in a promissory note can be useful to avoid the financial burden associated with collecting a debt. The prevailing party in a judicial proceeding is entitled to attorney fees in a breach of contract action if the contract includes a fee agreement.

Including a fee agreement provision in a promissory note allows someone to pursue the money owed to them without worrying about the financial burden of doing so, while providing an incentive to the other party not to default on their payments or to make other arrangements such as an extension of the debt by amendment.

Why do I need an attorney to review my contract?

It is always a good idea to have an attorney look over any contract you plan to enter into. Written contract terms limit the chance of a contract dispute arising down the road. Also, an attorney knows what language to include in your contract that will benefit you. Interest cannot exceed 10% per annum; simple interest or usury laws will apply unless a usury savings clause is written into the promissory note that limits interest to the maximum legally allowable interest rate. However, the best practice is to cap interest at 10% per annum.

Statute of Limitations Concerns

You also need to consider the statute of limitations, which can serve as a time bar to collecting on an agreement. For example, the statute of limitations in the State of California is four years from the date of the breach, which is usually the first day the party failed to pay after the entire loan or partial repayments came due per an agreed-upon schedule.

Application of State Law and Jurisdiction

If you are loaning money to a borrower out of state, you need to clarify where any dispute will be heard (e.g., the courts of the State of California) and have the borrower agree that they will not contest the court’s jurisdiction against them in the State of California.

Loans to business entities

Sometimes individuals loan money to a business, especially small businesses. The parties need to understand whether that is a true loan. If it is, the lender almost certainly needs to have the business personally guarantee the loan so that it cannot simply walk away from the debt.

Convertible Promissory Note

A convertible promissory note allows a lender to convert a loan into equity in a small business under certain conditions. It can be optional, allowing the lender to demand repayment of the loan or to exercise the option to convert the loan into equity in the company when certain conditions outlined in a convertible promissory note are established.

Are you looking for help developing a contract agreement, or need a lawyer to review your existing contract? Contact the leading San Diego business & contract law attorneys today at Gallagher Krich, APC!

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Force Majeure: know your legal options as a tenant during COVID-19

“Force Majeure” occurs when an emergency that is unforeseeable at the time of the contract makes the performance of the contract objectively impossible.

Sometimes, a contract contains the Force Majeure clause (“FMC”). Literally “force majeure” translates from French as a “superior force.” According to Black’s Law Dictionary, force majeure is defined as “An event or effect that can be neither anticipated nor controlled”. Force majeure clauses allocate risk between the contracting parties if performance becomes impossible or impracticable because of an unforeseen event.

The most common unforeseen risk currently is the catastrophic economic harm caused by the Coronavirus pandemic.

A San Diego tenant may need assistance with lease modifications or help to obtain a deferment agreement with a residential or commercial landlord. In most cases, a landlord should be willing to work with a tenant, especially if there is a government-mandated closure of business at the property, whether temporary or indefinite.

Normally, a landlord may hold a tenant to the term of the lease but that may not be enforceable if the lease is deemed impossible to fulfill due to unforeseen government closures amid emergency health conditions.

A landlord should be willing to enter into a deferment agreement whereby your monthly rent is deferred until a later date until you are able to pay. This is an optional approach that can assist you in reaching a resolution with your landlord over any difficulties that your business is having paying rent and to remain in the property established by your business Goodwill as conditions improve.

Call Gallagher Krich APC at [phone] to explore your legal options today.

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3 Steps for Starting a Business in California

Starting a business can be a very exciting time! After you’ve chosen the name, business structure and gained the necessary funding, there are a few important steps you must take in order for your business to become a legal entity under California law.

1. FILING THE APPROPRIATE DOCUMENTS

Articles of Incorporation

The articles of incorporation/organization establish the existence of the business whether a corporation, LLC, etc. When filed, you are letting the State of California know you are in fact forming a business and the important details about the company.

Statement of Information

The Statement of Information (SOI) provides the state with information regarding the owners and officers of your company, important addresses and a description of the type of business you will be performing. The SOI must be filed within 90 days of the Articles of Incorporation/Organization in order to do business in the state of California.

Federal Employer Identification Number

An Employer Identification Number (EIN) is used to identify your business to the IRS for tax purposes. Your business will be issued a nine digit EIN that you must use to file your various business tax returns.

Licenses and Permits

Depending on what kind of business you start and the operations of your business, you may need to file for a certain type of business license or permit. There are many different types of licenses and permits, like alcohol license, zoning permits, and Seller’s permit, to name a few.

2. CREATING A BUSINESS PLAN

Many startups or newly formed businesses make the mistake of failing to properly set up a business plan for the company. It is highly recommended to sit down with your business partners to flesh out the important details of your business including the business purpose, your goals, a market analysis, financial projections, organization and management, etc.

One of the concrete ways of deciding on the organization and management of your business is by creating an LLC Operating Agreement or Corporate Bylaws.

LLC Operating Agreement

An Operating Agreement is a legally binding business document that fully lays out the operations, rules, percentages of ownership, roles, and many other important planning regulations for the business.

Although this document is not filed with the State of California, any LLC is required to have an operating agreement in order to prevent any conflicting opinions or actions among your business partners.

Corporate Bylaws

Much like the LLC Operating Agreement, all corporations in California are required to have Corporate Bylaws. Although Bylaws are not filed with the State of California, they must contain the rules and responsibilities of the shareholders, directors, and board of directors of your corporation.

A very important tip to keep in mind is that the Bylaws cannot contain anything illegal or conflicting with the Articles of Incorporation.

3. PROTECTING YOUR BUSINESS

Business insurance is a vital step in protecting your business from any potential and unforeseen liability.

General liability is the recommended type of insurance for all business. Depending on the insurance carrier you choose, liability insurance policies can provide protections for property damages and liability claims that might be made against your business. Without business insurance, costs associated with liability may have to be paid out-of-pocket.

There are many insurance companies that provide business liability protections. We advise you to consult with one of our attorneys to determine the best carrier for your business.

If you are in need of assistance with planning and starting your business, please feel free to contact our offices at [phone].

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COVID-19: Rules Surrounding Employment Pay Reductions

What are an employee’s options when an employer makes a pay cut to an exempt employee? If they refuse, can they claim unemployment?

In light of the COVID-19 pandemic, many companies are experiencing a severe decline of revenue. Therefore, they are resorting to employee pay reductions. It is important that employers are following the necessary rules specifically regarding their exempt employees.

Exempt Employees

When an employee is “exempt”, it primarily means they are exempt from receiving overtime pay. The alternative is non-exempt employees. The details and rules governing exempt and non-exempt employees are covered by the Fair Labor Standards Act (“FLSA”).

Generally, to qualify as exempt under the FLSA, an employee must be paid on a salary basis, meaning the employee must receive the same amount of compensation each week, regardless of the number of hours or days they have worked.

The FLSA includes the following job categories as exempt: professional, administrative, executive, outside sales, and computer related.

The details vary state by state, but if an employee falls in the above categories, is salaried, and earns a minimum of $684 per week or $35,568 annually, they are considered exempt.

Reduction of Pay

An employer must pay an exempt employee the full predetermined salary amount “free and clear” for any week in which the employee performs any work without regard to the number of days or hours worked.

Employers cannot reduce an exempt employee’s pay in California for not meeting performance expectations or for poor work quality. Nor can they reduce the pay for exempt employees who have been disciplined for conduct issues.

However, absent an employment agreement to the contrary, it is generally lawful for employers to temporarily reduce wages for an economic slowdown, such as the current economic state resulting from COVID-19 pandemic. Employers should, however, give affected employees at least a pay period’s notice of the reduction in pay in order to comply with state wage payment and collection laws.

In California, there are wage theft prevention acts that require employers to notify employees in writing when making changes to certain employment conditions such as pay rates and methods of pay.

Does a Pay Reduction result in loss of exemption status?

The answer depends on how much your salary is following the pay reduction. A salary reduction will not result in loss of the exemption, as long as the employee still receives on a salary basis at least $684 per week.

What are the alternatives options to a Pay Reduction?

Employees may be eligible for Unemployment Insurance (UI) benefits depending on the percentage of pay reduction, the amount of post-reduction salary, and applicable state law UI requirements and limitations.

Unpaid Leave is another option that can be an alternative to the pay reduction. Subject to state and local laws, employers may require employees to exhaust PTO during an unpaid leave of absence. Any unpaid leave of absence imposed on an exempt employee must be for a full workweek or longer, and the employer must ensure that no work is performed during the leave.

Deferring compensation for most exempt employees is rarely an option, but employers may consider deferring executive compensation until cash flow recovers. Many executives are compensated well above minimum salary thresholds to meet the white collar exemptions. Therefore, subject to agreement, employers may defer executive compensation while still meeting the minimum salary threshold.

Following a Pay Reduction or Layoff, will your Benefits continue?

Reduced workweeks may affect the level of benefit contributions to a 401(k) plan, particularly if the employee had planned to spread out the maximum annual contribution over the course of the year. If an employee is furloughed for an entire week, he or she may need to make additional premium payments in other weeks to ensure health or dental coverage for the month.

In California, if an employee is a parent of children in daycare or grades K-12, they are entitled to take up to 40 hours of leave per year to address a child care or school emergency, including unexpected school closures. Employers may require employees to use vacation or PTO benefits before they can take unpaid leave, but employers cannot require employees to use paid sick leave.

If you have experienced a pay reduction and require legal assistance with your employment options, please feel free to contact our offices at [phone].

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California Non-compete Agreements: from One Job to Another in the Same Industry

Many employees will work for multiple different companies in their lifetime. Sometimes that might even be within the same industry for a competitor of the previous employers. For instance, Jane may be a cook for McDonalds, learning the skills and secrets associated with the company. However, Jane may then decide to work for a competitor, such as Burger King, in the same position. The question then becomes, what kind of protections does California provide for Jane when working for a competitor of Jane’s original employer?

California’s public policy is very protective of employees when dealing with restrictions on employment contracts. In fact, California almost exclusively prohibits the use of Non-Compete Agreements.

What is a Non-Compete Agreement?

A non-compete agreement prevents employees from engaging in direct competition with their employer in a given industry, either during or after their period of employment. This includes both working for a competitor in a later position or starting a business in the same field.

So what does a non-compete agreement look like in practice? Well, for example, a company, like McDonalds, trains its employees, like Jane, to make valuable creative contributions to its product line. If Jane had signed a valid non-compete agreement, she would be restricted from taking McDonalds’ training, knowledge, and expertise learned and practice on that job to another employer, like Burger King.

In general, noncompete agreements are not enforceable in California. Even if the employer is based in another state in which noncompete agreements are enforced, California employees are not subject to these terms.

What about if the employee continues working in the same industry?

The question then arises as to how this not to compete situation looks for employees who work in the same industry for competing companies. How does the non-compete agreement or lack thereof in California play out here?

Well, another kind of agreement in employment contracts exists, called the Non-Solicitation Agreement.

These agreements allow employees to continue working in the same industry at a different company, but prevent the employee from using customer lists and other protected knowledge or trade secrets from their previous employer.

In the recent years, there has been a handful of cases before the California courts on whether non-solicitation agreements are valid. At this time, the courts have detailed that these types are agreements are a restraint on employment, which goes against California public policy arguments against imposing restrictions on competition and opportunities for employees. Accordingly, non-solicitation agreements are improper restraints on employees’ rights to practice their chosen profession and therefore, invalid.

As a result, employers may not include a non-solicitation agreement that would restrict employees from moving to a different company in the same industry and using the skills and knowledge they gathered from the previous company.

If you are having troubles with an employer or restrictive agreements on your employment, contact our office at [phone] or email us at [email protected]. {"@context":"https://schema.org","@type":"FAQPage","mainEntity":[{"@type":"Question","name":"What is a Non-Compete Agreement?","acceptedAnswer":{"@type":"Answer","text":"A non-compete agreement prevents employees from engaging in direct competition with their employer in a given industry, either during or after their period of employment. This includes both working for a competitor in a later position or starting a business in the same field."}},{"@type":"Question","name":"So what does a non-compete agreement look like in practice? ","acceptedAnswer":{"@type":"Answer","text":"Well, for example, a company, like McDonalds, trains its employees, like Jane, to make valuable creative contributions to its product line. If Jane had signed a valid non-compete agreement, she would be restricted from taking McDonalds’ training, knowledge, and expertise learned and practice on that job to another employer, like Burger King.\n\nIn general, <a href=\"https://www.californiaemploymentlawreport.com/2019/06/considerations-for-non-competition-and-non-solicitation-agreements-in-california/\">noncompete agreements are not enforceable in California. Even if the employer is based in another state in which noncompete agreements are enforced, California employees are not subject to these terms."}},{"@type":"Question","name":"How does the non-compete agreement or lack thereof in California play out here?","acceptedAnswer":{"@type":"Answer","text":"Well, another kind of agreement in employment contracts exists, called the Non-Solicitation Agreement.\n\nThese agreements allow employees to continue working in the same industry at a different company, but prevent the employee from using customer lists and other protected knowledge or trade secrets from their previous employer.\n\nIn the recent years, there has been a handful of cases before the California courts on whether non-solicitation agreements are valid. At this time, the courts have detailed that these types are agreements are a restraint on employment, which goes against California public policy arguments against imposing restrictions on competition and opportunities for employees. Accordingly, non-solicitation agreements are improper restraints on employees’ rights to practice their chosen profession and therefore, invalid.\n\nAs a result, employers may not include a non-solicitation agreement that would restrict employees from moving to a different company in the same industry and using the skills and knowledge they gathered from the previous company."}}]}

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Legal Options to Avoid Foreclosure

What is Foreclosure?

When buying a home or refinancing during the ownership of the home, a homeowner may take a loan or mortgage out from a lender in order to help pay for the home. However, when the necessary payments on the mortgage aren’t made on time, a lender can put a lien on the home to secure repayment of the loan. When the homeowner fails to make the payments, the lender can foreclose on the home, meaning they force the sale of the home in order to pay off the money owed.

There are two types of foreclosures. First, there is a Nonjudicial Foreclosure, which gives the lender the authority to sell the home to pay off the money owed. This is the most common form of foreclosure, and requires there to be a “Power of Sale Clause” in the initial contract when securing the loan. Second, there is a Judicial Foreclosure, which involves the lender filing a lawsuit to get a court order to sell the home to the highest bidder in an auction. This form of foreclosure is rare, but it gives the homeowner the “Right of Redemption” allowing for extra time to pay off the loan and regain ownership of the home debt free.

Learn more below about when you may need legal help in San Diego or greater southern California in the form of real estate attorney representation.

Stopping a Foreclosure

A homeowner has up until 5 days before the foreclosure sale to cure the default and to stop the foreclosure process. This is called “reinstatement” of the loan. During the 21-day period after the lender is authorized to sell the home, any person or institution (like a bank) with an interest in the home has the right to redeem the home up until the nonjudicial foreclosure sale or auction. This means that they must pay the entire loan in full.

Forbearance

Forbearance is when a lender allows a homeowner to pause, or reduce mortgage payments for a limited period of time while regaining financial stability. This doesn’t mean mortgage payments are forgiven or erased. The homeowner is still required to repay any missed or reduced payments in the future.

It is imperative that the homeowner understands how the forbearance will be repaid because there can be different forbearance programs or options, depending on the type of your loan. If and when the homeowner’s income is restored, the normal mortgage payments will resume. It is best to begin payments as soon as financially possible so to reduce the future obligation.

Short Sales

A Short Sale is a pre-foreclosure sale by the homeowner for less than the mortgage owed, releasing the property from the mortgage. A short sale requires the lender’s approval. However, this method is often preferable to lenders. Short sales were designed to spur home sales by requiring certain debt forgiveness, and allowing homeowners the ability to sell their homes that they might owe more on than what the property is worth.

Many homeowners can seek to sell their homes in a short sale to avoid the threat of foreclosure action and the credit damage that would accompany a foreclosure. This may act as a debt forgiveness by the lender or, in many times, a short sale will act as a loan modification, which means the homeowner may owe the difference between the sale and the mortgage amount.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows homeowners with enough income to repay all or part of the mortgage as an alternative to liquidation. Under a chapter 13 bankruptcy, a homeowner can propose a 3-5 year repayment plan to a lender in order to pay off the mortgage owed and to avoid a foreclosure of their home. If foreclosure proceedings have already commenced, filing a chapter 13 bankruptcy will suspend the foreclosure.

The hope is that the bankruptcy plan will free enough of the homeowners income that they can be able to make regular mortgage payments and keep their home. This method is generally used by homeowners who want to keep their home when they have more equity in the home than they can protect with their California bankruptcy exemption.

If you are experiencing a threat of foreclosure on your home and are in need of assistance on the best plan of action, contact our office at [phone].

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