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Category Archives: Miscellaneous

Proposed Legislation to Clarify Tax Levy Ballot Language

Author By Finney Law FirmPosted on

House Bill 488 sponsored by Ohio State Representatives Becker and Hood will require that the effect of proposed tax levies be more clearly explained on the ballot.

Under current law, information on the effect of a proposed tax levy is expressed based upon the “tax value” of real property (35% of the true value). The proposed law will provide information based on the effect of the tax levy using the fair market of real property, as well as the millage rate against the tax value.

The proposed change will make it easier for voters to understand tax levies and make more informed choices at the ballot box.

You can follow the progress of House Bill 488 here.

Ohio Real Estate Law: Ohio Auditors take aim at “LLC Loophole” transfers

Author By Finney Law FirmPosted on

Ohio imposes fees on the conveyance of real estate, and generally determines the value of real property based upon the sale price when the property is sold. One means of avoiding the conveyance fee and reporting the sale price is the use of a “LLC Loophole.”

The LLC Loophole is a means of conveying title to real property using an LLC as an intermediary, rather than transferring title directly from the seller to the buyer. A property owner transfers title to real estate to an LLC that she owns, and then sells the LLC itself to the buyer. One benefit of  this conveyance is that no conveyance fee is paid, and the auditor is not alerted to the sale price.

Consider this illustration:

Property owner owns a strip mall valued by the auditor at $500,000. She has received an offer to buy the property for $750,000, but the buyer wants to avoid the publicity of reporting the sale through a conveyance form and the automatic increase in tax value that would come by simply buying the property directly from the property owner. So, the property owner sets up a new limited liability company, Strip Mall, LLC; conveys title to the property to Strip Mall, LLC; and then sells her 100% ownership interest in Strip Mall, LLC to the buyer for $750,000. The only filing with the county auditor is the conveyance fee showing a fee exempt transfer from the property owner to the LLC. No one is alerted that the buyer now owns the strip mall or that it was valued at $750,000 in an arm’s length transaction.

Under the proposed law, when the property owner sells her ownership interest in the LLC, she would have to report that sale to the auditor as if she had sold the real estate directly to the buyer. At that point, the auditor would assess a conveyance fee, and the real estate would be taxed at the sale price. The proposed bill would require the reporting and payment of taxes whenever any interest in an LLC or other entity that owns real estate (directly or indirectly) takes place.

To be clear, there is nothing unlawful about using LLCs in property transfers, and it is a perfectly legitimate method for conveying real estate.

We expect that public school boards in particular, as well as other property tax funded organizations will lobby in support of this legislation; and that it will find opposition from real estate investors and small government advocates generally. Whether it is this particular bill or another future proposal, the LLC Loophole will be facing continued scrutiny and efforts to impose conveyance fees and determine the purchase price.

The Legislative Services Commission’s analysis and the bill text are below.

Finney Law Firm will be keeping an eye on this bill as it works through the Ohio Legislature.

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Finney Law Firm named in 2018 US News – Best Lawyers® “Best Law Firms” rankings

Author By Christopher P. FinneyPosted on

We are pleased to announce that Finney Law Firm has been named in US News & World Report’s – Best Lawyers®“Best Law Firms” rankings for 2018.

The U.S. News – Best Lawyers “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process. Learn more about the methodology used >

Finney Law Firm has worked hard to assemble a team of quality attorneys in diverse practice areas, and it is gratifying to have that team publicly recognized for its quality and depth.

Our practice areas include:

Please let us know how our team of quality attorneys can assist with your legal needs.

Class action complaint claims complex lending scheme is impermissible under Ohio law

Author By Christopher P. FinneyPosted on

When banks and other lenders make a loan for real estate financing, they typically take back from the borrow a promissory note (promising to re-pay the sums borrowed) and a mortgage against the real estate financed (securing the payment of the loan).

And under that scenario, even a borrower in default has certain rights as against the lender.

First, there is a statutory right of redemption of the property in the foreclosure process under O.R.C. Section 2329.33:

…in sales of real estate on execution or order of sale, at any time before the confirmation thereof, the debtor may redeem it from sale by depositing in the hands of the clerk of the court of common pleas to which such execution or order is returnable, the amount of the judgment or decree upon which such lands were sold, with all costs, including poundage, and interest at the rate of eight per cent per annum on the purchase money from the day of sale to the time of such deposit, except where the judgment creditor is the purchaser, the interest at such rate on the excess above the judgment creditor’s claim. The court of common pleas thereupon shall make an order setting aside such sale, and apply the deposit to the payment of such judgment or decree and costs, and award such interest to the purchaser, who shall receive from the officer making the sale the purchase money paid by the purchaser, and the interest from the clerk. …

Second, the borrower has the right to the net proceeds from the foreclosure sale beyond the court costs and the amount due to the lender (i.e., any built-up equity in the property belongs to the borrower).

Finney Law Firm alleges in a recent class action complaint that Cincinnati companies Build Realty, Inc., Edgar Construction LLC, and certain investors associated with them have created a tremendously complicated scheme to impermissibly attempt to deprive a broad group of real estate investors of these statutory rights in the lender/borrower relationship.

From the Complaint:

This case involves a complex business scheme where Defendant Build Realty, Inc. and Defendant Edgar Construction LLC solicit investors to purchase and improve real property from/through them under a fraudulent structure, prohibited by Ohio law. To effectuate this transaction, Edgar Construction, LLC (“Edgar Construction”), purchases certain real property from a third party, then immediately resells the property at a higher price to itself as trustee of a trust under which the investor is the beneficiary. Edgar Construction’s affiliated entity, Build Realty, Inc. (“Build Realty”) agrees to lend the investor the after–renovation-value of the property, including the higher purchase price and an additional amount for improvements (held in escrow). As part of this transaction, the investor, Build Realty, and/or Edgar Construction simultaneously execute numerous agreements, under which the investor is obligated as a mortgagor and borrower on a note for the amount loaned by Build Realty. One of the documents signed during this transaction also purports to allow Defendants to reclaim the property, extinguishing the investors’ rights therein, upon any default and without the opportunity for cure or any subsequent foreclosure or deed in lieu of foreclosure.
The Ohio Supreme Court and courts throughout the state have recognized the structure of the Transaction as an improper clog on the right to redemption. Additionally, the Transaction is fraudulent, void for unconscionability and as against public policy, and involves numerous breaches of the fiduciary duties owed to the investors (which are the beneficiaries of the trusts). This Transaction effectively allows Defendants to profit at the expense of their investors/beneficiaries, including (i) the retention of the down payments paid on the properties, (ii) the difference in the purchase  price that Edgar Construction paid and the purchase price for the conveyance from Edgar Construction to Edgar Construction, as trustee, and (iii) any foreclosure proceeds the investor(s) would have realized.

The Class Action Complaint seeks compensatory damages and disgorgement of profits, punitive damages and a declaration that such transactions by these defendants are impermissible under Ohio law.

For more information on this suit, contact attorney Casey Taylor at (513) 943-5673 or [email protected].

Read the Complaint below:

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Ohio Supreme Court: Sale and Leasebacks are not Arm’s-Length Transactions

Author By Finney Law FirmPosted on

In a widely anticipated decision that will have major implications for Ohio businesses, the Ohio Supreme Court today ruled that, for purposes of property tax valuation, sale-leaseback transactions are not “arm’s-length.” Meaning that county auditors and boards of revision should not simply adopt the sale price in such transactions as the “true value” when valuing real estate.

Writing separately, but concurring in the judgment, Justice Pat DeWine wrote to clarify that this  same reasoning should apply when a third party purchases a property that was subject to an earlier sale-leaseback transaction, “if the initial sale does not reflect the true value of the property because for the leaseback arrangement, then neither should a subsequent sale of the same property subject to the same lease.” The majority opinion leaves some question on that issue.

Today’s ruling in Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion No. 2017-Ohio-7578, follows the ruling in Terraza 8, L.L.C. v. Franklin Cty. Bd. of Revision, ___ Ohio St.3d ___, 2017-Ohio-4415, ___ N.E.3d ___., clarifying that indeed, the legislature meant what it said when it amended R.C. 5713.03.

Click here to read about the Terraza 8 decision.

For more information on sale and leaseback transactions generally, click here.

Thank you, one and all.

Author By Christopher P. FinneyPosted on

I want to extend a warm and sincere “Thank You” to the attorneys, staff, vendors, and clients of Finney Law Firm, LLC who have joined together to make our firm — dedicated to “Making a Difference” for our clients and in our profession and community — a tremendous success in our first four years in operation.

We started our new firm in Eastgate in the fall of 2013 with a great group of attorneys, a loyal and experienced staff, a top-notch lineup of vendors and a solid core of clients.  Since then, we have attracted more talented attorneys and staff, and have been met with simply overwhelming response from our clients.

We started with just four attorneys and three staffers.  Since then, we have grown to nine full-time attorneys, and are about to add our tenth.  We have expanded the law firm at Ivy Pointe in Eastgate three times, and eventually added space in the Rookwood Pottery building in Mt. Adams.  Just weeks ago, we tripled our space at Mt. Adams, so that the two offices are now roughly equal in size.

Under the leadership of attorney Rick Turner, we started Ivy Pointe Title, LLC in the fall of 2014 to support our commercial real estate closings and added to that base residential transactions.  He started with one full-time staffer, and now oversees an operation of seven full time employees. Due to tremendous success under his leadership, in November, we plan on doubling the size of the title company.

Our journey has taken us three times to the United States Supreme Court (with three unanimous victories) and numerous times to the Ohio Supreme Court.  We have handled dozens of multi-million dollar corporate and real estate transactions for our small business clients, and we have saved clients more than five million dollars in real estate taxes.  We successfully have handled numerous class actions for clients, including acting as local counsel for the ground-breaking class action against the Internal Revenue Service.  All of this is while we have daily served, client-by-client, to “make a difference” in their transaction or litigation matter.

These accomplishments are the result of the combined efforts of many people, and to each and every one of them I owe my deep gratitude.  The engine of commerce, the laboratory of legal innovation, and the commitment to client service we have made together is enduring and flourishing, ultimately, because we all work together to provide value for our loyal clients in each assignment.

Thank you, most sincerely, for making this such a fun, rewarding adventure!

Christopher P. Finney, President

Finney Law Firm expands again: Mt. Adams office triples in size

Author By Christopher P. FinneyPosted on

In order to advance our mission of “Making a Difference,” we are pleased to announce a further expansion of our Mt. Adams office, nearly our footprint at that location.   We now have offices for seven attorneys and additional staff that that location in the Rookwood Pottery Building (1077 Celestial Street, Cincinnati, Ohio 45202).

For our clients, if you are downtown or in the area and need an outpost with a desk, WiFi, a printer and a beautiful view of the City, we have a large lounge area from which you are welcome to work. We also now have two conference rooms at that location for depositions, closings, and meetings.

Please stop by and visit; let us show you around!

 

Ohio employment law: Recording conversations in the workplace

Author By Stephen E. ImmPosted on
Labor and employment attorney Stephen E. Imm
In an age where almost everyone carries a smartphone almost all the time, it is possible for each of us to make a video or audio recording of events and conversations at the touch of a button. YouTube, as we all know, is filled with impromptu video recordings people have made with their cell phones.
What implications does this have for the modern workplace? Are employees permitted to record conversations they have at work with their co-workers or supervisors? What if an employee wants to gather “evidence” of sexual harassment that they believe is taking place? What if a worker wants to record a conversation with his or her boss when the worker is being reviewed or disciplined? Do they have the right to do that? Do they have to tell the other people who are being recorded?
Federal and Ohio law permit an individual to make such recordings, as long as at least one party party to the conversation being recorded – such as the party recording it – has given permission. Importantly, the individual making the recording does NOT have to have the permission of the OTHER parties being recorded – as long as the person recording is himself a party to the conversation.
(This contrasts with hiding a microphone or cell phone in a location in which the people being recorded are not a part of a conversation with the ower of the device.  That likely would be illegal.)
Employers, however, may want to prohibit such recordings in their workplaces. And many employers have instituted policies against it. They feel that their workers should be able to express themselves at work without worrying about whether they are being recorded. They believe a policy against recording encourages candor in meetings and other interactions. If people are concerned that they may be recorded, they are likely to be more guarded in what they say. This may discourage open and honest communication.
Can an employer bar its employees from making any recordings in the workplace, at least if they are made without the permission of the company or the person being recorded?
It may surprise you to know that such policies have been ruled to be illegal. The National Labor Relations Board has held the a blanket prohibition against recordings in the workplace can inhibit the rights workers have to engage in “concerted activity.” This right – which exists in both union and non-union workplaces – guarantees that employees can talk and work together regarding their working conditions, and regarding other terms and conditions of their employment.
In a case involving the retailer Whole Foods, the NLRB ruled that the company’s policy prohibiting all workplace recordings was impermissible, because it could have a chilling effect on the employees’ right to engage in “concerted activity.” That ruling was recently upheld by a federal appeals court. Other courts, and maybe the Supreme Court, may weigh in on the issue in the future.
For now, employers should have any policies regarding workplace recordings reviewed by legal counsel, to make sure they are in line with the NLRB’s decision. And employees should know that, in most instances, they have the right to make such recordings.
Give us a call if you have any questions about this important and evolving area of the law.
_____________________
Stephen E. Imm is an experienced labor and employment attorney who can help with your workplace issues.  He can be reached at 513-943-5678.

Ohio commercial transactions: Improving your position as a “lender”

Author By Christopher P. FinneyPosted on

Frequently, clients desire to lend money, seller-finance the sale of their business or other asset, buy and then lease out a building, or engage in some other business transaction because they are motivated by favorable business terms the transaction provides on its surface: A high rate of interest, a good return under a lease, or a more promising sale price than otherwise the seller would obtain, for example.

This entry asks a prospective private lender to think twice about the risks associated with this activity and to take as many steps to protect himself as possible under the circumstances.

Who is the “lender” and who is the “borrower”

For purposes of this entry, there are many circumstances in which a party is a “lender” and another is the “borrower.”

  • Obviously, a simple monetary loan in which there is a lender and borrower is one such transaction.
  • Another occurs where an investor either owns a building and desires to rent it, or purchases one for leasing purposes.  In addition, as a part of a leasehold transaction, the landlord may be putting into the premises significant sums in “tenant buildout costs.”   Here, the renter is “using” the landlord’s money, his credit, and his asset, in exchange for monthly (read: deferred) payments.  This is a form of “loan.”
  • When a seller is selling his busines, his building or another asset, and does anything other than take back 100% of the purchase price at the time of conveyance, he is a “lender.”  (And the worse situation is where the seller is taking a subordinate position to a lender who gets a first mortgage or other lien on the assets acquired.  In such situation, the liklihood of the seller getting his “loaned” funds is significantly impaired, and the chance of default significantly higher.)
  • Even co-signing a loan or a lease, or guaranteeing the debt of another, is “lending” your credit to the co-borrower.
Four important factors to consider

But consider these factors before “lending” your money, your asset, and your credit to a third party:

First, ask yourself: “Why can’t this buyer get conventional financing?”  Banks are in the business of assessing and taking the risks associated with lending.  If this “borrower” does not qualify for a bank loan, why should you be in the business of being a lender?  Have you really fully assessed the risks of lending to this “borrower.”

Banks know experientially and actuarially the “warning signs” that predict loan defaults.  Among these are an inability to come up with an adequate down payment, a poor credit score, a history of litigation, and other warning signs.  I spoke with one lender recently, and they said they will never lend to people who fail to pay their taxes — ever.

Second, in my experience, a buyer of an asset is much more likely to raise defenses and counterclaims against a seller than the buyer would be able to as against a third party lender: Fraud in the inducement of the sale, property defects, misrepresentations in the business accounts, and simple contract breach.  Buyers will raise any and every excuse and defense against paying money they owe.

Third, the more desperate the “borrower” is, the more likely he is to agree to generous transaction terms: a high rate of interest, a high sale price, or some other above-market remuneration.  And — I say this based on experience — borrowers who have no intention and no ability to pay back the “loan” are the most willing to agree to generous lending terms.

Fourth, if you are going to leap (into the position of being a lender), at the very least look first: do the kind of due diligence that a lender would — a credit check, a background check, reference checks, and a simple check of court clerks sites and bankrupcy court history for obvious signs of fiscal distress.

The ABCs of improving your position as a lender

So, you have made the decision to “lend.”  What steps can you take to improve your position and increase the liklihood of getting your money paid back, with interest?

A. Certainly ask for a personal guarantee of any “loan” to a corporate entity.  Accepting simply a corporate signature, whether of a note maker, a tenant or the buyer of an asset, is asking for trouble, unless that company’s creditworthiness has been thoroughly ascertained

B.  Don’t be shy about asking for the personal guarantee of the principal’s (or principals’) wife (or wives).  If the borrower is earnest about putting their name, their assets and their creditworthiness behind a promise, and they have asked you to extend credit to them — then shouldn’t their wife also stand behind the obligation?  Stating it differently, the most common and most obvious dodge of debtors avoiding their creditors is to place their assets in the name of their wife.  Don’t let them avoid their obligations to you so easily.

C. Are there third parties who can guarantee the debt?  A business partner?  A parent?  Who is interested in the success of this borrower’s business such that they would be willing to stand behind its obligations?

D.  Look for assets to lien.  Does the “borrower” (or his wife) own a house, stocks, jewelry, accounts receiveable, or equipment or inventory in their business?  Are those assets presently free from any  first lien against them?  If so, and if the borrower is earnest about paying back your debt, then he should not have qualms with providing a security interest against those assets to stand behind the loan.  (Note: Please consult an attorney about how to properly take a lien in various assets; it can be tricky.)

E. Would some patience or a reduced price yield either a cash buyer or enable the buyer you have to go and get a bank or other third party loan?  If so, it may be wise to take one of those options.

Conclusion

Lending is an ultra-hazardous activity that should not be undertaken lightly.

There are exceptions where the seller’s main motivation is not necessarily getting payback of the loan: a parent helping a child; a business or building owner who is getting a great sale price for the asset, and perhaps much of it in cash; or simply a weak market with few buyers. And so long as our clients enter into a transaction understanding the risks of being a “lender,” we are fine with that decision.

But we see many clients seduced by more favorable terms from a borrower or seller-financed buyer who desperately needs their cash versus a stingier cash buyer.

Our suggestion: Think about taking the money and running instead.

The risks inherent in being a lender is why they say: “Cash is king.”

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