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Welcome!
Welcome to the September 2009 issue of the Berk & Moskowitz newsletter! This month's issue is particularly special because on August 15, Berk & Moskowitz celebrated its 10th year. We are very proud of what we have accomplished for our clients over those years and thank all of you for contributing to our success.
As with all of our newsletters, we hope that you will find this issue interesting and informative. If you have any questions or suggestions, please let us know.
Sincerely,
Kent Berk & Frank Moskowitz |
| "Legal-ease"
Each edition, we provide a law-related joke, quote or story to hopefully bring some humor into your life and "ease" your day.
ATTORNEY: The youngest son, the twenty-year-old, how old is he?
WITNESS: He's twenty, much like your IQ.
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ATTORNEY: Were you present when your picture was taken?
WITNESS: Are you kidding me? |
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 RECENT AMENDMENT TO ARIZONA'S ANTI-DEFICIENCY LAWS
On July 10, 2009, Gov. Jan Brewer signed into law an amendment to Arizona's anti-deficiency laws. Unless repealed, the amendment is effective September 30, 2009. The new law will affect certain borrowers whose home loans are secured by deeds of trust and whose homes are foreclosed upon at trustee's sales. It appears to be intended to try and limit the current scope of protection available to certain borrowers (most likely investors) who default under such loans from being sued for any difference between what the homes sell for at trustees' sales and the balance due on the loans, otherwise known as a "deficiency." The new law does not affect the anti-deficiency protection of borrowers whose home loans are not secured by deeds of trust or whose qualifying properties are judicially foreclosed upon.
Trustee's Sale vs. Judicial Foreclosure
A home loan secured by a deed of trust can be foreclosed upon at a private trustee's sale or through the court system by way of a judicial foreclosure. A home loan that is not secured by a deed of trust, can only be foreclosed upon judicially. The modern trend is that home loans are secured by deeds of trust and foreclosed upon at trustees' sales. This may explain why the amendment only pertains to loans secured by deeds of trust and homes foreclosed upon at trustees' sales.
Arizona's Current Anti-Deficiency Statutes
Under current Arizona law, a borrower is protected from being sued for a deficiency judgment if the real property at issue is sold at a trustee's sale and is a qualifying property - two and a half acres or less and utilized for either a single one-family or singly two-family dwelling. In that instance, it does not matter whether the loan was used to purchase the home or was, instead, a refinance or a home equity line of credit. However, if the loan is not secured by a deed of trust, or the property is foreclosed upon judicially (as opposed to a trustee's sale), then such a borrower is only protected from being sued for a deficiency judgment if the loan securing a qualifying property is a purchase money loan. A purchase money loan is one that secures payment of the balance of the purchase price, or to pay all or part of the purchase price.
The Amendment
Come September 30, 2009, the new law will require that qualifying homes be "utilized" as a dwelling "by the [borrower] under the deed of trust for at least six consecutive months and for which a certificate of occupancy has been issued." The borrower will also be "responsible for demonstrating that the trust property was used by the [borrower] as a one-family or a single two-family dwelling for at lease six consecutive months." There is currently some effort to repeal the new law.
Issues Raised By the New Amendment
The new law raises a number of issues. Here are few issues that may arise:
1. Will the new law apply to a borrower whose property is sold at a trustee's sale held on or after September 30, 2009 with regard to a loan in existence prior to September 30, 2009?
2. Will the new law apply to a borrower whose property is sold at a trustee's sale held after September 30, 2009 with regard to a loan that closed after September 30, 2009, but for which a final, binding loan commitment was issued prior to September 30, 2009?
3. Does "utilized" and "used" mean actually lived in? If so, does that mean actually lived in every day by the borrower for at least six consecutive months?
4. Does "utilized" and "used" by the borrower mean the borrower must actually utilize or use the dwelling for at least six consecutive months or may the borrower allow others, such as renters, to do so? Under current case law, an otherwise qualifying property that is rented out is protected by the anti-deficiency statutes.
5. Does the "at least six consecutive months" requirement mean any six consecutive months? Does the six consecutive months have to occur right before the trustee's sale, or can it be anytime during the loan?
6. What if a certificate of occupancy is not available or due to an oversight or procedural error not issued to a borrower?
7. To whom and under what standard of proof does the borrower demonstrate that the trust property was used as a one-family or a single two-family dwelling for at lease six consecutive months?
It will be interesting to see what affect the new law has on lenders pursuing deficiency judgments and whether it spawns a swarm of litigation over these and potentially other issues. It will also be interesting to see whether the new law survives recent calls for its repeal.
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Misclassifying Employees as Independent Contractors
With everyone looking to tighten their belts in today's economy, the question comes up whether a business should try and save money by reclassifying its employees as independent contractors. Some of the potential savings of using independent contractors may be in the areas of workers' compensation insurance and payroll taxes. Businesses are generally required to provide and pay for workers' compensation insurance for the benefit of their employees. Businesses are also generally required to withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to their employees. Independent contractors are not employees and thus do not trigger the incursion of these costs by those businesses for whom they provide services.
Misclassifying an employee as an independent contractor, however, may have tax consequences. In addition, misclassifying an employee as an independent contractor may result in the business having to back-pay premiums otherwise owed for workers' compensation insurance. A business may also face liability if an employee were to get injured on the job for which there was no workers' compensation insurance because the injured employee was misclassified as an independent contractor. It is therefore important to understand the difference between an independent contractor and an employee.
Generally speaking, the issue boils down to how much "control" your business has over the person performing the services. The more control, the more likely you have an employer/employee relationship as opposed to an independent contractor relationship.
Arizona has a law that addresses the issue with regard to workers' compensation insurance; namely, Arizona Revised Statute § 23-902. In a nutshell, that law provides that a written agreement signed and dated by and between a business and an independent contractor that discloses that the contractor is not entitled to workers' compensation benefits and contains the following criteria creates a rebuttable presumption of an independent contractor relationship:
(1) The business does not require the contractor to perform work exclusively for the business;
(2) The business does not provide the contractor with any business registration or licenses required to perform the agreed upon services;
(3) The business does not pay the contractor a salary or hourly rate instead of the amount fixed in their written agreement;
(4) The business will not terminate the contract prior to the expiration of the written agreement, unless the contractor breaches the agreement or violates Arizona law;
(5) The business does not provide the contractor with tools;
(6) The business does not dictate the contractor's time of performance;
(7) The business pays the contractor in the name stated in their written agreement; and
(8) The business and contractor will not commingle their business operations rather than maintain separate operations.
Again, the presumption is rebuttable and lost if the consent of either party to a written agreement is obtained through misrepresentation, false statement, fraud, intimidation, coercion or duress. Thus, it is not enough to simply recite these criteria in a written agreement in order to try and avoid the cost of paying workers' compensation insurance premiums. The written agreement should accurately reflect the actual working relationship between the parties.
The IRS appears to have its own set of guidelines. No surprise, these guidelines also focus on the issue of "control." Information about these guidelines can be found at the IRS's website.
According to the IRS:
- "Facts that provide evidence of the degree of control and independence fall into three categories:
Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker's job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
- Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no "magic" or set number of factors that "makes" the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
- The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination."
For those that may desire a determination from the IRS, either the business or the person providing the services can fill out and submit a Form SS-8. The IRS will review the facts and circumstances of the case presented and render a determination. The process can take at least six months, and, as the IRS points out on its website: "Once a determination is made (whether by the business or by the IRS), the next step is filing the appropriate forms and paying the associated taxes." |
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About our Firm
Berk & Moskowitz is dedicated to providing topnotch and efficient legal representation. We handle a wide variety of matters involving disputes, arbitration and litigation, including:
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Book List
Here are some of the books that we are reading. Please share the books on your list.
Kent: Water for Elephants, by Sara Gruen. This is an exciting fictional story about a man about to graduate from veterinary school in the 1930's who joins a traveling circus. Filled with showmanship, love and murder, this book is a great easy read. |
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Way Cleared for Suit Against Appraiser
The Arizona Court of Appeals has ruled, for the first time in an Arizona published opinion, that an appraiser hired by a lender owes a duty to the buyer/borrower in that transaction. In its decision issued April 30, 2009, the Court focused on the reality that the buyer would likely never hire a separate appraiser. For that and several other reasons, the appraiser owes a legal duty of care to the buyer/borrower. Daphne Reaume of Berk & Moskowitz, P.C. argued the appeal for the buyer/borrower.
The case opens the door for buyers and banks to sue appraisers even when the appraiser was hired by someone else.
Sage v. Blagg Appraisal Co, Ltd. is now a final binding decision.
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