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March 2009 
In This Issue
33 Things To Avoid Prior to Filing Bankruptcy
Stimulus Package Provides $464 Million to Michigan Medicaid Program
Conservators and Powers of Attorney
Private Loan Basics
There has been a dramatic increase in the amount of loans being made from individual lenders to businesses that are unable to borrow money from banks.
With the Dow at 6781 and the yield on a five-year treasury at 1.8618% it is no wonder investors are considering making these private loans.
 
Some of these loans might be classified as a hard money loan which is a specific type of asset-based loan financing in which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued at much higher interest rates than conventional commercial or residential property loans and are almost never issued by a bank or other deposit institution. Hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on an existing mortgage or where foreclosure proceedings are occurring. Many hard money mortgages are made by private investors, generally in their local areas. Usually the credit score of the borrower is not important, as the loan is secured by the value of the collateral property. Typically, the maximum loan to value ratio is 65-70%. That is, if the property is worth $100,000, the lender would advance $65,000-70,000 against it. This low LTV provides added security for the lender in case the borrower does not pay and the lender has to foreclose on the property.

Obvioiusly, these loans are not without risk. We have been representing both lenders and borrowers in connection with these loans. We expect this activity will continue until interest paid on savings accounts and CDs increases and banks resume a consistant volume of commercial lending.

Please feel free to send me an email asking to join my LinkedIn network.
 
We appreciate your business and referrals!
 
Pat Photo
Byron "Pat" Gallagher, Jr.
2408 Lake Lansing Road
Lansing, Michigan  48912
Direct Dial: 517-853-1515
Toll Free: 888-220-1273
Detroit: 313-963-4600
Fax: 517-853-1501
33 Things to Avoid Prior to Filing Bankruptcy
 
One question that often comes up in a pre-bankruptcy filing office conference is what the client needs to provide to the attorney and what the client should do to prepare themselves for filing.  If you are contemplating filing bankruptcy, the following is a list of items to avoid:
 
Don't leave out bank, checking, savings, brokerage, and credit union accounts.
Don't file if your income is greater than your expenses.
Don't use your credit cards.
Don't take credit card cash advances.
Don't use convenience checks.
Don't do balance transfers.
Don't pay money to family.
Don't pay money to friends.
Don't tell a creditor that you intend to pay.
Don't leave assets off of your paperwork.
Don't file if you are about to receive a tax refund or inheritance. Discuss the timing with your attorney.
Don't fail to tell your attorney about your small business, sole proprietorship, partnership, LLC, LLP, LC, corporation, or hobby.
Don't purchase a home shortly before filing bankruptcy without consulting your attorney.
Don't give or gift property to anyone.
Don't pay more than $600 on any past due bill.
Don't transfer property to anyone.
Don't cash out retirement plans or 401k's.
Don't take out a second mortgage.
Don't gamble.
Don't hide assets or debts.
Don't take out "payday loans".
Don't put your money in your kids' bank accounts.
Don't omit or 'save' a credit card for after your bankruptcy.
Don't fail to list debt to family or other "insiders."
Don't write bad checks.
Don't borrow money.
Don't forget to tell your attorney about liens you may have on your home or unpaid judgments so they can be avoided.
Don't make major financial decisions without talking to your attorney.
Don't get married before filing if your spouse has a high income.
Don't misrepresent facts to your attorney.
Don't run up your credit cards in advance of filing bankruptcy.
Don't fail to appear at state court hearings, trial or proceedings; coordinate with your attorney.
Don't hide from your attorney. Keep her up-to date with your address, phone number and email address.
 
If you are contemplating filing bankruptcy, please contact Jennifer Endl at 517-853-1506 or by email at jme@thegallagherlawfirm.com
Stimulus Package Provides $464 Million to Michigan Medicaid Program
 
Last week, President Barack Obama announced that $15 billion of the newly passed $787 billion economic stimulus package would be dispersed to the states to deal with a growing number of Medicaid patients.  Only a few days later, Michigan received a $464 million disbursement in federal stimulus dollars for Medicaid. Michigan is supposed to get $2.27 billion in federal stimulus money for Medicaid over a 27-month period that includes 2009, 2010 and the beginning of 2011.
 
Michigan had been picking up 40% of the Medicaid costs for its 1.66 million Medicaid recipients, while the federal government's share was 60%.  As a result of the stimulus disbursements, the federal government will now be picking up nearly 70% of the bill, and it will pay that level retroactively to last fall when the fiscal year started. 
 
Medicaid is a joint federal and state program that covers, among other things, the cost of nursing home care for individuals who are 65 or older and meet certain income and asset requirements.  Statewide, nearly 70% of nursing home residents rely on Medicaid to pay for their nursing home costs.  In 2009, the average monthly cost of nursing home care in the state of Michigan is $6,326.  With an average cost of more than $75,000 per year, even a relatively short-term stay at a nursing home can completely eliminate most families' life savings.  However, if a nursing home patient becomes eligible for Medicaid, it covers almost every expense associated with living in a nursing home, including room and board, nursing services, and medication.  Therefore, if you have a loved one who is either currently in a nursing home or will likely need nursing home care in the foreseeable future, Medicaid can be an extremely valuable resource that can cover the high costs of long-term care.
 
At the Gallagher Law Firm, we can counsel you and your family about the complex rules regarding Medicaid eligibility.  In addition, our attorneys can assess your situation and implement a plan that would qualify your loved one for Medicaid while also preserving some, if not all, of their assets.  For more information on Medicaid eligibility, please contact attorney Peter Brown at (517) 853-1518 or by email at pcb@thegallagherlawfirm.com
Conservators and Powers of Attorney
 
We are frequently asked to advise on proper planning strategies to assist older individuals with maintaining their financial affairs. While there are many planning techniques to consider, the simplest form of planning regarding the administration of finances is a durable power of attorney.
A durable power of attorney is a written document executed by the individual known as the principal authorizing another individual ("agent") to engage in certain financial transactions with third parties on behalf of the principal. The terms of the document will dictate how involved the agent is with the principal's affairs. Typically, the agent will be given the authority to sign checks, pay bills, and handle real estate and tax matters for the principal.
There are many circumstances where a person is still able to live an independent life, but may require assistance with his or her finances due to failing health or disability and has not established or is unable to establish a durable power of attorney. In such cases, it may be necessary for a petition to be filed with the probate court requesting the appointment of a conservator.

A conservator is a person or institution appointed by the court with responsibility for managing the assets and financial affairs of another individual. A conservator's primary duties are to preserve the individual's assets and to expend them for the support, education, care, and benefit of the individual and his or her dependents.
 
The following are just a couple of examples where a conservatorship may be necessary:
A person is competent but, due to age and deteriorating health, desires that someone be appointed to manage his or her money and property.
A person has Alzheimer's disease and a family member desires to be appointed conservator to make sure that the person's bills are paid and assets are properly managed.

The process of obtaining a conservatorship begins by filing a petition with the county probate court where the individual resides and is ordinarily accompanied by medical affidavits or other sworn statements which evidence the person's incapacity. The petition will either identify the person or institution that desires to be named conservator or requests the appointment of a conservator.

The court will arrange for any necessary evaluation of the allegedly legally incapacitated person. Often, this will involve the appointment of a "guardian ad litem", a person who is appointed to provide an independent report to the court on behalf of the allegedly legally incapacitated person. If appointed, the guardian ad litem will meet with the allegedly incapacitated person, inform that person of his or her legal rights, and report back to the court on the person's wishes. The guardian ad litem may also speak to the petitioner, to health care providers, and to other interested individuals in order to provide the court with full information about the allegedly incapacitated person's condition and prognosis.

If the allegedly incapacitated person consents to the petition, or is unable to respond to inquiries due to disability, the court will hold a hearing at which witnesses will provide sworn testimony to support the allegations in the petition. If the evidentiary basis is deemed sufficient, the conservator will be appointed.

Once a conservator is appointed, the judge will issue the conservator legal documents ("letters of authority") permitting the conservator to act on behalf of the legally incapacitated person.

A conservator will ordinarily receive compensation, subject to court oversight, for performing duties for the estate. This is often charged on an hourly basis, and is ordinarily paid from the estate of the legally incapacitated person. The conservator will be responsible to account for all expenditures, and for the assets of the estate, typically on an annual basis or more frequently if ordered by the court.

HOW CAN THE CONSERVATORSHIP BE TERMINATED?
A conservatorship can be terminated by the court which establsihed it. This ordinarily happens if the legally incapacitated person recovers from the incapacity that necessitated the conservatorship. A particular conservator's role may be terminated by the court or by resignation, in which case the court will ordinarily appoint a successor conservator to take over management of the legally incapacitated person's assets. A conservatorship also ends upon the death of the legally incapacitated person.

Through proper planning, the necessity for a conservatorship may be avoided through simple estate planning and the creation of a durable power of attorney. To be sure that the level of planning is proper for your specific situation, it is recommended that you work with an attorney who works in the areas of estate planning and probate. Please email Craig Gerard at csg@thegallagherlawfirm.com to discuss estate planning for yourself and your family.
 
Private Loan Basics 
 
1.  Good Borrowers.
People and businesses with sufficient cash flow to cover loan repayment and equity in collateral they can mortgage to adequately secure repayment of the loan. These borrowers exist today but most banks are simply not in a position to lend money.
 
2.  Lenders.
People and businesses with money to lend who are looking for an alternative to interest rates paid by banks on deposits and CDs.
 
3.  Interest Rate.
This varies greatly but most lenders are insisting on at least 5% per annum and some are at or near the usury rate of 25% per annum. Some of these rates float and are pegged to an index such as the Prime Rate as published in the Wall Street Journal (currently 3.25%) and adjusted monthly. Applicable Federal Rate. The interest rate typically cannot be less than the Applicable Federal Rate (AFR) which is very low compared to market interest rates and varies based on the loan term (Current AFRs for annual amortization Short Term .72%, Mid Term 1.92%, Long Term 3.46%.
 
4.  Term.
This varies but typically from the loan comes due at an agreed upon term of 90 days to 60 months.
 
5.  Amortization.
This varies from interest only to 360 months. Most of the loans are interest only but common amortizations are 60 to 180 months.
 
6.  Prepayment Penalty.
Commonly used if the loan is paid off earlier than agreed. Some loans provide for no prepayment penalty.
 
7.  Personal Guaranty.
A virtual certainty for the owners of any business entity that is the borrower.
 
8.  Collateral.
Real estate, equipment or other property sufficient to secure repayment of the loan.
 
9.  Documentation.
The loan is documented by a Promissory Note and may be secured by a Mortgage and/or Security Agreement. The Mortgage is perfected by recording it with the Register of Deeds in the county where the real estate is located. A lenders title insurance policy is recommended. The Security Agreement for most non-real estate collateral is perfected by the filing of a UCC-1 with the Secretary of State and/or recording a copy with the Register of Deeds depending on the collateral. A search of UCC records for prior liens on the collateral is recommended. Titled vehicles pledged as collateral should have the security interest noted on the collateral. Perfection is handled differently for other types of collateral. The Personal Guaranty is signed by individuals and/or other entities promising repayment if the borrower does not re-pay the loan.