MAINTAINING YOUR TRADEMARK

Preventing Expiration
After you have successfully gone through the procedure of attaining a federal trademark or servicemark, you will receive a Certificate of Registration from the U.S. Patent and Trademark office. To guarantee that the respective mark or marks are valid for your lifetime and the lifetimes of your beneficiaries, you must go through a number of very specific maintenance steps.

 It’s crucial to note that unlike a copyright or a patent, your mark will not expire unless you fail to complete the required maintenance filings with the U.S. Patent and Trademark Office. If you neglect to fulfill these filing requirements, your valuable registration will be canceled and your trademark or servicemark protection will then be lost.

So once you get your Certificate of Registration, remember the exact date of your registration. You will need to make sure you send in your first maintenance filing between the fifth and sixth anniversaries of this registration date.

Two declarations are needed to confirm the mark is currently in use:

1. “Declaration of Continuing Use”            Section 8 (Cost $100)

2. “Declaration of Incontestability”           Section 15 (Cost $200)

For the Section 8 declaration, you need to verify that the mark is being utilized with respect to the goods and/or services for which this protection is registered. If, however, the mark is not in use, you must provide a reason for why this inactivity should be excused.

In terms of the Section 15 declaration, you will be asked to attest to the fact that the mark has been in continuous use for at least five consecutive years from the registration date. Like the Section 8 declaration, you’ll need to confirm that your mark still reflects the goods and/or services for which it is registered.

If you miss this deadline, you will still have a six-month grace period to file the necessary information. But after that timeframe, your registration will be canceled and all benefits will be lost.

Similar to the first set of maintenance filings, you will be expected to send documentation on the tenth anniversary of your registration. Additionally, you are required to renew your registration every ten years thereafter.

Two declarations need to be filed at this time:

1. “Declaration of Continuing Use”  - Section 8 (Cost $100)

2. “Application for Renewal” declaration - Section 9 (Cost $400)

Again, these declarations require you to confirm that the mark is still being used. For the Section 8 declaration, you need to be prepared to corroborate that the mark is in use with respect to the goods/services for which the coverage is registered. If the mark is not currently in use, then you must demonstrate why this inaction is warranted.

Keep in mind that as a trademark owner, you aren’t permitted to maintain rights in a trademark that you’re no longer using. Furthermore, you must update your registrations at the time of any maintenance filings so that the U.S. Patent and Trademark Office has the latest information on your marks.

Using Your Certificate of Registration

Receiving the Certificate of Registration allows you to start using the ® designation in conjunction with your trademark. To clarify for some, the ™ designation is for trademarks that are in use, but not officially registered with the U.S. Patent and Trademark office.

Please be aware that in instances where your mark appears multiple times on the same object, you do not need to post the ® or ™ next to each trademark or servicemark. Although such repetitive posting is allowed, it’s generally expected that the correct designation is attached to only the most prominent display of the trademark on any item or page. As such, you are not required to make further postings, if you’ve already visually established your mark.

In Conclusion

There are certain ongoing procedures that need to be fulfilled in order to protect and maintain your trademarks and/or servicemarks, so you have the assurance that your company’s image will be continuously protected. In this way, if you ever discover that your brand has been stolen, you have the legal backing to make sure this infringer faces the appropriate consequences.

Enforcing Your Trademarks and Servicemarks

What do chapstick, a thermos and aspirin have in common? These iconic brands used to be protected by trademarks, but lost their legal rights over time. Unfortunately, the rightful owners of these brands were not aggressive enough in protecting their images. Now, the brand names that they created are used as generic terms in popular culture. So the original owners of these brands can no longer stop anyone from using their names. It’s too late.

Although I’ve provided some famous examples, the same type of trademark loss can occur with your brand if you’re not careful.  While it is extremely important to shield your image by obtaining trademarks and/or servicemarks, you can’t just stop there. The fact is, you always need to be on the lookout for any infringements. Quite honestly, the welfare of your business is at stake.

To give you a better understanding of what could happen if you don’t watch over your trademarks or servicemarks, there are three practical reasons for being vigilant:

·        Confusion in the marketplace – If another business, knowingly or unknowingly, starts using your image, consumers could become confused about your name. You may wind up missing out on potential revenue because clients accidentally turn to your competition, thinking they’re coming to you. So it’s critical that you always protect your name, your distinction in the marketplace, to eliminate the possibility of your brand getting blurred and the valuable distinction of your business product or service being lost. Furthermore, if you don’t take action in this scenario, you will eventually be seen from a legal standpoint as having abandoned your marks.

·        Dilution of your brand – If you become lax and don’t object to other businesses using your name or some aspect of your brand, you also run the risk of your image being diluted. The result is that your unique and distinct name won’t mean anything anymore because so many other businesses share it. This can and should be stopped before the potency of your name becomes meaningless in the marketplace.

·        Financial losses – If you don’t stand up for your marks, it’s very possible that other businesses could be financially benefiting from your advertising by poaching your potential customers. That’s because they’re openly using your name to make money.

The logical conclusion is that you need to be ready to enforce your trademarks and servicemarks at a moment’s notice. When you discover another business is ignoring your rights as the holder of these marks, then it’s time to take action.

Steps to Take

Once you discover that someone has used your name, the response is very simple: Immediately contact an intellectual property attorney in order to issue a cease and desist letter to the infringing party. The purpose of this letter is to give this individual or company notice that what they’re doing violates your intellectual property rights and constitutes an illegal use of your brand.

Included with this letter, your attorney will provide a copy of your pending or existing marks to supply undeniable proof of your brand ownership. Furthermore, the letter will make clear that the offender needs to stop using your mark without delay.

If this violation persists after a five-day period, then it’s time to go to the next level. Your attorney will promptly seek legal action to enforce your rights in either state or federal court under a trademark or servicemark infringement claim. This process involves getting a restraining order, which stops the entity from stealing your mark.

Secondly, your attorney will seek a court order that will compel the infringing business to divulge all of the financial gains that it received from illegally using your brand. Once this information is disclosed, you will then seek a court order that awards to your business, all of the profits made by the infringing party, because these profits rightfully belong to your business. And as a final kicker, you are entitled to seek reimbursement from the infringing party for all of the attorney fees that were caused by this unlawful infringement.

In Conclusion

By taking the time and investing the money to obtain trademarks and/or servicemarks, the image of your business is protected. But, the reality is that a clever company can find ways to benefit from your brand, even if you’re the legal owner. For this reason, I recommend that you periodically perform a search online to determine if anyone is illegally using your intellectual property. If you discover an infringement, contact your intellectual property attorney.

 

 

 

Understanding Trademarks and Servicemarks

In my last blog, I explained the importance of protecting your business’ image once you begin to expand. The goal is to make sure nobody can come along and steal your brand out from under you. And this can be accomplished by obtaining trademarks and servicemarks for your company’s unique presence in the marketplace. Generally speaking, trademarks are meant to guard a unique product created by your business and servicemarks are designed to protect a unique name, logo or tagline that identifies your business.  If you’ll recall from my previous blog, logos, designs, slogans, taglines and even domain names all fall under trademark or servicemark protection.

But there is much more to getting this legal coverage than you might think. For this reason, I want to go into greater detail about the process of attaining trademarks and servicemarks for your business.

State Protection

Let’s say your business is based in Chicago and it’s really starting to grow and gain much needed visibility in the marketplace. At this point, you should consider investing in the necessary protections so that nobody can steal your brand.

The good news is that you can safeguard your brand very easily by going online. The State of Illinois streamlines the procedure by providing all of the required applications that you need to fill out. For a $10 fee, you may submit your application and if approved by the Secretary of State, you will be awarded the exclusive right to use your.

However, even though your brand can’t be touched within Illinois, someone just ten miles southwest in Indiana could appropriate your brand. That’s because the applications you sent to the Illinois Secretary of State do not protect your company’s image beyond Illinois. So you might think about registering your brand in nearby states such as Indiana and Wisconsin as well.

National Protection

But what if your company continues to grow and quickly becomes recognized in other regions of the country? You could take the time to send in trademark and servicemark applications to each state that potentially touches your business. Keep in mind, though, that the costs and the time investment may add up faster than you might think.

So, a more economical option may be to seek federally registered servicemark and/or trademark protection through the United States Patent and Trademark Office (USPTO) in Washington DC. By taking this route, you’re applying for the exclusive right to use your brand in all 50 states and to have the right to stop someone from stealing your brand even if you are not currently doing business in that state. The federal application process is understandably longer, because the USPTO must conduct an initial search of its federal records to determine if any other businesses are already using a brand similar to your own. An examiner in Washington then has to do his/her own due diligence to provide a thorough investigation and ensure that nobody else owns or has applied to own, a brand similar to your brand.

In addition, the federal agency publishes your proposed brand name, logo and/or tagline in a national magazine. This publication is then sent to every intellectual property attorney around the nation. If your image is already in use by another business across the country, you can be sure the lawyer who represents that individual company will inform USPTO immediately.

While applying for a federal trademark/servicemark does cost a significant amount of money due to application costs and other fees, your business’ brand will be protected nationwide. Furthermore, by going through this procedure, you’ll also find out if other companies may already be using your brand, thereby avoiding possible future infringement claims against your business and your loss of the right to use marketing materials (Web site, letterhead, business cards) relating to this already owned brand. The result could be that you decide to tweak or slightly revise your brand. Then you may have the potential to stand out even more in the marketplace.

Copyrights

While your brand can be adequately protected by state or federal trademark/servicemark registrations, your business may also seek copyright protection of your brand images and taglines. By obtaining this type of protection from the U.S. Copyright office, you will be shielding original works that are published or unpublished. Typically, copyrights are designed for literary, musical, visual or other kinds of artistic creations. If this applies to your business, it may be wise to obtain a copyright.

But copyrights are a form of protection for the authors of “original works of authorship.” As such, a copyright may not cover titles, names, short phrases and slogans, lettering or coloring unless such image or information is sufficiently original and complex. For example, the Nike “swoosh” logo is extremely simple and would not qualify for copyright protection even though the image is protected as an invaluable trademark.

On a Final Note

The notion of obtaining trademarks and servicemarks can seem overwhelming at first. But it is not a complicated process. If you want to get this type of protection on a state-by-state level, you can get the applications online and fill them out by yourself.

On the other hand, if you’d prefer not to cherry-pick and you need protection that covers the entire country, I advise you to seek the expertise of an experienced intellectual property attorney. The interactions with USPTO and the federal examiner are much more involved than the simple state application process. So this is not something you should undertake without legal counsel.

Protecting Your Company's Image: An Overview

You’ve developed a successful business with an expanding client base. Everything seems to be going in the right direction. This is a wonderful position to be in and I congratulate you for creating such a prosperous enterprise. Building and maintaining a business is tough.

But, up to this point, you’ve probably only focused on paying your bills and marketing your services. And while these day-to-day tasks are key to the company’s well-being, you must not overlook the importance of safeguarding your image, especially as your business starts to grow.

Now, when I refer to “safeguarding your image,” I am focusing on protecting your brand. And since you’ve established yourself in the marketplace, securing your company’s brand is not a luxury. It’s a necessity. Indeed, without the proper protections in place to protect your brand, it’s quite possible that everything you’ve generated could be taken away from you without any notice. That’s why I am dedicating this blog to the best way you can preserve the brand of your business.

In Practical Terms

To help my clients understand the importance of protecting  their brand, I often ask a question that may come across as shocking to some:  if an individual were to come along and steal your entire business from you, how much ransom would you pay to get it back? Now, that might sound like a hypothetical situation. However, it happens all the time.

So, for this reason, I always advise business owners to obtain trademarks and servicemarks to protect the intellectual property associated with their companies. Generally, you will recall from my earlier blogs that a trademark is used to protect a product and a servicemark is used to protect for a business’ name.

The protection you receive from either trademarks or servicemarks should be used in the following three situations:

·        If you have something that can be seen such as a logo or a design, it should be protected by a trademark or a servicemark.

·        If you have an item that can be heard or said such as a slogan or a tagline, it should be protected by a trademark or a servicemark.

·        If you own something that someone else might try to hijack like a domain name, it should be protected by a trademark or a servicemark.

Whether you wish to protect these elements on the state or the federal level, trademarks and servicemarks do the trick. And the little “TM” or “SM” next to your brand name or design will give notice to the world that you have the absolute and exclusive right to this valuable intellectual property. This will serve as a serious warning to anyone who might otherwise be considering  stealing the brand that represents your business. For a reasonable fee (approximately $10), you can ensure your image is sheltered in Illinois. If you wish to secure the same protection in another state in which you currently do business or expect to do business in the future, you can easily do so by registering for this trademark or servicemark with the Secretary of State of that other state. If you wish to have protection of your brand on a national level and be protected in all fifty states, you will need to apply for a federal trademark or servicemark with the U.S. Patent and Trademark Office. While the process is a bit more lengthy (6-8 months) and more expensive (approximately $2,500), it is worth the extra time and expense if your business brand is being exposed to the public on a national level.

Additionally, by going through the registration process, you may find out if your brand is already in use by another business. If so, you can consider your options for modifying your brand so as to avoid an infringement claim or for contacting the owner of the trademark/servicemark to discuss how you may license or purchase the trademark/servicemark and thereby preserve your brand without having to alter it. In this way, you’ll not only retain the investment in all of your company’s marketing materials, you’ll have the power to stop someone else from pirating your brand in the future.

Coming Soon

Next time, I will go into more depth about the differences between a trademark and a servicemark. I’ll also briefly discuss the protection of a copyright and I will provide you with essential information about the process of obtaining these protections. Plus, whether you’re looking for state or federal coverage of your brand, I’ll discuss the steps involved in making sure another business owner is unable to seize your image.

CASHIER’S CHECKS – DON’T BE A VICTIM!

In my last post, I presented an overview of the types of fraud that currently are being perpetrated using Cashier’s checks. In this post, I will provide my recommendations on how to best protect yourself from this type of fraud. Since a cashier’s check is designed to be issued by a banking institution, many people automatically trust the paper it’s printed on without a second thought. But advanced printers and clever scammers have proven that such blind trust can be a costly mistake.

Sadly, it can be difficult to figure out if a cashier’s check is counterfeit or not. In fact, your bank may not even know until the other bank returns it as unpaid and this could easily take weeks to be discovered. Today’s con artists do everything they can to make the check look as authentic as possible in order to delay the detection.

Protect Yourself

But there are ways you can protect yourself from becoming a victim of cashier’s check fraud. Some important things to keep in mind are:

·        Don’t do business with strangers. While it’s not always possible to know each person with whom you engage in business relations, it’s best to be cautious about accepting checks from individuals you don’t know. If you enter a business deal with someone you’ve never met before, make the effort to verify information about the buyer from an independent third party.

·        Consider escrow services or online payment systems when selling goods or services. When you use escrow systems or processing services such as PayPal, the money is then held until it clears. So you have an extra layer of protection from fraud. However, there are escrow services that scam people as well. Also, the online payment system can include expensive fees. That’s why it’s crucial to be careful and do your research.

·        When accepting a cashier’s check, be suspicious if it is for more than your selling price. The key to a majority of these scams is that you’re expected to wire an excess amount of money to a third party. So it’s logical to wonder why a complete stranger would provide you with funds that are the property of someone else. This should immediately serve as a warning.

In general, if you receive correspondence of any kind that claims you’re entitled to a large sum of money and you only owe a small fee, that’s a red flag. The rule of thumb should always be that if something seems too good to be true, it probably is a scam.

If you choose to do business with someone who offers you a cashier’s check, remember to save every document associated with this transaction. The paperwork may be very valuable if a problem with this deal surfaces down the line.

Caution and good sense are important whenever you enter into any business deal. So don’t jump into a transaction that involves a cashier’s check until you have thoroughly investigated every detail. Otherwise, you could be left owing a large sum of money and possibly losing an expensive product to scammers in the online marketplace.

As a final matter, remember that the best way to avoid becoming a victim of Cashier’s check fraud, is to only conduct business transactions in which all funds are delivered to your bank by a wire transfer. Wire transfers are cash and essentially fraud-proof.

Cashier's Checks - Not Always Good as Gold

In today’s digital age, many transactions are now being done on the Internet. For this reason, my colleagues and I in the legal community have noticed that online fraud cases are on the rise. One of the principle forms of this type of financial deception involves the cashier’s check. Once considered a consistently trustworthy payment, cashier’s checks have become more questionable due to sophisticated scammers. This means a supposedly bank-issued check may not be as good as gold anymore.

 

It’s an unfortunate reality that cashier’s check fraud is a booming business for criminals both near and far. So I’d like to focus this blog on how you can protect yourself from cashier’s check schemes.

 

Types of Cashier’s Check Scams

 

According to the Office of the Comptroller of the Currency (OCC), there are a number of different cons that have been developed using cashier’s checks. These include:

• Online goods – If you have a product for sale online, a buyer sends you a cashier’s check for the ticketed price. Then you send the item to the buyer. You and your bank discover later that the check was fraudulent. Therefore, you lose both the product and the money you charged for this item.
• Purchase price and more – This scam is similar to an online goods sale except that the buyer sends you a cashier’s check in an amount that is more than your advertised purchase price. As a result, the buyer requests that you send the excess money to a third party, which could be located in a foreign country. After you follow these directions and wire the money as instructed, you learn that the check has no monetary value.
• Lottery win or legal settlement – You receive a letter stating that you’ve won a foreign lottery or you have the legal right to some kind of substantial settlement. The letter explains that in order to get this money, you need to pay a processing fee or transfer tax. However, the enclosed cashier’s check will cover that amount. All you need to do is deposit the check and wire the designated funds to a third party. In the end, that cashier’s check is worthless.
• Mystery shopping payment – A letter is sent to you that explains you’ve been selected to be a mystery shopper. With the enclosed cashier’s check, you’re asked to use a certain sum to buy merchandise and transfer another portion to a third party. The rest of the monies are yours to pay for your services. After depositing the cashier’s check and wiring the designated amount, you learn that you’ve been scammed.

In each one of the above scenarios, the fake cashier’s check will be returned to your bank as unpaid. Therefore, the amount of this check will be deducted from your account. If you don’t have the funds, the bank will go after you for the cashier’s check amount. The inevitable conclusion is that you will lose the goods that you sold, if that was the set-up, the funds that you sent to a third party or both your property and the wired money.

 

In my next post, I'll discuss how you can avoid becoming a victim.

Buying Residential Real Estate: Attorney Approval

For the final post in my series on buying residential real estate, I will discuss the Attorney Approval phase. This is the last step in the 3 phase Negotiation Stage for the purchase of a new home. If you’ll recall, the Contract Negotiation phase and then the Inspection phase occur prior to the Attorney Approval phase.

An Attorney’s Purpose In a Real Estate Transaction
You might think that an attorney’s role is in a courtroom, not in the middle of a real estate deal. That assumption is wrong. Speaking as an attorney who has guided many different real estate negotiations over the years, I can tell you that it is essential to have a legal representative on your side.

As I’ve explained in previous posts, my role as your attorney is to be your bodyguard, to protect your best interests. A real estate transaction is no exception. Although the purchase of property may seem routine on the surface, you’d be surprised at some of the pitfalls that can come up without notice. From issues that are uncovered after the inspection, to unexpected problems obtaining a loan or clear title to the property, obstacles may arise and require legal intervention. The Attorney Approval phase allows for a detailed examination of every aspect of the contract. By involving an experienced lawyer, you’re guaranteeing the removal of any loose ends or areas that could leave you in a vulnerable position before, during or after the sale.

My purpose in this phase of your transaction is to evaluate the sales contract that you and the seller signed in order to identify any potential issues and eliminate any concerns. Even though you’ve already come to terms with the seller, it doesn’t mean the contract is completely fair to you. That’s why it’s so essential to ask your lawyer to go over the agreement with a fine-tooth comb to make sure you’re not being short-changed in this arrangement.

For example, one of the issues I might see in a contract could involve the amount of the real estate tax proration credit that the homeowner provides to you at Closing. If I notice that the seller is not offering you enough of a cushion, this is a contract item that I will not approve but will re-negotiate with the seller’s attorney.

Another issue that might arise is the length of time allowed for you to obtain a mortgage. There are certain contracts that only permit the buyer thirty days to secure this loan. As your attorney, I would object to such a short time frame and instead, negotiate for a forty-five (45) day period instead. This gives you plenty of time to get the best mortgage without feeling the pressure of an unreasonable deadline.

The Attorney Approval Process
Throughout the Attorney Approval phase, it’s crucial to realize that the lawyers involved go back and forth in discussing your contract. You can think of it as a mini version of the negotiation you previously went through with the seller. But the negotiation between the attorneys is concentrated on certain specifics in the agreement, not big picture items such as the sale price. The price has already been established and won’t be touched in the Attorney Approval phase.

When the lawyers from both sides finalize the agreement, they each sign a letter that specifies all of the revised terms. While you and the seller will be informed of the activity between the attorneys, and you will both approve and authorize the acceptance of these revisions, you and the Seller will not be required to sign the Attorney Approval Agreement letter or to re-sign the original Real Estate Contract.
 

The Letter Agreement then serves as an addendum that modifies the real estate contract. Once the attorney approval period is completed, the most challenging parts of this real estate transaction are done. You’re now free to finish getting your mortgage and move forward to the Closing.

Hiring an attorney to look over your real estate contract is a smart decision. It will enable your transaction to be equitable for both sides and to proceed smoothly to its conclusion.

Buying Residential Real Estate: The Inspection Process

In my last few posts, I guided you through the contract phase of buying residential real estate. Now I’d like to talk in more detail about the inspection process. This step occurs after you have negotiated terms with the seller. Most contracts provide a designated period for you to hire a licensed professional to examine the property you want to purchase.

Just because a home might seem perfect on the outside doesn’t mean it’s actually flawless. Major concerns could be hidden in the smallest places or even invisible to the naked eye. You might not notice cracks in the foundation or signs of a mold problem, or not recognize that the roof, furnace or appliances may be beyond their useful life and ready to fail, or not know if there are serious problems with the electrical wiring. You need to choose the right inspector who can discover potential problems before you close the deal.

The inspector you hire will evaluate the home to identify any code violations, hidden damage, required repairs and/or maintenance items. If you fail to take advantage of this inspection right, you could be waiving your right to reject the deal or to require that the Seller make repairs prior to the Closing.

The Value of a Professional

An experienced, licensed inspector’s evaluation and identification of potential or actual health and/or safety issues affecting the condition of the property, can provide you with ammunition to negotiate repairs and/or repair credits. These credits can offset the expenses you will otherwise incur after the Closing to fix or eliminate the problems identified by the inspector.

You can either compel the Seller to make the repairs before the closing documents are signed. Or, you can compel the Seller to provide you with credits at Closing equal to 10% of the estimated cost of the repairs/replacement costs.  You should always discuss these decisions with your attorney so you can weigh all your options.

Without your inspector’s expertise, you could be stuck making expensive repairs years after your purchase when they might have been resolved during the Negotiation Stage at no cost to you.

Since it is so essential to pick a knowledgeable inspector, let me stress that it’s not in your best interest to fall back on a family member or a friend for the job. Even if you feel someone in your inner circle can investigate the property as well as a professional and at a more modest cost, you could be setting yourself up for disaster. If the inspection proves to be faulty, you have no meaningful legal recourse.

Therefore, I recommend you search for an independent professional, licensed inspector to inspect your prospective home during the Inspection Contingency Period. When you hire someone who is not personally tied to you in any way, you’re much more likely to get an impartial and professionally organized report of every potential issue in the home.

Avoid Limitations of Liability

While I strongly advise using a professional inspector to protect your interests against expensive hidden defects in the house, you must also protect yourself against the inspector. The inspector you hire will most likely present you with a Service Agreement. This agreement may contain fine print seeking to excuse the inspector from any responsibility for making mistakes in performing the inspection. This exoneration is most often found in a certain clause in your contract called “Limitations of Liability.”

Signing an agreement with the Limitations of Liability clause means that if the inspector doesn’t inform you about a certain issue and you discover at a later date that the problem is financially devastating, you cannot sue the inspector. The most you will be able to recover is a reimbursement of the inspector’s original inspection fee, which is typically $250-$400 and probably won’t cover a fraction of your expense in fixing the overlooked issue.

So if an inspector hands you a contract with a Limitation of Liability provision, cross it off. Or keep looking for an inspector who doesn’t insist on this exoneration provision.

Coming Soon

Concluding my series on buying residential real estate, in my next post I’ll explain the attorney approval process. This is the final stage of the Negotiation Stage and is a critical part in ensuring you obtain the fairest deal possible.

Buying Residential Real Estate: Real Estate Tax Proration

 

Another important consideration is the real estate tax proration. This proration is necessary because real estate taxes are billed by the county in arrears, meaning if you own a home, the tax bill you receive is for the real estate taxes for the prior year. Therefore, when you buy a home, you will receive a real estate tax bill after Closing for the year before the Closing, when the property was owned by the Seller.

These pre-Closing taxes should be paid by the Seller, but at the time of the Closing, the tax bills will not be available. This is why we use the tax proration and calculate a real estate tax credit that the seller will give you at the Closing. You can think of it as getting the tax money in advance so that when it’s time to pay the taxes, you have enough to cover the bill.

The challenge of negotiating this proration is, however, that nobody knows for certain what the future taxes will be for your new home. There’s always the chance that taxes shoot up. This is why it’s customary to have a cushion. It is designed to provide for more than just the same tax dollar amount from the prior year so as to compensate for any increase.

Traditionally speaking, the cushion is a figure that’s between five and twenty percent. As a buyer, you would want that cushion to be as large as you can possibly get from the seller. This may translate into a request for a one hundred and twenty percent proration. An extra twenty percent gives you some wiggle room in case the tax bill rises significantly from the previous year.

Furthermore, if the Real Estate Proration creates a Closing credit that proves to be more than the future real estate tax bill, you do not have to refund any monies to the Seller.  This is because the real estate tax proration agreed to by the seller and purchaser is final and neither party has any right to seek any repayment after the Closing. But be aware that this finality also means if you do not negotiate a large enough “tax credit cushion,” you will not have the right to make the Seller pay you after the Closing if the future tax bill increases by more than your cushion. This is yet another incentive to secure as much of a cushion as you can for the tax proration during the negotiation process.

Coming Soon

Next time, I will discuss the Property Inspection Phase and I will provide you with essential advice on how to get this real estate properly examined so you can protect yourself from liability after you purchase your home.

Buying Residential Real Estate: The Negotiation Process – Part 1

In this post, I take a closer look at what you as a Buyer can expect when you start to negotiate the Real Estate Contract terms with the Seller’s side.

The Mortgage Contingency Provision

When buying a new piece of real estate, it’s easy to get caught up in the excitement of such a purchase and overlook certain factors that may not seem as important at the time. Unfortunately, I’ve seen this happen again and again with different clients. The result is that the sales contract neglects to fairly represent you as the buyer in key areas.

To avoid that scenario, you need to be aware of a variety of aspects in your contract before signing on the dotted line. One critical area centers on the mortgage contingency provision. In basic terms, this section of the contract should be consistent with the current interest rates for mortgages and permit at least forty-five days to get a home loan.  Some contracts are overly optimistic and only allow for a thirty-day window to obtain the mortgage. That can be a problem.

Although the seller obviously wants to wrap up the deal as soon as possible, thirty days is not always enough time to satisfy all of the requirements that the mortgage broker will need to secure an approval of your loan application by the bank. So make sure you specify forty-five days to attain a loan in the contract. If you are able to get one sooner, that’s fantastic. But the forty-five day time span is a much more realistic expectation.

Similarly, when filling in the blanks for the proposed interest rate or loan charges, choose conservative figures. For example, if interest rates for 30 year fixed mortgage loans are at 4.0 percent, insert “4.0 percent” rather than “market rate” or “4.5 percent.” In this way you preserve your right to reject a 4.5 percent loan (or higher) and to truthfully declare the mortgage contingency to be “unsatisfied.” Otherwise, the seller will compel you to close the sale because you received a loan approval at a rate that is within the “acceptable” terms specified in your contract (even though the rate is actually unacceptable to you as a borrower).

Coming Soon

Next time, I will discuss the Real Estate Tax Proration Phase – the challenge of predicting the future.

Buying Residential Real Estate: An Overview

Buying a new home can be an exciting experience. But it can also be very stressful because it is a “life event” (like getting married or having a baby) and it is  more complicated than it appears, and, when so much money is at stake, there isn’t a lot of room for error. So, you really need to have a clear idea of the steps involved in order to avoid any critical errors.

At the outset, however, it is comforting to know that based on statistics, almost every residential sale closes once the buyer’s mortgage loan is approved. And, equally comforting is the fact that almost every closing that occurs, is finalized despite the occurrence of a least one or more last-minute crisis. Indeed, like birthing a baby, the outcome is wonderful despite all the noise and discomfort that is predictably part of the process.

In general, the home buying process has three different stages:

·        The Negotiation Stage;

·        The Mortgage Loan Approval Stage; and

·        The Deal Closing Stage.

This particular post  will concentrate on the negotiating phase, which has three fundamental parts:

1. Negotiating contract terms;
2. Performing the inspection; and 
3. Attorney approval.

Negotiating Contract Terms

The Negotiating Stage begins once you find a house that you want to purchase. Usually, your realtor will play a key role in negotiating the contract terms with the seller’s agent. As an attorney, I don’t participate in this phase for the most part. However, I’ve found that it doesn’t hurt to consult a lawyer during this phase, especially if you have questions that your real estate agent hasn’t addressed.

But in the majority of cases, you and your realtor will work together to develop the terms and conditions that are realistic for the purchase of the home. A form contract then needs to be filled out. This can be done either by you or your real estate broker.

The contract identifies the home’s agreed upon price and all of the personal property that is included with the purchase. From light fixtures to appliances to lawnmowers, for example, every item must be specified in the contract. The contract also has other specific terms, such as real estate tax pro-rations, title exceptions and other legal issues that will be initially completed by you and your real estate broker but will alter be approved by your attorney as part of the Attorney Approval Phase.

Performing the Inspection

After you and the seller have agreed on the terms for the sale, it’s time to move to the next phase: “Property Inspection.” In most circumstances, you’re given a designated period of time to have a licensed, third party inspector examine the home in detail and to decide if you are willing to accept it. This time period is outlined in the contract that you and the seller previously signed. The procedure for accepting, rejecting or conditionally approving the home is also detailed in the contract.

Attorney Approval

Now that you’ve completed a contract and hired an inspector to look closely at the home you plan to purchase, it’s time for the attorneys to analyze the agreement between both parties. My role as your attorney is to make sure the contract represents your interests fairly and doesn’t expose you to any liability when you take possession of the home.

During the attorney modification stage, it is important to keep in mind that the lawyers from each side of the transaction often go back and forth to make any necessary changes to the contract. With the exception of the sale price, there are many areas of the contract that can be altered between the two attorneys.

When both attorneys reach an agreement, they then sign a letter outlining any additional terms or revisions. This letter agreement does not need to be signed by the buyer or the seller. But it is officially included in the real estate contract as an addendum. Therefore, the changes made by the attorneys are considered to be part of the contract for the purchase of the home.

Coming Soon

In this overview blog, I’ve provided you with the basics of the Negotiation Stage of a residential real estate transaction.  Next time, I will expand on this foundation and take you through the negotiation process in greater depth so that you better understand the procedure.

How To Choose an Attorney

In my prior posts, I have stressed the importance of mindfully creating a sound infrastructure for your business, to ensure that it is protected from predictable disasters. I discussed using Non-Disclosure Agreements, employee restrictive covenants, key man insurance, Shareholder agreements and Cost of Collection vendor provisions.

 

While it is essential that you thoroughly understand each functioning part of the infrastructure of your business, you will not be the person who actually creates all of the legal documents necessary to bring the infrastructure to life. That is the role of the attorney for your business, commonly referred to as Corporate Counsel.

 

But choosing a Corporate Counsel must be done with great care and caution. This attorney will be your first and last line of defense. He/she must be capable of effectively protecting your business and vigilantly keeping it out of harm’s way. In short, your Corporate Counsel must be a wise legal confidant and business strategist who understands your business and whose judgment is sound and keen.

 

So, in this post, I will discuss how to wisely choose an attorney to serve as the Corporate Counsel for your business.

 

The Qualifications

 

While every attorney has his/her own background, education and experience, I believe that those attorneys who are in the top ten percent (10%), all share three essential qualifications:

 

1)            Competence:  The attorney must have a thorough understanding of the important aspects of your unique business and must possess a complete command of those areas of the law that directly relate to your business. Nothing short of this high level of competence is acceptable, since it is this fundamental legal expertise that will serve as the basis for all strategic pre-emptive plans and tactical decisions.

2)            Honesty:  While seemingly obvious, this qualification is essential. Your attorney’s integrity must be non-negotiable and you must be able to trust both his advice and loyalty without hesitation.

3)            Care:  The attorney who acts as your Corporate Counsel must be committed to you and your business. He/she must truly care about vigilantly protecting your interests.

 

Now, most people blur these three credentials by choosing an attorney based on their “gut” feeling. For example, they might select their golfing buddy, who just happens to practice law, since there’s already a relationship between them. Or, a likable neighbor may seem like the perfect attorney to bring on board.

I’ve found some people assume if they have an attorney who has a couple of the above three qualifications, that this is sufficient.

 

But it’s not. I regularly explain to people that two out of three is a wicked marriage. If you hire an attorney who cares and is good at what she does, but isn’t honest, you’re in trouble. Similarly, if you hire an attorney who feels a responsibility to you and values honesty, but has no idea what he’s doing, your business is going to suffer. And the attorney who is competent and honest but is indifferent to the safety of your business will provide you with a false sense of security.

 

You need an attorney who embodies all three of the qualities I’ve described. Anything short of this complete list could spell disaster for the castle you’ve worked so hard to build.

Worker Classification: Part Two

In my last post, I explained the critical importance of properly classifying your workers as either employees or independent contractors. Indeed, I warned you that if you do not classify your workers in accordance with state and federal guidelines, your staff incorrectly, your business could be subject to hefty penalties and retroactive interest.
Since it is so important to understand how the State of Illinois and the federal government evaluate the status of a worker, I’d like to discuss this subject in greater detail. That way, you’ll become more familiar with the evaluation factors, so you can better protect your business.

Illinois’ Factors

As I’ve previously mentioned, the Illinois courts rely on a ten factor “right to control” test. This tool enables the state to conclude whether or not your workers are employees or independent contractors. The difference between the two types of workers matters from a governmental perspective for purposes of employment benefits and taxation.
These ten factors cover a wide range of circumstances. Most importantly, Illinois wants to know how closely you manage your worker. For instance, does this individual receive training, materials and direction from you? If so, it is likely that the state will conclude that you “control” the worker and therefore, this worker is properly classified as a “controlled” employee rather than an “uncontrolled” independent contractor.

Other aspects include:

·        Worker engagement – Illinois will look at whether or not the worker performs duties for other employers. If he is exclusively employed by your business and is not available for hire, then the state will see him as an employee.

·        Worker skill – The state evaluates the amount of skill needed to do the work in a particular company. In general, if more expertise is necessary, the state tends to classify the worker as an independent contractor.

·        Employment length – The period of time a worker has offered you services can make all the difference to the Illinois courts. If this individual has worked in your company for a short time, she’ll usually be viewed as an independent contractor. Conversely, a worker who has a longer history with your business will probably be recognized as an employee.

·        Payment method - If you pay your workers on a project-by-project basis, chances are that the state will see these individuals as independent contractors. On the other hand, salaried or hourly workers are more likely to be categorized as employees by Illinois.

·        Integral or ancillary – An integral worker is considered part of the company’s regular business. The fact that he performs a key function in the business, it’s probable the courts will look at him as an employee. At the other end of the spectrum is the ancillary worker, who is an occasional contributor to the company and not involved in its operations on a consistent basis. The ancillary worker will likely be viewed as an independent contractor.

In general, the underlying theme to remember is how much control the business exerts over its staff members.

Similar to the state’s court system, the Illinois Unemployment Insurance Act examines the amount of power you have over your workers in order to determine the correct categorization. But instead of ten factors, there are only three. Furthermore, all three of these circumstances must be met for a worker to be recognized as an independent contractor. Otherwise, the worker is deemed to be an employee.

Below are the factors this statute systematically applies:

·        The business does not control the worker’s performance.

·        The service cannot take place during the normal course of business or at the physical location of the company.

·        The worker has to offer an occupation or profession that’s separate from your business.

Again, control is the key. This means that the less supervision you have over a worker, the better the argument for classifying this individual as an independent contractor.

The Internal Revenue Service’s Factors

Like the state of Illinois, the Internal Revenue Service (IRS) also evaluates employment status based on the right to control. Therefore, if you direct, train and integrate workers’ services into your business operation, for example, it’s reasonable to expect the IRS to define your staff as employees rather than independent contractors. This means that you’ll be required to pay certain taxes and possible penalties, if you have misclassified your workers.

While the amount of regulation over your workers is a critical element of the federal government’s final judgment, other components are also involved to generate this decision. In total, the IRS relies on twenty different factors. These essential circumstances include:

·        Reports – If a business requires written or oral reports as part of the job, then the IRS could assume the worker is an employee. This consistent expectation suggests the worker is regularly supervised, which supports the government’s theory of permanent employment.

·        Payment of expenses – If a company covers workers’ travel or business expenses, the government may conclude they are employees. That’s because the payment is interpreted as control over the workers.

·        Realization of profit or loss – If workers can experience a profit or loss as a result of providing services to a business, they will be probably be viewed as independent contractors.

·        Working for numerous companies – If a worker provides products or services to several unrelated businesses, it’s likely the IRS will see him as an independent contractor.

·        Right to discharge – If a business has the right to discharge its workers, then the IRS might regard these individuals as employees. An independent contractor is protected from being fired unless he does not live up to contract specifications.

·        Right to terminate – If a worker can terminate her employment without any liability, then the federal government will generally look at this individual as an employee.

Need More Help?

Worker classification encompasses many detailed factors. So it’s understandable to feel overwhelmed by the numerous elements. But as a small business owner, you need to be aware that if you group your workers incorrectly, you could face harsh tax consequences.

However, my team and I at DregerLaw are well-versed in all of the factors the state and federal governments use to determine worker status. Let us make sure you’ve designated your staff correctly.