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Stillwater and Minnesota and Real Estate

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					                                   Spring 2008 • Volume IV, Issue 1




                                   Legal
                                   Advantage
                                   1809 Northwestern Avenue, Stillwater, Minnesota 55082 • (651) 439-2878



                                     Construction Defects After the
                                     Construction Boom
Eckberg Lammers provides this           The construction boom of the last decade has created an increase in the number of
newsletter as a service to its       construction defect litigation problems faced by homeowners, building owners and
clients and associates
throughout the local community.
                                     construction professionals. It is important that these parties understand the crucial time
The firm is committed to raising     limitations which govern construction defect suits. The most basic of these limitations are the
awareness of timely legal issues     2-Year Statute of Limitations and the 10-Year Statute of Repose. Both act in different ways to
and sharing the knowledge of its
highly qualified attorneys.
                                     foreclose lawsuits after the passage of time.
Legal Advantage helps you stay          The 2-Year Statute of Limitations addresses the question of when a lawsuit may be brought
informed in today’s complex          for a construction defect after facts sufficient to alert the property owner or user of the defect
legal environment.
                                     are known to the property owner or user. Stated generally, the property owner has two years
                                     from the date on which the property owner became aware of facts sufficient to tell the
                                     reasonable person that a defect existed (note that this does not mean that the property owner
                                     must know everything about the defect; for example, early discovery of water intrusion,
                                     leakage or structural cracking can trigger the statute of limitations, even though the exact cause
                                     of the problem is not known). In fact, under Minnesota case law, knowledge by a previous
INSIDE                               property owner can trigger the running of the 2-Year Statute of Limitations.
                                        The Statute of Repose is different in that it provides a 10-year limitation period for
2 | LEGAL UPDATE                     bringing suit, regardless of when the defect was discovered. The ten years can be extended
    • Commercial Landlords:          minimally under limited circumstances, and it generally begins running from the date of
      Avoid Unwanted Liability       substantial completion or date of issuance of a certificate of occupancy.
      for Tenant Improvement            In either case, the deadlines provided by the Statutes of Limitations or Statute of Repose are
      Projects
                                     unforgiving and must be complied with strictly. If you have questions concerning land use,
    • Using an LLC: Protect
                                     construction or commercial litigation matters, contact Dave Snyder at (651) 351-2131.
      the Family Business and
      Reduce Taxes
                                                             David K. Snyder is a partner at Eckberg Lammers who concentrates
3 | EDUCATION                                                his practice in land use, municipal law and civil litigation. David
    • Alternative Financing
                                                             advises many municipalities, businesses and individuals in state and
      Methods in a Slow Real
                                                             federal courts on matters involving commercial disputes,
      Estate Market
                                                             construction defects, eminent domain and complex litigation. David
4 | FIRM NEWS                                                represents a broad range of clients, including Fortune 500
    • New Partner to the firm                                companies, municipalities and small business owners.

                                                          Eckberg, Lammers, Briggs, Wolff & Vierling, pllp
                                            Personal Injury / Wrongful Death • Estate Planning / Probate • Family Law / Divorce • Mediation
                                     Business and Commercial Law • Criminal Law • Real Estate • Land Use Law • Municipal Law • Civil Litigation
LEGAL UPDATE
                                                                      Using an LLC:
                                                                      Protect the Family Business and
Commercial                                                            Reduce Taxes
Landlords:

                                                                                                      {
                                                                   These days everyone is
Avoid Unwanted Liability for Tenant                            talking about Limited                Limited Liability Company (LLC): a legal form
                                                                                                    of business entity offering limited liability and tax
Improvement Projects                                           Liability Companies
                                                               (LLC’s). However, LLC’s are          opportunities to its owners.
   Commercial landlords should take note of                    not just used for business
Minnesota Statute §514.06, which is designed to                purposes or for limiting the liability of assets anymore. In recent years,
allow property owners to protect their property                the LCC entity has become the most commonly used entity for family or
from being subjected to mechanics liens for                    closely owned real estate and income-producing property. Typically, senior
improvements made by other parties, such as                    family members such as parents or grandparents will place real estate or
tenants or purchasers. Generally, mechanics liens              income- producing property (including rental property, vacant or farm
attach to properties to ensure payment to                      land, or other investments) into an LLC, which will immediately limit
contractors and engineers who performed                        the personal liability of the senior family members to the assets held in
improvements on the property. A tenant making                  the LLC. With the right planning, the LLC can do a great deal more
                                                               than simply limit liability. Today, LLC’s provide a wonderful tool for
commercial improvements may be legally
                                                               maximizing annual gifting, passing assets at death outside of probate, and
presumed to be doing so on behalf of the                       for many other transfer tax and non-transfer tax objectives.
landlord, thus subjecting the property to a                        Once the LLC is formed, the senior family members can transfer
mechanics lien for improvements authorized by                  membership units of the LLC to junior family members (children and
the tenant.                                                    grandchildren) and accomplish a multitude of non-transfer tax objectives.
   If an owner has actual knowledge of                         For example, the senior family members will be able to retain control of
improvements being made to his or her property                 the asset, investment or business while sparking the interest and awareness
at the request of a tenant, then that owner is                 of the junior members. Generally, when a junior receives membership
obligated to notify the persons doing the work                 units of the company, that junior member will likely take an active
that such improvements are not being made at the               interest and become involved the company or learn how to manage the
                                                               asset.
owner’s request. Otherwise, the owner could face
                                                                   Additionally, LLC’s avoid costly and burdensome probate, provide for
potential liability for the improvements by virtue             investment flexibility, increase diversity of investment by pooling assets,
of a mechanics lien attached to the property. In               protect against transfers outside the family (by adding a right of first
order to prevent a mechanics lien from attaching               refusal in the buy/sell agreement), and allow for easier gifting of the asset
to the property, a commercial landlord should                  by creating the opportunity to gift membership units of the asset, thereby
notify contractors within five days after obtaining            avoiding fractionalizing the asset.
knowledge of tenant improvements that the                          When gifting membership units of an LLC, there is an opportunity to
improvements were not requested by the owner or                maximize gifts and transfer tax incentives by taking advantage of
the owner’s agent. Notice must be provided in                  Minority and Lack of Marketability discounts. Pursuant to federal law,
writing or posted conspicuously on the property.               an individual taxpayer cannot gift more than $12,000 a year to any one
                                                               beneficiary without tax penalty. If you make a gift of the maximum
For more information on how this statute may
                                                               annual exclusion amount of $12,000 to your child, your child receives a
apply to tenant improvements on your property,                 gift of $12,000. However, if you make a gift of $12,000 worth of
please contact Dave Snyder at (651) 351-2131.                  membership units of your LLC, the gift (for gift tax purposes) will be
                                                                                                           considerably less than $12,000,
                                                                                                           meaning that you can gift more
                        Justin D. Bonestroo is an associate with Eckberg Lammers. Justin                   than $12,000 in actual value
                        concentrates his practice in estate planning, probate and trust                    without any tax penalty.
                                                                                                           Accordingly, gifts of LLC shares
                        administration, and real estate law. His practice involves drafting
                                                                                                           provide donors with a wonderful
                        and/or administering wills, irrevocable and revocable trusts,                      opportunity to maximize their
                        beneficiary designations, powers of attorney, healthcare directives,               annual exclusions. Similarly, the
                                                                                                           same discounts will be applied in
                        irrevocable life insurance trusts, LLC’s, guardianships and
                                                                                                           a testamentary devise and can
                        conservatorships, medical assistance planning, deeds, purchase                     drastically reduce applicable
                        agreements, CIC’s and 1031 Property Transfers.                                     estate tax.


                                                                                 w w w. e c k b e r g l a m m e r s. c o m
EDUCATION

 Alternative Financing Methods in a Slow Real Estate Market




                                                                                                               {
     Most real estate transactions involve    predetermined purchase price. The            option, the seller
                                                                                                                  Contract For Deed: a
 buyers financing the transaction             option to purchase will typically be         has the                contract for the sale of real
 through a combination of cash and            held open for a period of one to three       advantage of           estate where the purchaser
 conventional financing with a                years. The seller continues to own the       passing many of        immediately takes
                                                                                                                  possession and ownership
 mortgage lender. The seller receives         property until the buyer exercises the       the ownership          responsibility in exchange
 payment for the real estate purchased,       option to purchase.                          responsibilities to    for monthly or other periodic
 and the buyer receives title and                 The advantage to the buyer in a          the buyer, as well     payments. Upon completion
                                                                                                                  of payments, the title to the
 possession to the property at closing        lease with option to purchase is that        as having a buyer      property is conveyed by
 when conventional financing is used.         the buyer has a right to purchase the        who is                 deed from the seller to the
     Periodically, market conditions          property, with additional time to            contractually          purchaser.
 cause buyers to seek alternatives to         secure financing for the purchase. The       obligated to
 conventional financing. In the 1980’s,       seller benefits from rental income and       purchase the property.
 alternative financing methods were           in having a potential buyer for the
 common because of high interest rates.       property.                                    Seller Financing. This option is less
 Alternative financing is again                                                            common than a contract for deed, but
 becoming popular, this time because of       Contract for Deed. A contract for            is another option available when a
 increased restrictions on lending and a      deed is a transaction where the buyer        buyer cannot obtain conventional
 high volume of homes on the market.          makes monthly payments toward the            financing. Using this option, the
 Buyers who are unable to obtain              purchase of the property, rather than        closing will occur quickly, like a
 conventional financing are finding           leasing the property. This option is         conventional sale. The buyer
 sellers more willing to provide seller       more popular than a lease with option        immediately receives title to the
 financing in order to sell their             to purchase because it feels more like a     property, but the seller continues to be
 property.                                    sale to both buyer and seller, for several   involved as a lender. Like a bank in a
     Unlike conventional financing,           reasons. First, Minnesota law requires       conventional financing situation, the
 seller financing requires the seller to be   the contract for deed to be recorded,        seller will loan the buyer all or part of
 involved in the transaction long after       giving the buyer an immediate and            the purchase price, and receive a note
 the closing. Alternatives to                 public interest in the property. The         and mortgage in return. The mortgage
 conventional financing include: lease        seller still holds record title to the       secures the buyer’s interest in the
 with option to purchase, contract for        property, but the seller’s role is more      property, giving the seller the right to
 deed, and seller financing through a         similar to that of a lender. Second,         foreclose if payment is not received.
 note and mortgage. The following is a        under most contract for deed                 Although not as popular as a contract
 brief description of these financing         transactions, the buyer truly steps into     for deed, seller financing may be worth
 methods, as well as the impact of the        an ownership role and is responsible         considering under certain
 financing on the buyer and seller.           for maintenance, taxes and insurance         circumstances.
                                              on the property.                                 While conventional financing is
 Lease with Option to Purchase. In a              Like the lease with option to            generally the best option, these
 lease with option to purchase, a             purchase, a contract for deed can be         alternative methods are available to
 prospective buyer will lease the             beneficial to buyers and sellers when a      buyers who otherwise could not
 property for a period of time, instead       traditional sale is not an option. In        purchase property. Before using one of
 of immediately purchasing a property.        this option, the buyer obtains               these methods, both buyers and sellers
 One of the terms of the lease will give      financing in a situation where               should seek advice about which option
 the prospective buyer the option to          conventional financing may not have          makes the most sense for their
 purchase the property for a                  been available. Unlike the lease             individual transaction.


                       C ame ron R. Kelly is an associate with Eckberg Lammers who practices in the areas of real estate and
                       municipal law. His real estate practice includes counseling clients in the areas of commercial and
                       residential transactions, title issues, title registration, boundary disputes, commercial and residential
                       leases, land use and development.
FIRM NEWS


                                     New Partner to the firm: Sean P. Stokes
                                     The law firm is pleased to announce that Sean P. Stokes has become a partner
                                     with the firm. Sean joined the firm as an associate attorney in May of 2002
                                     practicing in the areas of family and criminal law. He has been a practicing
                                     attorney since 1997 when he was admitted into the Minnesota State Bar. Prior to
                                     joining the firm Sean was an Assistant Prosecution Attorney in Sherburne County
                                     Minnesota. Sean is a 1994 graduate of Xavier University in Cincinnati, OH and
                                     graduated from the University Of Minnesota Law School in 1997.

        Sean currently serves on the Stillwater Township Planning Commission, Family Means Board of Directors
        and is past president of the 19th District Bar Association. Sean and his wife Kerri have six beautiful children
        and reside in the St. Croix Valley. He and his family look forward to continued involvement in community
        activities and organizations.



                                     President-Elect for the YLD: Nicholas J. Vivian
                                     Attorney Nicholas J. Vivian has been elected by his peers to serve as President-
                                     Elect for the Young Lawyer’s Division (YLD) of the State Bar of Wisconsin.
                                     Collectively, the Young Lawyers Division is comprised of more than 5,000
                                     attorneys who are either under the age of 36 or in the first five years of practice.

                                     The YLD serves two primary functions. It is a resource for young and new
                                     lawyers in the practice of law providing education and advocacy within the State
                                     Bar. It also gives young lawyers the opportunity to participate in valuable public
        service projects, providing quality legal services to Wisconsin’s most vulnerable people.

        In addition to his active participation in the Wisconsin State Bar, Nick is involved in the leadership of the
        19th District Bar Association in Minnesota. Nick also serves on the Board for the St. Croix Economic
        Development Corporation and is a member of the Hudson Daybreak Rotary Club, serving as the
        organization’s Program Chair.



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