[Client Canceled] Iowa Dirt Lawyer : Iowa Real Estate Lawyer & Attorney : Pat Burk : Brick Gentry Law Firm : Des Moines, Central Iowa

I've seen it before - dozens of times:  just before its time to sign on the dotted line the Tenant asks for more.  Maybe its new paintwork, new carpeting, a forgotten need for additional data lines or other requests.  18 months ago this would have fallen on deaf ears.  Sign up, or we'll wait for someone else. Not so much take it or leave it as, "this has already been negotiated - and we won't put up with this".

Even worse are changes to economic terms. To a landlord, the definition of economic terms goes beyond simple rent terms.  Any good landlord will tell you, pricing is an art form. The multitude of factors which go into pricing a lease include more obvious items such as the length of the lease, termination options, tenant improvements, but also include less obvious items such as insurability, services, cam charges and the complexity surrounding operating expenses, capital improvements and depreciation.

Taking advantage of changing bargaining positions is part of economic life, but the time to take advantage of this situation is during initial negotiations.  We are now too often seeing tenants attempting to drive down the economics of a lease by requesting termination options, increased services and changes to typical operating expenses AFTER the terms have initially negotiated.  This often occurs under the guise of legal changes to the lease.

Landlords:  Do your best to be up front with prospective tenants and let them know this is your bottom line.

Tenants: 

Understand your basic lease terms.  Rely on your broker and your attorney.  This recession may allow you to get away with plateau negotiations - constantly coming back to the table for more. But this will not last long. Landlords are readying themselves to turn away tenants attempting such negotiations on principle alone, especially if you are requesting lengthy lease terms or multiple options. It may no longer be worth it to the landlord and you may find yourself taking the time to renegotiate somewhere else - which is only fine if you have somewhere to go. The best advice is to negotiate hard up front. Plateau negotiations will only establish your reputation for future reasonable requests as being sneaky. Chances are, this will not work in your favor. Once your at the edge of the plateau, its easy to fall off.

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Limited Liability Companies or LLCs are a good fit for real estate holding companies because they are straight forward and flexible.  Its really that simple.  Iowa's new LLC law has created some undue complexities, but a limited liability company continues to be an appropriate vessel for holding real estate in most situations. You should contact your tax professional to determine the appropriate tax status. My comments here relate solely to the type of entity best utilized for real estate ownership.

LLCs combine the concepts of a partnership with the liability protection of corporations. Within the bounds of the applicable statute, the means by which an LLC can be managed and controlled are virtually endless. Use your creativity. For example, minority shareholders can have equal decision making authority in relation to the issuance of new ownership certificates and other items of similar importance. Not that corporations don't have some flexibility, they just don't have the flexibility associated with the partnership concept.

So next time your thinking of creating a new entity for land ownership, look to an LLC first.  It likely will meet all of your needs. Many of these same issues are discussed in the Iowa LLC Blog by attorney Marc Ward. Marc's blog is definitely worth a look if you are thinking of taking advantage of the benefits LLCs have to offer.

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Beginning January 1, 2009 Iowa adopted a new set of laws governing limited liability companies or LLCs. My partner Rush Nigut has done a good job of detailing many of the important changes in his blog: www.rushonbusines.com.

LLCs have long been a favored entity of real estate and corporate attorneys for real estate ownership. This has not changed. What has changed is the reversal of the presumption all members of the LLC are agents of the LLC merely because of membership. New Iowa Code Section 489.302 permits, but does not obligate, the LLC to file a "Statement of Authority" with the Secretary of State. This Statement of Authority sets forth those parties which have the authority to bind the LLC.

When Iowa adopted the old LLC law - some sixteen years ago - authority issues troubled and complicated real estate transfers by LLCs. Certain provisions of the original LLC law suggested parties were imputed with knowledge of any limitations on the rights of members or managers to transfer real estate. This resulted in committee meetings and the preparation of form affidavits required for every real estate transfer to assure the party signing the documents had the requisite authority.  The obvious result is a slow-down in LLC real estate transfers and an unnecessary increase in the cost.  Some years later, these knowledge provisions were removed and the investigation and affidavit requirements were thankfully removed. Title examiners were entitled to presume signatories had the proper authority, without evidence filed of record to the contrary. I see no difference under the new law. Only with the filing of a Statement of Authority should a review of authority be required for title transfer purposes.  If a Statement of Authority is not filed, the authority of the signatory should be presumed.

Title review is to be distinguished from a buyer's due diligence.  As Mr. Nigut explains nicely in this post - www.rushonbusiness.com - third parties should continue to investigate proper authority before finalizing a transaction.

In short, I do not believe that title transfers under the new LLC law require anything more than an investigation into the existence of and adherence to a Statement of Authority properly filed with the Secretary of State. Otherwise, title examiners should be able to presume proper authority. I implore, no beg, Iowa title examiners to take the same position.  Otherwise, we will needlessly complicate title transfers under the new LLC law.  (And yet another argument for the adoption of Title Insurance in Iowa).

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Christopher Hill, a friend and quality construction lawyer has posted some interesting articles on Mechanics' Liens.  Click here to see his latest: constructionlawva.blogspot.com. While the timing for the filing and releasing of mechanics' liens varies from state to state, Chris includes some great thoughts and comments regarding more generally applicable problems surrounding mechanics' liens. In short, they are tricky animals.

In Iowa and most states, the applicability and proper timing for the filing of mechanics' liens vary between commercial and residential properties. The primary rationale is that in commercial projects the general contractors and owners are more business savvy. Of course, that is not universally the case. Under the current state of economic affairs, mechanics' liens are significant problems for homeowners and commercial owners alike. Pay attention to the specific laws applicable to your situation and don't get caught without someone to help you through the mine field of mechanic liens.

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In a pre-announced change of course, the Federal Reserve Bank of New York has begun the process of purchasing $500 billion in mortgage-backed securities in large part guaranteed by Fannie Mae and Freddie Mac.  Unlike the original plan to purchased troubled securities, these securities are low-risk investment grade. They are not the mortgage-backed securities partially causing the current credit collapse.  For a more detailed story, check out this article by Stephen Bernard:  www.builderonline.com/mortgages-and-banking/ny-fed-begins-purchasing-mortgage-securities.aspx.

This is great, but what does it mean to Des Moines, Des Moines Attorneys and Des Moines real estate in general. The truth is - nothing.  I'm anxious to hear the justification. At least some of the money is being spent on investment grade purchases, but is this the purpose of providing these funds for public use? It smacks to me of some sort of trickle-down theory that has been proven not to work - unless your Sean Hannity or Rush Limbaugh. Fannie Mae and Freddie Mac assumably didn't need help with the guarantees of quality investments. It was the guarantee of troubled mortgages that allegedly caused the problems. Or maybe not. I can't make heads nor tails of this stuff most of the time, but I know its not working in my home town.

We have yet to see these types of federal investments assist local banks, developers, entrepreneurs or consumers. If these moves really loosen lending, then what is the reason for continued tightened lending? Let's incentivize local lenders and national banks to lend locally, especially in real estate. I know Des Moines real estate entrepreneurs and this Des Moines real estate attorney would welcome it readily.

I'd enjoy knowing your thoughts.

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Starting essentially from Scratch, Michael Myers grew Regency Builders into the largest home builder in Iowa.  By following a well-established pattern of pre-designed homes, Regency allowed thousands of Iowans to break the chains of renting and move into their own homes.  Regency homes and neighborhoods throughout Iowa became very recognizable by the uniformity of color and design, but few seemed to care.  Other than attempting to break into higher-profit custom homes, the Regency business plan did not seem to change.  Michael then suffered through a long illness which apparently ran in the family - Lou Gehrig's Disease.  Remarkably, his brother Mark died almost exactly one year later of the same disease. In recognition of Michael's accomplishments - and a $15 million donation - a local hospital planned to name a new west-side hospital after the accomplished home builder.

During his disease and following his death, his two sons took over the company with the assistance of some of the Michael's trusted colleagues. Almost overnight, Regency became a significant competitor in commercial buildings and commercial developments throughout Iowa, but primarily in Des Moines and Cedar Rapids. Anyone driving on I-80 west of Des Moines could hardly miss the huge new office building with the trademark blue Regency sign. Regency seemed to spend with near reckless abandon. You would have had to have your head in the sand not to notice. But, the success seemed undeniable, until 2008.

In text-book style, the seems of Regency's success began to burst. Rumors of the inability to meet payroll for the significant number of employees flashed across the business grapevine. Unfortunately, several of the subcontractors were not part of that network. Both employees and subcontractors went unpaid for weeks of work. Des Moines and communities throughout Iowa were immediately stung.  Regency employed hundreds of subcontractors, several of which relied solely on Regency for their work.  Mechanics' liens outpaced the local clerk and abstracter's office ability to keep up. Recent home purchasers were left with unsodded yards and incomplete warranty work.  No bank in the area dared loan additional funds. Dozens of partially completed homes and several partially completed developments were strewn throughout Iowa. Foreclosure suits by the lenders allowed some of these homes and developments to start to be completed through the appointment of receivers; but, as we all know, now is not the time for such things. The national economy had already burst.

The continued acts of robbing Peter to pay Paul caught up with Regency.  It is no more.  The large and nearly empty office building sits immediately across the street from me and serves as a daily reminder of excess.  The hospital graciously allowed the family to forgo the $15 million donation, and the naming rights for the new hospital.  Thank heaven not all home builders in Des Moines went this route. We will dig out.  But, because of Regency, it will take all that much longer.

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I am constantly hearing blogs are outdated.  I still jumped in the fray.  Not because I don't agree necessarily.  Web logs are outdated.  I really don't need to read somebody's daily journal.  it was interesting when it was new.  People flocked to it.  But I think mostly because it was novel.  With a little internet savvy, hundreds of people might read about what you do day in and day out.  If your are still interested, check out Twitter.

Its old news now.  Things have changed.  The personal websites I like best are the sharing of ideas, not journals or logs.

Literally by chance I stumbled upon a "blog' titled Simple Justice by Scott Greenfield.  This guy writes about thoughts and ideas to share with those willing to read.  I am now a reader and this dirt lawyer now digs criminal law. His "blog" proves my point though.  He doesn't journal.  He shares ideas and thoughts about interesting topics worth reading in my opinion.  It is not a web log.  It is a web-based platform for sharing ideas - and interesting ones.

I really would like to get away from the term "blog".  Several writers on the net deserve more. Don't click the link to read a journal. Click it to share ideas.

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The economic crisis is big news.  It affects nearly everyone.  Either you are directly affected or you know someone that is.  The speculation regarding how we got here, when it will end and how best to end the current crisis are all over the board.  An interesting example of the rise of the crisis lies right here in Des Moines.

Des Moines and the Midwest are often insulated from the dramatic economic swings taking place on the coasts.  Simply put, as a whole we are more conservative.  But a few relatively large scale economic stories highlight past problems in the real estate and investment industry.  Probably the biggest for Des Moines is the story of Ed Boesen.

Like many others in Des Moines, I knew Ed, worked with Ed and sincerely liked Ed.  His energy was boundless and creativity mind boggling at times.  His charisma literally lit up a room.  Using money from a family flower business, he began to grow a real estate and business empire.  Many speculate Ed's intentions were not genuine.  Nobody can prove a thing and I'm giving him the benefit of the doubt - things simply started to get out of control.

He began borrowing to pay debt - large debt - to the tune of over $50 million.  Lenders bypassed typical lending due diligence and would apparently lend him money on charisma and reputation alone.  One lender approved a loan for over $5 million in part by relying upon a security interest in a non-existent $7 million plus investment account .  The lender verified the existence of the account by relying upon an AOL e-mail which included the name of the brokerage in the address - yes, really. That was the type of due diligence required of a man with this type of reputation before the economic collapse.  I imagine he never dreamed he couldn't turn it around and pay everyone back. But the bottom fell out.  His world crashing, he very sadly decided to end his own life.  Only then did the debacle become public and what a story it was. There are far too many links to list here, but simply Google his name and Iowa or Des Moines and you will find vast sources of information and speculation.

The point of mentioning this story here is that it highlights the problems in the industry and helps explain the knee-jerk reaction of restricted lending.  Like a spurned lover seeking the arms of a polar opposite for comfort, lenders and governmental oversight workers alike have tightened lending policies to the point of lunacy.  We need to find the middle ground.  There are still excellent and charismatic entrepreneurs willing to risk their own assets to move forward.  Why can't we all open our eyes, make necessary and reasonable adjustments to the system and move on?  I don't think we'll know for some time.  For a little insight though, pay attention to what is going on in Des Moines.

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Iowa does not currently permit the sale of title insurance in Iowa.  This is despite the fact nearly every other state in the union relies on title insurance every day to facilitate the transfer of real property.  That is not to say title insurance is not utilized in Iowa.  Dozens if not hundreds of Iowa transactions both very large and small rely on out-of-state title insurers every year to opine on and insure good title.  I have no specific numbers, but have been personally involved in dozens, including multi-million dollar transfers.  The traditional abstract and title opinion method in Iowa is dismissed and the monies associated with opining on title go out-of-state.

Paul McLaughlin, legal counsel for the Iowa Association of Realtors, breaks out the legalization argument very nicely in his Title Insurance Review.  The Iowa State Bar Association argues, among other things,  the long-standing abstract and title opinion method permits Iowa to enjoy some of the cleanest titles in the nation and has long held strong opposition to the legalization as outlined here. 

This debate takes me back to my freshman year of high school.  Determined to be the best marching band member ever, I diligently practiced and rehearsed the songs and the beats for each step. I even practiced stepping to the music. Then, band practice finally arrived.  Proudly relishing in my practiced perfection, I marched and played with confident exuberance only to be rudely awakened by Mr. Chamberlains's blaring bullhorn:  "BURK, if you're the only one in step....you're outta step!".

Iowa, we are out of step.  The abstract and title opinion method has served us well, but, the time has long since come to take on the industry and transfer title in the same manner as the rest of the country.  The process is streamlined and efficient in most cases. Closing procedures are coordinated with the issuance of the title policy and money transfers quickly and confidently. Current abstracters and their title plants are a necessary component.  It is were the title insurers will need to begin.  Legal counsel will still be required to review the initial commitments and final policies.  I firmly believe the real estate industry in Iowa would benefit rather than be harmed by such an undertaking.  Title Guarantee is simply not in a position to compete with the established processes of the largest and best title insurers.  Please join me in bringing Iowa back in step - legalize title insurance in Iowa.

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