Are Contractors Actually Fully Insured?

Are Contractors Actually Fully Insured?

Anyone who has inquired with, or hired, a contractor or homebuilder has invariably seen or been told by the company that they are “fully insured.”  More times than not, this statement simply means that the company has a standard commercial general liability (CGL) policy. Unfortunately, these “fully insured” statements understandably give the customer a false sense of security that if anything goes wrong with the work performed by the contractor or builder, its insurance company will cover the damage and make things right. In fact, with a standard CGL policy, the opposite is true:  the insurance company will not cover damage that arises out of the company’s work (or its contactor or subcontractor). What is often referred to as the “your work,” “business risk” or “exclusion” directs to an exclusion in standard CGL policies that bar coverage for property damage to the part of the real property that the company is performing work on. The language often looks like this in CGL policies:

This insurance does not apply to:

  1. Damage to Property

Property damage to:

…. (5) That particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the property damage arises out of those operations.

Practically speaking, this exclusion bars insurance coverage for damages such as deficient or defective work performed by the company or damage to your property caused by the company’s work. The net effect of no insurance coverage means that any recovery by the aggrieved customer will have to come against the company itself, which, depending on the company’s financial status, can be exceedingly difficult. Not only are many contractor and building companies set up as legal entities designed to protect against liability, but Wisconsin law exempts up to $15,000 in business assets from execution of a judgment. See Wis. Stat. § 815.18(3)(b).

In summary, it is incredibly important to vet the contractor or building company prior to hiring. In addition to their reputation and longevity in the community, you can inquire whether they have any insurance coverage or bond above a standard CGL policy and whether they have the financial resources to pay a judgement if a dispute arises. Moreover, the Wisconsin Circuit Court Access search (https://wcca.wicourts.gov/)  allows you to look up a company and see if they have unpaid judgments entered against them. This due diligence is necessary because a contractor’s claim of “fully insured” means little to nothing when the contractor’s work is the subject of the claim.

 

Real Estate Interests

Real Estate Interests

Legal interests in real estate seem simple upon first consideration – someone may own a home, and when they sell it, the buyer owns it. However, even such “simple” purchase and sale arrangements are often layered with other forms of legal interests being retained or changing hands, such as mortgage lien rights, easements, tenant rights and restrictive covenants. Holding an interest in property does not mean just one thing and even the descriptor of “ownership” fails to identify important differences among ownership types. Financial, tax and estate planning goals often are best accomplished by using forms of property transfers outside of traditional sale and purchase agreements and understanding such mechanisms is important to making efficient decisions about your real estate.

It is helpful to first present a framework for which to analyze the differences between types of interests. The classic real estate analogy to help frame the various rights and obligations of land ownership is the “bundle of sticks” thought exercise. First, imagine a bundle of sticks, where each stick represents a right or obligation regarding a particular piece of real property. One stick, for example, is the right to occupy the property, another may be the right to build or destroy structures on the property. When someone has all of the sticks, representing every conceivable right to the land, they are the “owner” in the truest sense of the word for the land associated with the sticks. However, individual sticks are often removed from the bundle and given to others – thus the rights to the property are divided among different people and entities. In fact, no individual holds all the sticks to any given bundle because certain property rights are held by the government. Some examples of this are: the right to tax, to prevent certain uses of the property through zoning and permitting requirements, and to forcibly acquire property through eminent domain. The remainder of the rights are typically divided in one of the following classifications of interest in real estate:

Fee Simple Interest. An owner in “Fee Simple” holds the most rights to real estate any individual can enjoy. They can occupy and use the property as they see fit, exclude anyone they do not want to be there, sell or rent to whomever they like, and build or tear down any structures so long as they comply with the governmental limits to such powers. Their use of the property exists currently and there is no time limit on such use.

Leasehold Interest. The first interest in real estate most people acquire is the leasehold to their first apartment. This interest is also referred to as a “Lessee” or “Tenant” interest. Lease rights vary tremendously based on the terms of the lease contract, but in general, ownership is retained by the landlord and the right to occupancy, use, and enjoyment for a set length of time is sold to the tenant for the price of rent. While the ownership of the property is retained by the Landlord, those occupancy rights are temporarily transferred away from them. This transfer of rights is what separates a “tenant” from a “guest.”  For example, despite being the “owner” of the property, Landlords generally do not have the right to sleep or live in the rented space, invite guests over or tell their tenants who is and is not allowed on the premises – these rights are retained by the Tenant for the duration of the lease.

Landlord Interest. The opposite of the leasehold interest, the Landlord, also known as the “Lessor,” retains the rights not traded for rental payments to the Tenant. This typically includes the rights to make decisions regarding the improvements on the property (although some leases allow Tenants wide discretion to remodel or even build improvements), the right to sell the property to others, or encumber it with a mortgage to finance other projects, and to have the property returned to them at the end of the lease.

Life Estate Interest. Life estate arrangements transfer the “sticks” associated with a property after the owner’s death to another party, often as a gift but sometimes as a sale, but keep the “sticks” for use during one’s life with the owner. The rights to use the property during life is called the “Life Estate Interest.” This typically involves the holder being able to live in the property rent free for the duration of their life. In theory, the “Life Estate interest” can be sold to a third party, but because it terminates on the death of the original holder (it does not reset to the lifespan of the buyer), few people are interested in purchasing such rights. Life Estate interest holders are usually required to pay the property taxes and keep the improvements in good repair to protect the value of the remainder interest holder’s rights. Granting a Life Estate is fundamentally different than naming someone in a will, as the legal ownership of the right to use the property after the grantor’s death irrevocably transfers to that individual and cannot be rescinded.

Remainder Interest. The opposite of the Life Estate Interest, the holder of the remainder interest has no current use or occupancy rights but will assume full ownership of the property when the Life Estate interest holder dies. They also have certain rights to ensure the Life Estate Interest holder keeps the taxes paid and the property in good condition, as failure to maintain the property damages their future rights. A remainder interest holder can sell their remainder interest to other parties. The value of such interests is typically determined by the life expectancy of the Life Estate interest holder.

Mortgage Liens. Banks and other financial institutions own interests in a huge number of properties in the form of mortgage liens. Individual lenders may also acquire such rights. When a bank lends you money to purchase a home, or sometimes for other reasons, they may “secure” that debt by placing a mortgage lien on the property. This grants a “conditional right,” meaning that if certain events happen, the right comes into effect. The main conditional right with a mortgage lien is the right to seize the property from the borrower if payments are not made or if the borrower attempts to transfer the property without their consent, which is frequently called the “due on sale clause.” Lenders require these liens be granted to them to ensure that they will receive their money back from the sale of the seized home in the event the borrower stops paying the loan.

Land Contract Vendor. The Vendor of a land contract makes a contract with a purchaser or “Vendee” to sell specific land in exchange for a promissory note which is paid over time. In a traditional mortgage financed transaction, the seller is fully paid at closing from the money the borrower got from the bank and transfers the full interest at that time. In a land contract however, the payments are made directly to the Vendor over a number of years, and the title is retained until it is paid in full, at which point the Vendor is required under the contract to transfer the property by deed to the Vendee. Although title remains with the Vendor until the note is paid, for most practical purposes, the use and occupancy rights to the property transfer to the Vendee upon signing the Land Contract, at least for so long as the Vendee stays current on their payments.

Land Contract Vendee. The Vendee of a land contract agrees to purchase the property from the seller, or “Vendor.” The Vendee has a right to acquire the property when they have completed the payment schedule called for in the Land Contract. They typically have broad rights to use the property while paying off the debt, but also are typically required to maintain insurance and maintenance to protect the security of the Vendor. If they fail to make the payments, the Vendor may be able to seize the property back from them, as the legal title to the ownership never changed hands.

Easements. The owner of an easement right does not own the property it pertains to, but rather has specific rights to use that property for specific purposes. The most common form of easement is for access, also known as “ingress and egress easements.” If a lot is created that has no access to a public road because it is surrounded by other lots, it is common for the owner of that lot to negotiate for the purchase of an easement on someone else’s property for the right to travel across it to get to the road. Other common easements are for hunting or recreational use. Easements are presumed to be “appurtenant” to the land, meaning future owners automatically get the rights and obligations transferred to them when they buy the property. However, some easements are “in gross” meaning an individual owns the easement right (common with hunting easements). If an easement is vital to the use of a property, buyers should carefully ensure the rights will continue after the property changes hands.

Restrictive Covenants/Deed Restrictions. Where an easement is a right of another to use someone else’s property for a specific purpose, a restrictive covenant or deed restriction is the right of another to prohibit certain uses of a property by its owner. For example, the owner of a house on a hill may decide to sell some of their land at the bottom of the hill. Because they are worried about their view being blocked if the new owner builds a tall structure, they retain for themselves the “stick in the bundle” that represents the right to build structures over a certain height. The new owners take title to the land, but never obtain the right to build any structure that would block the view. The most common type of restrictive covenants are found in property developments, where the developer, to increase the value of the land or houses they are selling, puts use restrictions on all of the lots. While the value of a single property may be decreased if it comes with rules about what the owner cannot do with it i.e., “no barking dogs on the property” and “no non-running cars in the driveway,” the value may increase significantly if all the neighboring properties also are prohibited from owning barking dogs or leaving junk cars out front as buyers get the peace of mind in knowing their neighbors cannot do these things.

Option to Purchase. An option to purchase grants the legal right, but not the obligation, to acquire a property at a set price during a window of time. If exercised by the option holder, the owner is legally required to sell them the property. The owner may still occupy and enjoy the property during the interim and the option holder has no rights to the property unless they exercise the option. Options become more valuable if the land value increases, as the right to buy a property for $100,000 that has doubled in value since the option was granted obviously is quite valuable. Option rights are typically sold to purchasers when they express interest in a property they cannot currently acquire and want to secure their right to buy it in the future.

Right of First Refusal. A right of first refusal is a contractual right to have a property offered to be sold to the holder for a set price and terms before the owner can sell to anyone else. The right holder does not own the property or have any ability to force the sale, but if the seller wishes to sell, the right holder will be guaranteed a chance to buy the property themselves. The price is sometimes set to match the offer made by another party, requiring the right holder to match the outside offer to acquire the interest. Sometimes the terms call for a formula or appraisal-based price determination instead. Rights of First Refusal are often utilized in family land transactions when the real estate is sentimental in some way. For example, if two siblings inherit their family home, one sibling may wish to purchase it from the other to live in. That sibling may agree to the sale but only on the condition that before they could sell it to someone else, they would have to first offer it back to them.

If you have any questions about these types of interest in real estate, please do not hesitate to reach out to one of our experiences real estate attorneys.

Tips to Avoid Scams and Identity Theft

Tips to Avoid Scams and Identity Theft

In today’s fast paced world, there is no end to the types of scams that target people of all ages, income levels and backgrounds. According to the Federal Trade Commission, one out of every ten adults in the United States will become a victim to a scam or fraud every year. Although one might think that scams, fraud and identity theft are easy to recognize, a study conducted by the Better Business Bureau, FINRA (the Financial Industry Regulatory Authority) and the Standford Center for Longevity found that 53% of all people approached by scammers will engage with them, while less than half become immediately suspicious and ignore the approach.

To avoid a Scam, be alert to these warning signs – the Four P’s:

PRETEND – Scammers will pretend to be from an organization you know and may use technology to change the phone number that appears on your caller ID to a familiar organization, like the IRS, Social Security Administration, Amazon or a charitable organization.

PROBLEM OR PRIZE – Scammers will then try to convince you that you are in trouble with the government and that you owe money. Sometimes you will be told that there is a problem or unauthorized charge on one of your accounts and you need to verify the account information, or that you have won a sweepstakes or lottery, but need to pay a fee to get the prize.

PRESSURE – Scammers want you to act immediately before you have time to verify anything or check out their story. They may say that if you act right now, the problem will be taken care of immediately before any further problems or damage occurs.

PAY – A sure sign of a scam is that you are asked to pay in a specific way, like with a money transfer company or through a gift card. Some will send a fake check to you, ask you to deposit it and send them the money.

What can you do?

  • Block unwanted calls and text messages.
  • Never give your personal or financial information to a request you were not expecting. Legitimate organizations and retailers do not call, email or text you and ask for personal information.
  • Do not click on links in emails sending information you have not requested or that you are not expecting. While the email may look like it comes from a company you do business with, if you were not expecting it, it is probably not real.
  • Resist the pressure. Anyone who pressures you to pay or give them your personal information is a scammer.
  • Never pay someone with a gift card or a money transfer service and do not accept or deposit checks for the purpose of sending money back to someone else.

Finally, in the event you are targeted or fall victim to a scam, report it to the Federal Trade Commission at reportfraud.ftc.gov. If you believe you have been a victim of identity theft, you can also put an alert and/or a freeze on your credit reports. Both can be done by calling the three credit bureaus (Transunion, Experian and Equifax) or going to each bureau online and placing the alert or freeze yourself. You can lift a freeze at any time. A fraud alert will require creditors to verify your identity before processing credit applications.  A credit freeze blocks any access to your credit report. The purpose is to prevent someone who may be trying to use your identity to obtain loans or credit card accounts in your name.

For more information about common scams and frauds visit https://www.usa.gov/common-scams-frauds.

Do Pedestrians Have the Right-of-Way?

Do Pedestrians Have the Right-of-Way?

I recently heard someone say as they confidently stepped off a curb into the street, “In Wisconsin, cars have to stop for us. Pedestrians always have the right-of-way.” Having grown up in Michigan, where our rules of the road have their own oddities (look up a “Michigan Left” for an example), I was not sure if this stranger was correct or not. As I am an attorney and looking into and analyzing laws is part of my job, I thought I would do some investigation into this matter. So, before you confidently step out into the street, please read below to learn more about the Wisconsin Statutes for pedestrians crossing the street.

The statutes are broken into three categories based on if there are traffic lights and if there is a crosswalk.

  1. When the crosswalk is in combination with traffic lights, the rules are transparent. Pedestrians have the right-of-way when a green light or walk signal indicate that it is appropriate for a pedestrian to cross, especially if the pedestrian is already in the crosswalk. Pedestrians also have the right of way when walking on a sidewalk where an alley or driveway crosses the sidewalk. Vehicles must wait for pedestrians to cross the alley or driveway before entering or exiting. While this does not specifically disprove the stranger I overheard, it is already not looking good for their legal proclamation.
  1. If there is a crosswalk, but no traffic light, the pedestrian still has the right-of-way, but with a significant caveat; pedestrians cannot suddenly leave the curb or sidewalk and cross the street if it would be difficult for the approaching vehicle to yield. What stands out to me about this caveat, is that the pedestrian must do a mental calculation as to how quickly a vehicle can brake in order to determine who has the right-of-way. This is no longer as transparent as before, because it is impossible to tell how well a particular vehicle’s brakes are working. At this point the stranger’s proclamation about pedestrian’s always having the right of way has another serious strike against it.
  1. Lastly, to further disprove the stranger’s theory, when crossing a road in a location other than a crosswalk, pedestrians MUST yield to all vehicles. Meaning unless traveling on a crosswalk or a sidewalk, vehicles have the right-of-way.

While my story ended with everyone making it across the street safely, that is not always the case. Many drivers are becoming more and more distracted and unfortunately the expectation of paying attention falls on the pedestrian. Remember to look both ways, obey all crossing signals and cross at a crosswalk if possible.

Tax-Exempt Nonprofit Organizations in Wisconsin

Tax-Exempt Nonprofit Organizations in Wisconsin

Do you hold a charitable intention close to your heart but are not sure on how to begin the process to form your new organization?  It is important to note that a nonprofit and a tax-exempt are commonly thought to be the same entity; however, these entities have a significant difference. A “nonprofit” is a nonstock corporation formed for a nonprofit purpose under Chapter 181 of the Wisconsin Statutes. A “tax-exempt” organization is a nonprofit organization with an additional qualification: the Internal Revenue Service (IRS) has recognized the organization as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code. This formal exemption is the reason that tax-exempt organizations are commonly referred to as a “501(c)(3).”  The formation of a tax-exempt nonprofit organization requires, at a minimum, the following steps.

First, you should determine your specific charitable purpose and goals for your organization. You should also consider whether there is a specific need for a new organization with this charitable purpose. Under Section 202.11(2) of the Wisconsin Statutes, a charitable purpose must be for a benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare or advocacy, public health, environmental conservation, civic, or other eleemosynary (charitable) objective. Further, to be recognized as a tax-exempt organization, your charitable purpose shall also fall under Section 501(c)(3) of the Internal Revenue Code.

Second, as you consider forming your organization, you should determine a name for your organization. This name must be distinct from other organizations registered in Wisconsin. Your attorney can assist you with determining the availability of your desired name.

Third, you should identify the initial directors and officers of the organization. A good rule of thumb for selecting directors is to identify at least three people that support your charitable purpose. These directors will govern the operation of your organization. The officers that you should elect are President, Vice President, Secretary and Treasurer. The roles for each officer are explained in the initial governing documents.

Fourth, after you determine your charitable purpose, name and initial directors, your organization must file Articles of Incorporation with Wisconsin and obtain an employer identification number. The Articles of Incorporation formally create your organization and describe the initial key operational details for your organization. Your attorney can assist with drafting and filing of these Articles of Incorporation with the Wisconsin Department of Financial Institutions (DFI). After filing the Articles of Incorporation, the organization shall obtain an employer identification number from the IRS.

Fifth, now that your organization is registered with Wisconsin, you should prepare the organizational documents and hold the organization’s initial meeting. You will need bylaws, which provide for the overarching terms that govern the organization, including the duties for directors, voting requirements and roles of officers. You should have a conflict of interest policy which states that any key person within your organization shall set aside any personal interests that may compete with the interests of the organization. Each director, officer and other key person shall sign an acknowledgement of this policy and disclose any potential competing interests. Your attorney can assist with the drafting of the bylaws, conflict of interest policy and other necessary organizational resolutions and acknowledgments to make sure the intentions of the organization are met and protected. When the documents are ready, you should hold an initial meeting of the directors and officers, at the meeting you will adopt and approve the documents and discuss the initial actions of the organization.

Finally, you should obtain 501(c)(3) status and any necessary state tax exemption status. Your accountant can assist you with the preparation and filing of Form 1023 or Form 1023-EZ to obtain tax-exempt status from the IRS. After you receive your tax-exempt status from the IRS, you should file the Form S-103 Application for Wisconsin Sales and Use Tax Certificate of Exempt Status with the State of Wisconsin. You should also consider whether it is necessary to register as a charitable organization with the Wisconsin Department of Financial Institutions.

The experienced business law attorneys at Anderson O’Brien, LLP are happy to answer your questions regarding the most suitable organization for your intentions and to guide you through the formation process and ongoing operations of your desired organization.

 

Hospital Liens: A Threat to Your Personal Injury Case

Hospital Liens: A Threat to Your Personal Injury Case

If you have health insurance, Medicaid or Medicare and you go to a hospital in your insurer’s network for treatment, the hospital is required to submit the treatment bills to your health insurer, Medicaid or Medicare.  You may have to pay a deductible, co-pay or co-insurance percentage, but the hospital does not send you a bill for the entire charged amount.  This holds true, unless that hospital’s treatment is for personal injuries caused by another person’s negligence, such as a car crash.

It is often surprising and dismaying to injury victims – who have paid premiums to auto insurance for medical payments coverage and for health insurance – that shortly after discharge from the hospital they get notice of a lien for a huge dollar amount.  Welcome to the little-known Hospital Lien statute, Wis. Stat. § 779.80:

(1)  Every corporation, association or other organization operating as a charitable institution and maintaining a hospital in this state shall have a lien for services rendered, by way of treatment, care or maintenance, to any person who has sustained personal injuries as a result of the negligence, wrongful act or any tort of any other person.

(2) Such lien shall attach to any and all rights of action, suits, claims, demands and upon any judgment, award or determination, and upon the proceeds of any settlement which such injured person, or legal representatives might have against any such other person for damages on account of such injuries, for the amount of the reasonable and necessary charges of such hospital.

Hospital liens create significant complications for an injury victim’s case.  First, the lien is for 100% of the total charged amount of the treatment; there are no contracted discounts that you often see with health insurance, Medicaid and Medicare.  Second, since the hospital is not an insurance company, the lien is not subject to Wisconsin’s Made Whole or Common Fund doctrines, both of which serve to reduce the amount paid back to health insurers out of an injury settlement or judgment.  Third, it does not matter if you have health insurance, Medicaid, or Medicare that would pay for the treatment; the hospital can bypass them and still put a lien on your personal injury settlement or judgment.

Because hospital liens can potentially eat up a significant amount, if not all, of a personal injury settlement, it is crucial that injury victims get an attorney as soon as possible.  For a hospital lien to be effective, there are several statutory and notice requirements that the hospital must comply with within certain time limits; an attorney can evaluate whether all these requirements have been properly complied with.  Also, an attorney can communicate with the hospital about the possible limitations for settlement or judgment and reach agreement with the hospital for a dollar amount less than the lien amount, or convince them that, based on the limited funds available, the hospital is better off submitting the bills to health insurance, Medicaid or Medicare.

Hospital liens serve as another reminder of why it is so important to obtain a competent attorney after an injury.  If you or someone you know has been injured and are facing a hospital lien, feel free to contact one of our personal injury attorneys at Anderson O’Brien, LLP.

 

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