Partnership/ Investor Disputes:
Some partners fight with each other as a hobby, others do it as a form of sport! Some of the biggest financial fights occur between blood family members. Family members can end up in divorce court fighting about property and asset division. This is a big source of legal wrangling.
Important preventive measures:
- If you are concerned about divorce, and you have substantial assets, consider getting a pre-nuptial agreement to “contract out” of the community property system.
- Another potential solution is to have a well drafted partnership agreement in place between partners that sets forth the responsibilities and duties of the partners, how day to day management will manage the property, how expenses are to be paid, how income and profits are to be divided, and how the partnership will handle financial and legal disputes. Every aspect of “partnership life” can be delineated in the partnership agreement.
- I would suggest having a mandatory mediation clause in the partnership agreement. Participation in mediation may help the parties settle the dispute short of protracted litigation.
Employee and Professional Embezzlement:
Nursery school office bank accounts and petty cash boxes, local bar association bank accounts, bank accounts of the elderly property owners, even federal court bank accounts have all been enterprise victims of sophisticated schemes of monetary theft and embezzlement by employees. The federal court bank account theft occurred by the human resources manager creating phony payroll accounts for fictitious employees and then transferring the funds to his own account. It takes a lot of chutzpah to steal money from the courthouse bank accounts, but it has been done!
The bank accounts and rent rolls of a property management company or real estate investor are also a vulnerable target to financial fraud if you don’t have tight financial controls in place. The embezzlement can be done by an internal employee as low on the totem pole as a receptionist, or an external professional such as your own business manager, bookkeeper, or accountant. Common schemes include writing checks to strangely named entities, transferring money to linked accounts, and using wire transfers.
Important preventive measures:
- Have tight accounting controls
- Perform a periodic audit of bank transfers, checks written, payroll transfers, bank statements, withdrawals, and transfers
- Check whether your rent roll matches the rent and account for vacancies
- Verify vacancies by visiting the apartment unit
- Have two people review and approve each and every check expenditure
- Avoid using large cash transfers and payments
Frivolous or “Well Grounded” Employment Law Lawsuits:
This is a big ticket liability item that you need to be careful with. Labor law shakedown type lawsuits have become a burgeoning cottage industry for plaintiffs’ labor attorneys in California. The courthouse is filled with them. The reason is that by statute attorney’s fees may be available for the prevailing party. Property owners and management companies may be targeted by plaintiffs’ employment law firms. Plaintiffs do not have to be American citizens or holders of a green card. Illegal aliens can and do file these lawsuits, and are encouraged to do so by plaintiffs’ attorneys. These plaintiffs get legal standing in the courts to go forward with these lawsuits.
Lawsuits generally come in three categories: failure to provide meal and rest breaks, failure to pay and report payroll taxes to state and federal agencies, and the biggest financial exposure is if you have an employee and you fail to pay wages for overtime. Also, employees may forge signatures on written employment agreements and claim rights and compensation pursuant to these phony agreements. Don’t forget your exposure for sexual harassment and employee discrimination claims based on race, sexual orientation, gender, transgender, and other protected categories.
Important preventive measures:
- Practice preventive legal maintenance
- Take an educational course to learn about labor law
- Prepare an employee policy and labor law handbook
- Review your employment agreements and files
- Have at will employees sign a disclosure that they are “at will” employees
- Sign any agreements with witnesses present
- Have payroll services in place
- Send 1099 agreements to independent contractors
- Have an attorney on board to consult with or retained to resolve or defend any types of actions
Copyright 2017 Nate Bernstein, Attorney at Law. LA Real Estate Law Group. All Rights Reserved.
The author of this article, Nate Bernstein, Esq., is the Managing Counsel of LA Real Estate Law Group, and a member of the State Bar of California and his practice concentrates in the areas of complex real estate litigation, commercial litigation, employment law, and bankruptcy matters. The contact number is (818) 383-5759, and email is firstname.lastname@example.org. Nate Bernstein is a 22 year veteran Los Angeles real estate and business attorney and trial lawyer. Mr. Bernstein also has expertise on bankruptcy law, the federal bankruptcy court system, creditor’s rights and debtor’s bankruptcy options. He previously served as Vice President and In House trial counsel at Fidelity Title Insurance Company, a Fortune 500 company, and in house counsel at Denley Investment Management Company. Nate Bernstein created www.laquiettitleattorney.com, a leading educational resource on quiet title real estate litigation. Nate Bernstein is a local expert on real estate law and economic trends in the real estate and leasing market, business law, and bankruptcy law. Nate has personally litigated more than 40 major real estate trials, and has settled more than 200 complex real estate and business cases.
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