|
At Koepke Law, keeping our clients informed is a critical part of our service. To further our commitment to our clients, we provide newsletters as well as in-person presentations.
Please let us know if you have a particular topic you would like us to address.
Kevin M. Koepke
Chairperson Banking Department
Koepke Law, Ltd.
|
|
Schemes Recently Attempted By Guarantors
|
|
In loan recoveries, our clients are impressed by cash recoveries rather than the mere recovery of collateral. Guarantors are generally the best source for recovering cash. As guarantors are squeezed through litigation to pay their guarantees, they sometimes attempt legal schemes to dodge their legal obligations. We have recently encountered the following 1:
Scheme #1: "My Assets Are In Trusts and Therefore You Aren't Entitled to Them."
Trusts cannot be created or funded with intent to defraud creditors. Even where a facially legitimate trust exists, we have successfully pressured guarantors into cracking open trusts and to pay their guarantees. Most transactions involving trusts are subject to the Uniform Fraudulent Transfer Act (Minnesota Statute §§ 513.41-513.51). Under this Act, transactions that "smell bad" can be reviewed by the courts and, if an intent to defraud creditors is found, undone. The Act allows courts to look back at least six years.
Scheme #2: "My Assets Are in Retirement Accounts and Therefore You Can't Recover Against Them."
Retirement accounts are only partially protected under federal law (including the Bankruptcy Code) and the Minnesota exemption statute (Sections 550.37). Further, there are limits on the types and amounts of deposits which fund a retirement account. Often large chunks of a "retirement account" will not be exempt from collection. Additionally, by pressuring a guarantor with garnishments, levies and other collection strategies, the guarantor is often motivated to dip into the retirement account in order to pay off a creditor and avoid the uncertainty and cost of litigation.
Scheme #3: "I Own Numerous LLCs But They Have No Value."
The financial statements of guarantors are often filled with various LLCs. Many of these LLCs are single asset real estate LLCs formed with other owners to own single pieces of real estate. Guarantors, now faced with collection lawsuits, almost universally claim that these LLCs have no value. Sometimes the LLCs have no value; sometimes they in fact do. By levying on the guarantor's ownership in the LLC, we can apply pressure to the other owners to make payment to the lender in light of the judgment against the guarantor.
Scheme #4: "I Have No Assets to Pay My Debts. I No Longer Own My Snowmobiles, My Recreational Vehicles and My Luxury Cars Because I Gave Them To My Kids and Besides These Items Are Junk Anyway."
Minnesota law allows a creditor to undo transfers done to defraud creditors. While debtors often think that transferring assets will prevent a creditor from obtaining the assets, we can go back up to six years to undo fraudulent transactions. The same fraudulent transfer analysis applicable to trusts, as discussed above, generally applies here. Also, guarantors who file bankruptcy are subject to having unwarranted exception claims attacked by creditors.
This overview is sent to clients, attendees of our previous seminars and friends of Koepke Law, Ltd. The above discussion is a general overview of legal issues and is not legal advice designed to address a particular situation. If you have questions, you may contact Kevin Koepke, Chairperson of the Banking Department at Koepke Law, Ltd. at (763) 201-1201 or at
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
.
|
| An Alternative to Hourly Billing |
Task Billing Rather Than Hourly Billing Can Work Really Well In Loan Recoveries.
By: Kevin M. Koepke
This past August, I attended the annual convention of the Independent Community Bankers of Minnesota. With the burgeoning number of loan recovery files being sent to attorneys, many bankers expressed concerns about legal fees. There were particular concerns about hourly legal fees. There were two pervasive comments: hourly fees always seemed to run higher than expected and there were often concerns about the efficiency of the legal work. Some specific concerns on efficiency included: Was the attorney delegating down to paralegals where possible? Was the attorney in over-kill mode in reviewing documents? Was the four hour deposition really needed rather than two hours?
The hourly fee appears as the culprit once again. The solution, in many court cases, and particularly in loan recovery cases, is task-billing. Task-billing is best explained by an illustration. Consider a standard loan collection case: a million dollar loan to an LLC, secured by a mortgage on a commercial office building, with two guarantors. A schedule of task-billing through mediation could look something like this:
|
Review loan file:
Prepare default notice:
Prepare complaint:
Prepare discovery requests:
Prepare information statement and
related court filing docs:
Review answer:
Reply to counterclaims:
Respond to each set of discover requests:
Each deposition:
Receivership motion (uncontested):
Receivership motion (contested):
Summary Judgment Motion (uncontested):
Summary Judgment Motion (contested):
Mediation:
|
$750.00
$500.00
$1,500.00
$500.00
$500.00
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,000.00
$3,000.00
$2,500.00
$4,000.00
$3,000.00
|
This type of fee schedule covers many typical loan recoveries. A schedule can be used for trial work as well. Adjustments can be made for special circumstances such as multiple loans, large loans, documentation problems, disputes involving competing creditors, injunctive relief and the like. These adjustments can be handled between banker and attorney as they arise. Also, some specific services such as client meetings may still be best handled by an hourly fee. Nonetheless, a fee schedule based on tasks will cover a vast range of legal work.
Task-billing offers many benefits for banker and attorney. First, it nails down the fee for the specific service. Neither the banker nor the attorney will have any uncertainty about what the fee is. Second, it rewards efficiency by incenting the attorney to delegate down to the least expensive and still qualified service provider.
Koepke Law will be actively offering a task-billing approach for its loan recovery files (and for its other litigation files). While some clients may still prefer the familiar hourly fee, which we will offer as well, we believe task-billing will be the preferred fee arrangement of the future.
Questions? Kevin Koepke, Chairperson of the Banking Department, can be reached at (763) 201-1201 or at
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
.
|
|
|
| Seminar Update |
 Kevin M. Koepke |
|
Koepke Law will once again be presenting our complimentary seminar:
"Defaulted Commercial Real Estate Loans and Troubled Participation Loans: Timely Recovery Strategies"
Date:
October 21, 2010
Location:
Kaler Hotel
20 SW Second Ave
Rochester, MN 55902
507-280-6200
Registration: 8:00
Seminar 8:30 - 12:30
This is a free seminar. The seats fill fast, reserve your place today.
|
| Did You Know |
Did you know that Koepke Law, Ltd. has lawyers who are licenced in states other than Minnesota?
These states include:
California
New York
Wisconsin
We continue to expand our area of practice to better serve our clients needs.
|
| Next Newsletter Articles |
Effective Judgment Collection
Using Forbearance Agreements
Please let us know if you have a specific topic you would like
|
|
|
