Why You Need to Create a Business Succession Plan NOW

Why You Need to Create a Business Succession Plan Now

Even when all owners of a company plan to work until the very end of their lives, there’s still a need for a viable business succession plan. After all, anyone can become totally or partially disabled as a result of a serious car accident or die of a deadly disease on almost any day.

When business owners hide from this reality, they often create havoc for all surviving partners or family members. Instead, it’s better to move forward at a calmer time to carefully address these types of possible future events.

Your Houston business law and estate planning attorney can help you decide on the best way to either pass your business on to others — or liquidate all the assets to meet your own needs and those of your survivors.

General questions you must answer yourself about any succession plan

  • What is the current market value of this business and all its assets?
  • Who is the best possible buyer? Do I prefer to sell the business to a co-owner, family member, employee or a third party?
  • Am I more likely to sell the business sooner rather than later? Am I interested in selling the company now due to health, retirement or other reasons?
  • Is this business tied to its current location? If not, would it be reasonably simple for the business to be moved elsewhere and successfully run by someone there?
  • What preferences do I have about how the sale should be financed? Am I willing to personally finance the loan? If so, what type of collateral should I require?
  • Which business advisors should I consult with while securing all the required contracts and other paperwork? Besides business and tax lawyers, do the specific assets of my company require me to consult with real estate agents, insurance and business brokers, bankers and financial advisors?

It’s often wise to start this process by locating and reviewing all your current business contracts and deeds. Next, give some thought to your company’s most productive and respected employees. Then, carefully determine the current market value of every business asset. Finally, schedule confidential, preliminary talks with any co-owners, family members who work for you, other key employees and perhaps one or two other potential buyers of your company.

Once these initial tasks have been handled – or while you’re completing them – it’s wise to meet with your Houston business law attorney.

Advantages and disadvantages of selling to different parties

Unless you’re the sole owner of the company and simply want to liquidate all the business assets and not sell (or transfer) the company to others, you must carefully evaluate each potential buyer and decide which one is best qualified to run the company in your absence.

  1. One or more family members. In most instances, it’s usually best to sell to only one family member, preferably one who is already involved in the business and respected by your employees. Ask your attorney about the best ways to prevent future challenges to any decision you make. One approach might involve drafting a buy-sell agreement that clearly states who is going to be running the company — and asks all others who currently work there (or own shares) — to sell their shares to the person you’ve named as your successor. This approach often helps minimize future family disagreements.

When selling a business to a family member, you may want to execute a self-canceling installment note (SCIN). Your attorney can explain why that may be useful;

  1. A key employee who is highly knowledgeable and well liked by other workers. The most common drawback to selling to a key employee is that the person may not be able to give you a large down payment in cash. Be prepared to execute a buy-sell agreement that clearly lists all the valuable collateral for any loan you may be willing to finance. You can also suggest that this employee try to obtain an SBA (Small Business Administration) or bank acquisition loan that will provide you with up to 70% or more of the purchase price upfront;
  2. You can sell your shares to your co-owners. Be sure to clearly indicate the sale’s price and all purchase terms;
  3. An outside third-party or competitor. Be very careful when selling to this type of buyer if you’re financially depending on the person to keep running the company. Due diligence is critical when evaluating every potential buyer.

Since this article only provides a broad overview of the types of issues involved when drafting a business succession plan, you’ll need to obtain competent legal help to handle this entire process. Should you already have some type of succession plan, we can help you decide if it’s time to update it.

All our Murray Lobb attorneys have the necessary experience to help you create a business succession plan that’s specifically tailored to your company’s unique needs. We look forward to helping you draft all the contracts and other documents you’ll need while selling your business.

 

General Steps to Take While Preparing to Sell Your Business

Selling your company at the proper time can provide you with greater freedom and added income as you pursue other business or personal goals. Whether you’re a sole proprietor who can move forward alone — or someone who must confer with business partners or a corporate board of directors, there are basic steps you can follow that can help streamline the process.

As you further contemplate this move, give serious thought to timing and be ready to explain why you’re making specific choices to prospective buyers; They’re sure to ask why you’re selling your company now. Also think about whether you should hire a professional business broker, especially if you don’t want to manage the sale on your own and are concerned about locating the best potential buyers.

Each of these key topics are discussed further below.

Are you prepared to tell qualified buyers why you want to sell your business now?

If sales are dropping or you’re currently losing a sizable portion of your customer base, you may want to postpone the sale for six months or a year. During that time, you may be able to rebuild the company and make it more viable.

Of course, business owners often want to sell their companies for many other reasons, including the following ones.

  • They’re eager to retire and simplify their lives – letting go of business activities.
  • They have current disputes with partners, co-owners or corporate board members, so they would just like to move on. Obviously, you’ll need to reference these issues in a very tactful yet honest manner if you have no other reasons for selling.
  • The sole owner (or another party) is facing a serious illness or impending death.
  • You want to keep working — but in a less stressful capacity. Be ready to share this in as upbeat a manner as possible – while being open and honest about the pressures of running the business.
  • You’ve developed a keen interest in a different business field and are eager to get your new venture up and running.

These are just a few of the reasons why people often choose to sell a business. Whatever you decide to tell prospective buyers – be as honest as possible since a failure to disclose current problems is unethical and could damage your reputation in the community.

If your business is losing value, be prepared to tell potential buyers (after carefully qualifying them) how they might reverse that trend. You can also explain why they may still want to simply purchase all your valuable vehicles and equipment.

Decide whether you should sell the business yourself – or hire other professionals

  • Legal advice can prove crucial. You’ll also need help drafting the various legal contracts and documents required to support a sale.
  • You’ll want to work closely with your accountant. All your business and tax records must be fully updated.
  • A business appraiser can prove very helpful. This individual can help you determine a fair asking price for your company.
  • Even a brief consultation with a business broker can benefit you. This person knows how to locate a healthy pool of potential buyers. This process can prove extra challenging if you do not want to run any public advertisements.

Be prepared to locate or create various documents while trying to complete a viable sale

You must be prepared to share all your basic financial statements and records for the past three or four years. It’s also crucial to create a comprehensive list of all your company equipment and fixed assets tied to your business accounts. (Be prepared to spend the necessary fees to repair all valuable vehicles, equipment and other goods involved with the final sale).

It’s also important to create a detailed list of your ongoing sales transactions and the names of the companies that currently provide all your company’s most critical supplies. Copies of all current contracts and leases should also be made available so qualified buyers can review them.

Be prepared to carefully decide which buyers may be the most dependable ones

Many business owners prefer to sell their companies to close family members, trustworthy employees, friends or current customers. You’ll need to choose wisely, especially since this type of sale often takes from six months to two years. 

Of course, never disclose private information about your business to potential buyers until after they’ve each agreed to sign non-disclosure agreements and qualified for financing plans that meet your requirements.  Be prepared to negotiate carefully – or ask your attorney to handle the negotiations on your behalf.

If you’re ready to sell a business – or just want to learn more about all the various legal and practical steps referenced above, please contact one of our Murray Lobb attorneys. We look forward to answering all your questions.

Administering the Family Medical Leave Act (FMLA)

Prior to the passage of the FMLA in 1993, American workers had few options when they needed extra time off from work due to their own serious medical conditions and accidents – or those of immediate family members. In fact, workers often had to use up all their vacation and sick leave benefits, if entitled to any, and then worry about their job security if they needed more time off. (However, eligible women could seek the special help offered by the 1978 Pregnancy Discrimination Act). 

Fortunately, the Family Medical Leave Act is still helping many 21st century workers address critical family caregiving duties and remains one of the signature pieces of legislation from the Clinton era.

Here’s a brief overview of specific provisions of the act that can help your qualified workers.

What basic opportunities does the FMLA offer qualified employees?

If a worker meets the minimum qualifications referenced below, it’s possible to take up to twelve (12) weeks of unpaid leave during a calendar year to take care of seriously ill family members, new children or the individual’s own major medical condition.

In 2008, the Family Medical Leave Act was updated so that qualified workers could also take time off work to take care of immediate family members who became very ill (or were seriously injured) while serving in the military.

The FMLA guarantees that qualified workers can take the extended time off work without having to worry about losing their jobs, their seniority or their employer-provided health care insurance.

Which types of employees are qualified to use the FMLA?

  • Those who have employers with 50 or more workers on the payroll for at least 20 workweeks during the preceding or current calendar year. A worker may still qualify even if all the 50 workers aren’t working at the same site – if they work within a 75-mile radius of one another;
  • Those who have worked for their employer for a minimum of 12 months, for a total of at least 1,250 hours. This means that many part-time workers may not qualify for FMLA leave. However, there are special rules that may apply to workers who are teachers, are highly paid – or are flight crew members of airlines;
  • Employees taking time off from jobs to handle their own “serious health conditions” – or those of covered family members. This time may also be used to take care of a new child or a servicemember in the immediate family who has been wounded.

Note:  Now that same-sex marriage is legal in all 50 states, LGBT (lesbian, gay, bisexual and transgender) individuals can also qualify like other workers to take care of their family members.

General questions often raised about the FMLA by employers and employees

Question 1:   Can the leave time requested be intermittent during a calendar year?

Answer 1:     Yes, if all the time that’s taken is counted toward the maximum amount of time off

                     allowed (12 weeks).

Question 2:  What government agency oversees and administers the FMLA for all federal

                     employees – as well as all state and local government workers and private

                     employees?

Answer 2:   The U. S. Department of Labor’s Wage and Hour Division. This is noted in Fact

                   Sheet #77B entitled, “Protection for Individuals Under the FMLA.”

Question 3: Are all workers qualified to take time off from their jobs under the FMLA entitled

                     to receive pay while away from work?

Answer 3:    No. The FMLA doesn’t require employers to pay qualified employees while they’re

                    taking this type of leave. However, it’s up to your employer to let you make a claim

                    for regular vacation time, sick leave or annual time off.

Question 4: Can a qualified worker ever be granted more than 12 weeks of paid or unpaid

                     FMLA leave in one year?

Answer 4:   An exception only exists for qualified family caregivers of wounded

                    servicemembers. They’re allowed to take up to 26 weeks off from their jobs in a

                    given calendar year.

Question 5: Can a qualified worker request more than 12 weeks off under the FMLA to take care

                    of a newborn – or a newly adopted child?

Answer 5:   In general, the answer is “No.” However, individual states can pass their own

                   versions of the FMLA and provide somewhat different benefits. To date, the Texas

                   Workforce Commission says that Texas has not passed such legislation.

Although the Family Medical Leave Act is a straightforward piece of legislation, it’s been updated with new rules and regulations and interpreted by the courts. Therefore, it’s usually wise for employers to ask their Houston employment lawyer for help if they have any specific questions about properly handling FMLA issues.

Please feel free to contact Murray Lobb so we can help explain any specific aspects of the FMLA to you as you provide its benefits to your employees. We’re always available to research any questions you may have.

Final Rule on Overtime Released by Department of Labor

May 18, 2016 – The U.S. Department of Labor has released its final rule on overtime under the Fair Labor Standards Act. The Administration estimates that the new rule will extend overtime protections to 4.2 million Americans who are not currently eligible under federal law. Once effective, the rule will raise the salary level from its previous amount of $455 per week (the equivalent of $23,660 a year) to $913 per week (the equivalent of $47,476 per year) in 2016. The rule will also raise the compensation level for highly compensated employees from its previous amount of $100,000 to $134,004 annually. The final rule also establishes a mechanism for automatically updating the salary level every three years, with the first update to take place in 2020. These changes take effect on December 1, 2016. The final rule may be viewed here:  https://s3.amazonaws.com/public-inspection.federalregister.gov/2016-11754.pdf.

The final rule does not make any changes to the duties test for executive, administrative and professional employees, which affects the determination of who is exempt from overtime. Administrative employees who do not meet the special provision for administrative employees will be eligible for overtime if they earn below the salary level set in the final rule and they work more than 40 hours in a week. 

In response to the new overtime rule, employers have the option of:

A. Paying time-and-a-half for overtime work;

B. Raising the workers’ salaries above the new threshold;

C. Limiting worker’s hours to 40 per week; or

D. Some combination of the above.

Buying a New Company:  Conducting Due Diligence

Depending on the nature and size of the business you’re interested in buying, the process of completing due diligence can be straightforward or complex. Fortunately, the basic steps you’ll need to follow are rather standard.

After your lawyer has negotiated a Letter of Intent (LOI) with the seller –  covering each party’s duties and responsibilities involving confidentiality, exclusivity and other matters – you’ll be ready to begin the due diligence phase of possibly buying the company.

The Main Reasons for Performing Financial Due Diligence

This process is partially designed to help determine if the initial evaluation placed on the business is fair and if the company is both stable and viable. Time must also be set aside to review all current contracts and potential legal and regulatory liabilities.

Some of the specific aspects of the business you’ll want your Houston business law attorney and personal accountants to carefully review and examine are set forth below.

  • All accounts receivable and payable
  • At least the last three years of the company’s tax filings
  • All current payroll obligations
  • Most or all the major banking transactions for the past year or more
  • The full nature and extent of any outstanding loans on the books

As this initial list of matters indicates, this process can take many months with some businesses. Normally, the parties negotiate the timetable for completing all due diligence examinations in their Letter of Intent (LOI).

Special Inquiries You Must Include Regarding Other Financial Matters

Hopefully, your review of all the financial accounts won’t turn up any troubling questions that can’t be answered. However, since a small percentage of business sellers may be dishonest, your due diligence team must carefully watch out for certain types of “red flags” or irregularities. These can include some of the following concerns.

  • Missing funds
  • References to non-existing accounts
  • Improperly filed tax returns
  • A varying degree of bad debt that’s regularly written off
  • Unstable profit margins

Your lawyer’s due diligence inquiry must also include carefully reviewing all current contracts with other businesses or corporations.

Key Concerns Involving Executory Contracts

  • When are they each due to expire? (This is important since this information can affect the company’s current valuation and other issues). For example, if current supplier contracts are ending soon, you may soon find yourself having to pay far more for critical supplies;
  • What’s the status of all customer contracts? You need to be sure all funds owed to the company are being collected regularly and all goods and services promised are being delivered in a timely manner. Failure to carefully monitor all contract terms can cost you valuable customers and open you up to major legal liabilities;
  • Are all Service contracts being carefully monitored? Nearly every business is dependent on outside service vendors to keep their manufacturing and other equipment working properly. Likewise, contracts are often in place to secure the professional services of lawyers, accountants, computer repair technicians and others. You must make sure the company is properly honoring all these contracts and renegotiating them in a timely and responsible manner;
  • Are all current leases being properly maintained? Companies can’t afford to accidentally let leases lapse on buildings or other property that are essential to their daily operations.
  • Employee Agreements? Do current employees have employment agreements with non-compete clauses? These must be carefully examined because they cannot be assigned if you are only buying the assets.

Due diligence can also extend beyond merely reviewing key financial documents and contracts. It should also include a detailed review of all actual or threatened litigation and regulatory investigations.

Your Lawyers Must Review All Current or Likely Lawsuits & Regulatory Challenges

Each of the following issues must be examined regarding all current or anticipated litigation. They may prove crucial if you decide to still buy a specific company since you’ll probably need to request contractual indemnity for all future liability (and litigation expenses).

  • How costly might each case eventually prove to be? In other words, what potential liabilities are involved?
  • Has the business received formal notice that any of its operations may be operating in conflict with any state or federal statutes or regulations?

You must be willing to sit down with your lawyer and the target company’s current legal counsel to sort through all these legal and regulatory concerns since they directly bear on the business’ current valuation and the wisdom or folly of buying it.

While the due diligence concerns referenced above are not intended to be fully comprehensive, they should help you understand many of the critical matters that must be examined. Once you make it through this due diligence stage, you can then either decline to buy the company or move forward into the “closing” or final transactions phase.

Please feel free to contact our law office so we can help guide you through the various stages of due diligence as you try to decide whether you should buy a specific company.

Choosing Reputable Charities for Your Texas Estate Plan

Many Americans now name one or more charities in their Wills or other estate planning documents to help these important cultural and humanitarian groups maintain adequate funding. However, others less familiar with charitable giving need to understand that, before arranging these types of gifts, they must carefully evaluate each charity or non-profit group to be sure their funds will be shared properly. 

Fortunately, there are several reputable organizations that will readily help consumers decide which charitable or non-profit groups are properly using all their donations while minimizing administrative costs. These same “watchdog” groups often urge all charitable groups to maintain open donation and expenditure records. In addition, our Texas Attorney General’s Office has put together some useful tips that can help all of us do a better job of deciding which charities will be the most responsible recipients of our testamentary gifts.

Here’s a list of basic tips that can help all of us better evaluate all non-profits and charities. That information is followed by a list of different websites and groups dedicated to providing consumers with current news about charitable activities. Of course, it’s always best to start your search by first visiting with your Houston estate planning attorney who may already know about the reputations of many charitable organizations.

Important Information to Obtain While Choosing Charities to Include in Your Estate Plan

  • First, be sure to obtain the full legal name of each group, its address and telephone number. Next, ask if the IRS has formally recognized it as a public charity that’s tax exempt. Then, ask if your donations will all be fully tax deductible.
  • Find out how long the non-profit or charity (hereinafter just referenced as ‘charity’) has been in existence.  While longevity doesn’t always ensure completely honest and frugal management of funds, it does mean that it should be easier to research the group’s reputation by visiting several of the online sources named below.
  • Request a recent annual report that clearly indicates how much money the group spends on administrative costs and how much of every donated dollar will directly benefit those the charity is seeking to help.
  • Find out if the charity’s main goals are related to education, medical services, scientific and medical research – or perhaps providing scholarships to those pursuing careers in specific vocational fields.
  • Do not give the group any of your private bank account or credit card information during your investigative calls – although it’s best to be honest about your intentions. Also, if you’re not ready to receive numerous emails or letters to your home address, avoid giving that type of information out right now.

Be sure to ask members of your professional or business circles if any of them have had positive experiences with the charities that interest you the most. When any charity has a publicly named board of directors, consider contacting those individuals directly by phone to ask them about their experiences with handling tasks on behalf of the charity.

When you’re ready, start visiting some of the websites set forth below to see what you can find out about each of the charities that seem to be highly reputable.

Online Websites Offering Detailed Information About Various Charities

  • Give.org. This website includes the sub-title, “BBB Wise Giving Alliance.” On its page dedicated to donors, it states that you can look up information about each charity’s effectiveness, governance, finances – and current brochures or other materials available to the public.
  • The American Institute of Philanthropy (Charity Watch). Among its various offerings, this website offers a list of charitable groups involved with some highly specific causes and issues.
  • Guidestar. This online resource offers a wide array of information about many reputable non-profit groups.
  • Charity Navigator. Like the other websites already named above, this one offers timely information about many charities. It also provides a “hot topics” link that will tell you more about charities currently in the news for one reason or another.

All four of the oversight groups listed above are noted on the Texas Attorney General website. You can also find out additional information about specific charities by visiting this Consumer Reports page.

If you haven’t already thought about giving to a charity or non-profit when you pass away, please consider doing so now.  All Texans need to do a bit more to help others so our state can become more compassionate — and improve our current ranking for charitable giving.

Please feel free to contact our firm so we can explain some of the best ways to include charities as beneficiaries in your estate plan. There are specific legal ways of handling this task so that your estate will reap the best tax advantages available.

A Basic Understanding of Trust Documents

A Basic Understanding of Trust Documents

Although many people still request Wills from their attorneys, it’s now often best for tax purposes to have the bulk of your estate transfer to others through one or more trusts. To better understand how trusts work, you first need to understand that there are living trusts and testamentary trusts.

Living trusts, also known as “inter vivos” trusts, are created during the grantor’s (or requesting party’s) own lifetime. By contrast, a testamentary trust is created within a Will and doesn’t become legally enforceable until after the grantor has died. As your estate planning attorney will tell you, there are two types of living trusts – those that are revocable and those that are irrevocable.

Revocable trusts let you maintain control over the trust assets, allowing you to revoke or change the trust’s terms whenever you believe it’s necessary. Should you instead create an irrevocable trust, the law no longer views the assets in the trust as yours – therefore, you normally cannot make any changes to the trust without the trust beneficiary’s consent.

While there are many different types of trusts and ways to set them up, the following ones are among those commonly requested by clients.

Frequently Requested Trusts

The Charitable Lead Trust. This type of trust can be created during the grantor’s own lifetime or upon that individual’s death. It provides for a type of annuity to be given to a charity for life or for a specific term of years. If there are any remaining trust assets, they are passed on to non-charitable beneficiaries when the trust terminates.

The Credit Shelter Trust. Many married couples with children often choose this type of trust because the surviving spouse can maintain full rights to the trust assets until his or her death. At that time, the trust benefits can then pass to the children. This trust is also commonly used because it allows the creator to escape estate taxes when passing the trust assets on to heirs.

The Irrevocable Life Insurance Trust. When you move your life insurance out of your estate by having this type of trust created, it’s no longer part of your taxable estate. The funds are then readily available to help pay for any possible estate costs or for other immediate cash needs of your beneficiaries.

Generation-Skipping (or Dynasty) Trusts. Grandparents often like to set these up because they’re designed to allow grantors to give tax-free money to beneficiaries who are two or more generations their junior.

The Qualified Terminable Interest Property (Q-TIP) Trust. If you’re in a second or third marriage and you and your current spouse had children during earlier marriages, you’ll want to learn more about this trust. It helps you not only leave your surviving spouse with income, it also lets you leave specific assets to your various children.

The Qualified Personal Residence Trust. You can use this to remove the value of either your main residence (or a vacation home) from your estate. It’s especially wise to create this type of trust regarding a property that’s very likely to increase in value over time.

The Special Needs Trust.  Many families have at least one member who suffers from some type of serious physical or mental disability. When you set up this type of trust, its terms can be restricted regarding how the assets can be used – thereby still allowing your loved one to qualify for certain types of government benefits.

As this article indicates, there are many different types of trusts that offer distinct advantages and disadvantages. Please feel free to contact our firm with any questions you may have about the specific types of trusts that may best suit your goals and preferences.

Everyone Should Benefit When an Employee Is Properly Fired

While most people don’t enjoy being fired from a job, everyone can benefit if the process is handled properly. To understand how this result is possible, it’s important to remember that your employees must be able to work together as a team. When one member is completely out of sync with the others or simply cannot do the assigned work in a timely manner, everyone suffers. So, once you’ve efficiently moved through the firing stages, most staff members will finally get the chance to perform at their highest level again.

The following information provides a brief overview of important goals to keep in mind when firing an employee. It also provides tips for protecting your company from wrongful termination lawsuits and describes the best way to meet with people while firing them.

How to Display Good Character and Protect the Business from Lawsuits

  • Be sure to clearly explain all employee management and firing guidelines in an employee handbook. Always hand one of these out to all new-hires on their first day at work and have them sign a simple form noting that they’ve received the booklet and will carefully review it right away. It’s even better to gather together “new hires” within a week or two of their starting at your company and covering basic information in the handbook;
  • Carefully investigate all the facts involved with possibly firing a specific employee. Also, make sure all supervisors are regularly interacting with each employee and telling them when their performance needs improvement – in writing (be sure to have the employee sign and date this form before placing it in a permanent file);
  • Review all applicable state and federal laws regarding termination. If necessary, speak with your attorney if you have any major questions – or believe the employee is likely to sue. Always remember that some employees are very sensitive to issues involving race, gender, ethnicity, religion, nationality, veteran status, disability, age and sexual orientation;
  • Gather together all pertinent, written evidence concerning the employee’s work record. Be prepared to keep this file in a very safe place in case a lawsuit is later filed. While doing this, rethink all the hiring practices that may need to be revised so you can avoid hiring a similar person in the future;
  • Treat the employee with dignity and respect. Don’t gossip about your firing plans. Meet with the employee in a private office setting with at least one other staff member present to serve as a witness. Respect the fact that the process of being fired may be hard on the individual. Unless the employee is guilty of terrible misconduct, remain open to paying a later unemployment insurance claim. Consider offering a severance package in exchange for the employee signing a waiver not to sue for wrongful termination. Be polite yet firm when simply stating the reasons for your decision. Finally, let the individual speak briefly about how they feel about the event. And be sure to pay all monies owed for accrued sick leave and vacation time;
  • Know that you may face sociological repercussions among other workers after the firing. If what you have done in firing a specific person is considered unfair, you may have a problem regaining the respect of many co-workers and superiors. It’s always wise to meet briefly with all concerned employees and simply state that the individual is no longer with the company and that you would prefer to not discuss it further for privacy reasons;
  • Be sure to retrieve all company property prior to providing a last check to the fired employee. You’ll also want to ask for the company laptop and any keys to office property. Be sure to immediately notify your computer and building security forces so they can block the employee’s future access to the company database and email system.  You’ll also need to collect all company I.D. cards and uniforms.

Finally, try to part on pleasant terms with outgoing employees, perhaps noting that you believe that they’ll find a better fit in other positions soon. Everyone really can benefit from a properly handled firing since it can eventually improve workplace morale. In fact, even the fired employee may soon find an equal or better position somewhere else.

Be sure to call our firm if you need any specific advice about preparing an employee handbook, interacting with troublesome staff members — or any other employment law issue.

Voters To Determine Whether Texas Changes Home Equity Lending Laws

Now that the Texas House and Senate have approved SJR 60 and its companion bill HJR 99, Texans must decide in November whether we should amend our state constitution’s home equity law provisions. Any changes to the state constitution require a voter-approved amendment. The proposed changes may benefit many borrowers and they would remove a prohibition that currently prevents agricultural homestead owners from seeking home equity loans.

Additional Changes Addressed by SJR 60/HJR 99

This joint bill is designed to accomplish several goals. One key objective is to lower the current three percent cap on fees that can be charged to borrowers initiating a home equity loan down to only a two percent cap. To achieve this change, the bill separates out from the cap such fees as property surveys, appraisals, title exam reports and state base premiums. This change is designed to help low-income borrowers and those needing loans in more rural areas.

This means that borrowers seeking home equity loans under $50,000 might currently see those added fees go over the three percent cap. However, if the cap is lowered and the other changes noted above are made, those same borrowers could probably avoid that problem. This proposed amendment would also increase the present loan-to-value ratio up to 80 percent (from its current level of 50%) on home equity lines of credit.

Consumers may also benefit from a new provision allowing them to refinance home equity loans that have already existed for at least one year. They could turn such loans into traditional mortgages if all required conditions are met. Those who wish to make these types of changes would be owed new disclosures clearly outlining the potential benefits that might be lost by making this change. Special time deadlines would also have to be met, making sure that each consumer clearly understands the full impact of converting the loan into a traditional mortgage well before the refinance closing date.

Recent Legislative History Regarding This Joint Bill

Back in 2015, Representative Richard Raymond of Laredo proposed a bill that addressed the three percent fee cap issue by removing specific third-party expenses from the cap. Although that bill failed to pass, it did raise awareness of these important issues.

Meeting Constitutional Change Requirements and Putting Matters to a Vote

The passage of these joint bills required a two-thirds majority vote in both the Texas House and Senate. Now that requirement has been met, it’s time to put this matter on the ballot so voters can make the final decision on November 7, 2017. Should Texas voters approve this amendment, the changes to our state constitution will take effect on January 1, 2018.

Should you have any questions about how you should initiate financing for your home or other purchases, please contact our office and allow us the privilege of helping you. We can also answer any other questions you might have about various contracts and lending practices.