This article was originally written for the Business Law Section blog of the State Bar of Wisconsin and appears here with the permission of the State Bar and the article’s authors.


MaiVue K. Xiong, U.W. 2010, is a partner with Weld Riley, S.C. in Eau Claire, where she practices in business, real estate, copyright/trademark, and banking law.


Obtaining a credit card or consumer loan as a married individual in Wisconsin actually requires compliance with multiple and complex areas of law. MaiVue Xiong discusses the framework lenders need to comply with obtaining and reporting credit, and the potential ramifications married consumers should know in Wisconsin.


Absent a prenuptial or martial property agreement, “what’s yours is mine and what’s mine is yours” holds true for all marital assets and marital debt in Wisconsin. This is the case even when a spouse has not signed to obtain the debt, so long as the lender extending the credit obligations provides certain notifications to the non-applicant spouse.

The notification requirements are even more vigorous when the Wisconsin Consumer Act governs the credit obligations, which includes “consumer credit transactions” or consumer loans, credit cards, and credit sales under $25,000 that are subject to a finance charge and payable in installments.

This article focuses on the rules lenders must follow to successfully grant consumer loans to ensure compliance with state and federal laws, and also addresses legal ramifications married individuals, especially non-applicant spouses, should be aware of when living in a community property state.

The Marriage Benefit

Wisconsin law presumes that an obligation incurred by a spouse during a marriage is incurred for the benefit of the marriage, even if the obligation is not signed off by the other spouse (the non-applicant spouse).1

A statement simply reflecting this “marriage benefit” language in a loan application is conclusive evidence that the loan incurred solely by the applicant spouse is for the interest of the marriage or family.2

A lender can then legally hold a non-applicant spouse liable for the applicant spouse’s credit obligation, as long as the lender

1) includes in its credit application that no marital property agreement, prenuptial agreement, unilateral statement, or court order exists to affect the interest of the lender, and the lender does not receive such agreement prior to granting the credit obligations;3 and

2) has properly provided the non-applicant spouse written notice of the credit obligation before any payment is due, also known as the “tattletale” notice.4

A non-applicant spouse may terminate an open-end credit plan initiated by the other spouse,5 but if such termination notice has not been received by a lender, the debt incurred by the applicant spouse is expected to be paid using both the applicant spouse’s individual property and the couple’s marital property, which means the non-applicant spouse is automatically liable for the applicant’s spouse marital debt.6

Credit Reports

Since a non-applicant spouse is liable for his/her spouse’s marital loans, a lender may also pull the non-applicant’s consumer report information (credit report) in assessing the spouse’s creditworthiness.

The Equal Credit Opportunity Act (ECOA) was enacted in 1974 to ensure lenders do not discriminate granting credit and loans on the basis of protective classes, including a consumer’s marital status. However, section 1002.5(c)(2) of the ECOA, Regulation B, specifically allows a lender to request “for any information concerning an applicant’s spouse … that may be requested about the applicant” if the spouse will be contractually liable on the account or if the applicant resides in a community property state.

This means that, in Wisconsin, a non-applicant’s spouse’s credit report may be pulled and used as a risk evaluation tool in assessing the spouse’s creditworthiness without violating the ECOA, even though the non-applicant spouse may have no knowledge yet that his/her spouse had originated a loan.

Furnishing Information

The lender then may report credit information and its experience, whether good or bad, on both the applicant and non-applicant spouses to the credit bureaus.7 There is no requirement that a lender furnish credit information, but if it does, it must make sure that the information is accurate, complete, and in compliance with the lender’s written policies and procedures.8

If a lender chooses to furnish information on an account, and the account is a consumer loan for a married individual living in a community property state, the information must include the names of both spouses – though the lender doesn’t have to distinguish between the applicant and non-applicant spouse.9

If a lender is asked by a credit reporting agency about a particular borrower, and the lender chooses to respond to the request, the lender can only provide information in the name of the spouse about whom the information was requested, and not in the name of the non-applicant spouse.10 This is to ensure that the credit report of both spouses are complete with all relevant information while at the same time limiting access to information relating to the non-applicant spouse.

Equally Liable

This last subsection of section 1002.10 of the ECOA attempts to build in some protection for the non-applicant spouse, but by and large, non-applicant spouses in Wisconsin and other community property states are equally liable on debt incurred by their spouses.

As long as lenders have fulfilled their obligations and given proper notices, married individuals in Wisconsin without pre-nuptial or marital agreements should always keep in the back of their minds that “what’s yours is mine and what’s mine is yours” to avoid any surprises the next time they pull a credit report.

Endnotes

1 Wis. Stat § 766.55(1)

2 Wis. Stat § 766.55(1)

3 Wis. Stat § 766.56(2)(b). This requirement does not apply to open-end plans such as credit cards where the consumer may pay down and obtain new credit without further application.

4 Wis. Stat § 766.56(3)(b)

5 Wis. Stat § 422.4155

6 Wis. Stat § 766.55(2)(b)

7 § 1002.10(a) of the ECOA

8 § 660 of the Federal Credit Report Act (FCRA)

9 § 1002.10(b) of the ECOA

10 § 1002.10(c) of the ECOA


This article was originally written for the Business Law Section blog of the State Bar of Wisconsin and appears here with the permission of the State Bar and the article’s authors.


THOMAS J. NICHOLS & JAMES DECLEENE

Thomas J. Nichols, Marquette 1979, is a shareholder with Meissner Tierney Fisher & Nichols S.C., Milwaukee, where he focuses his practice on business law and tax law.

James W. DeCleene,Marquette 2015, is an attorney with Meissner Tierney Fisher & Nichols S.C., Milwaukee, where he practices in business law, estate planning, health care law, and intellectual property law.

 

 


Investing in a qualified Wisconsin business may provide certain tax benefits to individuals. Thomas Nichols and James DeCleene discuss these benefits and some potential pitfalls.

 

Wisconsin law currently provides tax-favored status to certain investments made in qualified Wisconsin businesses.

First, where an individual realizes long-term capital gain from the sale of an investment in a qualified Wisconsin business made after 2010 and held for 5 or more years, that individual may be entitled to exclude all or a part of that gain in determining his or her Wisconsin taxable income.1

Second, where an individual realizes long-term capital gain from the sale of any capital asset, that individual may be entitled to defer that gain so long as he or she invests all of the gain in a qualified Wisconsin business within 180 days of the sale.2

Qualified Wisconsin Businesses

A business is treated as a qualified Wisconsin business for a given year only if it is registered with the Wisconsin Department of Revenue.3

Importantly, the registration filing must be made before the end of the calendar year when it takes effect.4 The sole exception to this deadline is that, for the first year in which an entity begins doing business in Wisconsin, that business must register in the following calendar year.5

Since each filing only covers one calendar year, businesses desiring continuous qualified status should file every year.6 These filing requirements create hard and fast deadlines. There are no procedures for retroactive filings.

Only certain businesses can register with the department as a qualified Wisconsin business. In particular, a business must, with respect to its taxable year ending immediately prior to its registration, meet the following requirements:

  1. The business must have had 2 or more full-time employees.
  2. 50 percent or more of the business’s payroll must have been paid in Wisconsin.
  3. 50 percent or more of the value of the business’s real and tangible personal property (owned or rented) must be located in Wisconsin.7

With respect to the year in which a business first starts doing business in Wisconsin, these requirements are deemed satisfied if the business registered for the following year.

For purposes of the two 50-percent requirements listed above, persons employed by a professional employer organization or group are considered as employed by the organization’s or group’s client, and property owned by the business is valued at its cost, while property rented by the business is valued by taking the annual rental paid by the business for such property, subtracting out the annual sub-rental received by the business for such property and multiplying by 8.8

Lists of the businesses that have requested to be classified as qualified Wisconsin businesses for calendar years 2011-18 can be found on the Department of Revenue website.

Businesses are automatically added to these lists as part of the registration process for a given year.9

Since a business’s registration for its first year is determined by reference to the following year, a business must request to be added to the list for the first year in which it does business in Wisconsin. This request is made by sending an email to DORISETechnicalServices@wisconsin.gov and providing the business’s legal name as well as the confirmation number for its registration for the following calendar year.

Be aware that these lists do not signal the department’s acknowledgement that a business is in fact a qualified Wisconsin business for a given year. Rather, it merely identifies those businesses that have self-identified as meeting the above requirements.

Accordingly, obtain representations, covenants, or other assurances as to a business’s qualified status when helping clients identify a qualified Wisconsin business in which to make an investment.

Exclusion on Sale of Investment

As noted above, one of the benefits of investing in a qualified Wisconsin business is that the long-term capital gain on the eventual sale of that investment may be wholly excluded.10

To qualify for this exclusion, the business must be a qualified Wisconsin business “for the year of investment” and “at least two of the four subsequent” calendar years, provided that the investment was made after 2010 and held for at least five uninterrupted years.11 To claim this exclusion, an individual must file a Schedule QI with his or her Wisconsin tax return.

There are a number of issues to be aware of in applying this provision. To start, this exclusion only applies after the sale of an “investment” in a qualified Wisconsin business.12 For these purposes, an investment is defined as an “amount[] paid to acquire stock or other ownership interest in a partnership, corporation, tax-option corporation, or limited liability company treated as a partnership or corporation.”13

While the statute requires an “amount[] [to be] paid” for such stock or ownership interest, we confirmed in a phone call with the Wisconsin Department of Revenue that this definition is broad enough to cover transactions involving noncash consideration. We also confirmed that the statute should also apply to cross-purchases where the ownership interest is being acquired from an owner of the entity, rather than from the entity itself. In order for an investment in a single member LLC to qualify, the LLC must have elected to be treated as an S or C corporation for Wisconsin purposes. 2017 Form I-177.

Be aware that late-year investments in entities that have not yet started doing business in Wisconsin may not be eligible for gain exclusion. For example, take the situation where an individual invested in an LLC in November 2017, but the LLC did not actually start doing business in Wisconsin until March 2018. Under those facts, the LLC would be prohibited from registering with the department as a qualified Wisconsin business for calendar year 2017 since it would not have started doing business in Wisconsin until 2018.14

Because of this, the business could not be qualified during the year of the investment, and no exclusion would apply on the eventual sale of the investment, even if the business registered as a qualified Wisconsin business for each calendar year in which it did business in Wisconsin.15 Thus, it’s good to advise clients whether to wait to invest in a business until the calendar year in which the entity starts doing business in Wisconsin.

Note that gain passed through to an individual from a partnership, limited liability company, limited liability partnership, tax-option corporation, trust or estate can qualify for the exclusion.16 As an example, an individual investing in a limited partnership that made an investment in an LLC would be able to exclude the gain passed through from the limited partnership’s sale of its interest in the LLC, provided that the limited partnership held the interest for five years and all other requirements are satisfied.

Deferral upon Rollover

Taxpayers may also be able to defer long-term capital gain so long as all of the gain is invested in a qualified Wisconsin business within 180 days of the sale of the capital asset.17 In addition to rolling the gain over into a qualified Wisconsin business, the individual must also file a Schedule CG with his or her tax return in order to claim this deferral.18 Note that this gain deferral provision is applicable to a large number of transactions, given that it could be used to defer any long-term capital gain.19

As with the gain exclusion provision above, there are a number of issues to be aware of when applying this deferral provision. For example, this deferral provision uses the same definition of “investment” noted above, so be aware that the investment in the qualified Wisconsin business for these purposes could also be made with noncash consideration or in a cross-purchase transaction.20

Additionally, the same problem with respect to late year investments in an entity that has not yet started doing business in Wisconsin is also applicable to this deferral provision. Further, gain passed through to an individual from a partnership, limited liability company, limited liability partnership, or tax-option corporation qualifies for deferral as well.21

For purposes of the deferral provision, however, it is unclear whether gain passed through from a trust or estate could be deferred since the instructions to Schedule CG are silent on this point. That being said, Form I-177, the instruction form for Schedule QI, allows for the exclusion of gain passed through from trusts and estates, and both the exclusion provision and the deferral provision have an identical definition of “claimant,” so it seems likely that an individual could defer gain passed through from such entities as well.22

On top of these overlapping issues, when advising a client with respect to the deferral provision, be careful to ensure that your client “invests all of the gain [from the sale] in a qualified Wisconsin business.”23 No partial deferral is allowed.

Also, given that this investment must be made within 180 days of the sale, apprise clients before the sale closing of this potential deferral opportunity and the relatively short deadline associated with it, in order to give clients time to make arrangements to acquire an interest in a qualified Wisconsin business.

Last, note that gain deferred under this provision will eventually be recognized. The statute accomplishes this by reducing the individual’s basis in the investment in the qualified Wisconsin business by the amount of gain deferred.24 Then, to prevent any slippage between the exclusion and deferral provisions, the statute prevents the deferred gain from being treated as qualifying gain for purposes of the gain exclusion provision.25

Note, however, that if the investment in the qualified Wisconsin business is held in a manner sufficient to qualify for the exclusion above, the gain on the eventual sale of the investment could qualify for exclusion to the extent it exceeds the gain previously deferred.

Conclusion

Investing in a qualified Wisconsin business provides clear benefits to individual taxpayers. If the investment is held long enough and all other requirements are met, the gain could be wholly excluded in determining the individual’s Wisconsin taxable income.

Additionally, if the investment closely follows the sale of a capital asset, the gain from that sale could be wholly deferred.

In either event, it’s good to bear these considerations in mind when navigating these provisions.

This article was originally published on the State Bar of Wisconsin’s Business Law Blog. Visit the State Bar sections or the Business Law Section web pages to learn more about the benefits of section membership.

Endnotes

1 Wis. Stat. § 71.05(25)(b).

2 Wis. Stat. § 71.05(26)(bm)(1).

3 Wis. Stat. §§ 71.05(25)(a)(1s), 73.03(69)(a).

4 Tax § 2.986(4)(a).

5 Tax § 2.986(4)(b).

6 Tax § 2.986(4)(a).

7 Wis. Stat. § 73.03(69)(b)(1)-(2).

8 Wis. Stat. § 73.03(69)(b)(1); Tax § 2.986(3).

9 Wis. Stat. § 73.03(69)(d).

10 Wis. Stat. § 71.05(25)(b).

11 Wis. Stat. § 71.05(25)(a)(2).

12 Wis. Stat. § 71.05(25)(a)(2).

13 Wis. Stat. § 71.05(25)(a)(1m).

14 Tax § 2.986(2), (4)(b); see Wis. Stat. § 71.22(1r) (defining “[d]oing business in this state” for this purpose).

15 Wis. Stat. § 71.05(25)(a)(2).

16 Wis. Stat. § 71.05(25)(a)(1); see 2017 Form I-177 (listing trusts and estates as well).

17 Wis. Stat. § 71.05(26)(bm)(1).

18 Wis. Stat. § 71.05(26)(bm)(2).

19 Wis. Stat. § 71.05(26)(bm).

20 Compare Wis. Stat. § 71.05(26)(a)(2m), with Wis. Stat. § 71.05(25)(a)(1m).

21 Wis. Stat. § 71.05(26)(a)(1).

22 Compare Wis. Stat. § 71.05(26)(a)(1), with Wis. Stat. § 71.05(25)(a)(1); see 2017 Form I-177.

23 Wis. Stat. § 71.05(26)(bm)(1) (emphasis added).

24 Wis. Stat. § 71.05(26)(c).

25 Wis. Stat. § 71.05(26)(f).​

By:   Ngosong Fonkem[1]

This article was originally posted on the “State Bar of Wisconsin’s Business Law Section Blog.”

The first five rounds of the scheduled seven rounds of the modernization and renegotiation of the North American Free Trade Agreement (“NAFTA”) has drawn to a close. Although the current administration has made reducing the U.S. bilateral trade deficits with its trading partners the benchmark for measuring success,[2] exports of U.S. made products to unauthorized end-user, end-use, or destination country without the required export license can lead an unaware U.S. exporter into legal trouble. This is of particular concern to small and medium-size businesses (“SME”) who often lack resources to employ necessary staff or counsel to assist them to navigate the very complex and cumbersome U.S. export control regulations. The U.S. International Trade Administration (“ITA”) reports that SME account for ninety-eight percent (“98%”) of all U.S. exporters,[3] and three-fourths of the exported items are controlled under U.S. export control regulations.[4] Thus, an elementary understanding of U.S. export regulation is vital to any small business looking to expand and benefit from new markets abroad.

What is an Export?

 The starting point for any export control compliance analysis is to understand how an export is defined under U.S. law. Specifically, if an item leaves the U.S. border via carried mail, email, fax, upload or download, mentioned in a phone conversation, or a U.S. exporter accepts a foreign client visit to its facility or permit visual inspection of plans or blueprints, such items or actions are considered an export and are thus subject to U.S. export license requirements.[5] Further, all foreign origin items shipped or transmitted through the U.S. are also considered exports.[6]

Which Federal Agencies Regulate Exports?

All U.S. exporters must fully comply with all applicable U.S. export regulations. Because these laws are administered by several different federal agencies, navigating through the myriad of applicable regulations is a daunting task. Although numerous federal agencies administer exports control regulations,[7] three agencies are of significance. These three agencies are within the following federal departments: The Department of Commerce, the Department of State, and the Department of the Treasury. First, within the Department of Commerce, the Bureau of Industry and Security (“BIS”) enforces the Export Administration Regulations (“EAR”). The EAR regulates the export and re-export of non-military and “dual use” commodities, software, and technology. The EAR also contains the Commerce Control List (“CCL”), which requires licenses for certain exports. Second, within the Department of State is the Directorate of Defense Trade Controls (“DDTC”) that administers the International Traffic in Arms Regulations (“ITAR”). ITAR contains the U.S. Munitions List (“USML”) and controls defense articles, defense services, and related technical data as these terms are defined by the USML and the Arms Export Control Act. Third, within the Department of Treasury is the Office of Foreign Assets Control (“OFAC”) that administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals. Note however that in 2009 the U.S. government began implementing the Export Control Reform Initiative (“ECRI”), which will make significant changes to existing export control system.[8] As of August 2015, Phase Two of the planned three phases is nearly complete.[9] When fully implemented, the ECRI will create a single control list, single licensing agency, unified information technology system, and enforcement coordination center.

What are the Penalties for Non-compliance?

 On June 22, 2016, the BIS published new Administrative Enforcement Guidelines,[10] which aimed to promote greater transparency and predictability to the administrative enforcement process. Further, based on the BIS guidelines, fines for export violations can reach $1 million per violation in criminal cases and up to twenty years prison term, while for administrative cases, it can result in penalties of up to $250,000 and a denial of export privileges.[11] Further, based on the enforcement actions that have been carried out so far by the various agencies, it appears penalties have been applied non-discriminately for each export violation.

 What are the Processes for Determining Whether an Export License is Warranted? 

First determine whether the product at issue has an Export Control Classification Number (“ECCN”) by checking the product against the EAR. The EAR will list reasons why that particular product falls under BIS control. Use this information to determine whether an export license is required, based on where the product is being exported to. Any product that does not have and ECCN is designated as EAR99, which usually does not need an export license, unless it is exported to an embargoed country or in support of a prohibited end-use. If the product is controlled, compare the ECCN against the Commerce Country Chart in the EAR to determine whether or not a license is required. Last, the U.S. maintains a list of restricted parties, which are persons or entities that U.S. exporters are prohibited from exporting to without a license. This may include EAR99 items that otherwise do not require a license based on the country of export. It is important to note that even the most harmless product might be intended for uses not envisioned by the U.S. exporter.

Disclaimer: The views and opinions expressed in this article are those of the author and do not

necessarily reflect the official policy or position of Addison-Clifton.

[1]Ngosong Fonkem, JD.MBA.LLM.BA is a senior advisor at Addison-Clifton LLC, focusing on its Asian Market Services practice sector. His professional legal and business experience is diverse, working cross-culturally in the USA and internationally on a variety of issues involving commercial transactions and government procurements, energy consulting, compliance and risk management, and fulltime member of the Faculty of Law at Multimedia University in Malaysia. Ngosong received his B.A. from University of Wisconsin-Green Bay (2008), J.D./MBA from West Virginia University College of Law (2011), and LL.M. from Tulane Law School (2012).

[2] USTR Releases NAFTA Negotiating Objectives. https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/july/ustr-releases-nafta-negotiating. https://ustr.gov/sites/default/files/files/Press/Releases/NAFTAObjectives.pdf

[3] “Profile of U.S. Exporters Highlights Contributions of Small- and Medium-Sized Businesses,” International Trade Administration, April 8, 2015.  Available at http://blog.trade.gov/2015/04/08/profile-of-u-s-exporters-highlights-contributions-of-small-and-medium-sized-businesses.

[4] Data is obtained from a 2013 National Small Business Association and Small Business Exporters Association Exporting Survey. “2013 Small Business Exporting Survey,” National Small Business Association and Small Business Exporters Association, at p. 13. Available at www.nsba.biz/wp-content/uploads/2013/06/Exporting-Survey-2013.pdf

[5] 15 CFR §734.2(b)(1); 15 CFR §734.2(b)(4). https://www.bis.doc.gov/index.php/documents/regulation-docs/412-part-734-scope-of-the-export-administration-regulations/file

[6] Id.

[7] Some of these federal departments and agencies include, Department of Energy, Department of Agriculture, the Drug Enforcement Administration, Food and Drug Administration, Nuclear Regulatory Commission, and etc.

[8] https://2016.export.gov/ecr/

[9] Id.

[10] https://www.bis.doc.gov/index.php/enforcement/oee/penalties

[11] https://www.bis.doc.gov/index.php/enforcement/oee/penalties

 

Author’s Bio and contact information.

Ngosong Fonkem graduated from West Virginia University College of Law 2011 (JD/MBA) and Tulane Law School 2012 (LLM), is a senior advisor at Addison-Clifton LLC, Brookfield, Wisconsin, where he assists U.S. and foreign companies with day-to-day compliance with U.S. trade laws and related audits, investigations, intervention, and civil enforcement proceedings; and doing business in Asia.

I’ve never really gotten on the Zombie movie and TV show bandwagon. I think it’s because they’re just so far-fetched, that it’s difficult for me to buy into the premise. When it comes to the reality of the Zombie Property Apocalypse though, it’s a completely different story. You may have read or heard about “Zombie Properties” in the news, but might not know exactly what the term really means.

Zombie Properties are partially a result of the subprime mortgage crisis that contributed to the housing bubble burst in the late 2000s, as many homeowners and lenders across the state of Wisconsin found themselves in court involved in foreclosure actions. In Wisconsin, a lender must foreclose on a property by bringing a law suit, where it must prove that the borrower defaulted on its mortgage obligations in order to get a judgment for foreclosure. Upon that judgment, the borrower has a specified period of time to redeem the property. Often, however, upon receipt of the foreclosure notice, borrowers just abandon their homes and don’t fight the foreclosure action in court, making it easy for a lender to obtain the foreclosure judgment. Seemingly, this would also make it easy for lenders to sell the property to get their money back from the loan it gave to the borrower. But, sometimes lenders won’t sell the property even if they have a foreclosure judgment. Upon a property being abandoned, properties  sometimes become subject to break-ins and other crime, making them unmarketable for sale, and often are of so little value that the lender has little incentive to incur the costs to sell. The lender will then just leave the property abandoned and dormant, putting the property in a limbo where it is neither dead nor alive; hence the term “zombie property.”

Zombie Properties have a negative effect on the marketability of sellers of other neighborhood homes and also decrease the availability of housing for buyers. In an effort to curb the problem in the state, Wisconsin enacted Act 376 earlier this year. The Act seeks to combat the Zombie Property problem in Wisconsin by making the time period for all foreclosures quicker and by deterring lenders from letting abandoned properties sit unsold for too long.

Shortened Redemption Periods

The first notable change under the new law is the reduction of redemption periods for owners of residential properties subject to foreclosure. In Wisconsin, when a lender wins a judgment of foreclosure against a borrower in default, the borrower has a chance to redeem the property by paying off the mortgage, executing a short sale, giving the lender a deed in lieu of foreclosure, or even filing for bankruptcy. Under the old law, if the lender opted to retain the ability to go after the borrower for any outstanding amount due on the mortgage, the borrower was given a year to redeem the property and to repay the deficiency. Also under the old law, if the lender opted to just have the ability to sell after the redemption period but waived its ability to go after the owner personally for the deficiency on the mortgage, the redemption period for the property was only 6 months. Under the new law, the redemption periods were reduced from 12 months to 6 and from 6 months to 3, for each respective situation. One caveat in the new law is that for this new 3 month redemption period, the owner of the property can extend the redemption period by a maximum of two months by showing that he or she has made a good faith effort to sell the property. The home owner can show a good faith effort by listing the property for sale with a real estate broker.  Though this reduction in redemption time affects all foreclosures on mortgages executed after April 27, 2016, the law reduces the likelihood of a home becoming a “Zombie Property” by reducing the amount of time that abandoned properties remain dormant.

 

Forced Sale of “Zombie Properties”

            The other notable change in the new Act is a rule that forces the hand of a lender to sell a property within a certain period of time if a court deems the property to be abandoned. Under the prior law, the Wisconsin Supreme Court had interpreted the statute as to require a lender to hold a sheriff’s sale of a property within a “reasonable” time after the expiration of the redemption period. In that ruling, the Wisconsin Supreme Court intended to curb the apparent Zombie Property Apocalypse by forcing lenders to sell abandoned properties after redemption periods expired. Despite the Court’s efforts to combat the problem, the Court’s ruling requiring a lender to sell an abandoned property within a “reasonable time period” was unclear.

The new law removes this lack of clarity by accomplishing two things: First, it requires that either the lender or the municipality where the property is located prove that the property is abandoned. Next, if a court rules that the property is abandoned, the lender must either sell the property or release the mortgage on the property within 12 months of the expiration of the property owner’s redemption period. If the lender does not do so after the expiration of the 12 month period, the municipality where the property is located or even the owner of the property can force the lender to sell the property at a sheriff’s sale. This change on forced sales of abandoned properties applies to foreclosure actions begun after April 27, 2016, without regard to whether the mortgage was executed prior to that date. By deterring lenders from sitting on abandoned properties for long periods of time, this change also reduces the likelihood that a property becomes a “Zombie Property.”

This new foreclosure process in Wisconsin is important to know for both lenders and all owners of real estate. For any questions on how this new law might affect you or your business, contact Schober Schober & Mitchell, S.C. at 262-569-8300 or email me at jmk@schoberlaw.com.

Social MediaIt’s incredible how much time we spend online. I recently read an article that the average person has close to 100 online accounts; whether it be social media accounts like Facebook, Twitter, or Instagram, other applications like Gmail and Amazon, online bank accounts, and yes, even the Pokemon Go app. Generally, posts, emails and other content contained on these accounts are considered to be a user’s “digital property.” Yet, what happens to these accounts when the user passes away or becomes disabled? Do they just disappear? Typically, website account providers require that users “sign” a user agreement upon creating an account, many of which are so long and dense most people don’t even take the time to read them. Often contained in these agreements is a provision that restricts access to the accounts to only the original user. In that case, if the user dies or becomes permanently disabled, the account may continue to exist and remain dormant without anyone having the ability to manage it. Because of the restriction to the original user, the account could not be accessed even if a loved one requested access from the website provider as a personal representative of the user’s estate or as the user’s power of attorney.

Wisconsin’s Digital Property Act

To address this problem, in mid-2016, Wisconsin passed the “Wisconsin Digital Property Act,” (codified in Wisconsin Statutes Chapter 711). The act empowers individuals to decide how their online accounts will be administered by their personal representative or power of attorney upon their death or disability.

One of the most important aspects of the new law is its provision allowing an individual to “opt-in” to have the law govern the individual’s digital property. The law creates a three tiered system for designating who may have access to the user’s digital property contained on the account. First, an individual can elect to use an “online tool.” An online tool is a setting established by a website or app provider like Facebook or Google that allows the user, right from their online account settings, to designate the person who they want to have access to their account in the event of their death of disability. Second, if the website does not have an “online tool”, an individual can designate who can access their account in an estate planning document such as a will or trust. If you opt-in to the law through either option, the website provider must grant your designated person access to the account to manage your digital property. Otherwise, the usually restrictive user agreement governs whether others can access your accounts to manage your digital property.

How the Act Affects You

I checked out Facebook’s online tool, one of the few sites that even has one. They call it a “Legacy Contact.” You can access it by going to Settings>Security>Legacy Contact. There is an option to designate someone to access your account, or alternatively, to have Facebook delete your account upon your death. For other sites that don’t offer such an option, the designation must be done in a will or trust.

The Wisconsin Digital Property Act is another example of the law adapting to our changing society.  Especially for people with many online accounts (Millennials, that’s you), this new law means it might be time to think about starting (or updating) your estate plan. If you have any questions about how to take advantage of the Wisconsin Digital Property Act, consult an attorney at Schober Schober & Mitchell, S.C. We’d be happy to help.

Spring is almost here, and that means real estate sales in Wisconsin will soon be picking up! With that in mind, a recent Wisconsin Court of Appeals decision may have a large impact on future Wisconsin real estate transactions. In Fricano v. Bank of America, the Wisconsin Court of Appeals found that a buyer of a home had a valid fraudulent misrepresentation claim against a seller despite the fact that their purchase contract contained an “as-is” clause.

“As-is Clause”

“As-is” clauses are frequently used in real estate transactions to allow a seller to avoid liability coming from a buyer, usually when hidden defects are discovered after the sale closes. However, in Fricano, the sales contract also had a clause that stated the seller had “little to no direct knowledge about the condition of the property,” when in fact, the evidence showed that the seller had knowledge of a severe mold problem that had resulted from flooding of the home. The Wisconsin Court of Appeals found that where there is a deceptive affirmative representation, like the one the seller made in Fricano, an “as-is” clause cannot preclude the seller’s liability for fraudulent misrepresentation. Where there is evidence that a seller knew of a material adverse condition, it has a duty to disclose that to the potential buyer. The case is now being appealed to the Wisconsin Supreme Court.

This case demonstrates the importance of having well-drafted real estate documents and effective legal representation when you are buying or selling property. Whether you’re looking to buy or sell, consult an attorney at Schober Schober & Mitchell, S.C. to ensure your transaction goes smoothly.

This post is being submitted with the substantial research and writing help of Jeremy Klang, 3rd year senior at Marquette University Law School.

I read an article noted on the ABA Journal Weekly Newsletter entitled, “Feds say 1789 law requires Apple to help government get encrypted smartphone data.” I’ve always been a proponent of individual liberty (and privacy), and I wanted to see what the government was arguing to support its case that they are entitled to snoop on everything we say or do on our smartphones.

The above article cites two further articles, one from Ars Technica’s Law & Disorder, and the other from Wall Street journal’s Digits.

In essence, the government is saying that a court can order anyone to cooperate with the government to get at data the government needs to enforce laws. The 1789 law, as amended, now reads:

28 U.S. Code § 1651 – Writs

(a) The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.

(b) An alternative writ or rule nisi may be issued by a justice or judge of a court which has jurisdiction.

The article points out that the real purpose may be to stop technology companies from making smartphones or other devices that the government cannot get into.

The comments following the blog are outstanding. As is usually the case, many say that if the government wins this case, the “bad guys” will be the only ones left with good encryption, and the rest of us well face constant government surveillance, harassment, arrest and prosecution for things that shouldn’t be anyone else’s business. While I agree, I’ll let you decide.

We learned this morning about another data breach, this time relating to the widely used Cloud Service called Dropbox.

Steve Kovach, of BusinessInsider.com reported yesterday that over 7 million Dropbox passwords have been compromised.

After the Target, Home Depot and other recent breaches, this isn’t a big surprise. However, since many lawyers use dropbox to share confidential information with their clients, it may certainly startle many.

If you haven’t considered encrypting the messages you send, now may be the time.

We thank our friends at Abacus Data Systems, Inc. for getting us word of the above news!

Good news for those of you starting new exempt organizations: the IRS just released a new form, called the 1023-EZ, which will make applying for tax-exempt status for some smaller organizations much easier.  The new form is only three pages long, compared to the lengthy 26 page standard 1023 form.  The simplified form will substantially reduce the legal expense of starting a 501(c)(3) and hopefully speed up the IRS approval process.

The IRS hopes that simplifying the approval process for smaller organizations will also reduce delays for larger organizations by freeing up more resources to review the lengthier applications.  Currently, the IRS has more than 60,000 501(c)(3) applications in its backlog, with many of them pending for nine months or longer.

The IRS estimates that as many as 70 percent of all applicants will qualify to use the new 1023-EZ.  Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible.

However, the new application processes is still not without complications.  For example, you will still have to decide whether your organization will be a public charity or private foundation.  Further, certain types of organizations, such as churches, are categorically excluded from using the new form, even if they are small in size.

Therefore, it is still important that you confer with an attorney who can help determine if you qualify to use the 1023-EZ and to help you make other important decisions related to your non-profit organization.  If you need assistance in this area, one of our business attorneys would be happy to assist you.

Thanks to our law clerk, Kelsey O’Gorman, who assisted in the post.

One of my partners, Eric Raskopf, who practices criminal and traffic defense work, recently posted to his blog, On Legal Ground, an article about someone losing their car as a result of being stopped while involved in criminal activity. Before you say, “Wait, that’s never going to happen to me,” read about what your kids, or maybe your employees, friends or neighbors may unintentionally do to your property, when you are not adequately supervising. Enjoy the read!