You can view potential new homes at the click of a mouse. You can get up-to-the-minute information online about mortgage rates, taxes, the schools in a community, and even its crime rate.

The Internet has given homebuyers and sellers plenty of great new options. But the basics of buying and selling remain—offer, negotiation, acceptance, the sales contract, the closing. All of these—and much more—are so saturated in law that the help of your lawyer is at least as important as ever—and maybe a bit more, given some of the options the Internet has opened up.

On the Market

Should you try to sell your home on your own, or use the services of a broker? The vast resources of the Internet as a marketing tool may convince you to go the for-sale-by-owner ("FSBO") route. If so, you’ll probably want to use an appraiser to help you set the value of the property, and you’ll need the advice of your attorney on such issues as preparing the sales contract, negotiating its terms, and seeing the sale through the closing.

What if you use a broker? If you use a traditional brick and mortar broker, you’ll be asked to sign a listing agreement. This is a legally binding contract, and you’ll want to get your lawyer’s advice before you sign. The agreement may be negotiable as to size of commission, when the commission is due, and how long the listing will be with the agent.

The Internet has also helped open up many more brokerage options. Of course, having more choices is good, but you’ll want your lawyer’s help in evaluating the options and making sure your contract is getting you what you need. Options include

Discount brokers—many of them "click and mortar" operations on the Internet—which offer lower fees but may omit some services, such as showing the home for you or negotiating on your behalf. Make sure you understand what you’ll get from them and have that reflected in the contract. Reliability and dependability may also be issues, since these are new companies that may not have to be licensed in your state.

Brokers offering to "unbundle" services. Instead of charging a commission that encompasses the full range of services, these brokers let you choose the services you need and pay what they’re worth. They’ll do some tasks; you’ll do others. Once again, it’s important to understand what’s what and have a contract that reflects that understanding.

Brokers offering a "one-stop" home buying service. If state and federal regulations permit, many large firms would like to offer homeowners insurance, mortgage financing, and other services, along with their traditional real estate services. This obviously would raise many issues that you’d have to understand and see reflected in your contract.

Getting a Mortgage

If you’re a buyer, a mortgage is almost certainly a must. The Internet has made shopping for a mortgage much easier. Many sites don’t offer loans but rather give you key information—daily market rates on purchase, refinance, and other mortgages; background on the loan qualification process; and mortgage calculators to see what you can afford. Through the web, you can also check out your own credit history and credit score.

Other sites permit you to apply for and receive loans online. You can comparison shop, considering such terms as current rates, APR, points and settlement costs. And of course mortgage loans themselves come in many flavors, from fixed the variable, from fifteen years to thirty. Some Internet auction sites even let you complete an application that is then sent to lenders who’ll compete for your business.

Once again, the profusion of choices is good, but you have to know what to look for and understand the process to make the comparisons meaningful. In the often unregulated world of the Internet, you may not know exactly who you’re dealing with. With your lawyer’s help, you can check out any mortgage broker and lender.

In any lending transaction, you may be required to sign many documents, including mortgages, notes, financing statements, affidavits, and disclosure statements. Your lawyer can help you make sense out of all this and settle on the deal that’s best for you. One last tip—get a rate lock that will guarantee you a certain rate and terms for a given period of time.

The Purchase Contract

This is the key to the whole transaction, regardless of how much of the process occurred over the Internet. You don’t want to sign this legal document first, then go to your lawyer. (An exception is contracts that are signed subject to the approval of your attorney—but that provision has to be in the contract.) Get advice up front about all the contract’s terms, because it’s far easier to avoid a mistake in the first place than to get out of one after you’re committed.

And it’s not just a question of the purchase price. Among the many important points are

Does the contract comport with statutory and case law, as well as local real estate customs and practices?

Is there a mortgage contingency? What happens if the buyer can’t get a mortgage?

What are the inspection rights? What happens if the inspection discloses problems?

What exactly is included in the sale (which fixtures? any personal property?)

Who bears the loss due to fire or other casualty before the title changes hands?

How much earnest money is required? Who holds it? What happens to it if the deal falls through?

The Closing

This is the moment of truth, at which the seller sells, the buyer buys, and the lender lends. It’s often a confusing process at which the various parties are asked to sign an array of documents. It involves recording fees, transfer taxes, provisions for title insurance, and the adjustment of various costs, such as fuel and taxes. Last minute snarls can jeopardize the deal.

There’s talk of "paperless closings" through the Internet. Using new digital signature technology, it’s theoretically possible to buy property, process a mortgage loan, execute promissory notes, and notarize transactions—all by computer. The possible benefits are savings in time and money. The "post-closing" process—the time until all the documents are recorded—could be cut dramatically.

But the problem is that buying a home just isn’t the same as buying a book online. For one thing, so much is at stake—it’s your home, after all, and probably the biggest investment of your life. Real estate has its own laws, and transactions often are complicated. It’s just good sense to have a lawyer at your side to answer questions, protect your best interests, make sure all the legal requirements are met, and deal with any problems that come up.

The Internet is a terrific tool for gathering information and learning about options. Your lawyer can help you make the best choices and save you as much money and hassle as possible.

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Raising Money for Your Business Start Up

Starting your own business is a big part of the American dream. Millions of us take the plunge every year.

But it’s not enough to have a good idea and a marketing and financial plan. Knowing the legal side of things can make everything go smoother.

Your lawyer is your best guide to your particular situation. In this article—the first of a series on the legal side of starting a business—we look at how law affects some of the ways of raising money for the business.

Securing Capital

Capital is another word for "money." By any name, it's the lifeblood of any new business. There are usually several potential sources of capital for a new business:

contributions made by you;

loans from family and friends;

loans from banks and other financial institutions;

(We’ll look at other sources for loans, as well as investments by others, in a future issue.)

Contributions from Yourself

Getting capital from yourself can be the simplest possibility, but may not meet the needs of the business.

Some alternatives, besides savings, include:

paid-up life insurance—The surrender or cash value of whole life insurance policies is the equity you've built up over the years through the premiums you pay. This is what the insurance company would pay you if you canceled the policy. You can borrow against this amount from the company. Rates are low, and the loan is easy to arrange (after all, it's your money). Repayment plans can also be flexible. This is a good option.

borrowing against your retirement plan—This is an option only if you continue to work for your employer while starting up your business, and only if you've build up equity (vested benefits) in your 401(k) or similar plan. If you have, borrowing against this equity is relatively easy (once again, it's your money), rates are low, the repayment period can be as long as five years, and, best of all, you're repaying yourself.

home equity loans—Home equity simply means the difference in value between what your home is worth--its market value--and the amount of principal you still owe on your mortgage. If your home is worth $120,000 on the market and you have only $20,000 left in principal, your equity is $100,000. Usually, a lender will lend you 75% to 80% of the equity. A home equity loan is, in essence, a second mortgage. Rates are usually higher than first mortgages, since there is greater risk for the lender. You can usually deduct the interest you pay on your federal income tax returns. The downside is that you have to go through most of the paperwork and much of the expense and delay of a first mortgage, including paying mortgage recording taxes in some sates, and your home is at risk if you can't pay the loan back.

borrowing against the value of your stocks and bonds—If you're fortunate enough to have such investments, this is one more way of borrowing against your own money. Instead of selling stocks or bonds and incurring taxes (and maybe missing out on some big gains), you can use them as collateral for a loan from your brokerage firm. You can't get the full amount of their current value (too much risk), but once again rates are low and repayment flexible. If the stocks fall in value you could be in for a rude shock, but this is an alternative worth considering.

Loans from Family and Friends

The pluses are that you won't have to go through a lengthy application process, repayment terms could be more liberal than you'd get from a bank, rates could be lower, maybe even nonexistent. The minuses are that you’ll strain your relationship with family and friends if the business fails.

It's almost always best to put the terms in writing by signing a promissory note. Loans that go sour are a source of family donnybrooks. At least with the agreement in writing you won't have two (or more!) widely different memories of who promised when and what. And if you are unable to repay, with a promissory note Aunt Carol is in a far better position to convince tax authorities that her loan to you should be a tax write-off and not a gift.

A promissory note is a legally binding document in which you set out the terms of the loan: how much you got, the interest rate, how long you have to repay, rate of repayment. Your lawyer can help you draw one up.

Loans from Financial Institutions

Commercial banks and other commercial lenders are a possibility for additional working capital, though they know very well the failure rates of new businesses and will probably take a lot of persuading to part with some of their money for your start-up. Expect to go through a lengthy application process. It could mean lots of time and paperwork.

If you do decide to borrow capital, the business must have collateral to secure the loan—something tangible the bank can take to recover its losses in case you can't pay the debt. Most start-up businesses don't have a building or fleet of trucks that can be pledged as collateral, nor do they have a big stock of inventory or accounts receivable that could be pledged. As a result, banks will generally require personal guaranties and collateral from the owners of the business. This means that you will have to back up the loan with your home or other valuable property to get funding—and that you could lose this property if you fail and default on the loan.

Banks always want as many places as possible to turn to in case the debt isn't repaid. That's why they often insist on a co-signer, someone who pledges to make good the repayment if you can't. If your spouse co-signs, he or she puts at risk any separate property, as well as the property that you own jointly.

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Law Gives You Protections in Auto Leasing

Leases are a popular alternative to buying a new car. About a quarter of consumers choose to lease rather than buy, as many as half in the case of luxury cars. With so much at stake, the law is now giving savvy consumers important protections.

Your lawyer can fill you in on specific legal protections you may have. Here’s a quick look at the general situation.

What’s a Car Lease?

A lease is essentially a contract for the use of a vehicle for a specified time period. Most lease contracts are closed-end leases. These permit you to return the car at the end of the term, pay any end-of-lease costs, and walk away (which is why they’re sometimes called net or walk-away leases). Leases usually have a one-year minimum term; two- and three-year leases are common.

Leasing a vehicle is like renting an apartment—you know what your monthly costs are going to be, but at the end of the term you have no equity built up.

Your monthly payments are often lower in leasing than in buying. That is because they cover an estimated amount for the depreciation of the car over the lease (the difference between the vehicle's worth when new and at the end of the lease), rather than covering the full value of the car.

Lease or Buy?

Purchasing a car might be more economical in the long run, but leasing may be attractive to people who want to avoid the hassles of ownership, drive a more expensive car than they could afford to buy, and drive a new car every two or three years.

Negotiating Tips when Leasing

The law typically requires certain disclosures that should help you compare offers from one company to another, and give you a better idea of the factors that raise or lower your costs.

One reform adopted by a number of states is to require the lease contract to include the vehicle's "capitalized cost," a figure that would be roughly the vehicle's sticker price if it were purchased. This is an important figure because your monthly payment depends in large part on the difference between the value of the car when new and its value at the end of the lease. Knowing this figure gives you a basis on which to negotiate. Since hardly anyone pays the sticker price on a new car, the thinking goes, why should you permit your monthly payments to be in part determined by the sticker price?

A lease contract has many more variables than a straight purchase. All these variables actually open up more opportunities for bargaining, which could benefit you. They include, besides the capitalized cost:

the interest rate;

the residual value of the vehicle (i.e., what it's worth at the end of the lease); and

the length of the lease.

Other important points might be your options when your lease is up. You can turn the car in, extend the lease payments (or renegotiate another lease), buy for cash (typically at residual value) or finance the purchase through an installment loan. The lease usually doesn't spell out these options, though the lease often does contain an option to purchase at the residual value. How you buy the car or extend the lease is often a separate negotiation.

Other possible costs that you may be asked to pay (and that may be negotiable), include

the "capital cost reduction" you may be required to pay up front (it’s a kind of down payment);

state and local taxes; freight and destination charges; licenses, registration, title, and "lease acquisition" or "documentation" fees paid to the dealer to set up the lease;

the security deposit (may be equivalent to one or two months' payments);

repairs and maintenance after any warranty period expires, unless the lessor agrees to pay in your contract;

an excess mileage cost, applied at the end of the lease term. Excess mileage charges add up very fast at twelve to twenty-five cents a mile for the excess. It is essential that you get a lease that allows you to drive the number of miles that you typically drive before the excess mileage kicks in;

an "acquisition fee" if you ultimately choose to buy;

a "disposition fee" if you return it at the end.

Other Key Terms

Here are some other important points. Usually the consumer is liable for damage to the vehicle, and a lease may include insurance. If not, you must provide your own. Damage done to the car while in your possession may cause the lessor to deduct an "appropriate" amount from your deposit.

Also important is the early termination clause. The lease agreement is a binding contract that obligates you to make payments for a stated term. Your contract may contain an early termination clause. This usually requires a minimum number of monthly payments before you may cancel, and the formula for determining the amount you owe in the event of early termination typically results in a very large payment.

Understanding the method that the dealer proposes to calculate this fee will give you the option of trying to negotiate better terms before you sign.

You may also wish to have gap insurance included in the lease, to take care of situations like owing more for a car that has been stolen than the market value that the insurance company will cover.

As usual, it pays to do your homework. Compare terms from several different dealers. Get everything in writing. Take your time and don’t be pressured. Make the effort to negotiate, and don’t go ahead with a deal until you are fully satisfied.

 

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Sidebar: Protections for Consumers Who Lease

The Federal Consumer Leasing Act offers protections to consumers who lease cars.

The law requires the lessor to disclose information before you sign the lease. Among the most important items are:

total amount of any initial payment you are required to pay;

number and amounts of monthly payments:

total amount for fees, such as license fees and taxes;

any penalty for default or late payments;

the annual mileage allowance and the extra charges involved if you exceed that allowance;

whether you can end the lease early, and the extra charge required;

whether you can purchase the auto at the end of the lease, and for what price;

any liability that you may have for the difference between the estimated value of the auto and its market value at the time you end the lease;

any extra payment that you must make at the end of the lease.

The Federal Trade Commission helps enforce this law. Your state may have its own laws protecting consumers who lease. Check with your lawyer, your consumer protection agency or the office of your local state's attorney.

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Class Action Suits

You may not know the term "mass torts" yet, but you probably recognize the concept. These are lawsuits filed by a "class" of individuals, usually against big corporations. The suits allege that the individuals have been injured in some way by the company, and urge that the class of victims be compensated by money damages for their injuries.

The popular film Erin Brokovich was a fictionalized version of a real case involving serious illness allegedly caused by water contaminated by a large utility.

The suit in the film is typical of "toxic tort" cases--alleging injuries and illness caused by exposure to chemicals and other substances. In recent years suits have alleged injuries because of

asbestos;

chlorinated and organic solvents;

herbicides, fungicides and pesticides;

silica;

groundwater, soil, and air contamination;

radiation;

fiberglass; and

gasoline additives

Other personal injury cases have sought damages because of faulty medicines or medical devices, such as breast implants, IUDs, and diet drugs such as "fen-phen." Still others have dealt with substandard or dangerous products, and mass disasters such as the oil spillage from the Exxon Valdez.

Class action cases have also played a role in cases involving investors (alleged securities fraud), consumers (deceptive and false advertising), and employees (discrimination on the job).

What these cases have in common is that they are brought not by a single plaintiff, but by a class of similarly situated persons who claim to have been injured in the same way.

Class Actions

Legal theorists defend these class actions on a number of grounds:

Access to Courts: By gathering many cases together, class actions permit a number of people who have suffered injuries to have their day in court. Without moving together as a class, it might be prohibitively costly for them to act.

Efficiency and Economy: Rather than deluging courts with hundreds or thousands of similar suits, they permit courts to resolve issues more quickly and with less waste of judicial resources.

Balancing the Scales: By joining forces, individuals have a better chance of a level playing field—with more resources at their disposal, they are better situated to pursue claims against well-funded adversaries.

Justice: By deciding like cases together, the cause of equal justice is furthered.

Class Actions in Practice

Courts will monitor class action suits carefully to assure fairness to all involved. One big issue is whether a class exists (are the members identifiable? How will they be notified of the suit and given an opportunity to opt out?). If the court "certifies" the class and permits the case to go forward, other issues may include how to handle disparate issues of fact—if the class members seem to have been injured to different extents and in different ways, it may be better to handle claims individually. And there may be other issues regarding the size and distribution of damages.

While class actions can be controversial, they are firmly established in American law. Your lawyer will be able to answer any questions you may have.

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