Lotzar Law Firm P.C.

Legal talent that pays for itself.
480.905.0300 x103 8687 E. Via de Ventura, Suite 115 Scottsdale, Arizona 85258

What is the Low-Income Housing Tax-Credit Program?

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The federal government provides tax incentives for developers to create low income housing within their communities.  Qualifying for the tax breaks provided by the federal program can significantly lower the costs associated with construction of new housing units or rehabilitating old units into low income housing. asset protection

The Low-Income Housing Tax-Credit Program (LIHTC Program) is one of the best and most comprehensive tax incentives for developers who wish to construct affordable apartments or other low-cost housing units. The program was created by the Tax Reform Act of 1986 in order to encourage investments in lower income housing. An experienced Scottsdale Arizona  business lawyer at Lotzar Law Firm, P.C. can assist you in determining if your development should qualify you for the Low-Income Housing Tax Credit Program. If so, we can assist with the application process.

Understanding the Low-Income Housing Tax-Credit Program

The Low-Income Housing Tax-Credit Program provides a dollar-for-dollar reduction of tax liability to owners and investors who make low income housing available within their communities.

In order to be eligible for tax-credits through this program, there are a variety of criteria established in Section 42 of the Internal Revenue Code that the development must meet.  For example, one of the following must be true in order to be eligible to receive tax incentives under the Low-Income Housing Tax Credit Program:

  • 20 percent or more of the residential units available within the newly constructed or rehabilitated building must be occupied by renters who have an income at or below 50 percent of the median gross income in the area.  The units with the low income renters must be rent-restricted units.
  • 40 percent or more of the residential rental units that are made available must be occupied by renters who have incomes equal to or below 60 percent of the gross median income in the area.

When a developer or investor seeks to take advantage of the tax credits that the Low-Income Housing Tax Credit Program makes available, a commitment must be made to keep the units rented to lower income individuals over the long-term. The property that is developed or rehabilitated needs to comply with the rent restrictions for 30 years from the time of the first taxable year in which tax credits are claimed.

The Arizona Department of Housing has also indicated that the Qualified Allocation Plan (QAP) within the state (the plan that awards the credits) encourages the targeting of the credit to developers that do more than the minimum to provide low-cost housing. In other words, a developer that will make more units available to people at incomes lower than 50 or 60 percent of the median will typically be more likely to receive the tax credits.

Qualifying for and applying for credits can be a complex process and it is important that you complete all initial paperwork correctly. You also need to ensure you remain in compliance with ongoing obligations. Lotzar Law Firm, P.C. has extensive experience with the Low-Income Housing Tax Credit Program and can provide assistance if you believe you qualify for this important tax-incentive. Call today to schedule a consultation and learn more about how a Scottsdale Arizona real estate lawyer can assist you with your project.

Using a Revenue Bond to Finance Low-Income Housing or Other Projects

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Developers and investors can use Revenue Bonds to fund certain types of commercial real estate projects. Revenue Bonds can be used to finance low-income housing throughout the state of Arizona.  Revenue Bonds are one type of funding that can be used to finance low-income housing and receive tax advantages, so talk to a lawyer about all options available. apartments-and-balconies-1338479-m

Using a Revenue Bond As Project Financing

Revenue Bonds are typically available on a tax-exempt basis. That can offer significant tax savings and lower interest rates for the development of qualifying projects including, in some cases, low income housing.  Bonds can be obtained to finance the development of projects that benefit the public including:

  • Healthcare or education facilities
  • Low income or subsidized apartments
  • Multifamily residential housing
  • Other facilities used by qualifying Section 501(C)(3) charitable organizations
  • Manufacturing, processing and assembling enterprises
  • Docks, wharves, airports and facilities designed for mass commuting
  • Hazardous waste disposal facilities
  • Solid waste disposal facilities
  • Sewage treatment centers
  • Gas and water distributors
  • Electric and energy facilities

Financing a project with a Revenue Bond requires compliance with all federal tax laws, Arizona state laws on open meetings, public records, securities, and federal securities laws. Investors and developers must also comply with the state Industrial Development Financing Act as well as all state and federal laws applicable to debtors, creditors, and within the commercial real estate industry.

Revenue Bonds can be issued by any government agency and are often used to help municipalities avoid reaching debt limits set by legislatures while investing in private projects. In Arizona, the various Industrial Development Authorities located throughout the state issue most of the Private Activity Bonds. Determining how to apply for a Revenue Bond can be complex so speak with an attorney for assistance with all projects that could qualify for financing using Revenue Bonds.

Lotzar Law Firm, P.C. has extensive experience with Revenue Bond financing. Our attorneys can handle bond financing transactions including transactions involving conduit revenue bond issues.  Talk to an attorney about whether Revenue Bonds may be an appropriate source of loan financing as well as about other options related to financing low-income housing.

What is the Difference Between a Recital, a Condition, a Covenant, a Representation, and a Warranty?

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Contracts must meet certain requirements to be valid and to protect the rights of the parties to the contract. When entering into a contract, whether for real estate transactions or any other business transaction, contracting parties have a duty to read the contract and will be bound by the terms of the agreement.  signing-the-contract-204756-m

Before negotiating, drafting, and signing a contract, you need to understand its parts and ensure you include necessary provisions to protect your financial interests and the interests of your organization. A Scottsdale Arizona contract law attorney at Lotzar Law Firm, P.C. can provide invaluable assistance in understanding contract parts including a Recital, a Condition, a Covenant, a Representation and a Warranty. Call today to learn more.

Understanding a Recital, a Condition, a Covenant, a Representation, and a Warranty

A Recital, a Condition, a Covenant, a Representation, and a Warranty may all be found within contractual agreements – but all play different roles.

Recitals are optional. The general purpose is to provide additional background about the agreement. The Recitals may state the contracting party’s understanding of their current situation and purpose or intentions in creating the contract. Recitals are not generally enforceable as contract provisions. However, Recitals can be a valuable tool in contract interpretation if a dispute arises later.

Conditions are also not included in every contractual agreement. Conditions provide a description of things that must occur in order for a party to have an obligation to perform under the contract. A contract obligating a builder to begin construction, for example, may be conditioned on the developer successfully closing on a sale of the lot. If the sale of the lot does not go through, the Condition would not be satisfied and the builder would not begin construction.

Covenants are the heart of contractual agreements. Covenants are the promises the parties make to undertake certain actions or cause certain actions to be undertaken. Covenants can also involve incidental activities that either contracting party believes are needed to create the circumstances under which the contract will be performed.

Representations are assurances by a contracting party that certain circumstances or facts are accurate and true. The contract consideration or purpose for contracting may depend upon the truth of a certain fact or circumstance; Representations provide assurances of the necessary conditions and/or of the the existence of the necessary facts.

Warranties are also assurances made by a contracting party. However, Warranties are assurances that representations that are made are true, or will be true, at some future point before the transaction commences. Breaching this kind of warranty is usually an event of default under a Contract, creating a cause of action for Breach of Contract against the party to the Agreement who makes inaccurate or untrue Representations and Warranties.

Lotzar Law Firm, P.C. can provide assistance negotiating these and other contract terms when you or your organization is entering into an Agreement. To learn more about your legal rights and for assistance with drafting a contract that protects your interests, call today to speak with a Scottsdale, Arizona business lawyer.

Do Banks Enforce Personal Guarantees?

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Most organizations take on debt during their formation and during their expansion phase. Even established businesses may need to borrow capital for growth. Large businesses with a history of consistent revenue streams and legal identities separate from owners can apply for and receive credit independently. Loans made to a business will not be enforceable against business owners as long as the business applies for and is granted the loan and the debtor does not make a Personal Guarantee. loan-application-478790-m

However, individual owners can become responsible for business debts for Sole Proprietorship’s, Partnerships and certain other organizational types that do not create a separate identity for the company. Business owners and anyone else who personally guarantees debt can also be jointly and severally liable for debt repayment. Banks can and do enforce Personal Guarantees so it is imperative to understand financial risks of assuming personal responsibility for company debt.

Lotzar Law Firm, P.C. provides assistance to individuals and business organizations on a variety of issues relevant to startups, as well as to expanding organizations. We can review financial transactions and provide advice and guidance on protecting your interests. Before entering into any loan transaction personally or for your business organization, consider having a Scottsdale Arizona business lawyer at Lotzar Law Firm, P.C. review the loan terms to ensure they are sufficiently protective of your interests.

Do Banks Enforce Personal Guarantees?

When you make a Personal Guarantee, you agree to be responsible for all financial obligations of a debtor to a lender in the event the debtor defaults. The secondary obligation supports the primary obligation that exists between a debtor and lender. This obligation is contingent upon the debtor’s primary obligation to repay debts. If the Loan Agreement is declared invalid and the debtor is no longer liable for repayment, the Guaranteer is also no longer responsible for the financial obligation. A Personal Guarantee is distinct from an Indemnity, as an Indemnity creates a primary obligation to repay that is not contingent on borrower obligations.

Guarantees are generally enforceable only if the promise to assume responsibility is in writing and the Personal Guarantee signs the written document evidencing the Guarantee.

Provided the Guarantee is enforceable, banks routinely enforce Personal Guarantees if a debtor becomes unable to pay or is delinquent in repayments. Banks consider the Personal Guarantee when making a risk assessment of the loan and may be induced to lend based, in part, on the credit worthiness of the Guaranteer. Since Guaranteers are required when a primary debtor has insufficient credit or poor credit, lenders count on the fact that they can come after a Guaranteer if the loan is not paid.

Banks and lenders are often quick to begin enforcing a Personal Guarantee as soon as default occurs. Lenders must make a demand for repayment in accordance with the terms of the Loan Documents and must serve the Guaranteer with notice pursuant to contract terms.

Since banks enforce Personal Guarantees, the risk of entering into such an agreement must be carefully evaluated. If you are considering signing a Personal Guarantee to take on debt for your business, speak with a Scottsdale Arizona business lawyer before you sign any paperwork.

What is the Legal Name of a Business?

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Official tax forms must be filed by a business organization under that organization’s legal name. An organization should also apply for credit, open bank accounts, enter into contractual agreements, and otherwise conduct business transactions using its legal name. acredittation-979238-m

The legal name of a business will vary depending upon the structure of the business organization. A legal name of a business is a separate concept from a doing business as (DBA) or a trade name. Lotzar Law Firm, P.C. can help you to determine the legal name of your organization and can help you to secure protection for that legal name so no one else may use it. To learn more, contact a Scottsdale Arizona business startup lawyer at Lotzar Law Firm, P.C. today for help.

What is the Legal Name of a Business?

The legal name of a business for a Sole Proprietorship is simply the name of the person who owns the business. A Sole Proprietor is the same legal entity as his company. A person named John Doe who runs a business has a business with the legal name of John Doe. This is true even if he calls his company John’s Pizzeria or selects another informal name for the company to operate under.

John, or any Sole Proprietor, could register a trade name or file a DBA but this is not legally required and it will not grant exclusive rights to the business name.  A Sole Proprietor who wishes to secure exclusive use of a DBA name would need to file to register a trademark with the U.S. Patent and Trademark Office to secure state and federal protection of the logo, slogan or phrase.

The legal name of a Partnership is established in the written Partnership Agreement.  If no name is specified within the Agreement, the legal trade name for a business structured as a General Partnership is generally the last names of the owners of the business.  For Limited Partnerships, the name will be the name filed with the Arizona Secretary of State.

If a Limited Liability Company (LLC) or Corporation is formed, the LLC or Corporation will need to submit paperwork to the Arizona Corporation Commission as well as to the Internal Revenue Service. The LLC or Corporation must choose a name that is in compliance with Arizona naming standards. For example, the name of a Corporation must contain at least one of the following words or an abbreviation of that word:

  • Company
  • Corporation
  • Limited
  • Incorporated

LLCs and Limited Partnerships also have  words or abbreviations that are required to be part of the legal name of a business to identify them as LLCs or Limited Partnerships.

The name registered for a Corporation or for an LLC must be original and no other Arizona Corporation, LLC, or Limited Partnership must have already registered under that particular name.  The same name must be used when applying for a Federal Employer Identification Number as is used for the incorporation paperwork or forms submitted to create the LLC.

Lotzar Law Firm, P.C. can assist with all aspects of the legal name of a business: securing a trademark; filing to register a trade name; creating a Partnership Agreement; or filing forms to start an LLC or Corporation in Arizona. We can assist in identifying whether a desired name for your business is available and can help you to protect your chosen company name. Call today to schedule a consultation and learn more.

To learn more, please download our free I Reserve a Name For a New Arizona Business Entity here.

Free Report: What Does It Mean to Respect Corporate Formalities in Arizona?

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What does it mean to respect corporate formalities

Many business owners form a Corporation in order to ensure that they are able to protect their financial interests. Incorporating creates a separate legal identity for your business so you do not become personally responsible for judgments against your corporation or for debts that your corporation incurs. Incorporating can also have tax benefits, as it may be possible to take some of your compensation in distributions rather than as salary. This means you do not have to pay Social Security or Medicare taxes on that income.

When you incorporate your business, it is important to realize that you must actually treat the company as a separate legal entity in order to continue to enjoy the benefits and protections of incorporation. The steps involved in treating your corporation as a corporation are referred to as “corporate formalities.”

Click here to read the report or download the PDF.

What is a Surety in Construction?

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A Surety is a person who promises to assume responsibility and/or liability for another’s performance. In construction, a surety usually refers to a Surety Bond. A Surety Bond is collateral to guarantee someone will pay a debt or perform a duty.  agreement-signing-251732-m

It is common to use a surety in construction. Surety Bonds ensure that a contract will be completed successfully in the event of a default by the contractor.  Developers and builders need to understand the legal rules associated with sureties in construction projects in order to protect their financial interests. A Scottsdale Arizona real estate lawyer can provide assistance with all aspects of a Surety in Construction.

What is a Surety in Construction?

There are four primary types of Surety Bonds used in the construction industry:

  • A Bid Bond ensures that a contractor who makes a bid will fulfill his obligations if awarded the bid. The Surety is pledged with the bid and guarantees that the bidder will enter into the contract if selected. Bid Bonds may be required of developers or construction companies who bid to complete public projects.  Federal construction contracts require a Bid Bond for projects valued at $150,000 or more. Many local and state municipal governments have similar requirements. When the contract is awarded, the developer generally will be obliged to provide Payment and/or Performance Bonds.
  • A Payment Bond ensures that subcontractors and suppliers receive payment for work performed. This protects owners of property, who otherwise could find their property subject to a Mechanics Lien if the subcontractors or suppliers were not paid in full.
  • A Performance Bond ensures that a contractor or construction company will complete the terms of the Contractual Agreement, complying with substantially all provisions of the Agreement.
  • An Ancillary Bond ensures that any requirements integral to the performance of the contract will be carried out even when those requirements are not directly related to performance.

A Surety in Construction may be required for both public and private construction contracts. Surety companies, which are typically subsidiaries of insurance companies, offer bonds for purchase.  Unlike traditional insurance, which determine premiums using actuarial data about expected risk versus expected loss, Surety Bond issuers pre-qualify contractors based on construction expertise and financial strengths.  In that sense, Surety Bonds are more like issuing credit than issuing insurance. There is little expectation of loss when bonds are written.

Developers, owners, contractors and construction firms should all carefully consider factors related to a Surety in Construction to determine what is appropriate for a specific project. A Scottsdale Arizona real estate lawyer can provide comprehensive advice on Surety Bond purchases and Surety requirements. An attorney can also help to make a claim against a bond if problems develop during construction. Contact Lotzar Law Firm, P.C. today to learn more about different Surety Bonds and their role within the construction industry.

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