The Uniform Commercial Code states that a recipient of funds from a deposit account securing a loan takes the funds free and clear unless the recipient has colluded with the borrower to avoid the security interest. This rule applies even if the recipient is a junior creditor of the borrower. Thus, an unsecured creditor who enforces a judgment against the borrower and receives proceeds from the deposit account would take the funds free of any claim by a secured creditor.

Another example is when the bank holding the deposit account has been granted a security interest in the account. In such a case, the bank will have priority over the funds in the borrower’s deposit account, even if the bank’s security interest arose after the secured party’s interest. Similarly, if the bank holding the deposit account has a right of setoff against the borrower, such right will trump the secured lender’s security interest in the deposit account.

Lenders should keep the above situations in mind when drafting and negotiating Security Agreements with borrowers. In addition to the agreement with the borrower, a secured lender may need to enter into a subordination or waiver agreement with the bank holding the deposit account to ensure that the secured lender’s interest takes priority.

Fiduciary duties of LLC managers is an important matter, as many Operating Agreements are silent on the issue. Such silence will now result in fiduciary duties being imputed to the LLC manager(s). Although fiduciary duties will now apply to LLC managers, the court acknowledged that parties to the Operating Agreement are free to modify or eliminate such duties. Attorneys drafting Operating Agreements for Delaware LLCs should discuss with their clients the advantages and disadvantages of modifying or eliminating the fiduciary duties owed by the LLC manager(s). If the parties desire to completely eliminate such duties, the court advised specifically stating in the Operating Agreement that “The only duties owed by the Manager are set forth in the Agreement.”

Although the court’s ruling does not effect LLCs in other jurisdictions, other state courts often look to Delaware in corporate law matters, and may opt to follow Delaware’s lead.

The first employees of a company are generally the founders, or others with a significant personal interest in the company. To conserve capital, these individuals sometimes forgo salary or other cash compensation for the work they are performing, or make arrangements to receive equity or be paid at a later date. Unfortunately, arrangements of this nature often violate state wage and hour laws. In the event that a founder or early employee departs the company on bad terms, the startup could find itself the target of an investigation by state regulators and tax authorities.

An employee could claim he or she was underpaid or not paid at all, and could sue to seek reimbursement for unpaid wages and overtime, plus fines, interest and attorneys’ fees. In general, all employees of a company must be paid cash compensation on regularly scheduled paydays, and such compensation must at least meet the applicable minimum wage for every hour worked. Employers should be sure they understand all applicable wage and hour requirements, as well as applicable minimum wage laws. A company can always offer equity awards or deferred compensation to enhance an employee’s compensation package, but such perks can not replace the minimum wage per hour worked.

Another common employment mistake is to classify all employees as “exempt” employees. This is a common occurrence because startups are often seeking ways to simplify the payroll process and have fixed costs for employees. However, paying an employee a fixed salary does not necessarily eliminate the company’s obligation to monitor the employee’s work hours and pay additional wages for overtime. Payment of a salary is only one part of the test for determining whether an employee is exempt from the overtime requirement. An employer must also analyze the employees position and duties to determine if they fit within the overtime exemption. Failure to properly classify an employee may give rise to claims for unpaid overtime going back up to 4 years.

The other common employment mistake involves misclassification of a different sort, misclassifying employees as independent contractors. I have written about this topic before. To briefly summarize, employers must be aware of the 6-factor “economic reality test” for determining whether a worker is an employee or an independent contractor. Failure to properly classify a worker as an employee can create liability for unpaid wages, overtime, and failure to withhold and pay employment taxes. Tax authorities are focusing on worker misclassification, and companies must proceed with caution when determining independent contractor status.

Startups should take the time to consult with an experienced attorney to develop employment policies that can minimize the risk of serious litigation, fines and penalties in the future.

When the Obama administration announced HAMP 3 years ago, it initially estimated that 3 to 4 million homeowners could receive assistance under the program. However, only about 750,000 homeowners have been able to permanently reduce their mortgage payments.

1. A borrower must be at least 31 days behind in payments before a lender can direct the trustee to record a notice of default/sale (Notice).  However, the lender can direct the trustee to record the Notice anytime after the 31 day period, and most lenders attempt their own internal loss mitigation process before the Notice is recorded.
2. Within 5 days of recording the Notice the trustee will mail (certified or registered) a copy of the Notice to the borrower.
3. An additional Notice will be sent to all parties with a recorded interest in the property within 30 days of recording the Notice.
4. The trustee will publish the Notice as required by statute.
5. At least 20 days before the date of the trustee’s sale (listed in the Notice) the trustee must post notice of the sale of the property in a public place (Superior Court) that is permissible under the statute.
6. Before 5:00 p.m. on the last day (other than a Saturday or legal holiday) before the date of the trustee’s sale the borrower can pay all amounts due and reinstate the loan and maintain title to the property.
7. If not reinstated, the property will be sold on the sale date contained in the Notice.
8. Once the property is sold at the trustee’s sale the borrower will receive (as required by statute) a notice from the new property owner that the property has been purchased and that the borrower is required to vacate the property within 5 days.
9. If the borrower fails to vacate, an eviction action can, and likely will, be filed seeking possession of the property, reasonable rent, costs, and fees.

A homeowner facing foreclosure is encouraged to consult with an experienced attorney for more detailed information regarding the foreclosure process, and the homeowners various rights and obligations.