Wide Receiver

In the last few days, I've brought you all kinds of fun news about the troubling things you can find in your mortgages and security agreements. I received a lot of feedback from some readers that they were prompted to check their own mortgages and security agreements to just how many of these terms they themselves agreed to. Many of you were surprised by what you saw. I saved the best for the last, though.

The receiver. In the last year and a half, the business of receivers has really taken off. In many commercial mortgages and security agreements, borrowers have agreed to the appointment of a receiver in the event of default. An event of default is usually the borrower's failure to pay any part of the amount borrowed, bankruptcy, dissolution of the business or anything that impairs the value of the collateral the borrower pledged.

So, what the does the receiver do? He or she is appointed by the court to take over the borrower's business and run it while the lawsuit to foreclose or to collect the unpaid debt winds its way through court. The borrower is literally ousted from control of the day to day management of his or her own business. The bank accounts, the check writing authority, the right to recover accounts receivable and even to place the borrower's business into bankruptcy.

The appointment of a receiver is intended to wrest control from the borrower and allow a paid professional to come in, marshal the assets, pay off debts and try to get the company back on track so it can either repay the debt to the lender or be sold off.

For those of you still reading, go check your mortgage.....now.

It's Mine, It's Mine, It's All Mine!

So, there were many responses to my entry last week about the assignments of rent that you may have pledged as part of a mortgage. In that vein, I thought I would point out something else you should be aware of in those security agreements. By the way, a mortgage and a security agreement are the same thing - you are pledging some form of collateral to secure repayment of the loan.

So, if you hated the assignment of rents thing, you're really going to hate this. Under many security agreements, the borrower pledges certain collateral as security for the loan. This is usually inventory, equipment and even accounts receivable. Chances are, if you have a commercial loan, you have pledged the most valuable of your assets because they have the highest rate of return and made the lender most secure with the idea of letting you borrow money. You didn't, by the way, do this because you wanted to. You did it because it was the only way the bank was going to loan you money.

So, why do you hate this? Because, chances are you also granted your lender the right to come in and take possession and control of these assets in the event you defaulted under your loan. I don't mean that the lender has to sue you, litigate with you for a year or more, win a judgment and then come get your collateral. I'm talking about suing you, giving you one chance a few days after the lawsuit is filed to come into court to prove that you are not in default of your loan obligations and, if you can't, the Court will turn over possession of your collateral to the lender. Ouch.

It gets worse. The Court can enter an Order that allows the lender to take the sheriff out to your property and break any sealed entry way (locks, doors) to gain access to your collateral. It's legitimized smash and grab, if you will.

I just a client who went through this and it was awful. We were served with the lawsuit and Order directing us to appear at Court and show why we should not have to turn the collateral over. Isn't that something? Not only were we at risk of losing our collateral, but we had the burden to show that we shouldn't.

Being a borrower comes with a lot of catches. Please ready your loan documents carefully. Tomorrow, more fun things that can happen if you don't pay your loan.

No, It's Not The Same As Palm Reading

I hope everyone enjoyed the long weekend and is ready to get back to reality.

It's a confusing world out there. Every day, all day we are inundated with information about products, services, ideas, methodologies, skills and, sometimes, just banter. It's a lot to take in. It's also a lot to manage. For instance, I now own space out in the cyber-universe that's a constant reference page of information. I have a website, this blog, a Twitter connection and even a Facebook page. Apparently, I spend a lot of time updating the world on what I am up to.

Because these sites are all linked to my business and can serve as a ready source for people to learn about me and what I do, the information needs to be accurate. Not just those who might want to retain me have the most up to date information or a complete picture of what I do, but because there is liability attached to my failure to do so.

Believe it or not, this came as a shock to some people I mentioned this to. Some folks genuinely believed that the inclusion of inaccurate or incomplete information on their websites could only lead to trouble if, and only if, the information was there with the intent to deceive others. Folks, have I got news for you. Your website is the same thing as a commercial or print advertising. You cannot improperly use, maintain or convey any information on there that others could misconstrue. More importantly, you do not have to have any intent to deceive to be held accountable.

What's the biggest problem with this? Something lawyers call "palming off." (I know, fragment sentence). It's governed by some pretty complex statutes, but, in essence it prohibits you from associating yourself with someone or marketing your products in a way that would cause a consumer, customer or buyer to think that what you were selling was someone else's product. For instance, Company A makes an energy drink called "Power Up." You make another energy drink "Product X." On your website you tell people to "Power up with Product X." Guess what you just did. You have caused potential confusion among consumers as to whether your product is associated with Power Up. In other words, Power Up has a cause against you for using its product as a means to sell yours. Let's suppose you didn't know Power Up even existed. It doesn't matter. This is exactly why you have to be so careful.

Another example - and this is one I am currently litigating. My client handles website and software implementation and considers itself "partners" with a company that designs software. These two entities, despite being populated with a lot of intellectually gifted engineers, has no formal or legal arrangement governing their relationship. They thought it would be ok if they put one another's corporate logo on their respective stationery. Well, now my client's partner has been sued - and so has my client because of a deal that went wrong. The only reason my client is in the mix? Because it's logo appears on the letterhead and everyone thinks they are truly are partners.

So, do yourselves a favor. Clean up your advertising, your websites, your online and print information. Outdated information needs to go. People and companies you no longer represent need to be deleted. Even if you do it accidentally, confusing consumers can be costly.

Who Owns Dat?

One of the biggest trade issues the U.S. has with the rest of the world is the enforcement of copyrights, patents and trademarks outside our borders. There are gray market goods sold by China and Korea, the outright repackaging of television programs and movies in South America and the mass reproduction of our protected ideas throughout the world. Now, by the standards and laws in place in these countries, the parties I just mentioned aren't necessarily doing anything illegal in their home countries, but they are violating American laws governing intellectual property rights.

Of course, sometimes enforcement can go too far. In this instance, I am referring to the NFL's crackdown on vendors and merchants selling "Who dat" wares for the Superbowl. Please note, if you don't know what "Who dat" is or what it means, you should be ashamed of yourself. "Who dat" is a phrase chanted and cheered by Saints fans since the early 1980s at football games when the team was far, far, far from being the champs they are today. The phrase itself dates back much further in New Orleans culture and lore.

Living in New Orleans in the 1980s, I saw Who dat shirts, pins, hats and even commercials touting products other than Saints' tickets. No one claimed the idea as their own. Everyone used it and no one tried to stop anyone else from using it.......until, of course, the Saints made it to the Superbowl. Then, after twenty plus years, the NFL decides the phrase belongs to them because its used in conjunction with the sale of its products and its team.

Seriously? Now, I'm a law and order guy. But I lived this myself. I never saw an NFL t-shirt sold at the Superdome with "Who dat" printed on it. You bought these shirts for $10 from street vendors who made them in a garage. You got the bumper sticker for a buck when you bought an extra bottle of shampoo at K&B. "Who dat" belongs to the people of New Orleans and anyone else whose a fan of the Saints. The locals took it from generations of use, brought it to the Superdome and cheered their team on when no one was buying tickets (except for Al Copeland, for those of you who remember). They did this undisturbed for a quarter of a century.

The NFL has backed off from its position recently, claiming it only intended to shut down those vendors who were selling items that combined the phrase with NFL owned images, like the Saints helmet or symbol (which, by the way is an image stolen from the French Bourbons). It probably did so not so much because it feared the lawsuits that might ensue, but can anyone imagine a group of people you would less want to desert you than the happy drunks who have supported a losing team for many, many years and have been a consistent and steady flow of revenue? Or maybe it was the fact that every person in this country who did not live in Indianapolis was cheering for the team from the city that FEMA forgot and losing their support could create an income vaccum, the sucking sound of which would likely be heard all the way to far reaches of the Canadian Football League?

Listen, I understand that the NFL owns and controls a great many intellectual property rights and spends millions to convey and maintain the right image with fans, but I've never seen a copyright or trademark that made "Who dat" the property of anyone. It belongs to everyone, dat's who.

Take My Rent, Please

These are crazy times. There has been an exponential explosion of foreclosure actions, loan defaults, actions to enforce guarantees, bankruptcies - you get the idea. It's raining death and destruction out there. Every time I go to court, I'd be willing to wager that half of the other attorneys there with me are attending some sort of foreclosure hearing.

In the last few months, I've met a lot of people who believe that Court cutbacks and the television-reinforced idea that all lawyers are sheisters willing and able to delay your cause for the right amount of money means that they don't have to worry about being foreclosed. The system moves so slowly that they can stay in their business or home for months or years before the bank ever catches up to them.

Before you get too comfortable with that idea, though, you may want to read your mortgage.

You remember, that huge document that you signed at the closing when the bank was nice enough to give you a check for a lot of money. A mortgage is a contract, like any other, and it secures repayment of the money you borrowed to buy your business space or home. Most people skip the tedious review of ten to forty pages of fine print in favor of believing that they will never default on the loan. Others take a slightly more sophisticated approach and believe that the mortgage is there to pledge the purchased property as collateral for the money loaned.

It's more. A lot more. Until recently, though, nobody paid much attention to the terms of their mortgage. If you own a business and you bought an office condo, a warehouse, a building, vacant land or even an apartment building, beware. Chances are, your mortgage allows for the bank to come in and take the money your business is earning in order to start repaying the loan while the foreclosure action winds its way through the legal system.

Seriously. There are businesses out there who fall behind on their loans and end up with bank auditors coming to their place of business to review the financials and then decide what they should or can take over. Sounds bad, right? Worse, you, the borrower, agreed to it in the mortgage. Still worse, you lose control of the company financials and everything that isn't paid to overhead ends up with the bank. You are literally working to repay the borrowed amount.

So, please review your mortgage and other loan documents and check up on your scope of rights. It might just be the thing that spells the difference between life and death for your business.