Employer Wins! Non-Competition Agreement Enforced and No Geographic Limitation

Nice when an Employer wins!  Here the Court determined that Employers may place reasonable restrictions on employee’s use of Employer customer information and relationships. The Court ruled that a former employee (office manager) must not contact customers of Employer for 12 months without any geographical boundary at all.

The Employer won because they did things right:

  1. Each employee signed a Non-Competition and Non-Solicitation Agreement; and
  2. Employee signed handbook acknowledgment containing these restrictive covenants and limitations prohibiting competition for 12 months.

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If It Sounds Too Good to Be True…Have a Lawyer Review It

Did you know you could buy Real Estate with your Individual Retirement Account (IRA)? You can (within certain limitations), if it is a “self-directed” IRA. If the IRA does not have enough funds to fully purchase the property, you can still mortgage the property.

However, the law is very clear—the mortgage must be a non-recourse mortgage. Most mortgages you obtain through your local bank or credit union are “recourse” mortgages—this means upon default the Bank can foreclose, obtain the property back and proceed to collect a judgment against the defaulting property owner.

For example, on a “recourse” mortgage, if the owner owed $100,000 on the mortgage and defaulted, the Bank could go through the foreclosure process, seize the property and then place it for sale. If the Bank is only able to sell the property for $80,000 then the Bank can obtain a judgment for the difference–$20,000 plus costs, plus attorney fees—against the Owner.

However, under a “non-recourse” mortgage, the Banks is limited in its ability to recover—in its “recourse” if you will—to obtaining the property back by foreclosure. The Bank cannot pursue the Owner for the difference between the amount owed and the sale of the foreclosed property; it can only obtain the property itself.

Self-Directed IRA’s mortgaging properties must be a “non-recourse” mortgage, as we do not want Banks suing and collecting from an IRA! Understandably, most Banks are extremely hesitant to provide a “non-recourse” mortgage, and therefore this type of lending for property bought by a self-directed IRA is mostly done through private lending institutions.

Our firm was recently contacted by an individual who asked a straightforward question on a Real Estate Sale. However, upon further digging, an amazing set of facts began to unfold. The Detroit Property was purchased by an out-of-state company. Within a few months, the company sold it to our client for 140% more than it bought it! And the company put together a very slick package…

First it provided information for an affiliate company to assist in settling up a “Self-Directed” IRA. Second, because the property was purchased for far, far more than it was worth, the company provided additional assistance in another out-of-state company to provide private mortgage funding. Funding at a much higher interest rate, and monthly payments only paying the interest, so after three years, the entire sum was still due and owing. Then a balloon payment for the entire amount was due….

It sounded too good to be true. Buying property through an IRA, so when you sell it for double ten years from now, you don’t pay any taxes on the appreciation? Low monthly payments out, less than the rent from the current tenant? Making money and gaining value in property!

Only once the tenant stops paying rent, or destroys the property, the hapless purchaser discovers the property is worth far, far less than the original price, and they are stuck making payments with no actual gain in value.

Our client was selling the property for far less than he bought it, and having his IRA pay the substantial difference, just to get out from under this nightmare. Luckily, we pointed out the loan with the private company was a “non-recourse” loan, and he could walk away from the property, allow them to foreclose, and not have to pay the difference.

If presented with a real estate investment, always have an attorney review it. If it is a legitimate opportunity, the knowledge gained and information directing your next steps could be invaluable. If it is questionable practice, you may learn enough to walk away and avoid having your fingers burned.