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Providing Care For Your Horse When You No Longer Can
It isn't a question of if, it is a question of when we are no longer able to manage our affairs either due to disability or death. When you are an equestrian, there is a unique need to plan for your horse's immediate and future care.
Unless you are fortunate enough to have an immediate family member also involved in the sport, a written and legally enforceable plan must be in place to provide direction and funding for your horse's care.
The first and most immediate concern is providing for your horse's ongoing board, feed and maintenance. This need exists both where you have become incapacitated or have died. In each situation, someone must have the ability to act on your behalf regarding your horse.
If you are married, your spouse may seem to be a natural successor since spouses typically have access to joint accounts which may be used to pay for your horses ongoing care. But there is more required than just writing checks. A horse is considered personal property. Since married persons may have individual property, it is likely that your horse is titled in just your name. This means that decisions about who will exercise your horse in the interim, what medical care may be required, and even whether it should continue to be trained are legally required to be made by you unless there is a proper written agreement authorizing another to make them.
In addition, if you are not married, a guardian will have to be appointed to act for you in the event that you are incapacitated and an executor must be appointed if you have died. Each requires a court order which will take time to obtain. During this time, your horse must have ongoing care.
The most simple method for you to give such authorization is by a power of attorney. A power of attorney is a common legal document by which an individual appoints another to make decisions for them if they become incapacitated. A power of attorney may be general or limited to specific actions.
A power of attorney should name an individual who you trust most to make decisions for your horse which reflect what you would do if not incapacitated. This person is called the agent. In order to provide guidance for such decisions, you may write specific directions in the power of attorney, for example, that your horse should be cared for in its current manner. It is important, however, to not be too restrictive with such guidance because if you are incapacitated for a long time, the agent is prohibited from taking actions that may otherwise be in the best interest of both you and your horse.
A power of attorney must also provide access to funds to pay for your horse's care. This can be as simple as identifying a specific bank account into which you have deposited an "emergency fund" for your horse's care or giving access to other more general accounts but limited to just amounts necessary for your horse's care.
You should give an original executed power of attorney to the agent along with contact information for the stable, the trainer, the insurance company, the veterinarian, the farrier and any financial institution where the agent may have access to funds to pay for your horse's care. You should also provide a written expression of your desire for your horse while you are incapacitated, describing both a short-term situation where you are expected to recover, but also a long-term situation where you may never regain capacity. This can be in the form of a letter to the agent. The letter should state whether there are any circumstances in which you would want your horse leased out and any restrictions on such a lease; whether you would ever want your horse to be sold and to what kind of buyer; and what should be done with your horse's remains when it passes.
A power of attorney terminates when you die, therefore another written document is required to provide for your horse's care after your death and should be part of your estate plan.
The most common estate planning document is a will. A will, however, is primarily designed to pass title to property. The person named in the will to administer the estate is called the executor. While the executor has the power to preserve property of the estate, which would include your horse since it is legally considered property, the will has to be filed with the court and a probate estate opened before the executor can take any action. This process takes time and prevents the executor from providing the immediate and ongoing care required for your horse. The will also actively gives your horse to an individual. That individual is under no legal obligation to follow your direction for your horse's care and future. In addition, if you leave cash for your horse's care, the individual is not obligated to use the cash for your horse. Finally, if the individual dies, your horse and the cash are part of that person's estate and distributed to that person's heirs.
The solution to the problems with using a will to deal with a horse's care is the creation and funding of a special purpose entity for your horse's care. There are two such entities commonly used - a trust and a limited liability company.
A trust is a separate legal entity that holds assets which are administered by a person called a trustee. A limited liability company is a type of business entity that also holds assets which are administered by either the owners or a manager. Using either entity, you may transfer your horse and financial assets such as a bank account into the entity thereby giving the trustee, the members or the manager control over them. Since you can be the trustee, a member, and the manager, you retain control over your horse and the financial assets until such time as you are incapacitated or die, then a successor trustee, other member or successor manager named in the documents seamlessly takes over.
This is where the similarity between the two entities ends. A trust is the favored form of planning for a horse's care because a limited liability company, while it can serve this purpose, is a business entity which requires annual filings with the state, annual meetings of its members and managers, and your ownership interest in the limited liability company is an asset that must be dealt with in your estate.
There are two kinds of trusts - those that exist while the creator is alive and those that are created under a will. For purposes of providing for the care of your horse, the trusts created under the will do not solve the "gap" period between your death and the appointment of your executor. This is also a problem with "pet trusts" created under state statutes.
This is why the living trust is the preferred method. Up front, I will mention the two drawbacks to a living trust. First is that your horse is actually transferred to the trust which becomes the owner of your horse. This means that at shows, the name of the owner is the trust which is not something many equestrians want publicly displayed. Second, you must respect the trust, meaning actions taken in regards to your horse must be done by you as trustee and not individually. This is just a matter of signing documents as trustee and making sure payments are made from assets in the trust, but while easy to do, it is also easy to forget.
A trust created and funded while the creator is alive is called a "living trust". This has the benefit of eliminating the need for a power of attorney since the trustee will have the legal authority to care for your horse.
A living trust can be permanent - irrevocable - or changeable - revocable. A permanent trust removes your horse and any financial assets from your estate and can be useful for estate tax purposes, but it also prevents the use of those assets for other purposes. A revocable trust, as the name implies, may be terminated at any time and the assets revert to the creator of the trust. A sub-type of revocable trust is a "pet trust" which is recognized in many states by statute and is specifically designed to handle animal care.
You have to transfer title to the horse and other assets to the trust. It is important to include in the trust your horse's medical records, registration papers, and equipment.
If you are able, consider purchasing an insurance policy naming the trust as beneficiary. A $50,000 term life policy for a person in good health costs less than $10 a month and will provide the funds necessary for your horse's care.
The trust should also contain a provision for distribution of any assets remaining in the trust after your horse passes or is sold if that is your desire.
The trust should name a successor trustee to you. This is the person you have selected to care for your horse. You may also consider naming a second person to handle any financial assets since the primary caregiver may not be good at or interested in managing money.
The creation of a trust for horse care has important consequences to an overall estate plan and should be coordinated with the attorney that has prepared your will and other estate planning documents such as trusts for real estate and children.
A power of attorney may be put into place in an afternoon without great cost. A trust may be put into place in a matter of days with good communication between you and the attorneys. It isn't a "fun" project to plan for the care of your horse, but it is a necessary one and something that truly shows your love for such an important part of your life.
Property Owner Protection - Sworn Statement and Lien Waivers
The excitement of a new home, office or facility, addition or renovation coupled with the desire to just finish the project can result in a property owner failing to get the proper payout paperwork from the contractor.
The end result is that the owner may have to pay for the project twice - once when they paid the contractor at the end of the job and once when subcontractors and suppliers come knocking on the owner's door (quite literally) because the contractor did not pay them.
The missing paperwork includes a proper sworn statement from the contractor and lien waivers from subcontractors and suppliers.
The internet has given us access to information - after all, you are reading this on our website - but also misinformation.
The required paperwork is not just a matter of forms to fill out. There are specific legal requirements in how the sworn statement and lien waivers are written and executed.
Under Illinois law, unpaid subcontractors and material suppliers may put a lien on property and then sue to foreclose on the property, sell it, and use the proceeds to pay their unpaid bills. An owner has a complete defense if the owner pays the contractor, but only if the owner receives a properly completed and executed sworn statement from the contractor. Furthermore, the owner will never be in this position if the owner has received a properly completed and executed lien waiver from all subcontractors and material suppliers.
A good and reputable contractor will prepare and properly execute the sworn statement and obtain the signed lien waivers then recommend that the owner have these reviewed by their attorney.
Such contractors are very rare.
The majority of contractors will ask for payment and around the same time send over a signed sworn statement and a few signed lien waivers, but never explain them or tell the owner to have them reviewed by an attorney. These contractors just want to get paid without delay.
Then, there are the contractors that are afraid of the sworn statement and lien waivers because either they have used illegal subcontractors or have not paid their subcontractors and/or material suppliers. These contractors will push the owner for payment and hope they are never asked for any paperwork.
I regularly represent owners who have had subcontrators and supplier liens filed against their property. Some of these owners have no sworn statements or lien waivers, but others have what the contractor represented were proper sworn statements and lien waivers . . . but were not. What all of these clients have in common is that they didn't have an attorney review the paperwork before they paid the contractor.
It doesn't cost much to have an attorney review the sworn statement and lien waivers.
It costs a great deal if the owner doesn't get sworn statements and lien waivers or gets improperly prepared and executed ones.
August saw the closing of the purchase by a BLHPC client of a significant debt held by a bank in a transaction that will either lead to the acquisition of a new business for the client or a nice return on his investment.
The client is a high net worth individual interested in acquiring a manufacturing business which is not for sale even though it was rumored to be in financial trouble. This business would be a strategic fit for another of his companies.
I suggested investigating whether the business had a lender that would sell its loan.
The public records showed that a bank held a mortgage on the manufacturer's real property. The bank's workout department was listed on various internet sites and in online articles. I had contacts at the bank and made inquiry.
The bank's initial reaction was a "no comment".
But a follow-up contact a month later coincided with the filing by the bank of a foreclosure case on the real estate loan. Now that the debt was a matter of public record, the bank wanted to talk.
A confidentiality agreement was required in order for the client to get access to the loan documentation and collateral information. I checked the validity of the notes, mortgage, security agreement and Uniform Commercial Code filings. The client reviewed the collateral.
At this point, the client decided to make an offer to purchase the loan. The negotiations with the bank were spirited, but principled as each side laid out the reasons for its price. The bank, of course wanted a sale "as-is and where-is" meaning the client was taking all the risk of any problems with the loan documents and collateral. But since we had done the proper due diligence, this was a risk worth accepting since it brought the price down.
After closing the purchase, the client has opened negotiations with the owners of the business about a friendly transaction involving the transfer of ownership and some changes in management in exchange for satisfaction of the debt now owned by the client. If this does not materialize, then the client will enforce its rights under the loan documents which will either lead to ownership of the business or if the business is able to find financing, a payoff of the debt at a nice return since it was purchased at a good discount.
And best of all for me, the loan documents provide for payment of legal fees and costs in collection so the client knows that at the end of the process, a good portion of my invoice will be covered by the business.
Every business has certain contracts that are essential to its operation. Typically these are a customer contract, office lease, employment contract and key vendor contract. Each of these contracts has an important impact on the way the business is run, its profitability and its potential liabilities.
And each one can and should be customized.
The customer contract should reflect the actual practices of the business such as what is provided, when and how payments are handled.
The office lease should provide for flexibility in terms of expansion, renewal and termination.
The employment contract should protect the intellectual property of the business and contain readily understandable standards of performance.
The key vendor contract, while often difficult to negotiate because it is a third party contract, should identify the quality of the goods or services purchased and improve the terms of payments to the benefit of the business.
All of these custom provisions require the assistance of an experienced business attorney. Not to mention, the legal fees involved are truly money well spent given the benefits to the business.
In July, I performed a "contract review" for a client which involved assembling a key contract binder, reviewing the contracts and identifying potential issues and areas for improvement, revising those contracts issued by the client and preparing a negotiating checklist for third party contracts to be used when these come up for renewal. The end result was a better set of contracts and peace of mind for the client's owner. Money well spent.
Lawyer as Profit Center
Most people think of lawyers as a cost to be avoided. I respectfully disagree.
In June, I assisted a client in negotiating and documenting the contracts for construction of its new manufacturing facility. There were separate agreements for the architect, contractor, construction manager and equipment suppliers. At the end of the project, I was able to identify specific provisions in the contracts that made the client money - as opposed to protecting the client from potential loss. The total amount saved exceeded the fee charged.
A couple of examples show how this worked.
Deferred payments mean delayed borrowing over the life of the project. Therefore, every contract pushed the payments so the counterparty covered about 80% of its costs and none of its profits until after the client was in and using the facility. Since the client was using a construction line to pay for the project, over the two year build, this translated to a mid-five figure savings. This sounds like a business term, but I presented it as a "holdback" to protect the client, which it did, although the real impact was on the bottom line.
The warranty is something most people think of as protection against loss. However it can and should do more. I negotiated for warranties that included training from each of the providers so the client would both avoid having to pay for this assistance and would ramp up operations more quickly. Also each provider was required to assemble and deliver a knowledge book with warranties, instructions and memoranda outlining unique aspects of their work. The cost savings from both were in the five figures.
In conclusion, lawyers are so much more than just a cost, the right ones can make the client money.
When is the failure to close a transaction not a failure? When the client is saved from future disaster.
In May, my clients didn't acquire the franchise business that was to be the core of their new venture. The project started with the client forming a working group consisting of the businesspersons charged with identifying a business to purchase and the funding sources responsible for paying the acquisition cost and providing working capital. I was retained after a target was identified and charged with preparing the letter of intent, forming the acquisition entity, preparing the purchase contract, and documenting the closing.
The deal didn't get past the letter of intent stage.
My client brought me the identity of the target business which was a franchise and gave me the basic terms of price, closing date and general issues of concern. In order to prepare the letter of intent, I organized this basic information and identified additional specific due diligence that was required. As a franchise operation, both the client and I needed to review the franchise agreement and required franchise disclose document. As a retail operation, both the client and I needed to review the lease. The goal in an early stage acquisition is to prepare a letter of intent that "locks up" the target while identifying the key issues for further due diligence and allowing for termination after the due diligence is completed. As counsel, I am mindful of the need to keep the deal costs (including me) low while at the same time protecting the client's interests.
After reviewing the franchise agreement, I identified several provisions that prohibited the client from changing the way the business operated. I also identified additional costs that the client had not factored into its purchase price and ongoing operating expenses. After reviewing the lease, I identified terms that prohibited the client from expanding the business and also limited its ability to extend the lease term. The client used this information to reformulate its purchase offer terms.
Based on the revised terms, I prepared a letter of intent that presented the client's offer; required three separate due diligence periods for further investigation; and allowed the client to terminate the deal if either the terms could not be renegotiated to address issues discovered with the business or if the franchisor or lessor refused to agree to changes required by the client so the transaction met with its requirements for the purchase and the future operations.
The letter of intent presented an offer that met the client's needs. The seller, however, declined to accept the offer so the deal did not move forward. So the deal "failed", but the client has moved on to other potential acquisitions. This "failure" meant the client avoided a purchase that by the client's own analysis would not have provided the desired financial return and held potential operating pitfalls given the legal issues uncovered during the due diligence. And the attempted transaction was done at a modest cost, part of which translated in to an education for the client in issues it could spot on its own while investigating other potential deals.
Buying Assets In Bankruptcy
Think of it as a physical for your company.
The bankruptcy of a business in your industry presents an opportunity to acquire not only hard assets, such as equipment and real estate, but also accounts and employees. This is not, however, the normal business-to-business "used market" in which transactions may often be completed with minimal legal involvement.
The bankruptcy process moves very quickly and the bankruptcy laws create potential liability for a buyer, which, while easily avoided if properly addressed, require an attorney experienced in this area.
In March I assisted a client in just such an acquisition. On a Tuesday, I received the call by which a competitor of the client had filed for bankruptcy. There was an auction of its assets scheduled and the client wanted to buy the assets - for the right price. There are typically six steps involved in representing a buyer in a bankruptcy sale process.
The first step is to determine the auction procedures. A bankruptcy sale requires a minimum of public notice, a hearing, and a court order. As the assets being sold increase in value or are more complex in nature, there will typically be a sale procedures order approved by the Court. This procedures order will provide for (a) how a potential bidder qualifies, (b) the due diligence allowed; (c) the form and content of a bid; and (d) the auction mechanics. In my March transaction, there was such a procedures order. Therefore, I had to ensure the client understood the ground rules and was able and willing to comply.
The second step is to determine if there is a "stalking horse" bidder which is a buyer that has already completed its due diligence and agreed to buy the assets, but whose bid is subject to higher and better offers. Bankruptcy sellers will accept a "stalking horse" bid for two reasons - it provides a confirmed sale and it gives competing bidders a measure of comfort in knowing that the assets are real and worth at least the "floor" set by the "stalking horse" bidder. The down-side for a competing bidder is that the "stalking horse" typically gets protection for its willingness to make the first move and risk being outbid. This protection is in the form of a break-up fee, which is paid by the seller so is not material to a bidder, and bid protection, which is a minimum increment by which a competing bid must exceed the "stalking horse" bid. This bid protection is a problem for competing bidders if set too high. In my March transaction, there was a "stalking horse" bidder and the bid protection was 10% of its bid. While a significant sum, it was not a deal-killer.
The third step is to confirm that the client qualifies to bid and is able to make a compliant bid. These are separate items. The typical qualification requirements are the signing of a non-disclosure agreement and posting a deposit. The non-disclosure agreement should not be taken lightly, particularly if the seller is a competitor,. This is because it may contain restrictions on the potential buyer's ability to do business such as limitations on the buyer's ability to contact in the future any customer of the seller. Since the winning bidder will get the right to enforce these non-disclosure agreements, they are not something that goes away when the auction is over. The amount of the deposit is usually equal to the bid protection amount so it really isn't material. In my March transaction, the non-disclosure agreement posed no problems, neither did the deposit.
The fourth step is the due diligence review. Depending on the size of the asset base and the type of assets, it can be as simple as the seller opening the doors to the buyer for a walk-through or as advanced as a virtual online data-room where the seller has posted accounts receivable, intellectual property and contract documentation for buyer review. Once the potential bidder has qualified, the bankrupt seller is under an obligation to comply with reasonable due diligence requests. This gets interesting when the asset sale is of a going concern business and the potential buyer is a competitor. Obviously the seller does not want to give a "free look" to its competitor who then has the information it may use in its existing business so there is no need to buy it. The non-disclosure agreement discussed above will address much of this situation, but there may be negotiations as to the scope of due diligence as well. In my March transaction, the primary assets were intellectual property and customer accounts, including receivables. The seller established a secure website where the documentation could be reviewed by buyers.
The fifth step is the bidding. The bid procedures set an auction date and time. The bid procedures order will also usually require that the bids be for the same set of assets (no bidding for less than all) and on the same terms as the "stalking horse" bid. If a buyer is interested in less than all or if there are differing terms that the buyer requires then prior to the auction day, the buyer can raise those concerns with the seller. However, it is very unusual for a change since the "stalking horse" buyer must agree and it is unlikely to want to help a competing bidder. However, it never hurts to ask, particularly if the changes may promote a more robust auction and the seller has the ability to cut a deal with the "stalking horse" bidder to go along, for example by paying an enhanced breakup fee. The auction itself may be simply one round with written bids due and opened on a specific date. More often, it is an actual "live" auction held at the bankruptcy court, but without the bankruptcy judge presiding, rather the bankrupt seller will arrange for use of the courtroom or an ancillary room. There typically is a court reporter, and the seller's bankruptcy counsel will handle the process starting with a request for a bid higher and better than the "stalking horse" bid and then bidding continues in the minimum increments established in the bid procedures order. It is not unusual for bidders to participate by telephone with their attorney present at the auction. In my March transaction, the auction was in the bankruptcy court with buyer participating by telephone through their attorneys.
The last step is entry of a sale order and closing. Once the bidding has concluded, the bankrupt seller will present the winning bid to the bankruptcy court for approval. The form of the sale order can be very brief, referring back to the bid procedures order for details, or it can be sizeable with detailed descriptions of the assets, conditions to closing and post-closing dispute resolution procedures. The buyer must ensure that the sale order includes specific references to the sale of all assets. Additionally, that it is "free and clear of all liens claims and encumbrances" which means the buyer is getting a federal court order giving it the best title possible to the assets. A related issue that has generated much interest and litigation is whether the sale order may insulate the buyer from "successor liability" if the buyer acquires substantially all of the seller's assets. In such sales, creditors have occasionally attempted to assert claims against the buyer on the theory that it is a continuation of the seller's business. A carefully worded sale order provides protection - but not an absolute bar - to such claims. Closing a purchase is like any other acquisition, comply with the terms of the purchase agreement, but also comply with the sale order. In my March transaction, the sale order was very detailed and protected the buyer in all of the ways discussed above. The buyer realized an opportunity and obtained assets very beneficial to its business at a good price in a quick transaction.
Think of it as a physical for your company.
Every few years, you should pull copies of the "essential contracts" that are critical to your operations and have them reviewed by an attorney.
Start with your purchase order or client contract that you use every day. This document has the biggest impact on your business. It sets your obligations and how you get paid. Next, get your employment contract or handbook. This is one of your largest costs, so it is important to make sure your promises are properly documented. These two contracts are largely within your control - subject to market conditions - so should be the most favorable to you that the law will allow.
The other side of your business contracts are those written by others. First are your primary vendors such as material and service suppliers. Just because they have "form" contracts doesn't mean you shouldn't understand what is in them and either ask for changes or shop for an alternative supplier. Second is your landlord. Your facilities are much more difficult to change than suppliers, so it is important to get the best lease possible upon each renewal.
Why review these contracts? Because the law changes. Statutes are revised and courts issue decisions interpreting contracts. What was "state of the art" when your contracts were written may no longer be the law. Even "form" documents are updated. For example, every ten years the American Institute of Architects updates their suite of construction project documents. The next update is being released in April 2017.
Does this mean you will be re-writing every one of these documents? No. Your attorney should explain any issues and put the situations into a business risk perspective. The current language creates a risk - what are those risks, what is their probability and how much will they cost. The proposed language will carry with it risks and costs as well so the same analysis should be presented. You then decide whether to accept the risk or change the documents.
Okay, the biggest question of all, how much will this cost you? The cost will obviously be related to the number and complexity of your contracts, but your attorney should do this type of project on a fixed fee basis. The right attorney will have the experience with these types of contracts to identify the issues and explain them. A fixed fee, however, has to be fair to both sides so the attorney will limit the time spent with you reviewing the issues and document revisions. Once the contracts are updated, who then is better to handle any questions about them in the future and thus a long-term relationship is established.
Doing It Yourself
I blame the Internet.
I have been called in several times to clean up legal messes created when my clients tried to “do it themselves”. The common theme is that the projects did not seem complex - after all, how hard is it to renovate a house, buy or lease a horse, or negotiate a settlement with someone that owes your company money. The clients were all well-educated and experts in their respective fields, but not lawyers. The situations seemed manageable and, in almost every case, the other side had what looked like a good document that just needed a little modification. And the Internet provided a way to implement the modifications and gave the clients a false sense of security. But when problems arose - the renovations were not going as expected, the horse had undisclosed health issues, or the debtor filed bankruptcy - the document turns out to not provide the protections that my clients expected.
I assure you that the cost of fixing these documents far exceeded what it would have cost in legal services to do them right in the first place. First, the original documents had to be reviewed because, most often, they are an amalgamation of various related forms. Next, was the usually messy process of figuring out what happened and how the facts fit with the documents. Since the documents were not done properly, this was a difficult task. Finally, negotiations needed to occur in order to obtain the best outcome given the documents and the facts. Since the clients were not properly protected by the documents, the risk of litigation is much higher and a court process is the most expensive fallout of all.
You may be thinking at this point that the foregoing is just a self-serving way to urge the hiring of an attorney. It is not. The truth is, I would much rather earn less by providing legal services at the outset of a matter than resolving the problems arising from an improperly documented transaction. Everyone is better off. The client gets the essential deal terms clearly identified and protection from risks. The other party gets a clear understanding of what is expected from them and motivation to perform. Both sides avoid conflict and the distraction from their personal and professional lives that results from a legal dispute. I get a satisfied client that will provide future projects and referrals that together will exceed the work involved in handling the clean-up of an improperly documented matter.
When Something Has Gone Wrong
The first instinct when a problem comes up is to avoid it. The better option is to call an attorney. A call made early can generate many more options.
In January, I received a call from a contractor regarding a problem with the payout submission to a title company. A subcontractor had submitted a false lien waiver stating the amount due and paid a material supplier. This resulted material supplier contacting the owner and the title company threatening to file mechanics liens. The title company was suggesting the contractor return the last draw. The owner was questioning the contractor's paperwork even though this was a subcontractor-created issue.
The first step was to gather all of the paperwork and isolate the amount at issue and relative rights of the owner, title company and the material supplier. Of course, the contractor's paperwork was not organized and was incomplete. But after reconstructing the missing materials, the amount at issue was less than originally expected. This created option 1: the contractor confirmed to the owner that he would cover any amounts claimed by the material supplier. One interested party satisfied - the owner.
The second step was to review the title company agreement and related documents. The documents raised legal questions, which required research regarding the standing of the material supplier and the rights of the title company relating to a false lien waiver. This created option 2: the material supplier had no rights and the title company had a claim against the subcontractor who falsified the lien waiver. This kept the material supplier from bothering the title company further and the title company from requesting that the contractor return the entire payout. Another interested party satisfied - the title company.
The third step was simple, but bothersome for the contractor. Negotiate with the material supplier and pay it in order to both, avoid further disruption to the project and bolster the contractor's reputation with its trades, since trades talk. The key to this step was the work in step one which confirmed that the material supplier was actually owed less than it claimed when it contacted the owner and the title company. The amount was truly nominal compared to the trouble caused by the subcontractor's false lien waiver. This created option 3: the ability to strike a deal with the material supplier which the contractor paid and took an assignment of the material suppliers' claim against the subcontractor. The final interested party satisfied - the material supplier.
The final step is ongoing. The contractor now has a claim against the subcontractor for the amounts due to the material supplier which is much more direct than a fraud claim, which is messy because it is unclear whether the owner, the title company, the contractor or some combination of the foregoing are the proper holders of a fraud claim. The contractor has the right to recover the full amount owed by the subcontractor to the material supplier which is greater than the settled amount the contractor paid. Plus, the material supplier's contract provides for attorney fees so the contractor will be seeking to recover those as well. This created option 4: a direct right of the contractor to resolve this problem.
By contacting an attorney early, rather than trying to work out this situation on its own, the contractor was presented with options and was able to prevent a bad situation from getting worse.