Filing a Claim Against The License Bond of an Electrical or Telecommunication Contractor

Filing a Claim Against The License Bond of an Electrical or Telecommunication Contractor

If you wish to file a claim against the bond of an electrical or telecommunication contractor, you must follow a slightly different procedure than you would if you were filing a claim against the registration bond of a general contractor. Consult a business law attorney if you need help.

Who must have this bond?

Electrical contractors and telecommunications contractors must have a bond, or an assigned savings amount, of $4,000.00. RCW 19.28.041(3) and RCW 19.28.420(7).

How do I file a claim?

You must bring an action in the Superior Court of any county in which the contractor resides or conducts business, or in the county in which you provided labor, materials, and/or rental equipment. RCW 19.28.071 and RCW 19.28.420(7). You must join the surety providing the license bond as a co-defendant. Contact a business law attorney to assist you in drafting this claim.

How do I serve a claim?

You must serve both the surety company and the contractor. Unlike a registration bond, you do not need to serve the Department of Labor and Industries.

If the surety company is located in Washington, you must serve the surety company by personally serving an insurance agent of that surety. If the surety company is not located in Washington, you must serve the Washington State Insurance Commissioner.

When must I file a claim?

You must bring your lawsuit within one year from the completion of the work in which the breach is alleged to have occurred. RCW 19.28.071.

How do I collect if my claim is successful?

As indicated above, the electrical or telecommunications contractor has the option of obtaining either a $4,000.00 bond or placing $4,000.00 in an assigned savings account.

If the contractor chooses the former, provide a copy of the final judgment to the surety and the surety will tender the bond proceeds to the court. The court clerk will then disburse the proceeds to you.

If the contractor has chosen the latter, you need to obtain a final judgment against both the contractor and the savings account. Provide a conformed copy of this final judgment to the Department of Labor and Industries. The Department will then have the judgment paid from the account. RCW 19.28.071 and RCW 19.28.420(8).

What else should I worry about?

You will need to pursue your claim as efficiently as you can because once the $4,000.00 proceeds are gone, they’re gone. This means that if other claims are brought against the contractor and they recover against the bond, you can only recover up to the funds left.

Choosing A Business Structure

Which Business Entity Do I Choose?

You have many structures to choose from when forming your business. Your choice is an important one and will depend on your business model and long terms goals. It is advisable to consult with a business law attorney before selecting your business structure. Here are a few pros and cons of each:

Sole Proprietorship

A sole proprietorship is not a legal entity and no filing with the Washington Secretary of State is necessary. An individual or married couple may form a sole proprietorship simply by running a business. The sole proprietor has full control and management and operations of the business. However, the person or persons running the business are personally liable for all debts and obligations of the business. The sole proprietorship is not a taxable entity. This means that the taxes flow-through from the business to the owner. A sole proprietor has to pay self-employment tax on all income.

General Partnership

A general partnership is also not a legal entity and does not need to register with the Washington Secretary of State. A general partnership is composed of two or more persons who agree to invest money or contribute labor to the business. Each partner shares in the profits and losses of the business. Each partner also shares in the management of the business and is personally liable for all debts of the partnership. This means that essentially, one partner could be liable for the debts or obligations incurred by another partner.

It is highly advisable to consult with a business law attorney to draft a partnership agreement that can further define the obligations of each partner. In this agreement, you can indicate how much each partner is to initially invest in the business, which partners will have control over the operations of the partnership, how income and losses are shared, how ownership can be transferred and much more.

Like a sole proprietorship, a general partnership is not a taxable entity. Taxes flow-through from the business to the owner. Each partner pays taxes on their share of the income and can realize their share of the losses against other income.

Limited Liability Company

A Limited Liability Company, or LLC, is one of the most popular business entities and with good cause. A LLC consists of one or more members who may be individuals or other legal entities such as a corporation or another LLC. A Board of Directors and Offices are not required and neither are annual meetings and the accompanying paperwork.

To form an LLC, you must file a Certificate of Formation with the Washington Secretary of State and pay the $180.00 filing fee. You must have a registered agent with an office located within the State of Washington.

An LLC can either be member-managed, where each of the members work together in running the business or manager-managed, where the members elect a manager to run the business. Member-managed LLCs are the most common. Whereas it is not required by the Secretary of State, it is advisable that you hire a business law attorney to draft an operating agreement outlining how the business of the LLC will be run.

One of the most beneficial aspects of an LLC is that each member is NOT personally liable for the debts and obligations of the LLC. The only instance where a member will be held personally liable is if he or she did something that constituted gross negligence or a knowing violation of the law.

Typically, the profit or loss of an LLC flows-through to the members in proportion to their percentage ownership in the LLC. This allocation can be altered by the operating agreement.

If an LLC has a single member, it is taxed as a sole proprietorship with profits and loses flowing-through to the member. That is, the profits of the LLC are taxed once at the individual’s tax bracket rate. In this instance, the single member can file IRS form 8832 which allows pass-through taxation as if the LLC did not exist. If the LLC has more than one member, it is taxed like a partnership and must file an IRS 1065 partnership tax return. The profits flow-through to each member and each member paying taxes at their individual tax bracket rate. An LLC may choose to be taxed like a corporation but this only occurs in rare circumstances.

C-Corporation

A C-Corporation is typically formed if you are starting a large organization with a large amount of employees that needs to raise a large amount of capital. A C-Corporation is also typically formed if you are planning a publicly traded large company. This is because the shares of stock of a C-Corporation are easily transferable. There is no limited to the amount of people who can own shares in a C-Corporation.

A C-Corporation is formed by filing Articles of Incorporation with the Washington Secretary of State and paying the $180.00 filing fee.

In a C-Corporation, the owners of the company, the shareholders appoint a Board of Directors to manage the company. The Board of Directors then elects Officers (President, Vice-President, Secretary, etc.) who run the everyday business of the company. Annual meetings are required as is the accompanying paperwork such as meeting minutes.

Like in LLC, a C-Corporation offers protection from personal liability to its directors and officers. The “corporation veil” as it is called, can only be “pierced” in instances of gross negligence, knowing violation of the law, or intentional misconduct.

The major disadvantage of a C-Corporation is that it is subject to double taxation. That is, the corporation is taxed once at the corporation’s tax bracket rate when the business makes a profit and a second time at the individual’s tax bracket rate when those profits are distributed to the shareholders. Some tax benefits for employees and certain deductions are available to C-Corporations but the double-taxation deters most business from forming a C-Corporation.

S-Corporation

An S-Corporation is another popular business structure. An S-Corporation is very similar to a C-Corporation except that an S-Corporation is not subject to double taxation. The shareholders of an S-Corporation are taxed once at their individual tax bracket rate. Losses also pass through to the shareholder and the shareholder may take these losses against other income.

Forming an S-Corporation is almost identical to forming a C-Corporation. You must file Articles of Incorporation with the Washington Secretary of State and pay the $180.00 filing fee. The shareholders appoint a Board of Directors and the Board of Directors appoints officers. Annual meetings must be held and meeting minutes must be taken. The shareholders, directors and officers are not personally liable for the debts and obligations of the company.

To avoid double taxation, you must “check the box” as an S-Corporation on IRS Form 2552. If you do not, you will have essentially formed a C-Corporation. Certain tax-deductible benefits, such as health and life insurance benefits, are available to employees of an S-Corporation. It is important to note that unlike a C-Corporation, an S-Corporation is limited to 100 shareholders, all of whom must be individuals.

Nonprofit Corporation

A Nonprofit Corporation is often referred to as a 501(c)(3) corporation after the IRS code section that governs them. A Nonprofit Corporation enjoys a preferred tax status and in return is required to further an ideal or goal other than the interests of profit.

Limited Partnerships

To form a Limited Partnership, or LP, you must file a Certificate of Limited Partnership with the Washington Secretary of State and pay a $180.00 filing fee.

A LP consists of one or more general partners and one or more limited partners. The general partners manage the business, share fully the profits and losses and have personal liability for the LP’s debts and obligations. A limited partner shares in the profits of the business but their losses are limited to the extent of their investment in the company. That is, limited partners can only lose what they put in and they are not personally liable for the debts of the LP.

In the past, limited partners could not be involved in the daily operations of the LP. If they participated in the daily operations of the LP they would lose their limited liability protection. However, the Washington Uniform Limited Partnership Act, codified in RCW 25.10.321, states that limited partners may maintain their limited liability even if they participate in the business.

LPs are taxed the same as general partnerships in that each partner is taxed on their share of profits at their individual tax bracket rate.

Limited Liability Partnership

A Limited Liability Partnership or LLP is the same a general partnership except that one partner is not personally liable for the negligence of another partner. Many law firms and accounting firms form LLPs. To form a LLP you must file a Limited Liability Partnership Registration form with the Washington Secretary of State and pay the $180.00 filing fee.

Negotiating a Workout

Negotiating a Workout

If you are facing a foreclosure, you have several program options in negotiating a workout with your lender. Here are a few of the best programs:

Making Home Affordable Modification Program

The Making Home Affordable Modification Program, or HAMP, is a government-sponsored program that allows you to lower your monthly mortgage payment to 31% of your gross income. The lender will typically lower your payment by lowering the interest rate and extending the length of the loan although a principal reduction or forbearance is possible. The interest rate will be fixed for five years and then adjusted upward by 1% per year until the interest rate cap is reached. The costs of the foreclosure as well as any unpaid taxes or insurance will be added to the principal balance of the modified loan.

Only a mortgage in first position may be modified under this program. If you have a second mortgage, it usually must be extinguished first. Often, an incentive is paid to the mortgagor in first position to help satisfy any junior lien holders. Speak with a HUD-approve counselor or a real estate attorney to determine how to handle your second mortgage in this situation.

You will also receive an incentive if you stay in the program. Each year for five years you will receive a $1,000.00 payment that will be applied to the principal balance of your loan.

The lender will usually suspend the foreclose proceedings while they consider you for the HAMP program. If you are accepted, you will have to make three monthly payments on a trial program. If you make these three payments your modification will be permanent. If you miss any of these payments, you will not receive a permanent modification and the foreclosure proceedings will resume. However, the Home Affordable Foreclosure Alternatives, which is part of the HAMP program, has a streamlined process for short sales or deed-in-lieu of foreclosures for homeowners who cannot complete the program.

To be considered for this program, your home must be your current residence, the amount you owe on your first mortgage must be equal to or less than $729,750.00, you must have recieved your current mortgage before January 1, 2009, your payment on your first mortgage must be more than 31% of your current gross income, and you must have trouble paying your mortgage. Visit http://www.makinghomeaffordable.com/ to determine your eligibility for this program.

You may only modify your loan once under this program. This program is scheduled to end December 31, 2012.

Making Home Affordable Refinance Program

This program is designed for homeowners who are current on their mortgage but wish to refinance to a more affordable loan. If you are current on your loan and your house is not to far underwater, you can likely refinance your mortgage to a fixed-rate, low-interest loan.  

If you refinance into a 15 or 30 year fixed-rate mortgage, your payments will likely not be lowered and may actually be higher. However, the advantage is that you have stability moving forward and can avoid any interest rate increases in your original mortgage. The new loan will not include any balloon payments or prepayment penalties and the interest rate will be based on the current market rate. The only amount added to your principal balance will be transaction costs. A lender cannot receive cash from this loan.

To qualify for the Making Home Affordable Refinance Program, you must have a loan owned or controlled by Freddie Mac or Fannie Mae. Typically, you can only miss one payment in the last 12 months and you must be no more than 5% underwater on your home. This program only applies to loans in first position. The home you are trying to refinance must also be your principal resident. Visit http://www.makinghomeaffordable.com/ to determine if you qualify for this program.

This program is set to end on June 30, 2011 but may be extended.

Hope for Homeowners Act

If you qualify under the Hope for Homeowners Act, you can have your mortgage principal reduced to somewhere around the current value of your home. The principal balance and interest rate of your loan will be reduced based on the current value of your home and refinanced into an FHA-insured loan.

Your lender must be willing to accept a buyout of your loan for 90% or less of its current value. If you have a second mortgage that lender must also agree. A lender of a second mortgage may sign off if the original lender agrees to share a portion of the proceeds or the federal government offers the second lender other financial incentives.

If you receive refinancing under this program, you will be required to share any future appreciation with the federal government. You may also have to share the appreciation with any junior mortgage holder who agreed to the buyout and suffered a loss. Thus, you may end up sharing between 50% and 100% of any future appreciation.

To qualify your total debt must be 31% or more of your monthly gross income. You must also produce two years of tax returns to prove that you have a steady income and can afford the payments moving forward. The home must also be your primary residence and you must have obtained your first mortgage on or before January 1, 2008. You also must not have intentionally defaulted on your mortgage or any other debt you have had in the last five years. Any type of mortgage qualifies under this program. If you have a net worth of over $1,000,000.00 you are excluded from this program.

A loan will not be given for more than $550,440.00 for a single-unit property.

This program is set to end on September 30, 2011 but may be extended.

In-House Programs

If you do not qualify for any of the government-sponsored programs, you can attempt to modify the terms of your mortgage by working directly with your lender. If you have only missed a payment or two and you have not received a notice of intent to foreclose, then you likely can work out a modification with your lender.

You can use a HUD-approved housing counselor or a business law attorney to help you negotiate with your lender.

Alternatives to Foreclosure

Alternatives to Foreclosure

If you are facing a foreclosure, you may have more options than you think. Your options will depend on whether you want to try to keep your home or whether you are willing to walk away from your home. Consult a business law attorney for more information.

What are my options if I want to keep my home?

Clearly, your first option is to reinstate your mortgage. If you have the funds, or can easily obtain them, you can simply make up the missed payments plus any fees and interest your lender charges you.

However, many people do not have the cash available to reinstate their mortgage. The next option is to negotiate a workout with your lender. The idea is that the loan terms are reworked in a way that allows you to afford the payments and make up for any payments that you missed.

You can begin this process by contacting a HUD-approved housing counselor who can help you stay in your home and do not charge you for their services. You can find a counselor by visiting http://www.makinghomeaffordable.gov/ or by calling 1-888-995-HOPE.

If you are able to negotiate a workout you may be able to obtain a forbearance (temporary relief from making your monthly mortgage payments), a lower interest rate, a principal reduction, a change in the length or type of the mortgage, or a payment plan that adds your missed payments (and fees and interest) to the end of your loan period or adds a percentage to each monthly payment. Depending on your loan, you may have other loan modification programs available to you. Talk to your housing counselor or real estate attorney for more information.

Another option is to refinance you home. Essentially, you find a new loan at a better interest rate, or longer period, and pay off your old loan. This may be difficult or impossible to do if your home is significantly underwater or the housing prices in your area continue to decline. If you have a Fannie Mae or Freddie Mac mortgage you may be able to obtain a refinance by qualifying under the Home Affordable Refinance Program. Be very careful when refinancing your home because many refinance scheme’s are carefully disguised frauds. Contact your business law attorney if you need assistance in detecting a scheme.

You may also file for bankruptcy. Filing for bankruptcy will often place an automatic stay on your lender’s ability to foreclose on your home. If you file a Chapter 13 bankruptcy, you come up with a plan for making your monthly payments and satisfying your outstanding debts. If the Bankruptcy Court approves this plan, you’ll typically have three to five years to pay off your plan. You can sometimes reduce the interest rates of your mortgage under a Chapter 13 bankruptcy plan. This is beneficial if you have a temporary decrease in income but now can afford to make your monthly payments as well as make up your other missed payments. You may file for a Chapter 13 just about any time before the foreclosure sale. You can also continue to negotiate a modification while your Chapter 13 bankruptcy is ongoing. If you file a Chapter 7 bankruptcy, you may be able to get our from under any unsecured debts you may have. This will free up cash so you can make your monthly mortgage payment.

Lastly, you can defend against the foreclosure in court. This option is only viable if you can show that your lender violated state laws or the terms of your mortgage agreement. You may be able to get the Courts to set aside the lender’s foreclosure proceedings. In the least, you may be able to temporarily stall the foreclosure proceedings.

What are my options if I do not want to keep my house?

In this scenario, your first option is to walk away. You only want to pursue this option if your lender does not have rights to sue you for a deficiency judgment if balance of your loan is higher than the foreclosure sale price of your home. If your debt is only secured by the home itself, and you did not sign a personal guarantee, then your lender’s only recourse is to foreclose on the house and you would not owe anything further to the lender. You will likely be subject to an income tax on the amount of the debt that you did not have to repay (the balance of the loan minus the foreclosure sale price of the home).

Your next option is to arrange a short sale. A short sale is when the bank allows you to sell the house for less than what is owed on it. If the bank approves such a sale, you will not have to repay the bank the difference. Your lender will review each proposed short sale on its merits and will usually agree to postpone the foreclosure if a buyer signs a purchase and sale agreement. You will need to list the property for sale and make a good faith effort to sell the property for as much as you can. The bank will want to review the steps you have taken to ensure that the offer presented is the best you can do. If you have a second mortgage, you will have to get that lender’s permission for a short sale as well. A short sale is often preferred because it has less of an impact on your credit score than a foreclosure does.

You may also file for bankruptcy. Even if you do not wish to stay in your home, filing a bankruptcy proceeding will often allow you to stay in your home for several months rent-free. A foreclosure proceeding is often stayed by the filing of a bankruptcy.

Lastly, you can arrange a deed-in-lieu of foreclosure. This is where you simply hand over the title to the property to your lender in exchange for getting out of your debt. A lender will often require you to attempt to sell your home before they will agree to a deed-in-lieu of foreclosure. You will want your lender to agree in writing that they will not go after you for any deficiency that remains on your property. If you have a second mortgage, you will likely not be able to arrange a deed-in-lieu of foreclosure. A deed-in-lieu of foreclosure is also believed to have less of a impact on your credit score than a foreclosure.