Our firm has long believed that small businesses are the lifeblood of our economy. The Washington legislature recently showed that it agrees with us by passing a new “equity crowd-funding” bill that will allow companies to offer shares of stock to both accredited and non-accredited investors in Washington. This exciting development will give small businesses greater access to capital by reducing the expenses and administrative hassles of raising money, and by expanding the pool of potential investors exponentially.
It was just over two years ago that President Obama signed the JOBS Act, which created a new exemption under which companies could issue their securities to non-accredited investors in small crowdfunded offerings. Unfortunately, the great excitement that greeted the new law has dissipated over the last two years as we have waited for the SEC to develop its crowd-funding guidelines. The proposed guidelines released in October only added to the disappointment, as it became clear that the SEC’s version of crowd-funding would be too complex and cost-prohibitive for most small businesses.
Unwilling to wait, and unsatisfied with the SEC’s proposed guidelines, Washington recently joined a handful of other states in passing its own legislation allowing for equity crowd-funding offerings conducted within the state. The bill, which was signed by Governor Inslee on March 28, allows companies that are formed and operating in Washington to offer up to $1,000,000 of equity securities in a 12-month period to Washington residents, whether accredited or not, in crowd-funded offerings. In sharp contrast to the SEC’s proposed guidelines, the Washington law will not require companies to provide audited or reviewed financial statements or use third-party intermediaries to sell their securities. These two differences alone will save of tens of thousands of dollars for Washington businesses interested in offering stock through crowd-funded offerings.
Before commencing a crowd-funded offering, a company will need to receive approval from the Washington Department of Financial Institutions (“DFI”). Companies will be required to make specific disclosures relating to the risks of the offering, as well as ongoing reports about executive compensation and the status of the business. These and other requirements are a small price to pay for the ability to offer stock to friends and family who may not be accredited investors.
The DFI is currently working on its final regulations for equity crowdfunding. Once they are published, this will be a huge boon for small businesses in need of extra capital. However, even this new streamlined process will certainly feature various rules and restrictions, and the oversight of an experienced attorney will be vital.
If you think your business could benefit from the new equity crowdfunding laws, please give us a call to discuss how we can help you access this new source of capital.
The Mystery That Is MERS
If you know anyone who is late on their mortgage payments or facing foreclosure, they need to know about MERS. It stands for Mortgage Electronic Registration System, Inc. and its purpose is to facilitate the trading of mortgages on the stock market. In many cases, the use of MERS is unlawful in Washington, which could provide legal defenses to prevent a non-judicial foreclosure.
A home mortgage is two main documents: a Promissory Note to your bank for the money you are borrowing and a Deed of Trust to your home. The Deed of Trust is a three party contract between the grantor (you) and the beneficiary (the bank) naming a third party Trustee who can sell the home (foreclose) on behalf of the beneficiary if the grantor fails to pay back the promissory note. This process is strictly regulated by statute because no court need be involved.
MERS was created by a conglomeration of the banking industry to trade ownership of mortgage promissory notes without disclosing and recording the owners. To protect the reliability of land titles, each time a controlling interest in real property changes it is supposed to be recorded with the auditor of the county where the property was located. Banks pooling mortgages (and pieces of mortgages) into investment funds didn’t want to (or couldn’t) record the constant trading of the promissory notes. The solution was for the bank to register its Deeds of Trust in the MERS database for “safekeeping” while the actual promissory note was endorsed in blank (like a signed blank check). The promissory note then could be traded around and around in various investment funds without ever having to disclose changes in ownership. When the Deed of Trust named MERS as the beneficiary or designated nominee of the beneficiary, the mortgage servicer would notify MERS when a borrower defaulted and MERS would engage the Trustee to begin non-judicial foreclosure on behalf of the true owner.
The Washington Supreme Court found this dubious and held that MERS is not a lawful beneficiary under our Deed of Trust Act, RCW 61.24 et seq. The court noted that MERS was never an owner or holder of the Promissory Note and its more than 25,000 vice presidents could not name for whom they were designated nominees. In reality, MERS is a curtain of secrecy hiding the true owner of mortgage promissory notes and, therefore, the true party with the right to direct the Trustee to foreclose.
We have peaked behind the MERS curtain in several cases and have been astonished by the corrupt banking practices we have found. Time and time again the MERS vice president supposedly directing the Trustee is actually an employee of the Trustee. There also have been banks that cannot produce the promissory note despite claiming to be the owner/holder.
For anyone that is facing foreclosure, it is important to check if MERS is named in the Deed of Trust and to seek counsel for possible legal defenses. By statute, failing to take legal action to stop a wrongful foreclosure waives certain defenses, so it is critical to act before the Trustee’s Sale.
REPRISE
For those of you who read Chip’s article in last July’s newsletter, the recent actions of General Mills should have sounded familiar. Last month the maker of Cheerios and Wheaties, Betty Crocker and Bisquick, Old El Paso and Yoplait, just to name a few products, announced that any person who printed coupons or made purchases through its website, or even “liked” the company on Facebook, engaged in a “click through” agreement with a “forced arbitration” clause. This meant the unsuspecting consumer waived any right to court relief for any wrongs. Our Washington Supreme Court invalidated this unfair practice. We are happy to report that, after public outcry, General Mills has backed down.
Client Focus Workshops – By Shawn Tacey, Managing Partner
After going through Localloop Certification and reviewing the customer feedback data about our services, we decided to dedicate 2014 to client focus workshops. In these workshops, we invite 4-8 clients to meet with our team over a meal to focus on and discuss the business and legal needs of our clients in an effort to better understand and serve these needs. I must say that it is a bit scary to invite and hear an honest and open discussion about our services, abilities, communication ability and rates. However, we believe that the actual business of law needs to evolve to meet the needs of our clients. The marketplace is forcing our clients to change, so we must change as well.
More and more, businesses view lawyers as an unfortunate but necessary cost regardless of the benefit conferred by our services. This perception causes a massive disconnect in communication and continuity of knowledge between clients and our firm, which, when fully analyzed, actually increases the cost of our services in the end. It is like being in a forced marriage for a short time that everyone can’t wait for it to be over. This needs to change, and we can’t change it without our clients’ input.
After a few glasses of wine, the real conversation began. We were joined by a land development client, a chiropractor/entrepreneur, an elderly care service owner and two business consulting companies. This was a nice diverse crowd.
We listened intently as these clients voiced a number of needs and concerns related to costs, communication, certainty, access and empathy. We appreciate that all of these areas of concern are tied together in a very delicate way, and we are committed to finding new and creative ways to address these issues. One of the things we are working on are new flexible billable solutions that fit your business’s need. It will not be easy as each business is different, but through these workshops we are able to grasp many commonalities that affect each business we work with. With your help, we are innovating real legal solutions that will meet your needs.
If you would be interested in joining us for our Client Focus Workshops, please contact Sherrie Glines at 425-489-2878 to RSVP for our next event in July.
Client Spotlight: Oomba Inc.
From time to time, we are asked: “So, what does your firm do?” The short answer is: “A lot of some things and a little bit of everything.” With an “entrepreneur” in Tacey, and a “learner” in Goss, our curiousity and enthusiasm for learning about new businesses, new markets, new problems and new solutions, gets us involved in many fun, exciting and challenging matters. One of our favorite projects is an Internet start-up called “Oomba”. Yep, that is its name, and their vision for transforming tournament play on the Internet is equally creative. Would you believe that almost every form of tournament style game uses an excel spreadsheet to track the tournament progress? Oomba’s unique and innovative social tournament platform allows any game to have a tournament platform with participant profiles, rankings and stats, whether it is a jump rope competition, chess match, neighborhood card game, US water polo match or the World Speed Golf Championships. Oomba inspires people to make a challenge out of any game and enjoy building community around it.
Our role with this company, which was founded by passionate, driven and deranged people, is to advise, encourage, equip, guide, comfort and control what we call a “rolling ball of butcher knives”. We are proud to be their counsel of choice, and excited about the way they are going to change the tournament world. Click here to learn about Oomba:
We Need to Hear From You
The information we are learning from our Localloop surveys is humbling, encouraging and so helpful to us. We care about you and what you care about. Please take a moment to review Tacey Law Group PS on our link below. This is our way of connecting in mind and in action with what matters to you. Review Us Here!