I have drafted and suggested the following plan regarding use of a person’s 401K funds to my local Congressman.  If you think that the idea has merit, please write your Congressperson and ask them to support legislation allowing you to use the money in your 401K funds to pay your mortgage or fund the purchase of a house.

Alternatively, you can contact me with comments and I will forward them to my Congressperson.

PROPOSAL FOR THE ESTABLISHMENT OF A

REAL ESTATE INVESTMENT PROGRAM

I. INTRODUCTION:

The United States economy is in a recession caused to a large degree by the bursting of the real estate bubble.

The average American is finding it to be increasingly difficult if not impossible to fund the quintessential American dreams of home ownership and financially secure retirement. The American dream also includes going to college, owning a car and a big screen TV. However, families, and in particular, young families are often unable to keep up with these demands. Often one has to choose between saving money for one dream or another. Why does it have to be this way? Why can’t we do both? The two goals need not be mutually exclusive.

II. THE PROPOSAL:

With one simple saving vehicle, two parts of the American dream could be met at the same time, namely, saving for a house and saving for retirement.

The idea is simple: allow Americans to use money in a 401K plan or similar vehicle as a down payment on a house and/or to make mortgage payments.

III. HOW IT WOULD WORK:

This plan could be implemented rather easily. As is currently permitted, individuals would designate a certain portion of their pre-tax income to be invested in their qualified saving vehicles.

Then, instead of continuing to invest the money in mutual funds, bonds or securities, individuals could use the money saved in their retirement funds to purchase or pay the mortgage on a primary residence.

For example, if Bill and Cathy put away $20,000 in their qualified investment vehicle (e.g., a 401K plan), they could use this money as a down payment on a house. Alternatively, if Cathy and Bill already owned a mortgaged home, they could use the money in their 401K plan to buy down the mortgage.

The $20,000 will remain designated as “retirement funds” after the house has been purchased [a line item will simply be added to your mortgage statement]. When the house is sold, the $20,000 paid must be either rolled over into a new house or put in another qualified vehicle.

Under the proposed program, individuals would be able to continue to contribute to their 401k funds and continue to use the monies deposited in the accounts to pay for their mortgage obligations. If Bill and Cathy decided to buy a $400,000 dollar house and they took out a $300,000 mortgage, they could use the monies designated for their 401K funds to pay their principal mortgage obligations on a monthly basis, or they could pay their monthly mortgage payment with after-tax dollars and designate that some or all of their annual 401K savings be invested in their house. Homeowners would thus be able to reduce their mortgage debt faster.

IV. THE BENEFITS:

BENEFITS FOR INDIVIDUALS:

- encourages retirement savings;

- gives individuals more control over their funds and empowers them to make decisions (encouraging investing under the motto ‘invest in what you know.’)

- provides a guaranteed return on savings (amount is equal to the interest saved on the mortgage);

- helps individuals use their accumulated wealth to purchase a home;

- reduces the financial barriers to accumulating wealth for first time home buyers;

- helps homeowners reduce their monthly mortgage obligations if they so choose; and

- potentially frees up capital to make other consumer purchases or other investments.

BENEFITS FOR BANKS:

- reduces risk; and

- in the short term will provide the banks with greater liquidity.

BENEFITS FOR THE ECONOMY AS A WHOLE:

- The plan allows the middle class to grow wealth;

- Provides incentive to save;

- Provides for a more certain retirement as people are more likely to own their own homes;

- More money is being invested in the markets as families begin to accumulate wealth;

- The housing market will be more stable as a larger number of people will have access to homeownership; and

- Banks will have more liquidity in the short run.

LOSERS:

In the short run, the equities markets may see a slight downturn as people shift their incomes to buy down their mortgages. However, as individuals begin to own their homes, they will seek to invent their additional assets.

V. UPON RETIREMENT:

When it comes time to retire, the homeowner could tap into the equity in the house on a monthly basis, or sell the property, downsize and roll the money into a qualified retirement plan. Since however, many individuals will be able to own their homes, the cost of living for these individuals will decrease (as they have no monthly mortgage payment). With social security and other income, retirement should become more affordable with less exposure to the volatile equity swings.

It is to be anticipated that many investment houses will be concerned about the reduction of available cash to be spent on stocks and bonds. In the short term, this may be true. However, as individuals’ assets increase, individuals will be less risk-adverse and will, over time, have more money to invest in vehicles that offer the promise of higher yields.

VI. SUMMARY:

There would be almost no downside to allowing individuals to use their retirement savings to purchase and live in a home. One possible downside would be that the savings could be lost in a foreclosure situation. However, regulations could be implemented to address these and other such details. Also, the risk is no greater, and is more likely less than, the risk of losing money in the equities markets.

Let’s be honest with ourselves.  Most people want to run their lives with a minium of hassle and formality.  We would also like to live our lives trusting other individuals.

Regrettably, we cannot rely on trust in business.  With the occasional exception, gone are the days when people or companies can do business on a handshake.  The old adage: ‘get it in writing’ is becoming a rule as opposed to a recommendation.

However, often in business life there are instances when insisting on a written contract does not seem appropriate.  Perhaps you are doing business with a friend or a relative, or perhaps you are starting a relationship with a new client and you do not wish to ‘slow things down’ or show mistrust by presenting a contract.

What many people do not realize is that ‘getting it in writing’ does not need to entail a large effort or delay or require a significant outlay of funds.  In many cases simply confirming a business arrangement in writing is sufficient to provide the necessary proof of an agreement to provide goods or services.

So for example, if you contract with a friend to build a website, but you feel reluctant to present a formal written agreement, simply writing an email confirming that you are commencing the development of the site and that you want to clarify certain elements of the site is usually sufficient to demonstrate the existence of an agreement.

Remember that oral agreements are agreements.  ‘Getting it in writing’ merely helps prove the existence of an agreement. By documenting your oral agreement, you will have less trouble proving the existence of an agreement if there is a problem later.

You do not actually have to register a trademark with any government agency to enjoy rights.  Under common law rules (rules established by precedent) in the United States, trademark rights begin to accrue with the use of the mark in commerce.  In other words, as soon as you begin selling a product designated by a mark in commerce, your use of the mark will be protected in court.

However, there is a drawback. Your use is protected only in the area in which you use the mark.  For example, if you use the mark only in Boston, someone could adopt the mark and use it in another location.  Naturally, this is undesireable as you may find yourself barred from using a mark in a particular area as you expand your market presence.

To reduce tensions in the market, the state and federal governments adopted legislation that allows owners of trademarks to increase their area or territory of protection by registering their trademarks.  By registering a trademark with a state trademark register, a registered trademark enjoys protection throughout the state in which registration was sought, even in areas where the mark is not in use.  So, for example, if someone using a mark in Boston, MA registers the mark with the Commonwealth of Massachusetts, others are barred from using a same or similar mark throughout the Commonwealth.  Someone in Worcester who adopts the same mark, would be found to be infringing.

Likewise, if a company is using a mark in inter-state commerce (commerce between at least 2 states) or in commerce between the U.S. and a foreign country, it is possible to register the mark with the federal government.  By means of that registration, the registrant will enjoy protection throughout the United States.  So, for example, if a company is selling a product regionally and that company registers a trademark with the federal government, that company will enjoy rights throughout the United States, even in areas where the mark is not in use.

Registering a trademark becomes a useful tool in developing and protecting a brand.

No, you don’t.  Like with everything, if you take the time to read about the nuances about filing a trademark application, you don’t need an attorney.  I mean, let’s face it, this is not nuclear physics.

First, you need to figure out where you are going to file the application.  Your options are: state or federal applications. A state application will protect your rights in a particular state - only.  A federal registration will protect your mark across the entire U.S.

Each of the 50 states has their own rules for filing an application, so you must check with your state when filing the application for the specific rules applicable to that state.

When filing a federal application, you will find easy to file instructions on the Patent and Trademark Office website at www.uspto.gov. You can also file your application on-line there.

If it is so easy why spend the money on an attorney? An attorney will usually know how best to avoid some of the common pitfalls in completing the application. For example, incorrectly naming the applicant or incorrectly idenfiying goods and services.  In some cases, if the information on the application is incorrect, you may not have the option of correcting it and the application can be invalidated.  In these cases, you lose the filing fee for the application (in the case of a federal application the fee is $275 - $325 a class depending on how you define the goods and services.)

Also, the attorney will be able to advise as to what is registerable and what not.  This will save you money and help you avoid lawsuits.

You can expect to spend between $750 and $1,000 to have an attorney at a large firm prepare an application.  At smaller firms, usually the costs are lower.

Depending on how the application is filed, you should expect another $500 -  $1,000 in fees and costs.  If someone opposes your application for registration, the costs of defending the action could be much higher.

Watch my blog for tips on how to prepare and file a trademark application.

A common refrain that I hear from clients who are creating a web presence is “I do not have a lot of money for an attorney, so what are the things that I really need to worry about?” In my view, there are five issues that every web entrepreneur must consider before starting a web business.

Trademarks v. Domains:

At the center of every online business is a name. The entrepreneur must choose a name for its business, its product (whether a good or a service) and its domain name. Often an unconsidered choice leads to conflict. Most conflicts arise when the entrepreneur adopts a domain name that is same or similar to another’s trademark. In such a case, the trademark owner may have the right to preclude your adoption and use of your domain name if certain factors are met, most important of which are that the names are similar and the goods and/or services are related.

Unless a conflict check is completed before a name is adopted, an entrepreneur runs the risk of being enjoined by court from using a name and possibly also being required to pay money damages. In addition, the entrepreneur will incur additional costs to redo marketing as well as the loss of goodwill that the business may have established.

TIP: At the very minimum, conduct an online search of the Patent and Trademark Office records at www.uspto.gov and conduct a GOOGLE search for the names that you intend to use. If you see a same or similar mark STOP use and consult an attorney.

Copyright Issues:

Two types of copyright issues arise that lead to frequent conflicts. First, conflicts arise when entrepreneurs hire independent contractors to develop content for the entrepreneur’s website. Under U.S. copyright laws, even though the entrepreneur may have paid to have content developed for the website, the independent contractor will retain ownership of the copyrights in the material (including the right to reproduce) unless the ownership of the materials is conveyed in writing.

A second frequent cause of dispute arises out of unauthorized use or copying of another’s copyrighted materials. Always do your best to make sure that your site does not use materials created by another.

TIP: Put everything regarding ownership of copyrights in writing!

Contract issues:

Disputes often arise when buyers are unclear about what they are receiving or to be paying. Special concern should be given to provide clear and plain information about warranties and return policies.

TIP: Use plain and clear text on your website, especially when referring to contractual matters!

Privacy issues:

The best way to avoid to dispute is to keep all information provided by visitors to your site private. Be especially mindful of privacy concerns when dealing with information obtained from children.

TIP: If dealing with children, review the provisions of the Children’s Online Protection Privacy Act.

Exposure to litigation:

By doing business online, the entrepreneur exposes his or her self to a huge market. It is possible that the entrepreneur can be sued in a venue that is far away from its usual place of business. (So, for example, it is possible for a Massachusetts corporation to be sued in California if goods are sold in California through the website.) The exposure to law suites can be managed.

TIP: Speaking with an attorney to avoid problems is vastly cheaper that seeking to resolve a dispute.

One of the fears that a new business owner has is that they will lose the name of their business to someone else. Every business owner is concerned that their business idea will be stolen or that they will lose valuable rights unless steps are taken to protect those rights. On top of these worries, every business owner has to worry about meeting payroll, delivering product, marketing and all the other aspects of running a business. With so much to worry about, especially when starting up a business, who can blame a new business owner from worrying about everything else other than the protection of business names.

However, when starting a business an ounce of prevention is worth a pound of cure. Let me give an example, in the town where I live, a new restaurateur opened a new Italian eatery. The new place was given a name, brochures were printed and mailed, advertisements were taken out in local papers and a marketing campaign was started. Of course, signs were made both for the building and for the street.
Within a month of opening, the business was forced to rename itself and redo its signage, advertisement the works at a cost of several thousands of dollars. Why, the owner had failed to conduct a search to see if the name was in use. As it turned out, another person had been using the same name, in the same state and could force the new business owner to cease use of the first chosen name.

Obviously, no one wants to start off a business this way, but how could it have been avoided? Here’s where the pound of cure comes in.

The quickest way to see if there is a business with a similar is to run a trade name search using the World Wide Web to search for the name of your choice. If nothing comes up, you are probably in business. Also, you should check with the Secretary of State in the state in which you are going to do business to see if there are any same or similar names (For example, in Massachusetts, a corporate name search and trademark searches can be conducted at www.sec.state.ma.us).

However, just because the exact name does not come up, does not mean that you are in the clear. Even though you may not find names that are not exactly the same as yours, your trade name may be found to be “confusingly similar” to an existing trade name. (For example, “XPRESSMART” would be confusingly similar to “EXPRESSMART.”

Figuring out what will be considered to be confusing is an art. For a couple of hundred of dollars, a business attorney should be able to guide you in choosing a name.

I know money is tight when you are starting up a business, but if you take a few minutes to make sure that no one else thinks like you, you will save yourself time, aggravation and potentially a whole lot of cash!