Friday, January 26, 2018

Taxi Medallion Success Story No. 2

As many of the readers of our blog are aware, we’ve developed a practice representing taxi medallion owners who own “underwater” taxi medallions. An underwater taxi medallion is a medallion valued at less than the bank loan for the medallion.  This blog post is about a successful workout which we negotiated for the owner of an underwater taxi medallion.

The facts of the case are as follows: he owns a house with his wife. His other significant asset is the ownership of the medallion for the taxi that he drove each week. He was an extremely hard-working man (a new immigrant to America) and he was driving 60 to 90 hours a week. The taxi medallion loan was approximately $660,000 and we estimated the value of the taxi medallion at $175,000 to $185,000.

Unfortunately, due to the competition from Uber, Via and Lyft, notwithstanding the fact that my client was working 60 to 90 hours a week, he was barely making enough money to feed his family, pay the mortgage on his house and cover his driving expenses each week. Regrettably, he stopped making payments on the taxi medallion bank loan.  The bank that held the loan commenced a foreclosure action against the medallion.

Prior to retaining us to assist him with his taxi medallion issues, he retained another attorney who advised him to file a chapter 13 bankruptcy petition that listed the medallion as having no value. His case was dismissed because of the inaccurately low valuation for the medallion.

The medallion owner was extremely frustrated and was referred to us. We met with him and asked for a list of property he owned (assets), who he owed money to (his liabilities), his after tax monthly budget and the taxi medallion loan documents. The client indicated that he did not want to refile for personal bankruptcy, but he was amenable to a workout with the bank.  We contacted the bank’s counsel, who agreed to stay the state court action, so we could review the file and commence negotiations.

Prior to entering workout negotiation, we do “asset protection planning” for the client. As part of our due diligence, we requested that the client send us a copy of the deed for the house that he owns with his wife. Upon reviewing the deed, we discovered that his real estate attorney had improperly drafted the deed and the house was not held as “husband and wife” with tenancy by the entirety protection for house.

Under New York State law, in the New York metropolitan area, each owner of a house who resides in the house has a homestead exemption of $165,500 (for a married couple $331,000). If the house is owned as tenants by the entirety and one spouse owes money to a creditor, that creditor can obtain a judgment against the taxi medallion owner (debtor) and docket the judgment against the house (which is owned as tenants by the entirety) but cannot foreclose on the house. Effectively, the judgment, which under New York State law is good for 20 years, will prevent the husband and wife from selling or refinancing the house, but the creditor can’t force a sale of the house at a foreclosure or other sale of the house if the non-debtor spouse is alive and living there.

We advised the client to contact his real estate attorney immediately and correct the deed by filing a warranty deed – which they did. Because of the corrective deed being filed with the county clerk, the client’s house was now protected from the reach of the medallion lender bank due to the NYS homestead exemption and tenancy by the entirety protection!

Negotiations commenced, but unfortunately the medallion bank was unreasonable in their demand with respect to a settlement and the taxi needed to be repaired or replaced.  So, the strategy that we agreed upon was to voluntary surrender the medallion to the Taxi and Limousine Commission (TLC) and the meter and the taxi radio and other equipment were returned to their vendor.

The bank was then able to obtain the medallion from the TLC. The voluntary return of the taxi medallion to the TLC and the client’s asset protection planning were key to settling the action. Ultimately, when the “dust settled”, the bank obtained possession of the medallion (its collateral for the loan), the client kept his house, the State court litigation was discontinued and the client no longer had to worry or maintain an asset (the medallion) that had little value.

Jim Shenwick

Thursday, January 25, 2018

A Taxi Medallion Workout Success Story-No. 1 from Shenwick & Associates!

As many of our readers know, Shenwick & Associates has developed a specialty representing taxi medallion owners with "underwater " medallions (underwater medallions are medallions valued at less than the bank loan). We were recently retained by a client who was at her wits’ end.  She co-owned a medallion; the medallion loan had matured, and her partner refused to sign a loan extension. If the medallion loan wasn’t extended, the bank indicated that they would foreclose on the medallion and sell it to repay the loan. Due to the depressed market value of medallions, now would not be the optimal time for a foreclosure sale!

The medallion owner was extremely stressed, so she went online and searched for attorneys with taxi medallion experience. She saw our blog, read a few the posts and called to set up an interview with Jim Shenwick. We asked her to bring in a list of property that she owned (assets), creditors she owed money to (liabilities), an after tax monthly budget for herself and the taxi medallion loan documents that she executed with the bank.

The client indicated that she did not want to file for bankruptcy, she wanted to keep the medallion and she wanted to extend the loan, if possible. She then retained us to handle the matter. Jim Shenwick called the attorney representing the co-owner. Fortunately, the co-owner’s attorney was reasonable and knowledgeable, agreed with our analysis of the situation, and counseled his client that a sale of the medallion or a foreclosure (which could result in relief of indebtedness income being reported to the Internal Revenue Service pursuant to § 108 of the Internal Revenue Code) was not in either party’s best interest.

We then discussed why his client did not want to extend the bank loan for the medallion, and he indicated that his client was aging and that notwithstanding the fact that his client was legally liable to repay the bank loan, the economic benefit of the prior loan accrued to our client (which we confirmed with her).  He suggested that the owner’s enter into an indemnification and hold harmless agreement, which provided that the lease payments from the medallion would go to service the loan, and if there was a default on the loan, that would be the responsibility of our client and not the co-owner. Both parties agreed to these terms and the agreement was drafted and executed.  The co-owner then executed the loan extension agreements with the bank and the loan was extended at a low interest rate for three years. The settlement between the two medallion owners and the medallion owners and the bank was advantageous for all parties. 

Jim Shenwick

Monday, January 22, 2018

Wishful thinking on future NYC medallion sales

Last month, New York State Comptroller Thomas P. DiNapoli issued a report on New York City’s financial plan for FY 2018 through FY 2021.  In the report, DiNapoli discusses NYC’s repeated postponement of the sale of 1,650 medallions because of the weakening market due to ride-hailing apps like Uber and Lyft, and NYC’s dubious assumption that these medallions will sell for $728,000 apiece (while an auction held on January 16th averaged about $175,000 per medallion).

A couple of observations about NYC’s financial plans with respect to medallion sales:

1. No person or entity will pay $728.000 for a NYC medallion!
2. Currently medallions are selling for approximately $185,000 per medallion and a $728,000 selling price is unobtainable.
3. With the number of Uber, Via, and Lyft cars on the road, there is no need for NYC to sell additional medallions!
4. In fact, maybe NYC should consider buying back existing “under water” medallions from owners whose medallions are “under water” due to Uber, Via, Lyft and NYC’s actions and inaction.
5. If NYC were to sell an additional 1,650 medallions, the price of existing medallions will drop precipitously in value and will result in a further decrease of existing medallion owners’ earnings.

Thursday, January 18, 2018

New York Daily News: Restrict Uber, exempt taxis: Any honest attack on congestion will go after its major driver, app-based for-hire car services

Over the past four years, the rise of Uber and other for-hire app-based car services — and the failure of New York City to properly regulate their operations — has decimated the value of taxi medallions. As medallion owners who have played by the city’s myriad rules, we have watched as upstart competitors have been allowed to operate under their own set of rules, creating the most unlevel of playing fields.

The city’s negligence has also had some grave consequences for our common quality of life. Since regulators created very few barriers to entry for these newcomers, they of course stormed, in the tens of thousands, right into the heart of the city’s central business district, helping slow traffic to a crawl.

Don’t take our word for this. Bruce Schaller, one of New York’s most reputable traffic engineers, has singled out Uber and other for-hire vehicles as the major cause of congestion in the central business district — and goes even further to call out the disrupter for undermining mass transit at the same time.

And Schaller makes perfectly clear that taxis — whose numbers, unlike Ubers, are capped by law — have played no role in this burgeoning crisis.

As a result of this Uber-inspired debacle, the city is now facing a congestion crisis so severe that Gov. Cuomo is making solving it a signature 2018 policy initiative of his administration. This week, he’s expected to reveal details of new plans to charge vehicles for traveling into the heart of Midtown.

Our fear, though, is that in looking to solve the growing problem, the state will advance policies that fail to get at the heart of the matter — and that will, in the process, further victimize medallion owners.

Even the policy advice offered by someone as sophisticated as Schaller is concerning.

In the face of his clear-eyed evaluation of how Uber has caused a traffic nightmare, Schaller beats a hasty retreat from the obvious conclusion: that Uber and its imitators need to be reined in through regulations that restrict their boundless proliferation, and that treat all of these e-hails — as the European Union is now moving to treat them — just like any other taxi company.

Instead, he suggests that Uber and Lyft self-regulate by modifying their algorithms to cut down on the cruising times of their cars in the central business district.

Meantime, even after acknowledging that taxis have not contributed to this growing mess, Schaller proposes a mandate on yellow-cab owners — already the most highly regulated group in the transportation industry — “to reduce time spent in the central business district.”

This is consistent with a false evenhandedness we now commonly hear, one that would place the same fees on both taxis and Ubers — as if both segments are now equally regulated and equally responsible for congestion.

That’s just not so.

Back in 2012, Mayor Michael Bloomberg proposed adding 2,000 new medallions for wheelchair-accessible taxis — bringing the overall medallion total to its current level of 13,587. The proposal needed both Albany’s approval and triggered a full environmental review.

Through these sales, the city hoped to generate more than $1 billion. Cuomo gave his approval and the deal went through — even though the environmental review determined that the additional cabs would create a significant negative impact on the environment.

Compare and contrast. There are now some 68,000 Uber cars total, and the city’s regulators tell us that they are licensing an additional 2,000 such cars every month — without a single environmental review.

Taxi medallion owners have paid dearly into the municipal system — and continue to pay every year with a panoply of fees, one example being the 50 cents a ride that goes directly to the MTA; Ubers are exempt from paying that fee.

Yellow cabs do so because the city said this was in exchange for the exclusive right to pick up street hails — a right that was abrogated when the regulators allowed the Ubers in with absolutely no limits.

Now that it is clear where the blame lies for Midtown’s overly clogged streets, the false equivalency between taxis and Uber is not a reasonable path forward. Whatever the city and the state decide to do about congestion must be focused exclusively on the unregulated free riders and not the already fiscally obligated medallion owners, many of them immigrants, who have been paying into the system and following the rules for 80 years.
Hervias and Guerra are taxi medallion owners and members of the Taxi Medallion Owner Driver Association.

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What is the value of a New York City Taxi Medallion?

As our readers know, we’ve been representing many “underwater” taxi medallions (where the value of the medallion is less than the loan securing it).  And unfortunately for medallion owners, based on a recent auction, no relief with respect to taxi medallions increasing in value seems to be in sight.  Crain’s New York Business reports that an auction of seven medallions on January 16th organized by seller Aspire Federal Credit Union and Windels Marx (their law firm) never exceeded $200K per medallion.  A block of five medallions was sold to the stalkinghorse bidder for $875K ($175,000 per medallion) and two additional medallions sold for $189,000 and $199,000.    Three years ago, these medallions sold for over $1,300,000- an approximately 90% drop in value. Jim Shenwick has represented taxi medallion clients with loans from Aspire. For information on how to manage the declining value of your taxi medallion, please contact Jim Shenwick.