Due to Related Party
|9 Months Ended|
Sep. 30, 2020
|Related Party Transactions [Abstract]|
|Due to Related Party||
Note 5. Due to Related Party
Legal services for the Company associated with the collection of delinquent assessments from property owners are performed by a law firm, Business Law Group (“BLG”), which was owned solely by Bruce M. Rodgers, the Chief Executive Officer of LMFA until and through the date of the initial public offering. Following the offering, Mr. Rodgers transferred his interest in BLG to other attorneys at the firm through a redemption of his interest in the firm, and BLG is now under control of those lawyers. The law firm has historically performed collection work primarily on a deferred billing basis wherein the law firm receives payment for services rendered upon collection from the property owners or at amounts ultimately subject to negotiations with the Company.
During 2016, the Company experienced a decline in collection events that affected revenues both to the Company and BLG. That resulted in an increase in the related party receivable and reflects the decision by the Company to advance funds to BLG based on the amount of their unpaid legal fees due from property owners. Effective January 1, 2017, the Company entered into a new services agreement with BLG which partially alters the traditional deferred billing arrangement noted above.
Under the new agreement, the Company pays BLG a fixed monthly fee of $82,000 for services rendered. The Company will continue to pay BLG a minimum per unit fee of $700 in any case where there is a collection event and BLG receives no payment from the property owner. This provision has been expanded to also include any unit where the Company has taken title to the unit or where the association has terminated its contract with either BLG or the Company.
Amounts expensed by the Company to BLG for the three and nine months ended September 30, 2020 and 2019, respectively were approximately $247,000 and $756,000 for 2020 and $262,000 and $799,000 for 2019, respectively. As of September 30, 2020 and December 31, 2019, receivables from property owners for charges ultimately payable to BLG approximate $1,542,000 and $1,883,000, respectively.
Under the related party agreement with BLG in effect during 2020 and 2019, the Company pays all costs (lien filing fees, process and serve costs) incurred in connection with the collection of amounts due from property owners. Any recovery of these collection costs is accounted for as a reduction in expense incurred. The Company incurred expenses related to these types of costs for the three and nine months ended September 30, 2020 and 2019 were $28,000 and $95,000 for 2020 and $49,000 and $158,000 for 2019, respectively. Recoveries during the three and nine months ended September 30, 2020 and 2019, related to those costs were approximately $28,000 and $124,000 for 2020 and $53,000 and $175,000 for 2019, respectively.
The Company also shares office space and related common expenses with BLG. All shared expenses, including rent, are charged to the legal firm based on an estimate of actual usage. Any expenses of BLG paid by the Company that have not been reimbursed or settled against other amounts are reflected as due from related parties in the accompanying consolidated balance sheet. BLG was charged approximately $45,000 for the office sub-lease.
Amounts (payable) receivable from BLG as of September 30, 2020 and December 31, 2019 were approximately ($264,400) and $152,800, respectively. In the first nine months of September 30, 2020, the Company subsequently recouped $300,000 of previously write-off amounts to BLG.
On December 20, 2019, the Company loaned $1.5 million to Craven in the form of a secured promissory note (the “Craven Secured
Promissory Note”) which had an initial maturity date of April 15, 2020 and carried an interest rate of 0.5% that was to be paid monthly.
The Company subsequently extended the due date of the Craven Secured Promissory Note and the monthly interest payments to August 1, 2021. The Craven Secured Promissory Note is secured by, among other things, stock pledge of Craven’s 640,000 common stock of the Company and the assignment of the assets of Craven in favor of the Company. This loan and the accrued interest was repaid on June 29, 2020.
The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef