Congratulations to attorney Susan Bishop and her husband, who welcomed a new baby girl last October. Ms. Bishop returned to work as of February 2010.

First, ensure your mortgage contains a non-recourse clause. This provision keeps the personal property of each group member from being at risk in the event of a default. The lenders recourse is limited to foreclosure and acquisition of the property. This means your personal property, other real property, and income are out of the lender’s reach.

Second, ensure you have a clear agreement between the parties on how you will split mortgage payments, property taxes, insurance and maintenance on the property. Include dates to comply with things like maintenance, and the possibility that unexpected repairs may need to be made.

Third, agree on how and when you will sell the property, including the possibility of a loss and how the loss will be apportioned. Although real estate investment is historically sound as a long term investment, short term real estate investors have faced problems in our current economy.

Fourth, consider setting up an entity such as a limited liability company for holding the real property. This will provide further liability protection and provide a clear way to spell out the parties responsibilities in the investment.

Lastly, make sure you do your due diligence in deciding who your investment partners will be. Many friendships and families have been in turmoil because of the financial issues surrounding a real estate investment. Understand your intentions, your exit strategy and your responsibilities before you make a decision.

The Perishable Agricultural Commodities Act (PACA) was enacted at the request of the fruit and vegetable industry to promote fair trade in the industry. A qualifying seller of produce may quickly freeze bank accounts of those who have purchased produce until a Court can confirm PACA qualification and that the amount is owed and/or the debtor pays the account in full. Collection often occurs within a matter of weeks instead of a few years like so many other efforts to collect.

In the event that the produce buyer has filed for bankruptcy, a PACA creditor may have the right to be paid first, before other creditors. Items subject to a collection pursuant to PACA include any produce inventory, products derived from that produce, as well as cash or accounts receivable generated from the resale of produce.

The produce buyer is required to maintain sufficient assets to make full payment to its PACA creditors as bills become due. Thus, PACA also allows collection from the personal assets of an owner or corporate principals (officers and directors) where the produce buyer’s assets are insufficient to satisfy its PACA obligations.

The attorneys at Pratt & Associates are well-versed in PACA law, and have had particular success in collecting accounts owed to their PACA clients. Important steps must be followed so that a produce seller can avail itself of all the benefits and protections of the PACA act. It is important to consult with counsel on this issue even before accounts receivables are late, to assure that proper business practices are in place to maximize the produce seller’s recovery.

Annual Disclosures

California Civil Code Section 1350.7 of the Davis-Stirling Act requires an association to provide specified disclosure documents to its members.  The required disclosure documents may be delivered electronically, if the recipient has agreed to that method of delivery.  Section 1350.7 was amended as follows:

•  A document that uses an electronic record to provide or make available the required documents now satisfies the writing requirement, so long as the agreement is consistent with the condition for obtaining consumer consent described California Corporations Code Section 20;
• The Assessment and Reserve Funding Disclosure Summary is to include a specified statement regarding the interest rate earned on reserve funds and the assumed inflation rate applied to major component repair and replacement costs.   

 California Civil Code Section 1363.005 was added to the Davis-Stirling Act.  It requires the association, at the request of a member, to provide to the member a Disclosure Documents Index that sets forth a description of the documents that are to be disclosed annually and the corresponding reference to the code section in the Davis-Stirling Act.  The 14 documents listed in the index are:  Assessment and Reserve Funding Disclosure Summary (form); Pro Forma Operating Budget or Pro Forma Operating Budget Summary; Assessment Collection Policy; Notice/Assessments and Foreclosure (form); Insurance Coverage Summary; Board Minutes Access; Alternative Dispute Resolution (ADR) Rights (summary); Internal Dispute (IDR) Rights (summary); Architectural Changes Notice; Secondary Address Notification Request; Monetary Penalties Schedule; Reserve Funding Plan (summary); and Review of Financial Statement; Annual Update of Reserve Study.

California Civil Code Section 1365.2.5 of the Davis-Stirling Act was amended to specify that the required disclosure form pertaining to the Assessment and Reserve Funding Disclosure Summary is to state “the fiscal year ending date” and that the assessments referenced are for “regular” assessments.  Added to item number 4 of the form is “or year” in the column which states the amount per ownership interest per month.  Added to item number 5 of the form is the word “reserve” in order to clarify that the required amount to be put in the reserve fund is, in fact, to be a reserve and not something else.  Added to item 7 of the form is language which states that at the time the summary was prepared, the assumed long-term before-tax interest rate earned on reserve funds was at a certain percentage per year, and that the assumed long-term inflation rate to be applied to major component repair and replacement costs was a certain percentage per year.

Assessments Based on Taxable Value

 California Civil Code Section 1366.4 was added to the Davis-Stirling Act.  This new section establishes limits on the percentage by which an association may increase regular and special assessments based on the amounts of those assessments in the preceding fiscal year.

•  This new section prohibits an association from levying assessments on separate interests within the common interest development  based on the taxable value of the separate interests unless the association, on or before 12/31/09, in accordance with its governing documents, levied assessments on those separate interests based on their taxable value.  There is an exception for an association that is responsible for paying taxes on the separate interests within the development.  In that case, the association may levy that portion of assessments on separate interests that is related to the payment of taxes based on the taxable value of the interest, as determined by the tax assessor.

 Water Efficient Landscaping

Former California Civil Code Section 1353.8 was repealed, and a new section 1353.8 was added to the Davis-Stirling Act.  Section 1353.8 now provides that any provision in a governing document of an association which purports to prohibit the use of low water-using plants as a group, or if it has the effect of prohibiting or restricting compliance with a local water-efficient landscape ordinance or water conservation measure is void and unenforceable. 

Unfortunately, unexpected repercussions for this type of situation are very common right now. Many people had a third party qualify for a purchase loan on their behalf in order to “buy” a property for their benefit. Since property values have gone done, the friend with the good credit is now on the hook for this loan because it can be near impossible to receive a loan to purchase the property from them. Even worse, many times, the “friend” stops making payments because the property value has dropped, or because they’re having financial problems themselves. There are a few different options in this situation:

1. Draw up an agreement between yourself and your friend indicating how and who will make mortgage payments. You don’t want your credit affected anymore than it has been. You want to allocate who will receive what percentage of any increase in value, and who will be responsible for a potential loss as well.

2. Agree to sell the property now and determine who will end up paying a deficiency judgment if there is one and/or who will pay any potential tax consequences for a short sale, if the property has lost value.

3. Make sure that title is held the way you want; you want the loan holder on title for their protection if you’ve altered that since loan origination.

For a complicated real estate situation such as this one, contact a real estate attorney to go over the points that should be included in the contract. You may realize that if that happened in the first place, you wouldn’t have to deal with this unfortunate situation and circumstance now.

Today, as the market value for many properties has fallen, there often isn’t enough money “left over” to pay your HOA. Most associations have governing documents that allow them to collect from a property owner personally, after the home has been lost to a foreclosure.

Bottom line – don’t just ignore your association fees because you’re in active foreclosure. You could pay for it later.

If your neighbor has been using your property and there is no recorded easement, it is called a prescriptive easement. This means that your neighbor’s use of your property is without your permission. In California, in order to acquire legal title to the property, the neighbor would have to not only use that portion of the property for five years, but also pay property taxes on this portion of the property. However, you must be careful if you wish to just block their access by putting up a fence.

Assuming your neighbor is using part of your property without your permission, you should assert your rights. Before you do so, it is important to review your deed to determine what rights they may have, and than review the circumstances regarding the use. If you would like to discuss whether an easement has been created by your neighbors’ use, contact attorney Elena Rivkin Franz at (408) 369-0800.

What can you do if a contractor records a mechanics lien on your property to recover payment for labor and/or materials which you do not really owe? Let’s say the contractor you hired to remodel your house did not complete the work, or performed the work in a substandard manner. To make matters worse, the contractor has encumbered your property by recording a mechanics lien. Another common scenario is that you have paid the general contractor, but he/she has not paid a subcontractor or supplier on time, and the subcontractor or supplier has filed the lien. First, check to see that the contractor is licensed. An unlicensed contractor is not entitled to be paid, or to place a lien on your house.

One way to remove a mechanics lien is to file with the court, in the county where your property is located, a “Petition to Remove Mechanics’ Lien.” There are very specific procedural requirements which a contractor must follow to enforce a mechanics lien once it is recorded. One of those requirements is that the contractor must foreclose on the mechanics lien within 90 days after it is recorded. If the contractor does not foreclose on the mechanics lien, the lien becomes void. However, it will still remain as a cloud on the title to your property, which shows up in title searches and affects financing and sale of your property. Therefore you will want it removed and you may petition the court to remove it if the contractor will not voluntarily remove it.

Prior to filing the petition, you must send the contractor a letter, by certified mail, return receipt requested, demanding execution of a lien release. Should the contractor fail to execute a lien release, you may file a verified petition, requesting that the court remove the mechanics lien.

After the petition is properly served on the contractor, you will have a hearing before a judge, which will ordinarily be set within 30 days of filing the petition.

Since you must allege several specific facts in your petition, you may wish to retain an attorney to handle the petition process for you. If you retain an attorney to file the petition for you, attorney fees of up to $2,000.00 are recoverable by the prevailing party.