Real Estate Law Title

Facts.

You have a disagreement with your association. You wish to plant artificial grass in your front lawn, but the association states that it will not allow you to do so. You do not wish to engage in expensive and time consuming litigation over this issue. You are looking for a non-litigation alternative to resolve your disagreement with your association. Are there any such alternatives available?

Legal Analysis.

There are two approaches that are available. The first is internal dispute resolution. The second is alternative dispute resolution.

1. Internal dispute resolution.

Internal dispute resolution is governed by Civil Code sections 1363.810 to 1363.850. Internal dispute resolution requires that the association provide a “air, reasonable and expeditious procedure for resolving a dispute.” The association is required to establish prompt deadlines and a maximum time for the association to act. It may be invoked by either the association or the member. If the association invokes it, the member may abstain from participating. However, if the member invokes it, the association must participate. There is no fee or charge to the member. Any resolution is judicially enforceable.

The mechanics for internal dispute resolution are fairly simple. The association designates one or more board members to attend a meeting with the member. The board member must confer in good faith with the member. If the matter is resolved, a written document is prepared and signed. The agreement must be consistent with the authority granted by the board or ratified by the board. It can be invoked in any stage in the dispute process. Thus, it may be invoked prior to litigation or during litigation. It may be invoked by a member even before the association realizes there is a disagreement.

2. Alternate dispute resolution.

Alternate dispute resolution is governed by Civil Code sections 1369.510 to 1369.580.

Alternate dispute resolution consists of mediation or arbitration before a neutral party approved by both the association and the member. Mediation consists of a process whereby the neutral party tries to persuade both sides to reach an agreement. It is entirely voluntary by both parties. However, if an agreement is achieved, reduced to writing and states that it is “binding and enforceable,” the agreement may be judicially enforced. In contrast, arbitration is a process whereby the neutral party conducts a trial which consists of the presentation of evidence through witnesses and documents, the cross-examination of witnesses and all the other parts of a trial without a jury. The arbitrator then makes a decision which usually identifies the prevailing party and the non-prevailing party. Usually, the decision in arbitration is binding and can be judicially enforced. There is a procedure known as non-binding arbitration, but it is rarely used.

The main advantage of mediation is that a creative remedy can be developed that is satisfactory to both parties. For example, if there is a disagreement concerning the location of a driveway, the mediator can work with the parties to develop a re-design of the driveway that is acceptable to both parties. In contrast, in arbitration, the arbitrator can only make a decision that is framed in the issues presented by the parties, such as party “A” recovers $5,000 against party “B.” In the case of a disagreement concerning the location of the driveway, the arbitrator would rule that the driveway goes or the driveway stays. The arbitrator cannot generally impose a creative solution such as a redesign of the driveway.

Neither the association nor the owner may file an enforcement action in court until the parties have attempted alternate dispute resolution. An exception to this rule applies where the action is for declaratory relief, injunctive relief or writ relief.

The procedure to begin is fairly simple. One party serves a written request for resolution on the other party. The request must contain a description of the dispute, a request for resolution and a request for a response within 30 days. If the association starts the process, it must contain a copy of the governing statute with the request. If the request for resolution is not accepted within 30 days, the request is deemed rejected. If the request is accepted, it must be completed within 90 days. The cost is shared equally between the parties.

The statute of limitations is tolled during the process.

In order to file a court action, the party filing the action must file a certificate with the complaint stating that alternate dispute resolution has been completed or one party did not accept alternate dispute resolution, or injunctive relief is necessary. If a party fails to file such a certificate with the complaint, this is grounds for dismissal of the complaint unless the court finds that dismissal would result in “substantial prejudice.”

In awarding attorney’s fees, the court may consider whether a party’s refusal to participate before commencement of the action was reasonable or unreasonable.

The association must provide an annual written report to its members summarizing its procedures.

Buying Properties in Panamá

The following is general information on purchasing real estate in Panama. The different categories of land make it imperative to engage professionals for more detailed information. Real estate laws on the mainland can be quite different than those on islands, coastal areas, and areas near national borders.

Before handing over any money, make sure you consult with a professional and do a proper due diligence investigation over the property. It is important to understand the rules and process your property transaction correctly.

The first step is to find a Panama property you like, and negotiate the price and terms of the sale with the seller (or Panama real estate broker). Second, you should seek a qualified attorney in Panama to handle the due diligence and title search on the property, putting your Panamanian attorney in contact with the seller or real estate broker to gather copies of the property title documents and survey (if available). Third, have your attorney prepare a Promise to Buy/Sell Contract to lock in the property sale and secure the terms agreed upon (a deposit of 10% is usually required by the seller upon signing the promise to buy/sell contract), plus this gives you time to do the due diligence and get your funds into the escrow account. Fourth, once the attorney has confirmed the property title is clean, then the final closing is scheduled, where the buyer/seller sign the final Buy/Sell Contract. Fifth, payment is made to the seller, broker, and attorney from escrow (in some cases, buyers/sellers agree that payment is made after the public deed of the property is transferred and registered into the buyers name). Sixth, the Buy/Sell Contract is registered at the Public Registry where they transfer the property title ownership from the previous owner to the new owner.

Advantages by putting the property in the name of a corporation:

1- The corporate veil protects the property from any attacks from creditors or frivolous lawsuits against your personal name.

2- When you go to sell the property, you can simply sell the corporations shares, saving you a 2% property title transfer tax, and possible Capital Gains Taxes,

3- When you go to sell the property, the buyer benefits because the buy/sell contract does not have to be publicly registered, saving the buyer closing costs

4- When you go to sell the property, the buyer benefits from lower property taxes (or possibly no property tax if the registered value is below $30,000), because the registered value does not reflect the actual purchase price.

The “Preferential Interest Law”

There is a law called the “preferential interest law”, which offers special low interest rates, under the following conditions:

1- The buyer must be a first time buyer,

2- The property being purchased must be newly constructed,

3- The unit must be for residential purposes,

4- The amount being financed must be in the range of US$25,000 to US$62,500, after the down payment,

5- The financing cannot be more than 95% of the appraised value,

6- The property must be titled,

7- The loan must not exceed a 15 year term. This is regulated under Law No. 50 (October 27, 1999), which partially amended Law No. 28 (June 20, 1995) and Cabinet Decree No. 44 (1990), stipulates that the benefits to the lending institutions are as follows:

(a) 4% discount (also a tax credit to the financial institution) off the maximum fixed interest rate, which is established by the Superintendent of Banks, will be awarded if the loan value is for more than $25,000.00 but less than $62,500.00,

(b) 5% discount (also a tax credit to the financial institution) off the maximum fixed interest rate, will be applicable if the loan is for less than $25,000.00.

About the Government Property Taxes

Property taxes are only levied on properties that have a registered value of US$20,000 or more (registered value is the value stated on the public deed that is registered at the Public Registry). The maximum annual property tax is 2.10% of the registered value of the land (land value under US$20,000.00 is exempt of this particular tax, as per Law # 36 of 1995). Property tax is also levied on the declared value of the building improvements on the land, however, the laws in Panama offer tax exonerations for building improvements for up to 20 years (this was implemented by the Panamanian government to promote new construction, which makes up a large portion of Panama’s overall GDP). New properties completed by 31st August 2006 will have a 20 year property tax exemption. Possession Rights properties do not incur property taxes, since the property technically belongs to the government of Panama.

It seems a majority of homeowners do not attend the foreclosure hearing when the bank is suing them to take the house. This is almost universally a mistake, however, as the banks and courts are well aware of the fact that the owners are facing financial hardship and can not make the mortgage payment. This gives the foreclosure victims more leverage in working with the court and lender for a solution to avoid taking the home through the sheriff sale.

Especially for homeowners who can not save their homes, they may wish to attend the foreclosure hearing. Of course, if they have concluded there is no way to save the home and they do not have any problem with the mortgage company taking it through foreclosure, then they can probably skip the foreclosure hearing with no adverse consequences. The foreclosure process will continue according to the state foreclosure laws and the homeowners may never have to deal with a government bureaucrat or representative from the bank. With no effort by the homeowners, there is no chance to stop foreclosure, however.

The courts will award default judgment in the foreclosure lawsuit to the bank if the homeowners do not file an answer or appear at the hearing. If the foreclosure victims do not want to save the home or argue against any of the claims being made by the lender, then there may be no real reason to file any paperwork and get involved in the court process. Foreclosure can take months to wind its way through the court system, which just gives the mortgage company more time to add interest and attorney fees to the total amount owed on the defaulted loan.

This is not to say that it is always a good plan to avoid going to the court hearing, as homeowners can get concessions from the bank and courts, as well as more opportunities to prevent the full foreclosure. The best idea for going to the hearing, even if the owners do not want to keep the house, would be to tell the court that they have been trying or would like to try to sell the property to pay off the loan but have not had any luck yet. The owners can request some extra time (up to 1-2 months) to put the process on hold and find a buyer. The judge can allow them the extra time to work out the problem before going ahead with the foreclosure auction.

Possibly, with 2 extra months to sell the home, the owners would be able to find a buyer to stat the process, at least. And if they can find a buyer to put in an offer, even at a reasonable short sale, the bank will be much more willing to hold off on the rest of the foreclosure process until the sale is complete or the deal falls through. This can even include postponing an upcoming sheriff sale, as the mortgage company would rather have the loan paid off through a regular sale, instead of having to take a loss on the loan and end up with the property back. It costs the banks less money to help their clients stop foreclosure and avoid the worst of the consequences afterwards.

Requesting the court for more time to sell the house might be the best chance for the homeowners to save some of their credit, as well. Paying off a loan, even if it was in foreclosure, will be a much more positive sign to potential lenders in the future, and will avoid the homeowners having to explain why they did not save the house. Not disputing the foreclosure is one thing, but appearing at the hearing just to request more time to avoid losing the home entirely might be worth it in the long run. Even if the homeowners can not save their property, it may make sense to use the court in self-defense and get more time to improve their financial positions.