California Courts Unsympathetic to Association Homeowners Trying to Avoid Fees for Renting Out Property

Any California homeowner living in a community governed by a condo or homeowners association (HOA) and hoping to earn a little extra cash with short-term rentals should pay heed to a recent decision by the state’s Second Appellate District Court of Appeal, called Oak Shores Community Association v. Burlison. (Second Appellate District, March 24, 2015).

It concerns two absentee homeowners who regularly rented out their homes in Oak Shores — a private community by the shores of Lake Nacimiento, offering amenities such as boating, golf, a pool, a campground and more.

The owners refused to pay their HOA’s annual fee of $325 for owners who rent out homes. In fact, they refused to pay a number of other fees, adding up to over tens of thousands of dollars by the time they brought suit. Their suit also challenged an HOA rule that homeowners who rented out their homes could not do so for periods of less than seven days, a rule limiting the number of cars, boats and other watercraft that renters were allowed to bring in, and more.

Neither the trial court nor the appeals court saw any merit in the homeowners’ arguments, agreeing with Oak Shores that renters are tough on a property and add to the HOA’s expenses and problems. What problems are these, you might wonder? The court cited issues to do with parking, lack of awareness of the rules, noise and use, and abuse of the facilities, requiring greater supervision and increased administrative expenses.

HOA boards around California probably have their eyes on this decision. If rules restricting rentals aren’t already in their rules or bylaws, they may be adding them soon.

Adopting an Orphan Not the Best Way to Help Nepal Quake Victims

nepal childAn estimated 4,000-plus children were left orphaned after the series of deadly quakes that hit the country of Nepal — and a number of well-meaning Americans (including Angelina Jolie, if you believe the rumors) are seeking to adopt them.

There’s just one problem. No, there are at least five problems.

1) Figuring out which children are truly orphans is going to take some time. As U.S. Citizenship and Immigration Services (USCIS) recently cautioned, “It is not uncommon in an emergency for children to be temporarily separated from their parents, other family members or legal guardians. Efforts to reunite such children with family or legal guardians must be given priority.” No one (I hope) wants to bring a child into one’s family only to discover that its real parents want the child back.

2) What transpired after the earthquake in Haiti has left everyone cautious. In that case, many supposed orphans who’d already been airlifted to the U.S. turned out not to be orphans at all, leading the Child Rights International Network to publish this report on, “ADOPTION: EARTHQUAKE ORPHANS – WHAT NEPAL CAN LEARN FROM HAITI.”

3) The U.S. already has a rocky history when it comes to allowing adoptions from Nepal. In 2010, the U. S. Department of State and USCIS stopped processing new adoption cases from Nepal involving children claimed to have been found “abandoned,” because the documentation coming from there wasn’t reliable, and local officials were uncooperative or lied outright. (Abandonment is normally a ground for being considered an “orphan” under U.S. immigration law, along with, “the death or disappearance of, . . . desertion by, or separation or loss from, both parents.”) In fact, reports from around the world have criticized Nepal for having an “industry that dupes poor parents into sending their children to bogus orphanages in order to extract money from well-meaning foreigners.”

4) Even in the best of circumstances, U.S. immigration law and procedure makes adopting an orphan from overseas a long and difficult process. See Nolo’s series of articles on “Adopting a Child From Overseas.”

5) According to a report by NBC News, so many families from China want to adopt Nepal’s orphans that any American families will basically have to stand in line.

Fortunately, U.S. news outlets have detailed other, more realistic ways to help Nepal’s quake victims.

Victory for Chapter 13 Bankruptcy Filers Who Convert to Chapter 7

VictoryIn a victory for bankruptcy filers, yesterday, the U.S. Supreme Court resolved a split among the Courts of Appeal in Harris v. Viegelahn, 575 U.S. __ (2015). The ruling affects people who file for Chapter 13 bankruptcy and then, before completing the Chapter 13 plan, convert the case to a Chapter 7 bankruptcy. The Supreme Court said that if the bankruptcy trustee has plan funds on the date of conversion that he or she has not yet distributed to creditors, the money belongs to the debtor.  (Learn more about converting a Chapter 13 case to a 7.)

The Facts in the Harris Case

Mr. Harris filed for Chapter 13 bankruptcy. The court confirmed his plan and he began making $530 payments to the trustee, Mr. Viegelahn.  Mr. Viegelahn distributed those payments as follows: A chunk to Chase Manhattan Bank (Mr. Harris’ mortgage servicer) to repay Mr. Harris’ mortgage arrears and the rest to Mr. Harris’ other creditors. (Learn how the Chapter 13 repayment plan works.)

Mr. Harris fell behind in his regular mortgage payments (which he made outside of his bankruptcy) and lost his home in foreclosure.  Mr. Harris continued to make his $530 monthly payments to the trustee. A year later, Mr. Harris converted his case to a Chapter 7 bankruptcy. At that time, Mr. Viegelahn had about $5,500 in undistributed funds – he had stopped paying Chase after the foreclosure, but hadn’t distributed that money to other creditors.

Ten days after Mr. Harris converted his case to Chapter 7, Mr. Viegelahn distributed the $5,000 to Mr. Harris’ creditors. Mr. Harris cried foul, and sued to get the $5,500 back.

The Split Among the Courts of Appeal

Prior to the Harris v. Viegelahn opinion, courts handled the above situation in one of two ways.

Debtor gets the money. Some courts ruled that when a debtor converts from Chapter 13 to 7, any funds that the trustee holds and has not yet distributed, belong to the debtor.

Trustee gets the money. Other courts (including the 5th Circuit where the Harris case arose) ruled that any funds the trustee holds belong to the trustee and the creditors. The trustee, therefore, can use the money to repay creditors and his or her own commission.

The U.S. Supreme Court’s Decision

The Supreme Court sided with the first group of courts, ruling that any undistributed funds on the date of conversion to Chapter 7 belong to the debtor. This is good news for Mr. Harris and other people who convert their Chapter 13 cases to Chapter 7.

In reaching its decision, the Court relied on the following:

The Chapter 7 bankruptcy estate does not include post-petition earnings. When a debtor converts a Chapter 13 bankruptcy case to a Chapter 7, the Chapter 7 bankruptcy estate (the money and property that now are under the control of the bankruptcy court) consists of the property and assets the debtor had as of the date of the original Chapter 13 filing. In Chapter 7, money earned or property acquired (with a few exceptions) after filing the bankruptcy, belong to the debtor.  (In contrast, in Chapter 13, money and property acquired during the plan period belong to the bankruptcy estate.)

The money that the trustee held consisted of Harris’ post-petition wages (money Harris  earned after filing the Chapter 13), which were not part of the Chapter 7 bankruptcy estate and therefore not subject to the control of the bankruptcy court.

The Chapter 13 trustee had no authority to distribute the funds. Once the Chapter 13 bankruptcy is over and the plan defunct, the bankruptcy trustee no longer has authority to distribute funds.

The trustee can take steps to prevent this from happening. The trustee and creditors can prevent this scenario from happening by seeking to have plan payments distributed on a regular basis. If the trustee had done this in the Harris case, he wouldn’t have had $5,000 in undistributed plan funds sitting around on the date of conversion.

 

USEFUL IRS INFO FOR THOSE IN THE MILITARY

In recognition of National Military Appreciation Month, IRS has recently updated its “Armed Forces Tax Guide” (Publication 3) which contains good information and important reminders of some tax benefits unique to members of the military, including:

~Combat pay – partly or totally tax free
~Moving expenses – deduction available for eligible items
~Tax return due date – service members stationed abroad
have until June 15 to file, and those in a combat zone
have even longer – typically up to 180 days after they
leave the combat zone

Check out Publication 3 for more.

Laptop Searches at Airports: Another Court Weighs In

Korean businessman Jae Shik Kim was ready to board a flight from Los Angeles International Airport to South Korea. But a special agent of the Department of Homeland Security (DHS) searched the luggage Kim had checked. (The agent didn’t find anything of particular note.) Then, on the jetway between the gate and the airplane, the agent stopped Kim, who was boarding. The agent seized Kim’s laptop “pursuant to a border search,” then left the traveler to depart for his destination. (United States v. Kim, — F.Supp.3d —-, (D.D.C., 2015).)

The next day, the special agent gave the laptop to another agent, this one a forensic specialist in San Diego. The specialist copied the hard drive, returned the laptop to the special agent, and then got to digging. (Kim got the laptop itself back about a week after its confiscation.) A keyword search with specialized software turned up thousands of files, which the specialist burned onto a DVD and gave to the special agent.

Spending several days reviewing the DVD, the agent found incriminating emails. Those emails became part of the evidence against Kim in a prosecution for conspiring to illegally sell aircraft technology to Iran.

No Random Search

This, of course, wasn’t a random border search. DHS investigators had months earlier gathered information suggesting that Kim had been involved in a shipment of “controlled articles” to Korea that were forwarded to customers in Iran. The aforementioned special agent had planned to search Kim’s laptop the next time the businessman was in the States.

The above series of events left federal District Judge Amy Berman Jackson of the District of Columbia to consider whether to grant Kim’s motion to suppress the evidence of the emails. On May 8 the judge found that—even though the laptop was seized at the border, where the government has greater search-and-seizure power—“the invasion of the defendant’s right to privacy in his papers and effects” was not reasonable “under the totality of the circumstances.”

Among the reasons for the ruling were:

  • the fact that the laptop search took place 150 miles away from LAX, long after Kim had left the country
  • the government taking unlimited time for “an extensive examination of the entire contents of Kim’s hard drive,” and
  • the judge’s finding of little—if any—indication that a crime was in progress as Kim was leaving the country.

(The judge also found it relevant that the computer was leaving rather than entering the country.)

Searching for Answers

The decision highlights an uncertain area of law: The extent to which the government can lawfully search digital devices at international borders. What kind of search may they conduct without a legitimate reason to suspect a traveler of present wrongdoing? This is the kind of question courts, not having the benefit of any Supreme Court ruling on the issue, are actively trying to solve.

(For more on this subject, see Laptop Searches at International Borders.)