housing alliance of pa

1. Housing Alliance of PA Statewide membership organization that works for homes within reach of people with low and moderate incomes. Helped gain passage of seven new state laws to make the acquisition and disposition of blighted, abandoned properties faster, easier and cheaper. Annual Homes within Reach Conference December 9,10 and 11 in Harrisburg.

2. Far reaching law—intent is to allow community to take control of someone else’s property because of property maintenance neglect and the deleterious effect of that neglect on the surrounding community Far reaching law—intent is to allow community to take control of someone else’s property because of property maintenance neglect and the deleterious effect of that neglect on the surrounding community

3. Blighted and Abandoned Property Conservatorship (Act 135) What it is, briefly stated: A powerful new tool that gives interested parties the right to petition the court for temporary possession of a nearby blighted, abandoned property for the purpose of fixing it up and returning it to market, or demolishing it. Conservatorship is a surgical tool, not designed for large scale revitalization, but for that one troublesome property where all else has failed.

4. Conservatorship Act 135 Purpose of Today’s Session: To provide participants with enough basic information about this new tool to be able to assess a property for appropriateness for a conservatorship action and take the first steps toward identifying a petitioner and filing a petition. To inform participants about the Conservatorship Clearinghouse on the Housing Alliance Website to track progress and share experiences and information.

5. ConservatorshipTraining Presenters Martin J. Danks, Esq., Assistant City Solicitor, City of Allentown, has extensive municipal law experience including lien enforcement, debt collection, code enforcement, and nuisance bar. He is currently in the process of preparing Conservatorships action on behalf of the City of Allentown.

6. Act 135CONSERVATORSHIP BUILDING PETITIONER CONSERVATOR COURT OF COMMON PLEAS There are Four (4) primary players in the legislation. You might notice that the property owner is not listed here—but we will be discussing how conservatorship interfaces with the property owner and others that have an interest in a piece of property. Keep in mind that many owners or lienholders of blight properties, certainly abandoned properties, are deceased, or disappeared, if they are individuals. Corporate owners or lienholders may be closed, acquired, merged, etc. An “owner” is defined in Act 135 as “a holder or holders of title to, or of a legal or equitable interest in a residential, commercial or industrial building, including an heir, assignee, trustee, benefiiciary and less provided the ownership interest is a matter of public record”. Lienholder is not defined. There are Four (4) primary players in the legislation. You might notice that the property owner is not listed here—but we will be discussing how conservatorship interfaces with the property owner and others that have an interest in a piece of property. Keep in mind that many owners or lienholders of blight properties, certainly abandoned properties, are deceased, or disappeared, if they are individuals. Corporate owners or lienholders may be closed, acquired, merged, etc. An “owner” is defined in Act 135 as “a holder or holders of title to, or of a legal or equitable interest in a residential, commercial or industrial building, including an heir, assignee, trustee, benefiiciary and less provided the ownership interest is a matter of public record”. Lienholder is not defined.

7. The Blighted and Abandoned Properties Conservatorship Law, Act 2008-135 (H.B. 2188), 68 P.S. §1101 et. seq. Effective as of February 24, 2009 The Housing Alliance is committed to supporting municipal and neighborhood leadership in using new tools to address blighted and abandoned properties.

8. Act 135 CONSERVATORSHIPROLES BUILDING residential, commercial or industrial structure that meets conditions of conservatorship PETITIONER a ‘party in interest’ authorized to initiate a conservatorship action; recommends a person or entity to be appointed conservator Building: not vacant lots; conservatorship is intended to apply to buildings that are blighted; We will lays out the building conditions that must exist to be eligible for conservatorship, and who qualifies as a ‘party in interest’ Building: not vacant lots; conservatorship is intended to apply to buildings that are blighted; We will lays out the building conditions that must exist to be eligible for conservatorship, and who qualifies as a ‘party in interest’

9. CONSERVATORSHIP Roles CONSERVATOR third party that has capacity to take possession, effectuate rehabilitation and manage the conservatorship process COURT OF COMMON PLEAS authorized to appoint conservator, approve rehabilitation plan, accounting, status reports, create a senior lien position for conservator financing, order sale of the property This law allows for the community to ask a judge to appoint a third party, a conservator, on a property that is not being maintained or managed by its owner. You can start to appreciate that the conservatorship process is a court based, legalistic scheme so the early involvement of local legal counsel with experience in real estate development is recommended. Webinar note: We recognize that this may be a barrier for municipalities, especially the smaller municipalities who often have part-time solicitors charging hourly fees for their legal services. I would appreciate getting an email from those who have the challenge of access to legal services because you are affiliated with small municipalities with limited resources. This law allows for the community to ask a judge to appoint a third party, a conservator, on a property that is not being maintained or managed by its owner. You can start to appreciate that the conservatorship process is a court based, legalistic scheme so the early involvement of local legal counsel with experience in real estate development is recommended. Webinar note: We recognize that this may be a barrier for municipalities, especially the smaller municipalities who often have part-time solicitors charging hourly fees for their legal services. I would appreciate getting an email from those who have the challenge of access to legal services because you are affiliated with small municipalities with limited resources.

10. Act 135 BUILDINGConditions for Conservatorship ALL must apply: Not legally occupied for 12 months Not marketed for 60 days No foreclosure action Current owner longer than 6 months PLUS three (3): A public nuisance Needs substantial rehab Unfit for occupancy Increases risk of fire Subject to entry Not secured by owner Attractive nuisance Hazards Decreases property values Illicit Activities This is a truncated list to give you an idea of the property characteristics necessary to be eligible for conservatorship—there is more detail regarding each of these characteristics in the law. These are the conditions that community want abated, and if the owner is unwilling, unable or unavailable to abate the property conditions the community is going to step in an petition the court to appoint a conservator to take care of the property Current owner >6 months: the law actually says ‘the current owner fails to present sufficient evidence that he has acquired the property within the preceding 6 months. The intent here is to avoid the ‘shell game’ situations in which the same owner shifts title around and claims I haven’t had a chance to respond to code violations. This is a truncated list to give you an idea of the property characteristics necessary to be eligible for conservatorship—there is more detail regarding each of these characteristics in the law. These are the conditions that community want abated, and if the owner is unwilling, unable or unavailable to abate the property conditions the community is going to step in an petition the court to appoint a conservator to take care of the property Current owner >6 months: the law actually says ‘the current owner fails to present sufficient evidence that he has acquired the property within the preceding 6 months. The intent here is to avoid the ‘shell game’ situations in which the same owner shifts title around and claims I haven’t had a chance to respond to code violations.

11. Act 135 PETITIONERS Party in interest has direct and immediate interest in blighted building including: owner lien holder resident or business owner w/in 500 ft nonprofit located in municipality* the municipality or school district *special Philadelphia criteria Far reaching—beyond the traditional parties in interest in a property (owner, lien holder) the law gives standing to the community {Owner as petitioner: joint property owners, an owner is unavailable, cannot be found, making it impossible to obtain financing, sell the property, conservatorship may allow for that owner interest to be cleared…} A nonprofit corporation is defined in Act 135 as one “that has, as one of its purposes, community development activities, including economic development, historic preservation or the promotion or enhancement of affordable housing opportunities.” A party in interest can be a nonprofit corporation, including a redevelopment authority, that is located in the municipality where the building is located. *In Philadelphia, the nonprofit has to have participated in a project within a one-mile radius of the building. Far reaching—beyond the traditional parties in interest in a property (owner, lien holder) the law gives standing to the community {Owner as petitioner: joint property owners, an owner is unavailable, cannot be found, making it impossible to obtain financing, sell the property, conservatorship may allow for that owner interest to be cleared…} A nonprofit corporation is defined in Act 135 as one “that has, as one of its purposes, community development activities, including economic development, historic preservation or the promotion or enhancement of affordable housing opportunities.” A party in interest can be a nonprofit corporation, including a redevelopment authority, that is located in the municipality where the building is located. *In Philadelphia, the nonprofit has to have participated in a project within a one-mile radius of the building.

12. Act 135 CONSERVATORS In order of preference in the law: Senior lienholder Non Profit Corporation Governmental Unit Individual Senior lien holder means 1st lien position (after local, state and gov tax liens), typically held by a mortgagee, a lender Senior lien holder means 1st lien position (after local, state and gov tax liens), typically held by a mortgagee, a lender

13. Act 135 COURT OF COMMON PLEAS Appoints conservator Approves conservator plan May “grant a lien or security interest with priority over all other liens with the exception of municipal or other governmental liens” May “authorize the conservator to sell the building free and clear of all liens, claims and encumbrances…” Authorized to approve distribution of proceeds of sale, if any, in accordance with listed priorities We are still moving through an introduction of the four (4) players: the building, the petitioner, the conservator, and the court. Conservator’s lien: the exceptions to the lien priority are potentially a significant risk for the conservator on an abandoned since abandoned properties are highly correlated with liens. Municipal or other governmental liens include federal, state, and local governmental liens. Local governmental liens include real estate taxes, municipal claims for nuisance abatement, unpaid water/sewer charges. In Philadelphia, local government liens include Philadelphia Gas Works (“PGW” liens). State liens could include medical assistance estate recovery act claims against a deceased owner’s estate or could include corporate taxes if the owner is a corporation. ‘free and clear’ title: the Court’s authority to approve a sale of real estate “free and clear” is always contingent on the due process given the lien holders on the property. In practice, the ultimate arbiter of “clear title” is a title insurance provider; there are a variety of methods of serving process or giving notice to lien holders. Custom and practice regarding real estate practice varies throughout this Commonwealth. Practitioners in Philadelphia who have studied Act 135 are of the opinion that the service and notice requirements in Act 135 are inadequate to obtain “insurable title” on conservatorship property. Given this, Philadelphia’s Common Pleas Court is including expanded notice and service requirements as part of its General Court Regulations on Act 135 Petitions. However, depending on the circumstances of the property, proof of good service on all those with an interest in the property (as per a full title report), following the notice requirements in the law, PLUS an Order of Court transferring free and clear title may be sufficient to allow an title insurance underwriter to insure title on a conservatorship property. Indeed, it is not uncommon for property purchasers to decide after a risk/benefit analysis to acquire property without title insurance. Distribution: a hierarchy of priority of distribution of proceeds of conservatorship sale is provided in the law.We are still moving through an introduction of the four (4) players: the building, the petitioner, the conservator, and the court. Conservator’s lien: the exceptions to the lien priority are potentially a significant risk for the conservator on an abandoned since abandoned properties are highly correlated with liens. Municipal or other governmental liens include federal, state, and local governmental liens. Local governmental liens include real estate taxes, municipal claims for nuisance abatement, unpaid water/sewer charges. In Philadelphia, local government liens include Philadelphia Gas Works (“PGW” liens). State liens could include medical assistance estate recovery act claims against a deceased owner’s estate or could include corporate taxes if the owner is a corporation. ‘free and clear’ title: the Court’s authority to approve a sale of real estate “free and clear” is always contingent on the due process given the lien holders on the property. In practice, the ultimate arbiter of “clear title” is a title insurance provider; there are a variety of methods of serving process or giving notice to lien holders. Custom and practice regarding real estate practice varies throughout this Commonwealth. Practitioners in Philadelphia who have studied Act 135 are of the opinion that the service and notice requirements in Act 135 are inadequate to obtain “insurable title” on conservatorship property. Given this, Philadelphia’s Common Pleas Court is including expanded notice and service requirements as part of its General Court Regulations on Act 135 Petitions. However, depending on the circumstances of the property, proof of good service on all those with an interest in the property (as per a full title report), following the notice requirements in the law, PLUS an Order of Court transferring free and clear title may be sufficient to allow an title insurance underwriter to insure title on a conservatorship property. Indeed, it is not uncommon for property purchasers to decide after a risk/benefit analysis to acquire property without title insurance. Distribution: a hierarchy of priority of distribution of proceeds of conservatorship sale is provided in the law.

14. Act 135 Conservator Expectations Develop a preliminary plan for the building Take possession immediately upon appointment Maintain, safeguard and insure the building Develop a final plan to be approved by court Implement final plan Submit status reports It is anticipated that the petitioner and conservator will not have the benefit of an interior view of the building until the conservator is appointed, and then has the authority to enter the building, so the law anticipates that the conservator although expected to take control of the building immediately upon appointment, may not have a solid, final plan until several months after the appointment. While the intent of the law is to repair and maintain the structural integrity of the building, if upon an interior inspection it is not rehab-able, demolition is allowed. Similar to the uncertainty regarding whether a title insurance policy will be issued on a conservator property; how will an property insurance provider respond to conservators need for hazard insurance—especially as early in the process as this expectation comes up—right after appointment—prior to title transfer….? It is anticipated that the petitioner and conservator will not have the benefit of an interior view of the building until the conservator is appointed, and then has the authority to enter the building, so the law anticipates that the conservator although expected to take control of the building immediately upon appointment, may not have a solid, final plan until several months after the appointment. While the intent of the law is to repair and maintain the structural integrity of the building, if upon an interior inspection it is not rehab-able, demolition is allowed. Similar to the uncertainty regarding whether a title insurance policy will be issued on a conservator property; how will an property insurance provider respond to conservators need for hazard insurance—especially as early in the process as this expectation comes up—right after appointment—prior to title transfer….?

15. What about the owner? Petitioner notifies owner(s) and lienholder(s) of Filing of Petition Hearing date on conservator appointment Submission of final plan Due process to the owner or owners and any individuals or entities that have an interest in or against the property must be afforded due process of law, and it is the petitioner’s burden to provide due process or notice to owners and lienholders… Keep in mind that many owners or lienholders of blight properties, certainly abandoned properties, are deceased, or disappeared, if they are individuals. Corporate owners or lienholders may be closed, acquired, merged, etc.—but still it is petitioners burden to attempt to notify owner and be able to show a judge the attempts made…. Due process to the owner or owners and any individuals or entities that have an interest in or against the property must be afforded due process of law, and it is the petitioner’s burden to provide due process or notice to owners and lienholders… Keep in mind that many owners or lienholders of blight properties, certainly abandoned properties, are deceased, or disappeared, if they are individuals. Corporate owners or lienholders may be closed, acquired, merged, etc.—but still it is petitioners burden to attempt to notify owner and be able to show a judge the attempts made….

16. What about the owner? If owner responds, court may set a date for owner abatement. If none, conservator appointed Conservatorship does not relieve owner of any liability or responsibilities Owner may petition to terminate conservatorship but must make conservator whole Owner is on list of distribution of proceeds Other jurisdictions, outside of Pennsylvania, have seen conservator-like laws used as a ‘credible threat’ against the owner, and owners have responded and abated code violations. If the owner does not respond and get involved in the action, owner is not relieved of its liability, may come into the action at any time, and has the right to proceeds if any in accordance with a distribution list (that first makes the conservator whole).Other jurisdictions, outside of Pennsylvania, have seen conservator-like laws used as a ‘credible threat’ against the owner, and owners have responded and abated code violations. If the owner does not respond and get involved in the action, owner is not relieved of its liability, may come into the action at any time, and has the right to proceeds if any in accordance with a distribution list (that first makes the conservator whole).

17. What is conservator’s exit strategy? Code compliance achieved, conservator made whole, conservator purposes fulfilled Owner, mortgagee, lienholder requests termination, assures code compliance, conservator made whole, conservator purposes fulfilled; Conservator sale and proceeds distributed; OR Conservator unable to present approvable plan, or conservator purposes cannot be fulfilled.

18. Act 135 STEP BY STEP Identify/Research Property Prepare Court Action Start Court Action Court appoints Conservator Conservator takes possession and control of building Final plan submitted and approved Implement plan, submit status report Terminate conservatorship by fulfilling conservatorship plan, party in interest redemption, or sale At this stage of the implementation of PA’s conservatorship law, the selection and evaluation of properties appropriate for conservatorship require a high level of attention because of the risks associated with the uncertainties of a new law. This is a good time to be identifying and evaluating properties that may be good candidates for pilot conservatorship cases in your jurisdiction. (More in Slide 16) An enormous amount of investigation and due diligence is required before filing a petition to appoint a conservator. Reviewing a full title report (not a lien and judgment, or a current owner’s report or not a 20 year report – the property searches go back 20 years—but rather a full, 60 year title report) is a critical part of the property research. Part of the process of deciding whether conservatorship is the best tool for a particular property problem, is an analysis that considers what quality of title one needs, the future use/plan for the property, and the risk of a challenge to future ownership of the property…. Involving attorney with real estate expertise is important for vetting problem property strategies. Its important to project the need for out-of-pocket cash for court costs and service of process, including the possibility of needing to pay for legal advertising in newspapers where the owner can’t be personally served (those due process requirements to obtain insurable title.) At this stage of the implementation of PA’s conservatorship law, the selection and evaluation of properties appropriate for conservatorship require a high level of attention because of the risks associated with the uncertainties of a new law. This is a good time to be identifying and evaluating properties that may be good candidates for pilot conservatorship cases in your jurisdiction. (More in Slide 16) An enormous amount of investigation and due diligence is required before filing a petition to appoint a conservator. Reviewing a full title report (not a lien and judgment, or a current owner’s report or not a 20 year report – the property searches go back 20 years—but rather a full, 60 year title report) is a critical part of the property research. Part of the process of deciding whether conservatorship is the best tool for a particular property problem, is an analysis that considers what quality of title one needs, the future use/plan for the property, and the risk of a challenge to future ownership of the property…. Involving attorney with real estate expertise is important for vetting problem property strategies. Its important to project the need for out-of-pocket cash for court costs and service of process, including the possibility of needing to pay for legal advertising in newspapers where the owner can’t be personally served (those due process requirements to obtain insurable title.)

19. Timeframes Appointment hearing set within 120 days of filing; Appointment decision within 30 days of hearing; Final plan hearing set within 120 days of appointment; Status Reports annually, “or more frequently” Six (6) months of conservatorship required for court to consider sale

20. NEW LAW CAUTION Law is created over time through the process of legal challenges and appellate review of trial court decisions There are many unknowns and uncertainties associated with the new authorization to appoint conservators Traditional providers of financing, property insurance, title insurance may be unwilling or reluctant to take risk associated with conservatorship

21. Suggested FirstCase Criteria Conservator is last resort approach Owner is not likely to respond Not enough property value for lienholders to pursue or to contest Funding available (not dependent on conservatorship lien) Demolition is not out of the question It is important that the initial conservatorships are successes, and that convervatorship properties can be sold, and not have initial cases get mired down in litigation with angry owners or lenders. Prospective petitioners might look for cases that might result in a simple demolition, where the hard and soft costs of the development and the conservatorship are thoroughly considered and affordable, perhaps through grants or lines of credit, without necessarily depending on a conservator lien at the outset.It is important that the initial conservatorships are successes, and that convervatorship properties can be sold, and not have initial cases get mired down in litigation with angry owners or lenders. Prospective petitioners might look for cases that might result in a simple demolition, where the hard and soft costs of the development and the conservatorship are thoroughly considered and affordable, perhaps through grants or lines of credit, without necessarily depending on a conservator lien at the outset.

22. Conservatorship Examples Boro of St. Clair, Schuylkill Co. – First known PA case Baltimore Cleveland

23. Questions, Concerns, Comments ????????????????????? ????????????????????? ?????????????????????

24. Housing Alliance of PA Housing Alliance may support prospective petitioners and conservators in using Act 135 by providing technical assistance on strategy, drafting petitions, service of process, etc. Contact: 215-576-7044 (Philadelphia) 717-909-2006 (Harrisburg) 412-281-1137 X116 or 117 (Pittsburgh) blightedprop@housingalliancepa.org