Property owners, lien-holders and community development
organizations in Pennsylvania, take note. Governor Corbett recently
signed House Bill No. 1363 amending the act of
November 26, 2008 (P.L.1672, No.135), also known as the
Abandoned and Blighted Property Conservatorship Act.
Depending on your viewpoint, the amendment gives much needed teeth
to a tool for combating blight, or expands the already broad power
of neighboring residents and business owners to interfere with a
legitimate property owner's interest. The amendment sailed
through the Pennsylvania Legislature without a single
"nay", showing the Commonwealth is unified on the topic
of remediating blighted real estate holdings.
The Abandoned and Blighted Property Conservatorship Act allows the
court to appoint a conservator to rehabilitate deteriorating
residential, commercial and industrial buildings. The conservator
is then responsible for bringing buildings into municipal code
compliance when owner fails to do so, and steps into the
owner's shoes for the purposes of filing plans, seeking
permits, and submitting applications.
The Act does not relieve the actual property owner of any
liability or obligation with respect to the property, and the
property owner may become responsible for debts incurred as a
result of the conservatorship.
A brief summary of the changes to the Act:
Expansion to Vacant Lots and Adjacent Property:
The amendment allows conservators to take over vacant lots, which
is a boon to neighbors eying up a trash-filled lot for a community
garden. Previously, it was uncertain whether the Act only applied
to land containing buildings or other improvements. Adjacent
properties may be now considered in a single petition if they are
owned by the same owner and used for a single or interrelated
function.
Definition of Abandoned Property and Standard for
Assessment: The Act now provides a definition of
"abandoned property", which was curiously
missing from the original text considering the Act's title.
This fills a much-needed hole for judges, who previously had to dig
into the legislative history and other acts to provide a
definition. The court must give "reasonable
regard" to the conservator's determinations when
assessing the rehabilitation plan, including costs to develop the
property.
Expansion of Potential Conservators: The
definition of a "party in interest" is expanded.
Neighboring residents or business owners, previously limited to a
500 foot radius, may now petition the court if they are located
within 2,000 feet of the subject property (in Philadelphia terms,
essentially a change from 1 block to 4 blocks). A non-profit may
have participated in a prior rehabilitation project within a five
mile radius of the subject property, rather than a one-mile radius.
The old definition tended to limit prospective non-profit
conservators to a handful of neighborhoods.
Swapping Lien Priority: Important for senior
lien-holders: a senior lien-holder can lose its priority status if
it declines to provide financing for the rehabilitation. New
rehabilitation financing can get priority status over the senior
lien if the court determines the change in priority is necessary to
induce another lender to provide financing. Furthermore,
distribution from the proceeds of a sale now go first to
Commonwealth liens, unpaid property taxes, and properly recorded
municipal liens. It appears other government liens, such as federal
income tax liens, have been moved further down the list.
Shifting Burden of Proof: The burden to prove
whether the property has been on the market in the past 12 months
has been shifted to the owner, who must present
"compelling evidence" that the property has been
actively marketed. Previously, the burden was on the petitioner to
prove a negative, i.e., that the property had not been
marketed.
Petition Costs Recoverable: The owner must
reimburse the petitioner for costs of preparing the petition
whether the owner elects to repair, the owner sells the property to
the conservator or the court approves the conservator's
petition. Previously, if the recalcitrant owner opted to repair the
property, the petitioner had no mechanism to recoup its costs. The
ultimate goal of the petition –a repaired property- ends up
being realized, even if conservatorship does not end up with
control of the property, which incentivizes more petitions and
workouts.
Reduced Time to Sale: The conservator must
control the property for three months before sale (without a
successful petition from the owner to terminate the
conservatorship), down from six months.
Miscellaneous Provisions:
- Bids for contracts are no longer required if the conservator is financing the development.
- If the owner opts to repair the property, a bond is required rather than left to the discretion of the court.
- The petition requires submission of title reports, and notice to certain municipal authorities, such as utility providers.
- A hearing is no longer required for abatement if the court approves the submitted plan.
- The developer's fee has been expanded to include a conservator's fee.
Property owners should consider curing any outstanding municipal
code violations, including health, fire or occupancy, and
completely secure any abandoned property in compliance with the Doors & Windows Ordinance. In addition,
senior lien holders should review requests for rehabilitation
financing carefully to retain lien priority.
Lastly, neighbors, business owners, and non-profit community
development organizations should take note. You might want to
take a tour of the scofflaw buildings in the neighborhood.
This article is presented for informational purposes only and is not intended to constitute legal advice.