Judgment Creditor Must File Petition to Fix Fair Market Value to Preserve Deficiency

It is extremely important for judgment creditors to file a petition to fix fair market value in order to preserve its right to pursue a deficiency judgment.

 

In an opinion filed on November 21, 2011, the Bucks County Court of Common Pleas decided the case of Atlantic Nat’l Trust v. Fonthill Corp. et al., No. 2004-01944. 

 

The case has a long and complex factual history, but the basic facts are that a mortgage note holder filed a Complaint in Mortgage Foreclosure after the borrower defaulted on the loan. After the mortgage note holder obtained a judgment against the borrower, the property was sold at sheriff sale and the judgment holder filed a Petition to Fix Fair Market Value in the mortgage foreclosure action. The Court then issued an Order fixing the fair market value as set forth in the judgment holder’s Petition. 

 

The borrower entity appealed the Order fixing the fair market value to the Pennsylvania Superior Court, arguing that there had been no “in personam” judgment obtained and, therefore, the Court should not have fixed the fair market value. In response to the appeal, the Court of Common Pleas issued this decision. 

 

In its decision, the lower court thoroughly reviewed the historical case law on the matter and noted that prior law directed that it was necessary for a judgment creditor to obtain a personal judgment against the judgment debtor prior to petitioning to fix the fair market value. However, the requirement for “in personam” judgment was recently superseded by the Pennsylvania Superior Court last year in the case of Home Savings & Loan Corp. v. Irongate Ventures, LLC, 19 A.3d 1074 (Pa. Super. 2011). In that case, the Superior Court affirmed that, under the Deficiency Judgment Act, where a judgment creditor fails to file a Petition to Fix Fair Market Value in the foreclosure action within six (6) months of the foreclosure judgment, the debtor is permitted to have the judgment marked satisfied, released and discharged.

 

In Home Savings & Loan, the judgment creditor filed its petition to fix fair market value in the separate confession of judgment action, not the mortgage foreclosure action, well after the six (6) month statutory period. This, the Superior Court held, did not preserve the judgment creditor’s right to seek a deficiency judgment.

 

Based on the Home Savings & Loan case, the Court of Common Pleas held that it was proper for the judgment creditor to file its Petition to Fix Fair Market Value in the mortgage foreclosure action even though a separate “in personam” judgment had not been previously pursued. 

If your property is condemned, you may be entitled to Delay Damages

Did you know that if your property has been taken by the government, whether it be a total taking of your entire property in fee, or whether it be for an easement, you are entitled to just compensation and, possibly, delay compensation? 

Just compensation is the difference between the fair market value of the condemnee’s entire property interest immediately before the condemnation and and the fair market value of the property interest remaining immediately after the condemnation and as affected by the condemnation.  Fair market value is the price which would be agreed to by a willing and informed seller and buyer, considering the following factors: 

  • present use of the property and its value for that use; 
  • highest and best reasonably available use of the property and its value for that use;
  • machinery, equipment and fixtures forming part of the real estate taken; and
  • any other factors as to which evidence may be offered. 

Once the condemning authority provides an offer of just compensation to the condemnee, the condemnee may accept that offer without jeopardizing its right to file a petition for a board of view to determine whether the just compensation paid was sufficient. 

A condemnee has five (5) years from the filing of the Declaration of Taking to decide whether to file a petition for a board of view to determine just compensation.  If your property was taken by a governmental agency, it may not be too late to determine whether just compensation was received.

Once a board of view makes its decision, a condemnee is free to appeal that decision to the Court of Common Pleas, in which event a new trial will be held before the Court without regard to the decision of the board of view. 

In the event the condemnee is successful either before the board of view or in Court, the Eminent Domain Code provides for delay damages to compensate the condemnee for the delay in payment. Delay damages are paid at an annual rate equal to the prime rate as listed in the first edition of the Wall Street Journal published in the year, plus 1%, not compounded, from: (1) the date of relinquishment of possession of the condemned property by the condemnee; or (2) if possession is not required to effectuate condemnation, the date of condemnation.

There is often great debate between condemnee and condemnor as to the date from which delay compensation commences. Pennsylvania case law provides that a condemnee has a prima facie entitlement to delay compensation from the date of taking. Therefore, the burden is on the condemnor to overcome this presumption that the condemnee is entitled to delay compensation from the date of taking. If the condemnee is to be denied delay compensation from the date of taking, the condemnor must prove continued possession by the condemnee. 

If your property was condemned within the last five years, it may not be too late to take a second look at whether you were justly compensated and whether there may be some future entitlement to delay damages if you were not justly compensated. 

Significant Benefit to Developers and Landowners: PA Governor Signs Further Approval/Permit Suspension Legislation

Back on July 6, 2010, Governor Rendell signed the Fiscal Code Bill (Senate Bill 1042), providing, in part, for the automatic suspension, during the “extension period” (which begins after December 31, 2008 and ends before July 2, 2013), of approvals granted by a government agency for or in effect during the extension period, whether obtained before or after the beginning of the extension period. This meant that certain permits and approvals that may have expired since December 31, 2008, were suspended through July 2, 2013. 

On July 2, 2012, Governor Corbett signed the Fiscal Code Bill (Senate Bill 1263), which amended Act by redefining the “extension period”, which now begins after December 31, 2008 and ends before July 2, 2016. This new legislation is a welcome relief, and significant benefit, to Pennsylvania developers and landowners who have been hurt by the recession. Significantly, certain permits and approvals that may have expired since December 31, 2008 have now been suspended through July 2, 2016, thereby buying a developer or landowner significant additional time. 

 

The term “approval” has not changed and is still defined broadly to include any government agency approval, agreement, permit, including a building permit or extension permit, or other authorization or decision allowing a development or construction project to proceed or relating to or affecting development granted pursuant to a statute, regulation or ordinance adopted by a municipality (including, but not limited to the Planned Communities Act, the Condominium Act, the Clean Steams Law, the Municipalities Planning Code, the State Highway Law as it relates to the issuance of Highway Occupancy Permits, the Sewage Facilities Act, the Flood Plain Management Act, the Storm Water Management Act, the Construction Code, and the portion of the Pennsylvania Code relating to Erosion and Sediment Control as to Soil Erosion and Sediment Control Plans approved by Local Soil Conservation Districts). In addition, the term “approval” includes creating additional units and common elements out of convertible real estate in a condominium or planned community. During the extension period, however, a government agency shall retain the authority to suspend or revoke an approval for noncompliance with a written condition and to enforce conditions of approvals granted prior to the extension period. 

 

In Philadelphia, however, the suspension is not automatic. The approval is suspended only after the holder of the approval (i) provides notice to the issuing government agency of the holder’s intent to exercise their rights under the legislation to suspend the expiration date of the approval and (ii) pays a fee equal to fifty percent (50%) of the original application fee, but not to exceed $5,000. 

 

There are other exceptions to the automatic suspension that are notable. First, with regard to Highway Occupancy Permits, such permits shall only be extended by the Department of Transportation upon the submission of a complete and accurate application throughout the extension period for one year intervals. Second, any approval issued by the Department of Environmental Protection for a discharge into exceptional value or high quality waters is not subject to the automatic suspension. Third, approvals issued for compliance with federal law are not deemed suspended. Finally, with regard to an approval to connect to a public sewer system, the automatic suspension during the extension period is contingent on the availability of capacity for the extended approval. 

 

Any holder or recipient of an approval may seek written verification from the issuing government agency for any of the following: (i) the existence of a valid approval; and/or (ii) the expiration date of the approval under the new legislation. The request must state the approval in question and provide the anticipated expiration date in light of the extension period. Upon receipt of a request, the government agency shall have thirty (30) days within which to affirm or deny the existence of the approval, its expiration date, and any issues associated with its validity. If the agency fails to respond within thirty (30) days, the approval that was the subject of the request, as well as the anticipated expiration date, shall be deemed affirmed. The agency may charge a fee of not more than $100 for a residential approval request and $500 for a commercial approval request. 

Recent NJ Legislative Activity on Real Estate Tax Credits

The legislative process in New Jersey becomes very interesting in the month of June when all legislative and executive eyes focus on the budget proposal and deals may be struck on other pieces of legislation to build support for the budget.  This month should prove to be no exception.  While we will not discuss the budget process as it affects New Jersey tax credits, the negotiations over the budget could have a direct impact on some key programs.  This article will focus on updates regarding bills related to programs that we have previously discussed in earlier posts and in the In the Zone publication.

We previously reported on legislation which would raise the maximum allowable tax credits under the Urban Transit Hub Tax Credit Act and under the Grow New Jersey Assistance Act.  These bills, A2242 and S1562, seek to increase the UTHTC Credits from 1.5 billion dollars to 2.5 billion dollars and tax credits under the Grow New Jersey Assistance Act from 200 million dollars to 400 million dollars.  The Assembly bill, A2442, has not received any attention since its introduction in February of this year.  On the other hand, the Senate version, S1562, sailed through two committees and was reported favorably by the second committee in early March of this year.  Until the end of last month, that bill sat but on May 31, it was passed unanimously by the Senate 35 to 0.  Earlier this month, the Senate bill was received by the Assembly and referred to the Assembly Commerce and Economic Development Committee.

It is anticipated that A2442 will receive favorable attention by the Assembly Committee.  The UTHTC program has been highly successful and the tax credits it has generated have been a significant component of capitals stacks in numerous projects in several of the eligible municipalities.  However, the program has been a victim of its success as the eligible credits have been gobbled up and presumably worthy projects may be at risk for lack of credits. 

We expect favorable action by the Assembly.  If that happens then, a bill will arrive at the Governor’s desk accompanied by vigorous lobbying behind the scenes to urge the Governor to sign the bill.  While there are other pending bills that seek to either tweak or radically change this tax credit program, they seem to be garnering little attention at this time.  One significant oversight is the disparity in distribution of urban transit hub tax credits to the eligible municipalities.  Whether that New Jersey legislature will address the historic disparity remains remains an open question.   For more information on these tax credit laws, please see our prior article.

A1450 and S141, the New Jersey Historic Property Reinvestment Act, has not progressed in either house, a curious result.  Last year, the identical legislation made it to the Governor’s desk only to be vetoed. As the bill presently stands it seeks to aid many without consideration of economic need.  Perhaps with a more surgical approach -- for example, permitting tax credits in urban cities in need of redevelopment -- it will draw favorable action. For more information on this proposal, please consult our prior article.

In view of our readership, two pieces of legislation proposing tax incentives to “distressed shopping centers” deserve a quick note.  These bills are proposing tax incentives to encourage revitalization of partially or completely vacant shopping centers.  A204 and S1002 propose a tax credit of $15,000 up to 50% of the corporate business tax liability while the other, A434, proposes an array of tax incentives including tax credits, rebates, reimbursements, exemption and skill training to tenants of eligible shopping centers. In the case of all of this legislation, there are prerequisites to eligibility.  We will follow their progress and, if warranted, report more thoroughly in the near future.

For further information, contact Jeffrey N. Hall or Daniel V. Madrid.

Complete Redesign of Pennsylvania's Redevelopment Assistance Capital Program

The Pennsylvania Governor's Budget Office announced yesterday that the Redevelopment Assistance Capital Program (RACP) will be completely redesigned. 

According to the Governor's Budget Office, the goals of the redesign are to:

  • To define the application process with published guidelines and procedures.
  • To implement merit-based evaluation and selection.
  • To promote transparency.
  • To maintain rigorous monitoring, measurement and reporting.

Semi-annual funding rounds will be held for the program and funding is approximated at $125 million each year, with funding awards made in April and October of each year.  Projects that are not "shovel-ready" within 365 days will be deferred to a later round.  Business plans for the first funding round of the new program must be submitted by June 29, 2012. 

Project selection will be through a scoring matrix based upon the following criteria:

  • jobs created or retained;
  • community impact;
  • strategic cluster for development;
  • financial impact / long-term sustainability; and
  • construction shovel readiness.

Further information on the redesign can be found on the Governor's Office of the Budget website, including copies of the new Application Handbook.

PA Superior Court Upholds Personal Liability Judgment Against Homebuilder

In an opinion filed on March 6, 2012, the Pennsylvania Superior Court decided the appeal of Bennett, et al. v. A. T. Masterpiece Homes, et al., No. 1302 MDA 2011.  At issue in Bennett was the question of whether a homebuilder could be found personally liable for breach of contract, breach of warranty, and  violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) resulting from defective construction work.  Let this case be a lesson to all homebuilders.

The Bennetts & the Hoefferles contracted with A.T. Masterpiece Homes for the construction of their respective residences in a York County, PA development.   During construction of the homes, both couples noticed numerous building deficiencies.  One of the named defendants was the managing member of A.T. Masterpiece Homes, who was the couples’ primary contact during the construction process.  He assured the couples regarding the quality of the work on their homes.  Such assurances were specific, direct, and often in the form of personal guarantees.  Once construction finished, the Bennetts and the Hoefferles discovered their newly-constructed homes were in various states of disrepair and structural failure.

 

At the lower court, the jury found A.T. Masterpiece and the managing member, individually, liable for breach of contract, breach of warranty, and violations of the UTPCPL.  Further, the jury concluded that the managing member’s representations and guarantees regarding the homes exposed him to personal liability.  The case then moved to the damages phase, where the jury found the managing member liable to the Hoefferles for $26,000.00 and to the Bennetts for $85,000.00.  The court doubled the damages, pursuant to the UTPCPL, and assessed counsel fees of $3,250.00.  As a result, the total judgment against the managing member was $173,250.00 for the Bennetts and $55,250.00 for the Hoefferles.

 

The managing member argued he should be shielded from personal liability because he was at all times acting only as an agent on behalf of a limited liability corporation, A.T. Masterpiece, and that any statements attributed to him (such as “I will take care of it” or “I guarantee it”) were simply figures of speech and did not amount to an express assumption of personal liability.   

 

Nevertheless, the Court found that a person acting as an agent may assume personal liability on a corporate contract where he executes a contract in his own name or voluntarily undertakes a personal responsibility.  Although the couples officially contracted with A.T. Masterpiece, the managing member voluntarily assumed personal liability on the building contract when he guaranteed the final quality of the home.  His statements were intended to calm fears about the building deficiencies and reasonably led the couples to believe he would personally ensure the completed home was built properly.

HUD Section 108 Loan Guarantee Program

Putting together funding sources for a redevelopment project can often be a daunting task.  One potentially  valuable funding source which is the Section 108 loan guarantee program.

Section 108 is the loan guarantee provision of the Community Development Block Grant (CDBG) programSee 24 C.F.R. §§ 570.1 et seq. Section 108 provides communities with a source of financing for economic development, housing rehabilitation, public facilities, and large-scale physical development projects. It is a public investment tool offered by the U.S. Department of Housing and Urban Development (HUD) to local governments, which allows the local governments to transform a portion of their CDBG funds into federally guaranteed loans. However, local governments borrowing funds guaranteed by Section 108 must pledge their current and future CDBG allocations to cover the loan amount as security for the loan. Additional security, which is determined on a case-by-case basis, will also be required to assure repayment of guaranteed obligations.

Activities eligible for Section 108 financing include:

  • Economic development activities eligible under CDBG;
  • Acquisition of real property;
  • Rehabilitation of publicly owned property;
  • Housing rehabilitation eligible under CDBG;
  • Construction, reconstruction, or installation of public facilities (including street, sidewalk, and other site improvements);
  • Related relocation, clearance, and site improvements;
  • Payment of interest on the guaranteed loan and issuance costs of public offerings; and
  • Debt service reserves.

All projects and activities must either principally benefit low and moderate income persons, aid in the elimination and prevention of slums and blight, or meet urgent needs of the community. 

Section 108 offerings are financed through underwritten public offerings.  Financing between public offerings is provided through an interim lending facility established by HUD. Interest rates on interim borrowing are priced at the 3 month LIBO rate plus 20 basis points (0.2%). Permanent financing is pegged to yields on U.S. Treasury obligations of similar maturity to the principal amount. A small additional basis point spread, depending on maturity, will be added to the Treasury yield to determine the actual rate. 

For an example of Section 108 funds at work, see my post on February 7, 2012