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Pennsylvania Rehabilitates the Abandoned and Blighted Property Conservatorship Act

On October 23, Dana Janquitto, associate with Reed Smith posted a Real Estate Legal Update regarding Pennsylvania HB 1362 (“An Act amending the act of November 26, 2008 (P.L. 1672, No. 135).

(US) Pennsylvania Rehabilitates the Abandoned & Blighted Property Conservatorship Act

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.

Please click here to view the Real Estate Legal Update online.

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders, and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally.
Website: www.safeguardproperties.com.

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CEO

Alan Jaffa

Alan Jaffa is the Chief Executive Officer for Safeguard Properties, steering the company as the mortgage field services industry leader. He also serves on the board of advisors for SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Alan joined Safeguard in 1995, learning the business from the ground up. He was promoted to Chief Operating Officer in 2002, and was named CEO in May 2010. His hands-on experience has given him unique insights as a leader to innovate, improve and strengthen Safeguard’s processes to assure that the company adheres to the highest standards of quality and customer service.

Under Alan’s leadership, Safeguard has grown significantly with strategies that have included new and expanded services, technology investments that deliver higher quality and greater efficiency to clients, and strategic acquisitions. He takes a team approach to process improvement, involving staff at all levels of the organization to address issues, brainstorm solutions, and identify new and better ways to serve clients.

In 2008, Alan was recognized by Crain’s Cleveland Business in its annual “40-Under-40” profile of young leaders. He also was named a NEO Ernst & Young Entrepreneur Of The Year® Award finalist in 2013.

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Esq., General Counsel and EVP

Linda Erkkila

Linda Erkkila is the General Counsel and Executive Vice President for Safeguard Properties, with oversight of legal, human resources, training, and compliance. Linda’s broad scope of oversight covers regulatory issues that impact Safeguard’s operations, risk mitigation, strategic planning, human resources and training initiatives, compliance, insurance, litigation and claims management, and counsel related to mergers, acquisition and joint ventures.

Linda assures that Safeguard’s strategic initiatives align with its resources, leverage opportunities across the company, and contemplate compliance mandates. She has practiced law for 25 years and her experience, both as outside and in-house counsel, covers a wide range of corporate matters, including regulatory disclosure, corporate governance compliance, risk assessment, compensation and benefits, litigation management, and mergers and acquisitions.

Linda earned her JD at Cleveland-Marshall College of Law. She holds a degree in economics from Miami University and an MBA. Linda was previously named as both a “Woman of Influence” by HousingWire and as a “Leading Lady” by MReport.

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COO

Michael Greenbaum

Michael Greenbaum is the Chief Operating Officer of Safeguard Properties, where he has played a pivotal role since joining the company in July 2010. Initially brought on as Vice President of REO, Mike’s exceptional leadership and strategic vision quickly propelled him to Vice President of Operations in 2013, and ultimately to COO in 2015. Over his 14-year tenure at Safeguard, Mike has been instrumental in driving change and fostering innovation within the Property Preservation sector, consistently delivering excellence and becoming a trusted partner to clients and investors.

A distinguished graduate of the United States Military Academy at West Point, Mike earned a degree in Quantitative Economics. Following his graduation, he served in the U.S. Army’s Ordnance Branch, where he specialized in supply chain management. Before his tenure at Safeguard, Mike honed his expertise by managing global supply chains for 13 years, leveraging his military and civilian experience to lead with precision and efficacy.

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CFO

Joe Iafigliola

Joe Iafigliola is the Chief Financial Officer for Safeguard Properties. Joe is responsible for the Control, Quality Assurance, Business Development, Marketing, Accounting, and Information Security departments. At the core of his responsibilities is the drive to ensure that Safeguard’s focus remains rooted in Customer Service = Resolution. Through his executive leadership role, he actively supports SGPNOW.com, an on-demand service geared towards real estate and property management professionals as well as individual home owners in need of inspection and property preservation services. Joe is also an integral force behind Compliance Connections, a branch of Safeguard Properties that allows code enforcement professionals to report violations at properties that can then be addressed by the Safeguard vendor network. Compliance Connections also researches and shares vacant property ordinance information with Safeguard clients.

Joe has an MBA from The Weatherhead School of Management at Case Western Reserve University, is a Certified Management Accountant (CMA), and holds a bachelor’s degree from The Ohio State University’s Honors Accounting program.

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Business Development

Carrie Tackett

Business Development Safeguard Properties