A new year is a time for resolutions to open new businesses or to change the structure of the business you have for asset protection, tax benefits, privacy, retirement and/or estate planning purposes.  But before you figure out the changes you want to make, you have to understand the basics about entities. First, what is an entity? It is a separate legal person designed to have an existence apart from you individually. An entity can enter into leases and other contracts, own real estate, sue and be sued in court, all without naming you individually. This is good for most businesses, but especially for real estate investing, where the public records like deeds and mortgages are abundant and easy to track.

There are simple benefits to having an entity, like reducing the appearance of your name in courts and other public records, leases and contracts. Entities can also protect you from certain claims and liabilities, reduce your risk of tax audits, save tax dollars, and reduce your exposure to mechanics’ liens.

Entities help me to keep only personal loan accounts on my personal credit report and to keep my business loan accounts off of my personal credit report. The more money you borrow for real estate investing, the more of an advantage this can be. Try to get a personal credit card or even a car loan when you have over a million dollars of real estate related loans and fifty utility accounts on your personal credit! But the entity’s accounts don’t appear on your credit report, because they aren’t personal to you, although you probably have to guarantee them all.

When you flip properties, using the right entities can keep claims from properties you rehabbed six to twelve years ago from coming back to affect your profits today. They can also protect your profits next year from claims arising from your current rehabs. You can also control “dealer status” for tax purposes, which is discussed below

A series of entities used together can allow you to wear several hats, as owner, manager, contractor (and in my case lawyer) all while the entities interact to work with your properties in different ways, still keeping each role separate and keeping your banks happy. If you own rental properties, a series of entities can give you the convenience of common management, but can split your real estate equity into separate pieces, so “all of your eggs are not in one basket” and you don’t lose all of your equity as a result of an uninsured claim or problem at a single property.

For those who want to take charge of their own retirement funds, An IRA owned entity can allow your IRA to own real estate, without identifying the IRA as the owner, and without putting all of the rest of the funds in your IRA account, now or in the future, at risk for claims arising from the ownership of the property.

Once you understand what entities can do, the next question is which are right for you? Corporations, Limited Liability Companies, Limited Partnerships and Trusts all have roles in businesses in general, including the business of real estate investing, but their roles are different.

A corporation or limited liability company works as an entity for a single business in any field, and particularly in real estate to flip a series of properties and then shut down and form another, managing both claims exposure and tax issues. We prefer LLC’s for our clients over corporations, because both can be treated as S or C corporations for tax purposes, but the LLC has even more flexibility, being able to be taxed as a pure pass through or partnership as well, depending on who owns it. The LLC is also easier to maintain than a corporation, not requiring annual meetings and minutes to preserve its separate identity. There are potential tax issues since 2011 for single member LLCs structured as pure pass through entities, so make sure you consult your C.P.A., tax accountant or tax advisor. The biggest issue with single member LLCs appears to be for those which provide services. The IRS considers those entities subject to self-employment tax on their income, as though the entity did not exist. So if my law firm were a single member LLC electing pass through status, I’d pay the extra tax. But a single member LLC which elects S status may avoid that problem, and single member LLCs which own real estate or derive money from business other than providing personal services should not have to be concerned about this issue. An entity can elect corporate “S” status until March 15^th for the current tax year, so make sure you know what is best for you, and get it done by then.

An LLC or corporation can also make a great property management entity for your long term holdings. Although you have to be a real estate broker or an owner of real estate to manage it, I use LLCs as the general partner in each of my Limited Partnerships holding title to real estate. That way, the deeds to different groups of rental units are in different LPs, so my equity “eggs” are in different baskets. But, at the same time, all of my leases, management activities and liability exposure from management are centralized in a single LLC. Since it owns 1% of the Limited Partnerships which own the properties as general partner, the LLC manages as an owner without being a real estate broker. This does not work in Pennsylvania with two layers of LLCs, only with an LP as owner and an LLC as its general partner.

One set of bank accounts, one phone number, and one name to do business under all help to make management easier. The structure also has asset protection benefits, because the LLC is like a lightning rod for claims arising from management activities. It takes the heat, and diverts the attention from your LPs. But it also only owns just one percent of your equity, so the other 99% is protected from those claims. The LPs do no business, since they are just shells holding the deeds, so they don’t even need their own bank accounts. And since any contracts for repairs or improvements are between the contractor and the LLC managing the property, there is no contract with the LP owner, so the contractor can’t lien the property of the LP if the LLC doesn’t pay.

Of course, the next question is how many LPs to have? Ideal asset protection would be to have every single family house duplex or multi-unit property in its own LP. Each would then be in its own “liability basket’, protected from the legal liabilities associated with other properties. However, each entity you form and operate has its own legal existence, including a tax ID and corresponding obligations to report and pay certain taxes. This adds a cost to each entity, and you have to balance ideal asset protection against the guaranteed costs and ease of operation of doing business every year.

I choose a compromise between these two objectives, and try to structure real estate holdings almost evenly over five different limited partnerships, so that only about 20% of equity is at risk for any given potential liability. Some people prefer more or fewer LPs, depending on how much they are willing to pay and do each year to protect more of their assets from potential future claims. This is something like deciding how much insurance to buy. You need to find the balance that works for you.

The same analysis applies to the number of layers of entities you use. Some people add another layer of trusts under their LPs, or manage different groups of LPs holding properties with different LLCs. I try to remind clients that they can protect themselves so well that they spend too much of the revenue of their investment properties on protection, and don’t make any money. After all, making money short term or long term, or both, is the purpose of investing in real estate to begin with. If you protect yourself so well that you aren’t able to make money on your investment, then you shouldn’t be investing in real estate. Buy a Savings Bond or put your money in an insured certificate of deposit, and you won’t have to worry about entities or making more of a return in real estate.

You will hear that buying your properties in entities makes it harder to get them financed, but that is only partially true. Certain lenders like Wells Fargo and Countrywide/Bank of America have had policies for a few years that they won’t loan to entities, but will loan to you only if you hold title in your own name. However, if your credit is around 700 and the property on which you want to borrow cash flows and appraises, you can go directly to most local banks and get a mortgage loan in the name of your entity, which you guarantee personally. If you use a mortgage broker experienced in working with investors and entities, the broker won’t even apply to Wells Fargo, Bank of America or other lenders who won’t loan to entities for your loan, because they also know these lenders’ policies. You should never be in the position where you are approved for a loan, but at the last minute have to transfer title to your own name to close. That comes from a broker who didn’t do his job finding the right lender. It also defeats your asset protection and business strategy, and costs extra transfer taxes as hidden costs of your loan. Find a lender or broker who will get a loan for the structure you have, instead of changing your structure for a loan.

If you use hard money or private loans to buy and renovate your properties, most hard money and private lenders will also loan to your entity with your personal signature on the loan. As long as they have a valid first mortgage from the entity owning the property, and you are the owner of the entity signing the note, everything should work out if you pay the loan, and it should be easier for you to give and the lender to accept your deed in lieu of foreclosure if you default. We close these loans all the time, and explain these issues to private lenders if they have any doubts.

Another issue to touch on is the choice of registered office for your entity. A registered office is the place in Pennsylvania where a sheriff’s deputy can serve your entity with a lawsuit. That means it has to be a physical address, since a deputy can’t hand suit papers to a post office box. Of course, using your home address means the deputy may be waiting for you or an adult in your home. Your spouse, mother in law staying with you, cleaning lady or child 18 or over all come to mind, and none are particularly good alternatives.  If you have an office where you do business, that can be your registered office, but you have to remember to change it when you move your office, and pay the fee of $70.00 to change.

For years I have offered my clients the ability to use my office for their registered address at no charge. This made sense since we are open 8 to 5 on week days, and nobody thinks it unusual for a sheriff’s deputy to visit a law office. Last year, I became concerned that I would be changing my office address when I sell my building, and didn’t want to have my clients pay the charge to change their registered address to follow me. I found a solution by registering as a Certified Registered Office Provider with the Commonwealth of PA. Now, my out of state clients, and those in state who don’t want to use their home or office addresses for their registered address, can use my office, still at no charge. When I move my office, their registrations follow without paying the extra $70.00 each.

I have also added an extra expediting service so formation paperwork can be hand delivered in Harrisburg the same day an entity is requested, so we aren’t waiting a week or ten days to find out if an entity is formed.  For an extra $35.00 per entity, they can be set up in a day or two. When clients procrastinate, and are waiting to sign contracts, this service can make the difference between losing and saving a deal.

Of course, even a two thousand word article isn’t enough to cover a three hour seminar on entities, but the information on how to use entities in PA hasn’t changed much from the last time I gave the entities seminar. That three hour seminar is recorded and still available if you need more information to plan your entity structure for real estate investing and I’ll always give ACRE members a free consultation!

(Created January, 2012)

The quarterly PROA board meeting was held on the first Thursday of September. Our lobbyists from Pugliese Associates in Harrisburg reported on the status of almost a hundred different bills of interest to landlords and real estate investors which bills are working their way through House and senate committees. The subjects of these bills range from property assessments, to amending the Landlord Tenant Act, to amendments to the Construction Code Act.

The legislature recently passed and the governor signed HB 377, which will require the changes to the Uniform Construction Codes which come out every three years to be reviewed by a Code Review and Advisory Council in PA before becoming part of PA law. This will hopefully prevent the type of problem we faced when the IBC was amended to require sprinklers in residential construction, and became Pennsylvania law without review or action by our own legislature. Another high point was the passage of HB 442/ SB 353, which prohibit private transfer fees from being built into deeds to real property.

Conversely, PROA is very concerned about several of the bills making their way through committee, and will have our lobbyists watch them closely. HB 400 would require the owners of many multi-unit rental properties to provide monitored security in and about their buildings. That bill faces hearings in the House Urban Affairs committee. HB 642, which would provide for the accelerated tax sale of vacant properties, and HB 979, which would require landlords to allow early termination of residential leases for certain physical and mental illnesses, are also in the House Urban affairs committee.

Senate bills to watch include SB 542 which would require carbon monoxide alarms in rental units with combustible fuel heat, hot water heaters, stoves or fireplaces, and SB 887, which would provide for the disposition of personal property abandoned by tenants. Both bills are in the Senate committee on Urban Affairs and Housing.

The PROA judicial committee also reported on its activities at the board meeting. PROA is funding part of the legal fees for the appeal of the Berwick rental registration case. Briefs have been filed and argument in the appellate court is scheduled in November. It may take much more time before we have a final decision in the case, but we hope it will limit the proliferation of new and more outrageous rental registration ordinances throughout Pennsylvania.  Meanwhile, revised, less onerous rental registration ordinances are going into effect in Washington and New Castle, so those suits are inactive, while we wait for the new ordinances to be enforced. Pittsburgh’s ordinance is still on hold, and we have completed preliminary discovery in Erie, and are demanding a refund of excessive charges there, as well as adjustment of future fees. Sharpsburg is not enforcing its ordinance fully against members of the association there, on a case by case basis.

Demands are in process against unjust and illegal ordinances in Brackenridge and Mount Pleasant, and lawsuits may be filed in those municipalities if we are unable to work out appropriate compromises.

Finally, new “Rent Sequestration” ordinances in several Pennsylvania towns were reported to PROA’s board and discussed by the judiciary committee for possible action, based on constitutional equal protection challenges. These ordinances allow the municipal tax collector to send a letter to all of the tenants in a commercial or residential rental property for which any real property taxes are due and not paid, requiring the tenants to pay their rent to the tax collector instead of the landlord until all property taxes are current.  Further, a receipt from the tax collector as to amounts paid by the tenant to the tax collector becomes a receipt for rent paid, preventing eviction or collection action by the landlord against the tenant.

After review of the ordinances and their justification, the judicial committee concluded and reported to PROA that we should not fight these ordinances. The ordinances are based on authority granted by the legislature to the tax collectors in Section 19 of the Local Tax Collection Law of 1945, 72 P.S. section 5511.19. The 1945 law was upheld by the PA Supreme Court in the case of Cedarbrook Realty, Inc. v. Nahill, 484 Pa. 441, 399 A.2d 374 (1979).

With that history, and the present budget problems facing many Pennsylvania municipalities, we believe fighting the sequestration ordinances would not be productive. Instead, we are advising real estate investors to be forewarned that many Pennsylvania municipalities are likely to pass similar ordinances this year and into next year. Therefore, it is prudent to make sure all of your property taxes on rented properties are paid in full and on time. However, the 1945 law only mentions taxes, not any other municipal fees, so it would still be improper for a municipality to sequester rent for utility or garbage bills, or other municipal fees.

Among new business items, the PROA board discussed providing a mechanism for PROA groups throughout the state to offer live simulcasts of real estate educational lectures by national and statewide speakers at other PROA group meetings and seminars. We hope to test this program by year end. The next PROA board meeting will be in December.

(Created November 2011)

A number of individuals are considering the use of a Living Trust to “ensure privacy” of their affairs after death, and the belief that this effectuates a substantial savings in probate costs after death. Living Trusts are being publicly marketed as an estate planning tool that is a Will substitute. However, the advertised benefits of a Living Trust as a legal panacea for post-mortem estate privacy, and a major reduction in the cost of probate and fees for estate administration, are grossly exaggerated or non-existent. The purpose of this article is to explain the purpose of the Living Trust, examples of when the use of Living Trust as an estate planning device can be beneficial, but why this legal document does not accomplish the goals of privacy and significant estate administration cost reduction, and is not an effective Will substitute.

To understand the purpose and legal effect of a Living Trust, it is necessary to first explain what a trust is. A trust is a written agreement whereby a property interest, whether real estate or liquid assets, is held by one person, identified as a trustee. The trustee holds the trust property for the benefit of a beneficiary to whom the trustee owes equitable duties to deal with the trust property for the best interest of the beneficiary. The trust is created by the person owning the property, identified as the settlor, who transfers property into the trust and requests that the trustee hold and manage the property for the benefit of the beneficiary. The trust property is the property which the settlor places in the trust by transferring legal title of ownership to the name of the trustee subject to the trustee’s duty to hold and manage the property for the benefit of the beneficiary pursuant to the terms of the trust document.

The most common example is the creation of a trust under Will when an individual has a young child.  The parent leaves property under the Will that, upon his death, is conveyed to a trustee to hold and manage for the benefit of the parent’s minor child until the child reaches a certain age. This is to ensure that a trusted bank or individual will manage the property for the maintenance, support, health and well-being of the child until he reaches an age when he is expected to be able to manage the trust property himself without the need for a trustee. However, there are many types of trusts, and many different circumstances in which an individual may want to create a trust and transfer property into it.

A Living Trust, also known as an Inter Vivos Trust, is one type of trust and one of many estate planning tools that an attorney can recommend depending upon the client’s circumstances and intentions. Some common examples of circumstances when a Living Trust might be recommended include:

1. The property owner, the settlor, is concerned about his declining ability to manage his property. Through a Living Trust, he selects an entity or person in whom he has great confidence to manage to manage the trust property for him, subject to the terms of trust administration authority and discretion set forth in the document. The settlor is also the beneficiary of the trust.

2. The property owner, the settlor, has a particular reason to separate certain assets from his overall property ownership portfolio so that the trust property is not part of his personal property ownership during his lifetime, and not part of probate estate upon death. The settlor can also be the beneficiary of the trust, and can even be the Trustee.

3. The property owner, the settlor, wants to make a gift of some of his property during his lifetime to benefit a chosen person, the beneficiary, but does not want to give unfettered control or ownership of the property to that beneficiary. The title of ownership of the gifted property is transferred to a Trustee who holds and manages the property for the benefit of the beneficiary. The settlor can also be the Trustee.

A Living Trust, however, is a poor and often ineffective Will “substitute” when the settlor is also the trustee and principal or sole beneficiary of the trust.

First, for the trust to have authority over an asset, title to the asset must be transferred into the name of the trustee of the Living Trust. If the transfer of title of ownership is not made to the Trustee, the Living Trust does not govern it, and the Trustee has no authority over the property. The most glaring example arises in post mortem real estate transfers. After the death of the settlor, the Trustee or successor Trustee under a Living Trust assumes that real estate is part of the Living Trust because the Trust Agreement references or even specifically identifies the realty as trust property. However, if there is no recorded deed from the owner of the real estate as settlor to the Trustee, the real estate is not an asset of the Living Trust and subject to its terms despite what the document itself may state. The trustee has no authority over the property. Therefore, an estate must still be opened by probating the settlor’s Will, or an estate administration opened if the settlor died without a Will.  Only when an estate is opened and an executor or administrator is appointed by the Court can title to the real estate then be transferred to a buyer or to the heirs of the estate.  The beneficiaries of the Living Trust might not be the same as the heirs and not inherit the realty, or the proceeds from the sale of the realty, through  the trust.  The same requirement that title of ownership must be transferred from the settlor to the trustee of a Living Trust for the property to be subject to the trust also applies to the title of ownership of cash investments, bank accounts, and other liquid investments.

Therefore, if the settlor is not sophisticated enough to understand that the title to assets, both real and personal, have to be transferred into the name of the Trustee, the Living Trust document is ineffective to pass title to or benefit the beneficiaries of this trust, but must pass through probate.

A Living Trust in which the settlor is also the sole or principal beneficiary does not avoid or reduce death taxes. The Pennsylvania Inheritance tax and the Federal Estate tax are assessed against the value of all property passing by reason of the death of the owner, whether under a Will, under a Living Trust, or to a designated beneficiary of a retirement account or “in trust for” bank account. This tax assessment is made against the value of property which passes under the provisions of a Living Trust to others after the death of the settlor/beneficiary.

After the Living Trust is created and property is transferred into it, the trust becomes a legal entity requiring its own tax identification number (Employer Identification Number) from the Internal Revenue Service, and the filing of annual trust income tax returns to IRS and the Pennsylvania Department of Revenue beginning with the tax year that the trust is created.

The only assets subject to probate upon death are property titled in the sole name of the decedent. Property titled in the sole name of a decedent passes to beneficiaries under a Will, or pass to his heirs at law if there is no Will. The cost of probate is based upon the total value of the probate estate. Property that passes through a Living Trust to a beneficiary is not subject to probate. However, the cost savings for avoiding probate is not substantial. A Living Trust is likely to save only a couple of hundred dollars in probate costs For example, the total amount of filing fees for probate in Allegheny County for an estate worth one million dollars is about $1,500.00.

There is little savings in professional fees. The services of an attorney are still required to handle or assist in the preparation of estate tax returns, payment of the decedent’s expenses, and the distribution of the trust property under the terms of the Living Trust. The services of a Trustee of the Living Trust (similar to being an executor under a Will) are also required for the same reasons and the Trustee may charge a fee for his services.

Even if the settlor of a Living Trust is sophisticated enough to take all the steps necessary to transfer the title of assets into the name of the Trustee of the Living Trust and totally avoid probate, privacy is not ensured because the assets in the Living Trust are subject to Pennsylvania Inheritance tax.  The trust assets must be reported on the return, and a copy of the Living Trust must be attached to the return as an exhibit. While Pennsylvania Inheritance Tax returns are not on line, anyone can go to the office on the 2^nd Floor of the City-County Building and request to see the  Inheritance tax return of any individual who dies in Allegheny County. Therefore, even a Living Trust does not cloak the contents of a decedent’s estate from the public.

The publicity regarding the pending on-line access to Wills in Allegheny County does not create a new “right”. The public has always been able to go to the office of any County Register of Wills office and ask to see a Will or an estate file, just as the public can look up lawsuits and other documents in the Prothonotary’s office, or real estate records in the Recorder’s Office.

In closing, I reiterate that a Living Trust is a recognized and important estate planning vehicle that can be recommended and utilized in the “right” circumstances. However, for the several reasons set forth in this article, it is not an effective Will substitute, does not guarantee privacy of an individual’s affairs after death, and any potential savings in probate costs and professional fees is insubstantial.

Created August 2011

As real estate lawyers, we run into questions involving bankruptcy of our landlord clients’ tenants, of our contractor clients’ customers, and of the owners of real estate our clients want to buy. In this series of articles, we will attempt to address some of the issues faced by those clients in each of those situations, and some of the peculiarities which come up when the state and federal laws involved don’t mesh well.

While most laws involving real property are specific to the state in which the property is located, bankruptcy law is federal, applying in all states and handled through special federal Bankruptcy Courts. This means that the same federal bankruptcy law has to fit with the real property laws of each state, which vary. And as anyone who has owned real estate in other states as well as Pennsylvania knows, Pennsylvania real estate law is not even close to the uniform or standard laws adopted in many other states. This creates certain issues in bankruptcies in Pennsylvania which involve real estate, as many bankruptcies do.

In our first article, we discussed the Automatic Stay, which is the legal device used by bankruptcy debtors to stop lawsuits and other collection activities by creditors, and we suggested several methods of how to work around it.  As we noted in that article, the bankruptcy of someone who owes you money does not mean that you have to give up any hope of ever collecting from them, and let them walk away. It does mean you have to change where and how you pursue the debt, and follow a new set of rules to do so.

Although there may be times when you can work around the Automatic Stay, particularly when it comes to regaining possession of your property, with matters such as unpaid rent, loans in default, or claims for damages, you will most likely have to file a “Claim” with the Bankruptcy Court and navigate through the bankruptcy process in order to have a chance of getting paid.

A “Claim” is defined by the Bankruptcy Code in Section 101(5) as “a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured.”  There are two primary methods by which a claim becomes part of a bankruptcy case:  (1) The debtor, when he files his Petition, is required to file a list of known creditors, both secured and unsecured.  These are found in the “Schedules” which accompany the debtor’s Petition, and the debtor’s Petition will not be accepted by the Court as complete without them.  (Remember, the debtor’s Petition can be accessed online with an account at “pacer.gov”, as discussed in our previous article).  (2)  The creditor, after receiving notice of or otherwise becoming aware of the debtor’s bankruptcy filing, files a Proof of Claim.

A Proof of Claim simply consists of a statement by a creditor of the basic facts of its alleged “right to payment”, including the nature of the right (i.e. breach of contract, damages to property, etc.),  the amount claimed, and whether it is “secured” or “unsecured”.  These facts are noted on a standard form, available from the Court’s website, which is then filed with the Clerk of Bankruptcy Court, along with supporting documentation (i.e. a copy of a state court judgment, loan documents, the lease, etc.).

The necessity and timing of filing Proofs of Claims varies depending on what Chapter of the bankruptcy code the debtor has filed under.  In a Chapter 7 liquidation case, each creditor must file a proof of claim in order to be eligible for payment from whatever pool of money is gathered by the Court and the Trustee during the bankruptcy case.  However, when a Chapter 7 case is filed as a “No Asset” case, which many personal bankruptcies are, no proofs of claim need be filed due to the Court’s belief that no distribution will be made.  In an “Asset” Chapter 7 case, the Court will set a date by which all claims must be filed.

Creditors cannot avoid participation in the Bankruptcy process simply by refusing to file a Proof of Claim.  Regardless of whether a Proof of Claim is actually filed, that creditor’s claim will be considered to have been discharged by the bankruptcy, and the creditor may thereafter never again pursue the debtor for its claim, so long as the creditor had actual or constructive notice of the Bankruptcy.  By the same logic, the failure of a debtor to list a creditor on the Schedules will not prevent the creditor’s debt from being discharged, so long as the creditor had actual or constructive notice of the bankruptcy.  Consequently, any agreement between a debtor and creditor to refrain from listing is also void.

When you file a Proof of Claim, often the most important information that you will provide on the claim form is whether your claim is “secured” or “unsecured”.  Creditors in a bankruptcy case are broadly classified into two categories:  secured creditors and unsecured creditors.  A secured creditor is one whose claim is collateralized by property belonging to the debtor, such as a house, car, or other personal items.  As a general rule, in order to be considered “secured”, a creditor must have taken all legal steps necessary to perfect his lien or other security interest in the collateral at least 90 days prior to the filing of the Bankruptcy Petition.  In addition, the value of the collateral must be equal to or greater than the value of the claim, in order for the claim to be considered “fully secured”.

Once the value of a secured claim is established, the Bankruptcy Code requires the Trustee to maintain that value on behalf of the creditor.  Collateral can depreciate over time, so the Trustee must take steps to insure that the value of the collateral available to pay the secured claim does not fall below the claim’s value during the course of the bankruptcy case, which can often take many months.  When a creditor possesses a first lien mortgage on a large piece of valuable real estate, the trustee often does not need to do anything.  However, if a creditor has, for instance, a second lien on a piece of used equipment, the fair market value of which is subject to rapid depreciation as the collateral continues to be used, the trustee may be required to provide the creditor with Adequate Protection.

Adequate Protection of the value of a secured creditor’s collateral usually takes one of three forms.  First, the trustee can make periodic cash payments to the secured creditor to account for the depreciation in the value of the collateral.  Second, the trustee can grant the secured creditor additional or replacement liens on other pieces of the debtor’s property which has equity in it.  Third, the trustee can grant the secured creditor the “indubitable equivalent” of his lien.  This is the catch-all option and can be anything from a surrender of the collateral itself to a guarantee of the claim value by a third party.  Regardless of the form which adequate protection takes, the trustee’s obligation to provide and maintain the value of the secured claim is one of his paramount duties.  If adequate protection cannot be provided, then the secured creditor will be entitled to Relief from the Automatic Stay.

Unlike secured claims, unsecured claims against a debtor do not rely upon any interest in any particular property of the debtor, and these must be paid out of any funds accumulated by the Trustee from the collection and sale of any property of the debtor which is not subject to a lien by a secured creditor, or which is not exempt.  Furthermore, the Bankruptcy Code recognizes a distinction between various types of unsecured claims, depending on the nature of the legal right which gives rise to the claim.  Claims which are distinguished in this way are referred to as “Priority Unsecured Claims”.

The Priority system effectively ranks all the unsecured claims according to how important they are, in the judgment of the Bankruptcy Code.  None of the claims which fall into a lower-priority category may be paid until all those claims which fall into a higher category have been paid in full.  The Priority system reflects the policy choices of Congress, and does not follow any logical efficient rules.  Rather, the Priority system simply characterizes some claims as more “worthy” of being paid than others.  The Priority system ranks unsecured claims as follows:

1)   Trustee’s expenses.

2)   Alimony and Child Support.

3)   Administrative Expenses (including post-petition taxes, attorneys’ fees, and costs).

4)   Claims by employees for unpaid wages.

5)   Claims by employees for contributions to employee benefit plans.

6)   Claims by farmers for agricultural products purchased and not paid for.

7)   Claims by consumers for goods and services paid for and not delivered.

8)   Taxes.

9)   Unpaid obligations of banks to the Federal Reserve and FDIC.

10)  Claims for personal injuries resulting from drunk driving.

11)  Everything else (General Unsecured Claims).

It is often unfortunately the case that the General Unsecured Claims against the debtor receive pennies on the dollar from a distribution at the conclusion of the bankruptcy case, if anything at all.  If there are insufficient funds remaining in the debtor’s assets to pay any particular category of unsecured claims in full, then each claim in that category will be paid according to the value of its claim in proportion to the total value of the claims in that category (pro rata).  Any claims in a category which fall below the category which was only partially paid will not be paid at all.

Due to harsh nature of the Priority system, it is important to consider the type of claim you may have against the debtor, and to fill out the Proof of Claim form carefully before filing it with the Bankruptcy Court.  An attorney with expertise in the Bankruptcy field will be able to help you understand the type of claim, how to file it, and when and how much you can reasonably expect to be paid from the bankruptcy.

In our next article, we will be addressing how to deal with a bankruptcy debtor who still wishes to reside in your property while they are in Bankruptcy, or else wishes to continue to do business with you after they file for bankruptcy protection.

(Created July 2011)

As real estate lawyers, we run into questions involving bankruptcy of our landlord clients’ tenants, of our contractor clients’ customers, and of the owners of real estate our clients want to buy. In this series of articles, we will attempt to address some of the issues faced by those clients in each of those situations, and some of the peculiarities which come up when the state and federal laws involved don’t mesh well.

While most laws involving real property are specific to the state in which the property is located, bankruptcy law is federal, applying in all states and handled through special federal Bankruptcy Courts. This means that the same federal bankruptcy law has to fit with the real property laws of each state, which vary. And as anyone who has owned real estate in other states as well as Pennsylvania knows, Pennsylvania real estate law is not even close to the uniform or standard laws adopted in many other states. This creates certain issues in bankruptcies in Pennsylvania which involve real estate, as many bankruptcies do.

First, before we get to those unusual situations, we need to cover some basic rules of bankruptcy, applicable to all types of cases. Foremost for creditors, the bankruptcy of someone who owes you money does not mean that you have to give up any hope of ever collecting from them, and let them walk away. It does mean you have to change where and how you pursue the debt, and follow a new set of rules to do so. Unfortunately for creditors, the extra rules and procedures make it more likely you will need a lawyer to help you to pursue the eviction, lien or debt owed.

One of the most important and least understood rules of bankruptcy is the automatic stay under Section 362 of the Bankruptcy Code. Simply, the filing of a petition for bankruptcy protection by a debtor stays or freezes all lawsuits against the debtor and any actions by creditors to execute on judgments, to take a debtor’s property, dispossess a debtor from real estate, or otherwise improve the creditor’s position against the debtor. The protection the automatic stay offers to a debtor is very strong. Further, pure exceptions to the stay are limited, and primarily include actions by governmental entities, actions on complex financial instruments, criminal and family law matters.

If a creditor violates the automatic stay, even if the creditor doesn’t have notice of the debtor’s bankruptcy, the actions taken by the creditor will be treated as if never taken at all, or voided. If a creditor violates the stay intentionally, after knowing of the bankruptcy, the creditor can be liable under Section 362(k) of the Bankruptcy Code to sanctions by the Bankruptcy Court, which can include any actual damages suffered by the debtor as a result of the creditor’s actions, attorneys’ fees for the debtor’s attorney, and punitive damages to punish the creditor for breaking the rules. These risks mean the creditor must be very careful when a debtor tells you they have filed or are filing for bankruptcy, because your continued collection efforts can be voided or cost you a lot of money. This is probably why so many creditors just stop trying to collect at all after hearing the word bankruptcy.

However, the protections of the automatic stay are not without limits.  We are often surprised to find that many landlords come to us and say they are letting tenants live in their properties rent free because they are in bankruptcy, or that contractors say they gave up collecting thousands of dollars for work they completed because the property owner filed for bankruptcy. We also don’t understand how real estate owners who owe money to lenders secured by mortgages on the real estate think that they can file bankruptcy, keep the property and wipe out the mortgage and the debt owed to the lender.

Creditors need to remember that an automatic stay is not permanent. If the debtor does not follow through with the rules and requirements to complete a bankruptcy, his or her case will be dismissed by the bankruptcy court and the stay will end when the case is dismissed. And many debtors say they are filing or have filed bankruptcy when they have not filed a petition for bankruptcy court protection.

Relief from the automatic stay is generally available to secured creditors and landlords in Chapter 7 liquidation bankruptcies, obtained by a motion to the judge handling the bankruptcy. This typically takes several weeks and a few hours of attorneys’ time, and is a complicated task to complete on your own. Whenever a tenant in possession of your property, or an owner who owes you more than two thousand dollars for your work as a contractor, files for bankruptcy protection, you should consider filing a motion for relief from stay, and have an attorney review the bankruptcy filings.

Once a motion for relief from stay is filed with the bankruptcy court, the court has thirty days to consider it, so it makes sense to file quickly when you know you have a chance of success. If the court does not act on the motion in 30 days, the stay is automatically lifted. This doesn’t happen too often, however, and bankruptcy judges typically either grant or deny the motion within the thirty days, or else enter an order postponing the hearing to a later date and extending the stay until that hearing.

If your motion is granted or the court does not act in 30 days, the stay is lifted, and you can take the Order, or the verification from the clerk of the bankruptcy court that the stay is lifted, back to the state court where your action against the debtor was filed, and continue with your case, or with execution on your judgment for money or possession.

If the debtor is an individual tenant in your property and files under Chapter 13 of the Bankruptcy Code, a reorganization type of bankruptcy for a wage earner, or the debtor is a business entity and files a petition to reorganize under Chapter 11 of the Bankruptcy Code, you should be entitled under their plan of reorganization to receive ongoing payments of current rent to allow them to stay in the property during the bankruptcy, and some portion of the back rent due in monthly payments spread out over many months. If the plan isn’t timely filed with the court, or if these payments do not get made on a regular basis, the creditor can force the debtor to convert the case to a liquidation Chapter 7 bankruptcy, or get relief from the court to continue with the eviction or collection action in state court.

In Chapter 11 and Chapter 13 reorganizations, getting relief is a little more complicated. The court will look at the plan of the debtor to keep possession of the property, determine whether you as a creditor are “adequately protected” under the payment plan the debtor proposes and with the equity in the property if the debtor owns it. The court will also look at whether the debtor’s plan is realistic, or it was done simply to buy a little time and hinder, delay or defraud creditors. The last factor is especially considered if the debtor has filed multiple bankruptcies or tries to transfer assets to a third party.

There are some additional considerations when a residential tenant files for Chapter 13 bankruptcy in the middle of an eviction action, and rules which require many such tenants to pay the amount of the money judgment against them to stay in possession during the bankruptcy. That particular issue is discussed in some depth in my previous articles on “Bankruptcy Law Meets Eviction Law”.

For a contractor another possible way to short circuit the automatic stay protections is through a mechanic’s lien. Bankruptcy courts in Pennsylvania have recognized that under state law, the lien relates back to the date the construction for which the debtor did not pay commenced. This means that even though the debtor filed for bankruptcy later, the mechanic’s lien is a “pre-petition act” under the bankruptcy code, and cannot easily be wiped out. The contractor should then be able to proceed with enforcement of the lien and request relief from the bankruptcy court to do so.

Likewise, since the date of lien of a mortgage against a property relates back to the date of the loan or the recording of the mortgage, the lender in many cases should be able to get relief from stay to proceed with a foreclosure action on the property, which is really an action against the property and not an action against the debtor individually.  The debtor’s liability to the lender on the note can be wiped out by the bankruptcy, but the mortgage lien will usually remain intact if the mortgage was adequately secured.

There is an easy way to determine whether or not someone has filed for bankruptcy, and if so what Chapter they have filed under.  We therefore recommend that anyone facing the potential bankruptcy of someone who owes them money get a PACER account. PACER stands for Public Access to Court Electronic Records, and allows anyone to open an account at pacer.gov, and have access to all of the public bankruptcy court records for every debtor who files for bankruptcy protection anywhere in the United States. It only costs eight cents to see if someone has filed a petition with the court, eight cents per page for every page you download to read or print, and nothing to watch the dockets showing whether a case is proceeding or dismissed. All filings by attorneys are electronic, and the docket is current to the same day of most filings, so you can know today whether someone filed for bankruptcy protection as recently as yesterday, or whether their case has been dismissed.

The above thoughts about complete our primer on the automatic stay in bankruptcy. Look for our next article in this series on “Claims in Bankruptcy”.

(Created June 2011)

In Pennsylvania there existed a long history of various different actions in equity, such as a “bill quia timet”, which were designed to clear different types of clouds on the title to particular parcels of real estate within the Commonwealth. As part of an effort to streamline and simplify legal proceedings in Pennsylvania, Rule 1061 et. seq. of the Pennsylvania Rules of Civil Procedure, creating an action at law to quiet title in 1947.  Since the adoption of these rules and the creation of this action, an action at law to quiet title has been the exclusive way to clear title to real estate except in actions involving injunctions, which are still handled in equity, and not at law.

The purpose of a quiet title action is to resolve a conflict over an interest in real property. It is not an eviction action or an ejectment action addressing possession of the property, but an action to resolve competing claims to or open clouds on title.  In fact, under PA R.C.P. 1061(b)(1), an action to quiet title may not be used when an action in ejectment is available. The interest in real estate subject to a quiet title action can be the entire fee simple interest in the property, or some lesser interest in the property, such as an easement, a mortgage, or even mineral or oil and gas rights.

Generally, an ejectment action can be used by someone out of possession of real property to obtain possession under a claim of title superior to that of the person in possession of the property.  Conversely, a quiet title action is normally brought by someone who is in possession of property to extinguish the rights of others which cloud his or her title and could otherwise be used to challenge that that title, ultimately affecting their continued possession. If a plaintiff files a quiet title action where an ejectment action was the correct form, some Pennsylvania courts have allowed the amendment of the complaint to plead the correct form of action. Plauchak v. Boling, 439 Pa. Super. 156, 653 A.2d 671 (1995).

However, there are many instances where someone who is not in possession may not be able to bring an ejectment action because they do not or may not have the right to full possession of the property even with the title they seek to prove. For example, a landlord under a valid and ongoing lease who also gave the tenant a recorded option to buy the property, or an agreement of sale to buy the property, of which a memorandum was recorded, would not have the right to immediate possession of the property because of the lease, even if the option or memorandum of agreement creating a cloud on the title were cleared. Therefore, an ejectment action would not be available to that landlord, and he or she would be able to file a quiet title action. Brennan v. Shore Brothers, Inc., 380 Pa. 283, 110 A.2d 401 (1955).

Quiet title actions are also used by former owners of real estate which has been sold at tax sale or judicial sale to attack defects in the sale which would invalidate the deed by which they lost title, and by purchasers of property at tax or judicial sales to clear or confirm the deed by which they obtained title. Pa. R.C.P 1061(b)(4). We often file quiet title actions to clear old mortgages which have not been satisfied in the Recorder of Deeds’ office, to clear an old easement or right of way which hinders further development of the parcel, or to clear the interest of someone whose signature was missed long ago on a deed in the chain of title to the property. These actions are necessary so that owners can sell or mortgage their properties and get clear and insurable title.

Sometimes, the title insurers will allow us to issue the title insurance on the properties without exception for the cloud on the title. This is possible only if the cloud is of the type which will clearly be able to be removed by the quiet title action, we escrow the cost of the quiet title action, and our law firm agrees to pursue that action on behalf of the owners of the property.  In these instances, it is clearly an advantage to the buyers to use a settlement or closing company affiliated with a law firm known to the title insurance company to be experienced in and capable of handling quiet title actions. Without the law firm escrow arrangement for a quiet title action, the sale or refinance would have to wait for the title to be quieted before closing, meaning the seller would not have the sale proceeds or the refinancing owner would not have the loan proceeds from which to pay for the quiet title action.

Quiet title actions can also be used to determine the respective interests of different parties claiming an interest in real estate to oil and gas rights related to the property. These actions are becoming more common in Pennsylvania as landowners seek to enter into gas leases, only to have a thorough title search by the gas company before they pay the owner reveal competing claims to the gas rights and royalties.

Quiet title actions are also used by those who believe they have met the time and possession requirements for adverse possession to take the title from the record owner through the determination of the court. Adverse possession is the subject of another entire article, so it won’t be discussed here at greater length.

Finally, a quiet title action can be used by someone in possession of property to force someone else to file, record or satisfy of record a document affecting title, or to compel someone who has threatened to file an ejectment action, but has not yet filed, to move forward with the action or lose the right to do so in the future. Roberts v. Estate of Pursley, 700 A.2d 475, (Pa. Super. Ct. 1997).

Once it is determined that a quiet title action is the appropriate action to address the title problem affecting the property, the process under the rules is relatively simple and the time line to completion of the actions shorter than many other lawsuits. The action must be filed in a county where all or part of the land in question is located. Pa. R.C.P. 1062. It can be started by a complaint by one party against the others who have apparent interests in the record title to the property. In the alternative, if both parties agree that the court should resolve the title to the property between them, an amicable action to quiet title can be used instead of a complaint, saving time and attorneys’ fees. Pa.R.C.P. 1063.

The quiet title action is a non-jury action heard by a judge. Pa. R.C.P. 1067. The action follows the rules for civil actions except as modified by the specific rules for these actions. The complaint in a quiet title action must state who is in possession of the property. It must also identify any statutes, such as the adverse possession law, which give the plaintiff the right to file the action. If there are deeds, mortgages, easements or other writings upon which the action is based, they should be attached to the complaint. The complaint must also identify with specificity the land which is the subject of the action. This may already be in the deed or other documents attached, but in some cases, such as certain adverse possession claims, it may be a claim to only part of a property identified in a deed.

Once the complaint is filed, service of the complaint can be a complicating factor. Many defendants cannot be found, particularly when the quiet title involves an old private mortgage, an old easement, or an heir whose signature was missed long ago. These actions require more effort to find and serve the defendants, but after a good effort, courts are likely to allow service by posting or the more expensive publication in a newspaper of general circulation in the county where the property is located. The rest of that type of case usually moves quickly due to lack of opposition.

Once served, a defendant can of course file preliminary objections if the complaint does not meet the above requirements. It has been my experience that judges liberally allow amendments of the complaints in these types of actions to allow for correction of errant complaints, but the procedure causes delay and increases legal fees for both sides. A defendant in a quiet title action can file with an answer a counterclaim which is contractual (as opposed to a tort claim for negligence, for example), and which arises from the same circumstances as the quiet title claim. If the defendant who files a counterclaim wants to quiet title in his or her name, however, that must be plead as a counterclaim or can be lost.  Carringer v. Taylor, 402 Pa. Super. 197, 586 A.2d 928, (1990).

The Rules provide that the plaintiff who files the quiet title action has the burden of proving the facts which support his claim to title, but the burden of proof is a mere preponderance of the evidence, often described as tipping the scales by the weight of a feather. Poffenberger v. Goldstein, 776 A.2d 1037, Pa. Commw. Ct. 2001).  In cases where the defendants don’t appear to defend their claim to title, the standard is usually very easy to meet.

Once the judge decides the quiet title action, an appeal is more difficult to win, since the appellate courts are limited to reviewing whether the trial court’s findings are supported by competent evidence. Watkins v. Watkins, 775 A.2d 841 (Pa. Super. Ct. 2001). The appellate courts don’t typically reverse trial courts in quiet title actions absent a capricious or reckless disregard of the evidence.

Overall, quiet title actions are versatile, relatively quick, taking only a few months most of the time, and relatively inexpensive; we usually estimate under $2,500.00 in court costs and attorneys’ fees unless there is strong opposition. They are a useful tool in clearing all sorts of title problems, and making sales, refinances and developments happen. Every real estate investor should know enough about quiet title actions at least to consider the possibility before walking away from a transaction with a clouded title.

The American Veterinary Medical Association estimates that substantially more than half of all households in America own either a dog or a cat. Many of those who own pets consider them to be members of the family, and dogs didn’t get the name “man’s best friend” for nothing. Pets teach children responsibility for other living animals, provide companionship, security and affection.

But landlords know dogs can chew on moldings, scratch doors and floors, urinate and defecate on carpets and other flooring, bark and run across floors annoying neighbors, smell bad and shed, clogging furnace filters and embedding fur in carpets, and causing allergic reactions and asthma attacks for allergic and asthmatic tenants in other units. Cats may be even more destructive to rental housing. Scratching carpets bare or leaving fur balls on top of kitchen cabinets for the next tenant to find are disturbing, but cat urine soaks into carpets, seams in flooring, and even moldings and painted walls.

The urine of a cat dries into urea crystals which remain embedded in the carpets, padding and subfloors, moldings and walls. Long after a tenant with a cat leaves, even years later, urea crystals in a clean looking carpet, pad, subfloor or wall can react with humidity in the air and release terrible odors.  The landlord may have to remove and replace carpets or laminate flooring, padding and subfloors, moldings and portions of walls just to keep the odor from coming back, all at a huge expense.

The tremendous potential damage which can be caused by dogs and cats causes many landlords to adopt “no pet” clauses in their leases, and others to charge pet deposits or additional pet rent to tenants who have pets, in addition to making tenants with dogs responsible for cleaning up after their dogs in common areas and all tenants with pets responsible for damage or disturbance caused by those pets. Some of these reasons also lead condominium and cooperative  associations to impose pet restrictions.

But some animals owned by people with disabilities are not considered pets under the law, and are therefore exempt   from a landlord’s “no pets” policies, and some even from pet fees or deposits. Landlords who aren’t aware of the exemptions, or who aren’t aware that existing or prospective tenants are claiming rights under these laws, can be in for expensive legal battles brought on behalf of those tenants or prospective tenants. Landlords who lose those battles may face large and unexpected damages awards to the tenants and penalties payable to HUD for the discrimination against those  tenants.

My first experiences as a lawyer with tenants claiming the right to have animals in “no pet” buildings were years ago, and all involved animals which the tenants claimed were providing services to assist with their daily activities. Usually, the animals were dogs with specific training to assist with a specific need of a person whose disability was well established. In these cases, landlords dropped their restrictions and let tenants move in with or acquire the animals.

The cases we fought involved attempted extensions of the claimed services beyond reason. My most memorable was a tenant who had a physical limitation on her mobility and a trained dog to help her retrieve things she dropped. She added a second dog which was not trained, and claimed that she trained the second dog to help the first dog with the same tasks. Other tenants in the building began complaining about the two dogs, noise and other issues, but my client the landlord was cautious about taking any action because the tenant in question was disabled and legitimately had at least one trained animal.

My client’s position changed when the tenant brought in several loud birds and gave them the free run to fly all over the apartment. Dogs chasing birds, barking, birds chirping, and bird droppings in the carpets were more than other tenants and the patient landlord could handle. We went to court, and the judge did not believe that the first dog had trained the second dog, or that the tenant needed two dogs for the same functions. Even more incredible was the tenant’s explanation that the dogs trained the birds to be helper birds to let the tenant know when the stove was left on or the refrigerator door left open. We evicted the tenant for violating the “no pets” clause in the lease with the second dog and birds, and she got the social service help she needed.

Over the years, I have seen an occasional disability claim come up in defense to an eviction action. Recently, however, I have seen a trend that many more cases are being filed, I have several open cases right now, including two where prospective tenants asked to see available units in “no pet” buildings, told the landlords they had pets which were necessary for their emotional well being, and were refused either the showing or an application. After the tenants found other housing, they brought claims against the landlords for their emotional distress at being denied the rental they wanted, and proceeded through the EEOC and one in Federal Court. Other recent cases have arisen when existing tenants have requested that they be allowed to acquire cats for emotional support of themselves or their children with emotional problems, and have brought claims against the landlords who refused to allow the cats.

The claims of both types of cases generally seek compensation for actual expenses incurred, the emotional distress suffered by the tenant, and civil penalties for violation of the Americans with Disabilities Act and Fair Housing Act. The amounts claimed are in the tens of thousands of dollars, the tenants receive help from the EEOC and legal services attorneys, and the landlords are between a rock and a hard place, paying legal fees for defense and potentially paying settlements or judgments in the cases.

This article is to educate landlords before they receive requests for animals in their rental properties about what the law is on such requests, what they can and cannot do, and how to document their actions.  To begin with, landlords need to understand the types of animals which are not considered pets under the law, and are therefore not subject to pet restrictions, pet fees or pet deposits.

The first type of exempt animal is the “service animal”. Service animals are trained to perform tasks or specific functions to benefit or assist persons with physical, or sometimes intellectual or mental disabilities. The most well known service animals are seeing eye dogs, trained to help those with sight impairments to walk without falling over curbs or walking into traffic. These dogs have long been permitted in restaurants and other places of public accommodation, and in “no pet” rental properties. Other service animals include dogs trained to alert the deaf to doorbells, telephones and other sounds, animals trained to alert epileptics and others prone to seizures of the impending seizure before the victim can perceive its onset.

There is a long history of case law requiring landlords, condominiums and co-ops to make exceptions to their  ”no pets“ rules for service animals. In an often cited case,  Bronk v. Ineichen, 54 F.3d 425 (7^th Cir. 1995), the Court of Appeals balanced the landlord’s interests in the economics and aesthetics supporting a no pets policy against a deaf  tenant’s  need for a hearing service animal, and found that requiring the landlord to waive the no pets policy was a required reasonable accommodation for the tenant’s disability. A condominium association in Pittsburgh was likewise required to waive its no pets policy for a service animal  by the U.S. District Court here in  Fulciniti v. Village of Shadyside Condominium Association, No. 96 -1825 (U.S.D.C.W.D.P.A. 1998).

Even landlords who rent single family homes to Section 8 tenants have long been found by Administrative Law judges in Fair Housing cases to have significant liability for refusing to allow disabled tenants to have service animals in their subsidized housing. In Sec’y of HUD on behalf of Ann Mitchell and Cora Mitchell v. Mahmoud Hussein,  (FHEO No. 01-06-0392-8, a landlord who rented a single family home to a mother and her daughter who had cerebral palsy refused to allow a service dog to alert the tenants to the girl’s imminent seizures was prosecuted after the family moved. The administrative law judge found the landlord liable for violating the Fair Housing Act, enjoined him from further discrimination against persons with disabilities, and awarded damages against the landlord for economic loss, emotional distress, civil penalties and court costs.

Service animals have primarily been dogs. Many applicable rules have not limited their applicability to dogs, however, and monkeys, pot bellied pigs and miniature horses have been offered as service animals. The Department of Justice Regulations at 28 C.F.R. Section 36.104 provide

Service animal means any guide dog, signal dog, or any other animal individually trained to do work or perform tasks for the benefit of an individual with a disability, including but not limited to, guiding individuals with impaired vision, alerting individuals with impaired hearing to intruders or sounds, providing minimal protection or rescue work, pulling a wheelchair,   or fetching dropped items.

However, there has recently been an effort to limit the definition of and impose more controls on service animals. Attorney General Eric Holder on July 23^rd, 2010 signed final ADA regulations limiting the definition of service animals, effective March 15, 2011. Under the new definitions, only dogs are considered service animals, though businesses must make reasonable accommodation for miniature horses trained to assist disabled individuals under certain circumstances. Service dogs must also be leashed or tethered when not performing tasks which would be hindered by a leash.

The new definitions do exempt service dogs from breed bans, so a service pit bull, if there were such an animal, would not be able to be banned as a pit bull.  While the rule clarifies that service dogs used for psychiatric or neurological disabilities are protected under the ADA, it also provides that dogs whose sole function is “the provision of emotional support, well being, comfort or companionship” are NOT considered service dogs under the ADA. (Federal Register September 15, 2010).

The second type of animal not considered a pet when owned by someone who suffers from a disability is the “Emotional Support  Animal,” or “ESA” for short. ESAs require no training or certification but are simply prescribed to provide some therapeutic benefit by their mere presence, very much like a pet. If a doctor or other mental health professional believes the presence of an animal in the life of someone suffering a disabling mental or psychiatric disability will ameliorate to some extent the effects of the tenant’s condition,   the pet becomes an ESA, and the landlord faces serious potential economic consequences for refusing to make reasonable accommodations for the ESA. Refusal to rent to the disabled tenant with an ESA, or refusal to allow a tenant with a disability who already lives in your rental unit can expose you, as the landlord, to discrimination suit under the Americans with Disabilities Act (ADA) and the Fair Housing Amendments Act of 1988 (FHAA).

HUD’s current guidelines for subsidized multifamily housing actually blend the separate concepts of Service Animals and ESAs under the category of “assistance animals”:

Assistance animals are animals that work, provide assistance, or perform tasks for the benefit of a person with a disability, or animals that provide emotional support that alleviates one or more identified symptoms or effects of a person’s disability. Assistance animals—often referred to as “service animals,”  “assistive animals,” “support animals, ” or “therapy animals” – perform many disability related functions… Some , but not all, animals  that assist persons with disabilities are professionally trained. Other assistance animals are trained by the owners themselves and, in some cases, no special training is required. The question is whether or not the animal performs the assistance or provides the benefit needed as a reasonable accommodation by the person with the disability.

HUD Handbook 4350.3 Occupancy Requirements of Subsidized Multifamily Housing Program, Glossary 4 (March 12, 2010).

Although these guidelines are specifically for multiunit subsidized housing, HUD has applied the same rules to private landlords, and emotional support animal cases are not new, but only an expanding area of the law.

An early ESA case often cited is Sec’y HUD on behalf of Elizabeth Exelberth v. Riverbay Corporation ,  ALJ 02-93-0320-1 (1994). The administrative Law Judge found the tenant suffered from severe depression, and that her Yorkshire Terrier which obtained inadvertently and without a prescription, and which she kept in violation of a no pet policy, could be soothing and have a therapeutic benefit. On that basis, the judge found the landlord violated the Fair Housing Act, and enjoined the landlord from enforcing an eviction. The judge also ordered the landlord to pay the tenant $2,500.00 and to pay HUD a $5,000.00 penalty, and ordered it to notify all tenants with disabilities of their rights to reasonable accommodation.

An early emotional support cat case was Sec’y HUD on behalf of Durand Evan v. Nancy Dutra et.al. , HUDALJ 09-93-1753-8, (November 12, 1996), in which the administrative law judge found that the tenant, a fibromyalgia patient, had “ bonded with (the cat) psychically” , despite not having a prescription for the cat at the time he moved into the apartment with  it contrary to the landlord’s pet policy. The tenant subsequently obtained letters from a social worker and his treating physician, and although the cat had been taken away from him for unrelated reasons before the judge entered an opinion, the judge found for the tenant for $5,659, and also imposed a $5,000.00 civil penalty against the landlord.

A Pennsylvania ESA case held that since these animals are not pets, pet deposits and pet charges do not apply to the tenant who has an ESA.   In Sec’y HUD on behalf of Iris Melendez v. Reading Housing Authority, FHEO no. 03-04-0346-8 (2003), the Reading Housing Authority allowed the tenant an emotional support animal, but imposed its usual $300.00 pet security deposit fee. The administrative law judge found that imposing the pet deposit constituted discrimination under the Fair Housing Act, and awarded not only the refund of the deposit, but also damages to the tenant for emotional distress , embarrassment, humiliation, loss of housing opportunity and inconvenience, as well as a civil penalty payable to HUD.

Now that you understand something about service and emotional support animals, what must you do as a landlord or a board member of a condominium or cooperative, and what should you do when you face a request by a prospective or existing tenant or occupant to have such an animal in your “no pets” building, or to waive the pet deposit or fees in a building where pets are allowed, but tenants must pay a deposit or extra rent or both to keep them.

First, ask about the nature of the tenant’s disability. Restaurants and airlines are limited in how much they can ask about a patron’s disability when they arrive with a service animal, but landlords have a reasonable basis upon which to ask more. We ask for credit information, income information and references to employers and past landlords before we make rental decisions. For tenants seeking animals for service or support, the general nature of the tenant’s disability should be known by the landlord. If the landlord doesn’t know about the disability, the landlord should not be able to be charged with discrimination against someone with a disability. This does not mean you can request detailed medical records or history at this point. You need just enough information to understand that and how the tenant is disabled. If the disability is obvious, such as blindness or deafness, this step can be skipped.

Next, ask for a copy of the letter from a therapist or a prescription from a physician for the tenant to have the animal. If it appears that the tenant is disabled, and the letter or prescription indicates that a qualified professional believes the animal will provide service or support to improve the tenant’s ability to function with respect to the disability, move on to the next step. If the letter or prescription looks questionable, for example  you can’t figure out how a pit bull could be providing emotional support to an autistic child, don’t rent the unit to someone else or don’t deny the request. Get a lawyer’s professional help to see if you have a basis for refusing the request before you do anything else. Remember, an ounce of prevention is worth a pound of cure. The money you spend to make sure you are following the rules could save you lots of costs later if it avoids a discrimination suit.

The next step, after you are satisfied with the prescription or letter, and that the purpose of the animal is connected by the physician or therapist to the treatment of the tenant’s disability, is to ask the tenant for a written request for the accommodation they request you to make for the disability. You need to review the rest of a prospective tenant’s rental application, make sure they meet your normal requirements to rent from you, and if they do, make the reasonable accommodation of letting them rent your no pet unit with an animal. For existing tenants, you simply make the accommodation.

I would advise other tenants in the “no pets” building in writing that you are not waiving your “no pets” policy, but allowing an animal not considered to be a pet under applicable law. Otherwise, you could find other cats or dogs living in your building rather quickly. Be careful not to disclose private information in the letter to other tenants, however.  You don’t want to deal with one potential suit by creating another.

Make sure the new or existing tenant knows that despite your reasonable accommodation of their animal to help treat their disability, they are still responsible for damage caused to your unit by their animal, and for properly taking care of the animal and its waste. The tenant, not you, your grass cutter or your maintenance person, is responsible for cleaning up deposits their dog leaves on your property. You should also schedule to inspect the unit for cat or dog hair in furnace filters and for urine in floor coverings a month or two into the animal’s presence, and at the time of each lease renewal.

Now that you know the laws generally, and the procedures to follow when you face a request for a service animal or ESA, you should be better prepared to avoid these types of discrimination claims in the future. If this article is too late, and you have already received a claim arising from refusal to accommodate an animal for service or emotional support, get the help of a lawyer or law firm familiar with these cases right away. There are short deadlines for your responses to EEOC and Federal Court actions, and you need to act to preserve your defenses.

Some issues to consider are whether the landlord was properly advised of the tenant or prospective tenant’s disability, and of the doctor’s prescription or other professional’s letter advising the use of an animal in the treatment of that disability. The doctor or professional can be questioned on the nexus between the treatment and the animal, if it appears tenuous.

The landlord’s lawyer can consider whether the prospective tenant would otherwise meet the landlord’s standards for approval as a tenant.  Even if a landlord has unknowingly discriminated, the courts rarely award the full amounts requested by the tenants for emotional distress, except in the most egregious situations.  Finally, while ignorance of the law is not an excuse, the landlord’s good faith efforts to accommodate after learning of the law can help to reduce the awards to existing tenants. The denial of a service animal or ESA for a short time is less valuable than protracted denial by a landlord.

Make sure everyone who rents or shows your units knows about these laws before you run into a problem, and make sure they let you know any time there is an issue involving a pet request. Remember, under the law all animals requested by tenants or prospective tenants are not pets!

(Created March 2011)

Just when I started thinking the Western Pennsylvania Mortgage Fraud Task Force was slowing down, since I hadn’t seen any press releases in a while, the Department of Justice announced that the task force was going strong on its third anniversary. The U.S. Attorney for the Western District of PA, David Hickton, announced the filing of charges against 14 individuals in seven different mortgage fraud schemes on February 4, the anniversary of the formation of the task force. The seven schemes alleged in the actions announced on that date alone involve approximately 320 separate properties and $75 million dollars in fraudulent loans.

The defendants charged included several real estate investors, including a former client of mine, mortgage brokers, another closing attorney whom I know, and even a bank employee.  The defendants are from all over Western PA, from Pittsburgh to Washington, New Castle to Cranberry, Wexford, McKeesport, Clairton and Elizabeth. The companies the individuals charged either owned or worked for include Mortgage Brokers Lender’s Corner, S & P Mortgage, Alico Mortgage, U.S. Funding Partners, Pittsburgh Home Loans, Riverside Mortgage, and Beaver Financial Services. Owners or employees of other types of companies were among those charged, including real estate investing companies Easy Realty Solutions and MCM Consulting and Management, closing agent Absolute Settlement Services and contractor Bleaker Street Construction.

On January 18, a grand jury returned a 17 count indictment against Harry Anthony, who allegedly operated or was affiliated with Absolute Settlement services, MCM Consulting and Management, and Bleaker Street Construction. The fraud alleged includes fraudulent loan applications overstating income, payments to the construction company falsely represented to be for repairs , maintenance or construction costs, forged checks, forged documents, and false invoices for renovation work.

Also on January 18, a separate grand jury returned four indictments against five more individuals in addition to five other individuals who previously pled guilty and one other awaiting trial in connection with mortgage fraud charges stemming from the operations of Pittsburgh Home Loans and Riverside Mortgage. This scheme overall is alleged to have involved over a hundred separate properties and millions of dollars in loans. The alleged fraud involved purchases by indicted investors George Kubini and Dov Ratchkauskas of post foreclosure properties, which were then resold at overstated prices to buyers who could not legitimately qualify for the loans they received.

Indicted mortgage brokers Rhonda Roscoe and Rochele Roscoe, together with others who have previously pled guilty to the charges, allegedly submitted false loan applications which overstated income and assets. Those applications were further supported by appraisals by previously indicted appraiser Jason Moreno, against whom charges are still pending for submitting fraudulent appraisals overstating the value of the properties.  Also indicted on the 18^th was former bank employee Bartholomew Matto, whom it is alleged provided some of the fraudulent verifications of bank deposits which falsely supported the information in loan applications that borrowers had enough money in the bank to make down payments.  Former bank manager Crystal Spreng pled guilty to verifying some such deposits, and has already been sentenced.  Completing the fraudulent transactions were fraudulent settlement statements and other closing documents for the loan closings prepared by, among others, closing agent Karen Atkinson and Attorney Daniel Sporrer, who have already pled guilty and are awaiting sentencing for their roles in the transactions.

On February 1, formal “informations” were filed by the U.S. Attorney charging Gilbert Fischer and Jason Dull with wire fraud in connection with their company Lender’s Corner. Two former loan officers for that company, Dean Ackinclose and Jason Lewis, previously pled guilty to wire fraud conspiracy and are awaiting sentencing. The Lender’s corner fraud included false loan applications overstating borrowers’ income, assets and employment status, supported by false bank records and pay stubs.

Also on February 1, a grand jury returned a superseding Indictment against real estate investor James Platts of Easy Realty Solutions, mortgage broker Deean Haggerty of S&P mortgage, and Cranberry real estate attorney Bernard Flugher. Counts of that indictment include mail fraud, mail fraud conspiracy and money laundering. The alleged fraud includes submission of false rent verifications and bank balances for borrowers, depositing funds to borrowers’ accounts to falsely show borrowers had the money for down payments, and false settlement statements showing down payments when none were made. The settlement statements also reflected payments to satisfy improperly filed liens or “lis pendens” against the properties being sold.

The third filing on February 1 was a one count information filed against Dean Rodriquez of Alico Mortgage and U.S. Funding Partners. The fraud alleged is that loan applications submitted by Rodriquez falsely represented that borrowers intended to reside in the properties when they did not, as well as overstating income and assets, and that settlement statements falsely showed down payments.

A fourth action on February 1 was a one count indictment returned against Richard Underhill of Pittsburgh, a real estate investor previously convicted of a different mortgage fraud scheme in 2009. Apparently in an effort to finance the payment of the settlement of a civil lawsuit arising from his earlier mortgage fraud, Underhill is alleged to have misrepresented to a bank that he was borrowing money to refinance his real estate business when he planned to use the money to pay the settlement. Additionally, he is alleged to have overstated his income and assets on the loan application, as well as understating his liabilities by failing to disclose the liabilities from the prior fraud scheme.

The final indictment on February 1 was a single count indictment against Richard Staaf who operated mortgage Brokerage Beaver Financial Services. Five other individuals have already pleaded guilty to charges for their roles in the same conspiracy and are awaiting sentencing. Staaf is accused of submitting false appraisals, overstated rent rolls, false invoices for improvements, fictitious leases, fraudulent bank statements and W-2s for borrowers, back dated deeds and fraudulent personal financial statements. He is also accused of providing false closing documents, because settlement sheets and other documents indicated that down payments were made when they were not and that prior mortgages had been or would be satisfied, when they were not.

My articles on this subject are intended to keep unsuspecting real estate investor as buyers or sellers, borrowers or lenders from ending up in trouble, maybe even in blissful ignorance of what they were doing.  The following is a repeat of the advice I have given to real estate investors in a previous article on the subject, but bears repeating:

First, do not sign a loan application or any other document related to a real estate transaction in blank, ever. Going along with that, read the applications you are asked to sign “again” at closing, making sure they match the originals and that all the information on your income, assets and debts is accurate.

Next, make sure that the agreement of sale you sign accurately reflects the transaction, and covers every part of the deal between the buyer and seller. This is even more important in short sale situations. If any part of the deal between the parties is not in the written agreement of sale, the written agreement does not accurately reflect the transaction, and when the written agreement is represented by the parties to the appraiser, bank and recorder of deeds to be the “real” deal, it is fraud.

When you get to closing, make sure the HUD-1 Settlement sheet you sign accurately reflects the price of the property, the money in from the buyer, and the money out to the seller. Make sure repairs or improvements reflected on the HUD really were done, or are being done for the amounts indicated with an escrow set up and approved by the lender. Make sure the checks given and received match the numbers on the HUD. Also make sure the buyer brings his or her own money for the down payment, not money from some other source. If a gift from a parent or other relative is used, make sure the gift is disclosed to the lender.

If the seller is providing financing to the buyer, make sure the price and amount of financing are accurate, that the financing is disclosed on the HUD, and if it is a first, second or third mortgage, that the correct documents are signed and recorded, and the buyer intends to pay and the seller intends to be paid consistently with the forms signed.

If any of the above parts of the transaction don’t seem right to you, stop before signing, whether it is the agreement of sale or you are sitting at the closing table. Even if a lawyer, banker or real estate agent at the table says not to worry, everything is fine, trust your gut feeling and have the transaction reviewed by a real estate lawyer not involved in the deal. Enough lawyers and other mortgage and real estate professionals have been prosecuted and convicted of mortgage fraud that you can’t be sure anyone making money from the closing is not involved in the conduct which you think may be fraudulent.

If you don’t have the time to get an outside opinion, get everyone who is telling you that there is no problem with the transaction to put that advice to you in writing on their company letterhead, and to sign the writing and give it to you, before you put your signature on the closing documents. If they won’t do that, run from the transaction.

Remember, it usually takes the knowing or unwitting cooperation of several people to close a fraudulent transaction, but any one person who has to sign the paperwork as a borrower, buyer or seller can stop it just by saying NO!

(Created February 2011)

When more than one person owns an interest in Pennsylvania real estate, and the owners can’t agree on the management or sale of the property, a special type of equity proceeding called Partition Action is the way to resolve the issues in court. In my practice, I see these situations arising when two or more individuals own property together for a variety of reasons. Some inherit the property together and have different needs or wants for their interests. Others buy property together, either for investment as tenants in common or joint tenants, or buy a house to live in together or in anticipation of a marriage which does not occur. Sometimes, a life tenant, holder of a life estate in property subject to a remainder held by someone else, uses a property in a manner objected to by the owner of the remainder.

Situations where multiple owners of property do not use partition, but instead use other legal remedies, include divorce, where distribution of real property is usually determined within the divorce proceedings, though a partition action can follow a divorce where property distribution was incomplete, and life estates where the life tenant is accused of failing to maintain the property, where a separate type of action for “waste” is available. Also, partition actions are not necessary where title to real property is held in a corporation, limited liability company, or general or limited partnership. Laws relating to those entities, and the documents executed in connection with those entities, such as shareholders’, members’ or partnership agreements, provide the means for division of interests in both real estate and other assets of those entities.

The word partition suggests that the property is actually cut into different pieces, like slices of a pie. That comes from the origins of partition in English common law, the old ‘writ de partitione fascienda’, which allowed the division of a whole property into separate parts, each held completely by one of the former co-owners of the whole. This legal action was very limited, however, and did not deal with all different types of co-ownership, did not deal with property which could not be cut into multiple parcels, and did not address the accounting for money between co-owners. Courts of Equity took over partition to address these issues, and the concepts of financial compensation to one co-owner for imbalances in division of the property, called “owelty of partition”, and of the appointment by the courts of “Special Masters” to handle some of the details of the partition, were introduced.

In Pennsylvania, the various legal and equitable actions for partition arising from common law and specific statutes were abolished and all partition actions are now equity actions under Rule 1551 et. seq. of the Pennsylvania Rules of Civil Procedure, though actions involving the estate of a property owner who has died may end up in the Orphans’ Court, and be subject to additional rules there.

PA R.C.P. 1551 provides that a Partition Action shall follow the rules of civil procedure generally, except as modified by the Partition Rules. The Partition Rules provide that the action must be brought in a county where all or part of the property is located (Rule 1552), that any co-tenant (here the word co-tenant refers to an owner of an interest in the property, not to someone occupying as a tenant under a normal, one year or other short term lease) may bring the action, but all co-tenants must be parties ( Rule 1553), and that the complaint filed with the court must include a description of the property, and describe the nature and extent of each co-tenant’s interest in the property (Rule 1554). If a co-tenant plaintiff is not in possession, the rules preserve the right to claim an offset for the plaintiff’s share of the fair market rental value of the property against the share the tenant in possession would otherwise receive in partition (Rule 1590). However, the complaint must plead the exclusion of the plaintiff from the property and make the claim for plaintiff’s share of the rental value, since otherwise those claims can be waived. Likewise, the complaint should include claims for accounting of rents or other profits or benefits received by the other co-tenant(s), and credits for taxes paid, the cost or value of repairs made to the property, other services rendered by the plaintiff, and liabilities incurred by the plaintiff. These items become part of the decision and order provided under Rule 1570. Any defendant may also raise these issues in New Matter following an Answer to the complaint. However, non-partition claims between the parties may not be combined with partition claims in the same lawsuit.

The rules allow the joinder of causes of action for partition of multiple parcels in Pennsylvania owned by the same cotenants in the same action, and even allow the joinder of actions involving multiple properties where not all of the co-tenants have an interest in every property, if all the properties share a common source of title or grantor (Rule 1555). If the plaintiff fails to join causes of action for partition of all of the properties which could have been included in the complaint, the other co-tenants are free to bring a counterclaim in the same action regarding partition of such other properties.

If a plaintiff fails to join a co-tenant who should be a party to the action, any defendant has the right to raise the interest of that co-tenant in the action by filing preliminary objections to the complaint. Owners of remainder interests after life estates, as well as owners of reversionary interests, whether or not conditional, should all be included in the partition action. However, tenants leasing the property for periods of less than 20 years, mortgagees and lien holders whose interests would not be changed by the partition of the property, would not be appropriate parties to the partition action.

Once a complaint in partition is filed with the court, and served on all of the co-tenants as defendants, if the defendants do not answer the complaint or in their answers admit that all of the cotenants are parties to the action, and that part of the property is in the county where the action is filed, the judge can enter an order identifying all of the co-tenants and their interests, and directing partition of the property. If the complaint and any answers filed do not provide on their own a sufficient basis for the judge to enter an order for partition, the court can schedule a hearing or trial to determine disputed issues, after which an order for partition can be entered if the court finds the requirements met. While that order is appealable under Rule 311(a)(7) of the PA Rules of Appellate Procedure, the bases for such an appeal are limited. Simply not wanting to proceed with an otherwise proper partition does not provide an adequate basis for appeal.

After an order directing partition is entered by the judge, a preliminary conference among the judge and the parties or their attorneys is required by Rule 1558. At the conference, the judge is to consider whether the parties can agree on a plan of partition or sale, though it is usual that they cannot. The court then considers whether the issues in the partition can be simplified or narrowed. The judge may decide to continue to handle all matters pertaining to the partition directly, but the Partition Rules specifically allow for the appointment of a master, whom most judges appoint to handle the details of the partition under the supervision and subject to the final approval of the court. The master can be directed to hear the entire matter, or be limited to act on only certain issues as the judge directs. Though the Partition Rules do not specifically require that the master be a lawyer admitted to practice law in Pennsylvania, the master does have a judicial function as an officer of the court, and it is the normal practice of judges to appoint lawyers with knowledge and experience pertaining to civil trial practice, and partition actions in particular. In fact, I currently serve as a partition master.

Following a normal general appointment, a master will generally determine whether or not the property can be divided into separate “purparts” or parcels, like pieces of the pie for each co-tenant or each group of co-tenants who want their interests to remain undivided. Usually, this can work with larger tracts of land subject to subdivision, but not with single homes or other properties not easily divided. Purparts can’t always and don’t have to be equal, and partition allows inequality to be balanced out by the payment of cash known as “owelty” from the co-tenant who receives greater value to the co-tenant who receives lesser value.

Next, the master normally appoints an appraiser at a cost to be shared between or among the co-tenants, to value the property as a whole and the different purports or parcels into which it can be divided. A title search may also be ordered or the parties may provide the information on mortgages, liens and other encumbrances affecting the property, and the co-tenants who are personally obligated on any loan secured by a mortgage on the property.

The master also obtains information by stipulations of the parties or where there are disputes, through hearing(s) in front of the master, on the adjustments to be made to each co-tenant’s interest for use and occupancy of the property, rents and other benefits received, taxes, repairs or other amounts paid, and services rendered by each toward the property. After obtaining the appraisal and this other information, the master can seek the agreement of the parties on division of the property into purparts, and on owelty payments to balance the value of unequal purparts. However, in many cases where purparts are not possible, a private sale of the property between the co-tenants pursuant to Rules 1566 and 1567 will be considered, and if that does not work out, a public sale of the property under Rule 1568, at auction or through the marketing and sale of the property through a broker may be employed.

Once the master has completed his or her job of collecting information, and determined what the master believes should be the result of the partition pursuant to the rules, the master prepares a report to the judge under Rule 1569, which is provided to the co-tenants. Any co-tenant may take exceptions to evidentiary rulings, findings of fact. The report usually tracks the requirements for the decision and order which the judge must enter under rule 1570, so that the judge can simply adopt all or any parts of the report as his or her decision, and address any exceptions to the report made by any co-tenants.

If the decision orders a private or public sale of the property, the rules allow the judge to order the master to conduct the sale, after which the master files a return of sale under Rule 1573 and requests an order of court confirming the sale and payments to all persons entitled from the proceeds. Such an order becomes final if no party files post trial motions within ten days of the order.

By the sale portion of the partition action, many co-tenants recognize that the costs of following the rules can reduce the amount which they realize for the property, and many consent to purchase by one of the other’s interest, or to sales through real estate brokers rather than auction, to attempt to maximize the value they can receive for the property. At any point in the partition process, the parties can end the action by agreement on how to resolve their differences. However, the longer the action takes, the more legal fees and costs the parties incur with their own counsel, and the more masters’ fees the parties share. All of these costs suggest that early compromise of a partition action is advisable. However, as with any legal action, disagreement on key issues can make compromise difficult, and necessitate following through with the entire legal process of partition.

Partition in Pennsylvania is a well tested equitable court process which results in the separation of co-tenants’ legal interests in real estate. It is not cheap, but it is efficient and should be used when co-tenants can’t agree on how to share the real estate pie.

(Created January 2011)

As we approach the end of the year and look back on our progress on Western Pennsylvania rental registration cases, it has been both a busy and a productive year. In Pittsburgh, City Council is considering the revised draft ordinance which PROA, ACRE, WPREIA, RAMP, Landlord Service Bureau and the Apartment Association of Metropolitan Pittsburgh all participated in negotiating. While RAMP and Landlord Service Bureau still intend to fight the amended ordinance when passed, on broader objections to any rental registration, WPREIA, PROA and ACRE anticipate devoting their resources to other fights against anti-landlord and anti-investor ordinances and laws.

I anticipate that a revised ordinance in Pittsburgh, with a six dollar per year fee, no inspection or zoning prerequisites for registration, and an escrow for registration funds collected until their proposed expenditure is itemized and documented, will go into effect in the Spring of 2011. Despite the planned actions against the revised ordinance, I believe an injunction against that ordinance will not be granted.

Revised ordinances in Uniontown and Connellsville appear to be functioning as expected and further action in those municipalities is not anticipated at this time. Landlords can count those actions as ultimately successful.

The completely adversarial tone of the City of New Castle in the action against the City by the Apartment Association of Lawrence County appeared to moderate at a hearing on November 12^th.  The City agreed to let members of that association who object to $100 fees every other year for re-inspection and registration escrow their payments with my office until resolution of the pending suit. At the same time, the solicitor agreed to review our other cases and revised ordinances in other municipalities, and to work with us to move the case forward with discovery while the city considers revising its current ordinance to address landlords’ concerns. A meeting between key members of City Council and the Association’s board is also planned to open a dialogue. We are truly optimistic that we will be able to affect change either through negotiation or court determination in New Castle in 2011.

A hearing on an injunction requested in the end of June by ACRE of Washington County against the City of Washington’s ordinance was again postponed in early November, based upon a second set of revisions which the City solicitor submitted shortly before the hearing was to occur. The ACRE of Washington board and I are working on a third, and hopefully final draft of a proposed revised ordinance to submit to the judge and City Council by early December. Chances are good for resolution of the Washington case by a new ordinance or through a very narrow court hearing by early 2011.

In Erie, we recently filed a new lawsuit for the Apartment Association of Northwestern PA against that City. Erie had previously faced a challenge to its ordinance, and adjusted its fees so income matched expenses of administering the rental registration and inspection program. The objective appears to have gotten lost with changes in the composition of City Council over the last few years, and the Apartment Association had records suggesting that Erie is making a profit on its ordinance. We took depositions in November which appear to show over $100,000 per year in excess income from rental registration. Once discovery is completed, we think Erie will work with us to eliminate the profit from rental registration. If the City won’t cooperate, the information obtained through the discovery so far will make a pretty clear case in court.

In Wesleyville, south of Erie, on behalf of the Apartment Association of Northwest PA, and in Sharpsburg in Allegheny County, on behalf of WPREIA and the Sharpsburg Association of Landlords, we are in negotiation to resolve the issues with their respective rental registration ordinances before we even file with the courts. The string of current and prior cases by landlords all over Pennsylvania is helping to convince solicitors and municipal councils that we are both serious and likely to be successful in our challenges to their ordnances.

Attorney Lee Stivale on behalf of PROA groups in the eastern part of Pennsylvania has a case in Berwick waiting for appellate court action there, which could benefit all of our cases throughout the Commonwealth.

But we still have many similar ordinances throughout Pennsylvania which must be individually addressed. We are preparing to file in O’Hara Township, Allegheny County, and in several municipalities in Beaver County in the near future. We can’t stop until we prevent municipalities anywhere in Pennsylvania from using rental registration and inspection as a special, unjustified and illegal tax upon residential landlords, and ultimately their tenants. Hopefully, we will make as much progress in 2011 as we have this year.

(Created November 2010)