1

Presented at Johnstown, PA by The Gulotta Group, LLC

Dealing with Blighted Property: Tools and Strategies

June 9, 2011

2

Dealing with Blighted Property

Prevention and InterventionA. What can be done to prevent properties

from becoming blighted and/ or to create incentives/ remove disincentives for owners that will discourage properties from becoming blighted?

B. What are the different ways to obtain code compliance , ideally at the earliest possible stage, if the owner fails to address the blighted conditions after being cited?

3

Dealing with Blighted Property

Effect Of Blight On Neighborhoods

Reduces property values/decreases tax base

Discourages new investment

Increases demand for police/fire services

Increases demand for code enforcement services

4

Dealing with Blighted Property• If unabated can create chain reaction that leads

to progressive levels of neighborhood decline

Decline in owner occupied housing Increase in absentee landlords Increase in municipal liens/tax delinquencies Decline in tax base

• Much tougher (and more expensive) to tackle decline when it advances, so a proactive approach makes sense

Elements of a Comprehensive, Proactive Approach

1. Keep properties from becoming blighted by educating/ encouraging/incentivizing property owners (and tenants) for the upkeep/rehabilitation of properties

2. Use state law to keep property owners who have blighted/tax delinquent properties from acquiring more properties

5

Elements of Comprehensive, Proactive Approach (con’t)

3. Use provisions in state law to intervene at the earliest possible stage to obtain correction action from property owners

6

Dealing with Blighted Property

Prevention and Intervention

Tools/Strategies

7

1. Keep Properties from Becoming Blighted

•Educating owners and tenants Provide summary of Property Maintenance

Code or other appropriate codes at time of purchase (requires monitoring of deeds) unless registration/licensing ordinance in place.

Produce/distribute material in association with landlords reminding tenants about their responsibilities/duties. (newsletter?) If a rental registration/licensing law is in place this could be a routine mailing when the apartment is re-leased.

8

1. Keep Properties from Becoming Blighted (con’t)

•Encourage/incentivize property owners to make repairs/improve the property• Implement a rental rehabilitation

loan/grant program with CDBG/HOME or County Housing Trust Funds• Implement the phase-in of taxes on

improvements to real estate authorized by state law

9

1. Keep Properties from Becoming Blighted (con’t)

•Encourage/Incentivize Property OwnersRecognize landlords that have done a nice job keeping their properties up (Annual Award)

State law allows owners of tax delinquent properties to donate them to a taxing authorityLegal Citation: 72 P.S. Section 5860.303; 5860.309 Act 12 of 2005

53 P.S. Section 7108.1, 7143; Act 18 of 2006

10

2. Use Existing State Laws to Keep Property Owners Who Have Blighted/Tax Delinquent Properties from Acquiring More Properties

• State law prohibits a landlord whose rental license has been revoked from purchasing more property at a (county) tax sale anywhere in the county

Legal Citation: 72 P.S. Section 5860.601; Act 5 of 1998

• State law prohibits anyone who is delinquent in paying a local tax or utility charge (more than one year delinquent) from purchasing at a tax saleNote: delinquency must be in same municipality as property being purchased at a tax saleLegal Citation: 72 P.S. 5860.619a; Act 133 of

1998

11

2. Use Existing State Laws to Keep Property Owners Who Have Blighted/Tax Delinquent Properties from Purchasing More Properties

(con’t)

•State law prohibits housing code violators from purchasing a property in the same municipality at a tax sale (municipality may have to up to 15 days after tax sale to petition to void sale).Legal Citation: 72 P.S. 5860.619

12

13

3. Use Provisions in State Law to Intervene at the Earliest Stage Possible to Obtain

Compliance•Municipal Housing Code Avoidance

Law After the requisite number of housing code

convictions (4), the code officer requests prosecution by the assistant DA

At least four convictions for same code violation; code violation remains unabated

Threatens health safety and property 2nd degree misdemeanor after four (4)

summary convictions (1st degree for five or more summary convictions)

14

3. Use Provisions in State Law to Intervene at the Earliest Stage Possible to Obtain

Compliance (con’t)Blighted and Abandoned Property

Conservatorship Law-OverviewLegal Citation: 68 P.S. Section 1101; Act

135 of 2008–Allows court appointed third party to take

control of a blighted property when the owner dies or refuses to act–Property not legally occupied for a year

and not marketed for 60 days–No foreclosure action pending–Ownership longer than 6 months

15

Blighted And Abandoned Property Conservatorship Law (Con’t)

A. Who is eligible to petition the court for Conservatorship? What entities are best suited to serve as conservator?

• Lienholder or other secured creditor• A resident of business owner within 500’ of

the building• A non-profit corporation including a

redevelopment authority located in the municipality where the building is located

• A municipality or school district in which the building is located

Blighted and Abandoned Property Conservatorship Law (con’t)B. What properties are eligible for

conservatorship?• Properties owned by U.S. Government not

eligible▫ Also while not statutory drug forfeiture

properties (possible title issues because properties may be subject to seizure)

• Not legally occupied for twelve (12) months▫ Verification: utility records or affidavit other

property owners in neighborhood▫ Note: vacant land specifically not eligible

16

Conservatorship Law (con’t)• Not actively marketed during 60 day period

prior to the date of the petition▫For sale property must be placed on the propertyand one of the following:1. Real estate agent engaged to place the property

in a MLS or otherwise market the property2. Weekly or more frequent advertisements in print

or electronic media placed3. Printed advertisements distributedVerification: Photographs of the property with time

and date should be taken to show there is no for sale sign.

17

Conservatorship Law (con’t)

Additional verification issues re actively marketing:▫Call number on for sale sign▫Verify that property is listed in the MLS by

getting on the www.realtor.com web-site; print results to verify that property has not been listed within 60 days of the filing of the petition

▫Commercial properties are not listed in the MLS so contact local commercial RE agent to determine if the building is listed

18

Conservatorship Law (con’t)▫Verify that no advertising has been placed by

reviewing local advertisements and Craigslist▫Verify with neighbors if any leaf-letting of the

property has been done by the owner; obtain affidavit from neighbors

19

Conservatorship Law (con’t)

•The building is not subject to a foreclosure action▫Consult with local Prothonotary’s office;

each has a different method for captioned foreclosure cases (some are indexed by address rather than record owner)

▫To-date the property being listed for tax sale does not bar a petition for conservatorship; but there is some discussion about amending the law to this effect

20

Conservatorship Law (con’t)

•The current owner fails to present sufficient evidence of acquisition of the property within the preceding six (6) months▫Burden is on owner to demonstrate

however, it is best practice to determine whether a title transfer has taken place within the past six months by checking the title at the Recorder of Deeds office or ordering a title report early in the process.

21

Conservatorship Law (con’t)

In addition to the previous stated property qualifications, the property must meet three of the nine statutory definitions of blight:

•Building is a public nuisance A public nuisance is a property that,

because of the physical condition or use, has been declared by the appropriate official a public nuisance in accordance with the local housing, building, fire or related code or is determined to be a public nuisance by the court

22

Conservatorship Law (con’t)• The building is in need of substantial

rehabilitation and no rehabilitation has taken place the previous twelve (12) months

Note: The building must meet one of the following:▫The cost of repairs , improvements, etc, exceed

15% of the property’s value after completion of repairs

▫More than one major building component is being replaced (roof, walls/floors, ceilings, foundations, plumbing systems, HVAC, electrical systems)

Verification: Need to document FMR after improvements, or major system(s) needing to be replaced); should obtain affidavit from nearby property owners that no rehabilitation has occurred within twelve (12) months)

23

Conservatorship Law (con’t)Definition of Blight

•The building is unfit for human habitation, occupancy or use

Verification: Condemnation Notice from municipality; photographs, affidavits from nearby owners

•The condition and vacancy of the building materially increases the risk of fire to the building and to adjacent properties

Verification: document code violations such as excessive garbage or flammable materials in the building; photographic documentation

24

Conservatorship Law (con’t)Definition of Blight•The building is subject to unauthorized

entry leading to potential health and safety hazards and one of the following applies:▫The owner has failed to take reasonable

and necessary measures to secure the building

▫The municipality has secured the building in order to prevent such hazards after the owner has failed to do so

Verification: Photographs, affidavits from nearby property owners, police reports

25

Conservatorship Law(con’t)Definition of Blight•The property is an attractive nuisance to

children including but not limited to the presence of abandoned wells, shafts, basements, excavations, and unsafe structures

Verification: Affidavits, police reports, calls to codes office

26

Conservatorship Law (con’t)Definition of Blight•The presence of vermin or the

accumulation of debris, uncut vegetation, or physical deterioration of the structure or grounds that has created potential health and safety hazards and the owner has failed to take reasonable measures to remove the hazards

Verification: code office records, photographs, affidavits

27

Conservatorship Law Definition of Blight•The dilapidated appearance or other

conditions of the building negatively affects the economic well-being of residents and businesses in close proximity to the building, including decreases in property value and loss of business and the owner has failed to take reasonable measures to remedy the condition(s)

Verification: sales tax reports, tax assessment records

28

Conservatorship Law (con’t)Definition of Blight•The property is an attractive nuisance for

illicit purposes, including prostitution, drug use, and vagrancy

Verification: police reports, affidavits from neighbors

29

Blighted Property and Conservatorship Law (con’t)C. Next steps after identifying a property• Obtain a title report

▫ Pay careful attention to federal, state, and local tax and municipal liens as they cannot be superseded by the Conservator’s lien

▫ The title report also contains important information lienholders

• Take photographs (dated)• Obtain officials documents (deed,

mortgages, police/code office reports-citations, fire reports)

30

Conservatorship Law (con’t)Next Steps (con’t)•Consult with neighbors and local

community groups•Contact the senior lienholder

Note: the law requires that the senior lienholder be given the first opportunity to be the conservator and provide financing for the improvements

•Notify DPW re any liens against the property for medical assistance provided in the last five years of the recipient’s life

31

Conservatorship Law (con’t)Next Steps (con’t)•Determine whether the owner or

lienholder is on Active Duty in the Armed Forces

Note: federal law prohibits a court from entering a judgment against a member of the active duty military if the persons does not appear/defend him/herself in court

32

Conservatorship Law (con’t)Next Steps (con’t)D. Contents of the Petition• Identify a conservator-consider experience in

managing and rehabilitating property• Develop a preliminary plan

▫Scope of work▫Preliminary cost estimates▫Anticipated financingNote: This information is developed without the

benefit of inspecting the interior of the property because possession has not been granted by the court yet

33

Conservatorship Law (con’t)Next Steps (con’t)•Other elements of preliminary plan

▫Map▫Documentation of blight▫Document other issues related to eligibility

of property

34

Conservatorship Law (con’t)

E. Serving the petition•Conservatorship law provides for mail

notice to be provided to the owner, political sub-divisions, and lienholders

•As a best practice all petitioners should follow the PA Rules of Civil Procedure including the rules related to the service of process on all parties

35

Conservatorship Law (con’t)

F. Court Hearing• The law requires that the Court of Common Please

shall act on the petition submitted by holding a public hearing within 120 days of the receipt of the petition

• The court is required to render a decision within thirty(30) days after the hearing

• The statute allows any parties in interest to appear in court to offer evidence

• If the court believes that the petitioner has met the burden under the act the Court will appoint a Conservator to take immediate possession of the property

36

Conservatorship Law (con’t)

G. Taking possession and developing final plan

•Obtaining possession allows conservator to develop final plan

•Conservator has sufficient interest to file plans with public agencies and to seek financing

•Prior to entering the property, the Court will issue a right of entry so the Conservator has the right to enter the property

37

Conservatorship Law (con’t)H. Duties of the Conservator• Develop a final plan within 90 days of the

appointment• The court must hold a public hearing within

30 days after the final plan is submitted• The Conservator also should obtain property

and liability insurance• If necessary, the Conservator should

immediately secure the property and seek court approval for emergency repairs, if necessary

38

Conservatorship LawDuties of Conservator (con’t)

• Pay any other obligations such as taxes• Final plan may include demolition option, the

Conservator must document why this is the best option

• The plan should include a detailed work write-up and three estimates for the work (required if work in excess of $25K)

• The final plan should also include how the Conservator will finance the improvements; if borrowing is contemplated, first lienholder must be given first option; note borrowing will be difficult if municipal liens are on the property

39

Conservatorship Law (con’t)Duties of Conservator (con’t)

•Pursue all claims or causes of action on behalf of the owner (e.g. insurance claims in event of fire)

•Contract for the repair and maintenance of the building

•Enter into rental contracts and leases for a period not to exceed one year

40

Conservatorship Law (con’t)Duties of Conservator (con’t)•Engage and pay for legal, accounting, appraisal and other professional services

•Apply and receive public grants or loans

•Sell the building, if authorized by the Court in the event the owner does not reimburse the Conservator for all out of pocket costs

41

Conservatorship Law (con’t)

I. Hearing on the Final Plan• Court is required to hold hearing on the

final plan within thirty(30) days• All parties in interest have opportunity

to comment on the plan• Within fifteen (15) days of the hearing

the Court must approve the plan or require the Conservator to amend the plan

42

Conservatorship Law (con’t)J. Reporting to the court/Terminating the

Conservatorship• The Court will require the Conservator to submit a

status report at least annually but will likely require more frequent reports. The status reports must include: a copy of the contract for any improvements, an account of any revenue and expenses, and a description of the proposed actions to be taken in the ensuing six months

• Legal counsel files an a final accounting with the court when petitioning the court to terminate the Conservatorship

43

Conservatorship Case StudiesRedevelopment Authority of the County of Butler

Current Process1. Identify the property2. Inspector write-up3. Complete a title search4. File petition for the appointment of a conservator5. Post notice of filing and hearing on petition for the

appointment of a conservator6. Notice of filing and hearing on petition for the

appointment of a conservator7. File affidavit of investigation and attempts to serve

owner8. Advertise notice of hearings9. Hearing of the petition for appointment conservator

Process (con’t)10. Final plans for abatement submitted11. Authority has legal possession of the property12.Hearing on the final plan13.File accounting under §1106 (d)14.File status report under §1106 (b) (5)15. Dispose of the property by sale under §1109 (b)16.Conditions that must be met for “free and clear

sale” under §1109 (c) 17. Terminate the conservatorship under §1110

46

• Address: Home School St, Bruin Borough• Vacant Property building was demolished and site will be

purchased and a Florist Shop will be constructed• Current Status: Dispose of Property by Sale Under §1109

(b)

Case 2

• Address: 121 South Argyle Street, Petrolia Borough• Vacant Property home was demolished and being

purchased by neighbor as an extension of their lot (green space)

• Current Status: Dispose of Property by Sale Under §1109 (b)

Case 3

• Address: 120 Forest Avenue, Petrolia Borough• Vacant Property home was demolished and is

currently up for sale• Current Status: File status report under §1106

(b) (5)

• Address: Argyle Street, Petrolia Borough• Vacant Property home was demolished and being

purchased by neighbor as an extension of their lot (green space)

• Current Status: Dispose of Property by Sale Under §1109 (b)

3. Use Provisions in State Law to Intervene at the Earliest Stage Possible

to Obtain Compliance (con’t)Neighborhood Blight Reclamation and

Revitalization Act (Act 90)Legal Citation: 53 Pa.C.S Section 6111• Legislation enacted on October 27, 2010•Empowers municipalities to take legal

action against owners of deteriorated properties and deny municipal permits in some instances

•Effective date April 25, 2011

51

Neighborhood Blight Reclamation and Revitalization Act (Act 90)

•Allows municipalities to deny:-Building permits-Zoning permits-Occupancy permits-Variance approvals-Municipal license approvalunder the following circumstances:

52

Neighborhood Blight Reclamation and Revitalization Act (Act 90)1. The property owner is delinquent in

paying taxes, water, sewer, or refuse charges

or2. a) The property owner is in serious

violation of a state law or municipal building or property maintenance code , and b) the property owner has taken no substantive steps to correct the violation six (6) months following notification.

53

Neighborhood Blight Reclamation and Revitalization Act (Act 90)

How is “serious violation” defined?1. Fines or other penalties or a judgment to

abate or correct were imposed by a DJ or municipal court

or

2. A judgment at law or in equity was imposed by a court of common pleas

54

Neighborhood Blight Reclamation and Revitalization Act (con’t)

However a permit may not be denied if:-The permit is necessary to correct a

violation of a state or municipal building or property maintenance code,

-The court or DJ decision is subject to a stay or appeal,

-The non-payment of taxes, water, sewer, or refuse charges are under appeal, or

55

Neighborhood Blight Reclamation and Revitalization Act (con’t)

-The owner of the property has presented and the appropriate state agency or municipality has accepted a plan to begin remediation of a serious violation of state law or code

Note: acceptance of the plan may be contingent on beginning the remediation plan no fewer than 30 days following acceptance of the plan (sooner if mutually agreeable), and completion of the remediation plan no fewer than 90 days following the commencement of the plan (sooner if mutually agreeable)

56

Neighborhood Blight Reclamation and Revitalization Act (Act 90) con’t

-The new law provides that if the permit is denied the burden is on the property owner to obtain a letter from the municipality or other appropriate agency verifying that there are no delinquent taxes or utilities.

-The municipality or other appropriate agency shall provide the letter within 45 days of the request; if the letter is not received within 45 days , the property in question is deemed to be in compliance

57

Neighborhood Blight Reclamation and Revitalization Act

Other provisions in the new law:-Out of state property owners may be

subject to extradition if convicted of code violations under the Crimes Code

-The other assets of a property owner may be attached or liened if the property owner does not make corrective repairs for serious code violations with six months; the municipality may obtain a judgment in an amount equal to the penalties and costs

58

Neighborhood Blight Reclamation and Revitalization Act (Act 90)

•Cannot lien property of general partner or trustee, limited partner, shareholder, member, or beneficiary of an association or trust

•Association or trust is not defined in the act but the Associations Code (15 Pa.C.S.A Section 102) defines association as a corporation, a partnership, a LLC, a business trust, or two or more persons associated in a common enterprise or undertaking

59

Neighborhood Blight Reclamation and Revitalization Act

•However, Act 90 preserves the right of municipalities to hold an officer, agent, or principal owner of an entity who exercises possession and control over a property to be personally liable for code violations

•Draft model ordinance being developed by Real Property Probate and Trust Law Section of the PA Bar Association

60

61

62

Summary•Successful redevelopment of blighted

properties requires a comprehensive pro-active approach to discourage blighted property owners from continuing the perpetual “dance”

•Part of that approach should include education and encouragement

•Municipalities should know the remedies provided under state law and be prepared to use those tools, if necessary

63

Summary

•The most potent tools are the Conservatorship law, the new Neighborhood Blight Reclamation and Revitalization Act, and an eminent domain action by the municipality or the redevelopment authority when blight can be documented in the strict legal sense of the term

Resources• Quick Guide: New Tools to Address Blight and

Abandonment, published by the Housing Alliance of PA, February 2011http://www.housingalliancepa.org/issues/post_list.php?topic_id=91

• Pennsylvania’s Abandoned Property and Conservatorship Act-Implementation and Best Practice Manual, published by Regional Housing Legal Services, April 2011www.rhls.org/documents/ConservatorshipManual_Final_05102011.pdf

• Draft Model Ordinance-Implementation of Act 90. Prepared by a working group of the PA Bar Association (5th draft)

64

65

Christopher GulottaThe Gulotta Group, LLC

448 C StreetCarlisle, PA 17013

717-580-0439gulottagroup@pa.net

Website: www.gulottagroup.com