Author Archives: HDimmerman

Please enjoy my latest collaborative effort with James Lammendola, Esq., set to appear in The Legal Intelligencer.

The Commonwealth Court case of Yvonne Jewell and Jewell Realty Company v. State Real Estate Commission 2011 Pa. Commw. Unpub. Lexis 162 is a glaring example of the pitfalls associated with assuming responsibility for a client’s money and legal implications of permitting a simple inquiry as to its status to fester. Denial and its consequent inaction could lead to drastic consequences when one is finally called to task for errors of omission, as a real estate broker recently learned the hard way.

The Jewell case is an appeal that originated with a hearing before a Commonwealth Real Estate Commission (REC) examiner. The examiner recommended the revocation of a broker’s license along with conditional reinstatement as a salesperson. The accused Broker filed exceptions to the findings. Those findings were denied by the REC and the denial of the exceptions was ultimately affirmed at the Commonwealth Court level.

The facts are relatively straightforward. Pursuant to the terms of an oral agreement, Jewell Realty Company (Company) managed three rental properties for husband and wife investors. The relationship commenced in the early eighties and lasted for more than two decades. The findings of fact indicated that the Company collected rents, and paid bills and for repairs as is standard in such agreements. However, profits were distributed to the clients only when they requested the Company do so. Despite these transgressions, a demand for an accounting was not requested until the Company’s services were terminated in 2004. Upon the Company’s failure to comply with the accounting demand, a formal complaint was levied with the REC and referred to an investigator from the Pennsylvania Bureau of Professional and Occupational Affairs. Despite six demands by the investigator to the Company for its complete bank records, the company only produced its rental ledgers.

At the REC hearing, the broker of record admitted to failing to reduce the rental management agreement to writing, not supplying the required bank records to the investigator and that the former client was owed $37,218.91. As previously noted, the REC revoked the license with a provision that the broker be allowed to work as a salesperson, under certain probationary conditions, which will be discussed shortly. In turn, the Company was found guilty of violations of the Commonwealth’s Real Estate Licensing and Registration Act (Act) and REC Regulations for not having a written rental management agreement, not accounting for the rental monies, not maintaining adequate records, not providing the investigator with the documentation pertaining to account records and “failing to exercise professional skill, and failing to deal honestly and in good faith.” Critically, oral brokerage agreements are expressly prohibited under Pennsylvania law. There are no exceptions.

On appeal, the broker of record took issue with every finding rendered by the REC. The applicable scope of review of a Pennsylvania agency decision is whether an error of law occurred, whether a licensee’s constitutional rights were violated or whether the findings of fact were supported by substantial evidence. She first contended that the finding of a violation for failing to maintain adequate records was an error of law in that the provision of 601(a)(5)(v) only pertains to escrow accounts. Hence, it was argued the finding that the Company failed to maintain a rental management account does not fall within the ambit of the statute. The court wasted little time in concluding that such a contention was meritless. A separate provision of the Act, 604(a) (17) requires the prompt production of records upon the REC’s request, after a complaint is received. Notably, the investigator was never provided with documentation of the existence of any bank accounts. All that was provided was a ledger, which does not even prove the existence of an account, let alone constitute proof of its contents. The broker also argued that her failure to account to her clients does not equate to conduct that rises to the level of “bad faith, dishonesty, incompetence or lack of trustworthiness,” despite the fact only $22,467.37 of the $37,218.91 outstanding was paid; and that did not occur until approximately three years after the complaint was lodged with the REC.

In an effort to justify the shortfall, evidence of the theft of funds by a Company employee years earlier, in the sum of $21,000.00 was submitted. However, the court was naturally unimpressed with this defense, especially in light of testimony that the embezzled funds were replaced from monies from other accounts and the aforementioned delay in making any payments. The Company was also taken to task for a recordkeeping system characterized by the Court as confusing, inefficient and idiosyncratic. Finally, it appears that the appellants tried to convince the Court that there was not a violation of the regulation requiring representation agreements to be in writing because the oral rental management agreement was of such a lengthy duration that it was essentially waived. The Court was steadfast in its holding that there are absolutely no exceptions to the statutory requirements and waivers are not permitted under the Act.

As with any representation agreement, a fiduciary duty is created which commands adherence to duties of care, loyalty, accounting, disclosure and obedience to lawful instructions to one’s client. In Meinhard v. Salmon, 164 N. E. 545 (N.Y. 1928), the eminent Judge Benjamin Cardozo wrote that a fiduciary must conduct himself as such…”Not honesty alone but the punctilio of an honor the most sensitive is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate.”

While there appears to be an egregious breach of the fiduciary duties to the Company’s client, the broker of record was given permission to apply for and secure a salespersons license to be placed in a probationary status during the minimum five-year revocation period. The only conditions attached to the granting of a salesperson license were a prohibition against having a financial stake in the Company of her affiliation, she be denied access to the Company escrow account and an acknowledgment from the employing broker that these restrictions would be enforced. These conditions seem to be a magnanimous gesture, one that could easily spark a debate about whether the sanctions are too lenient under the circumstances. It could also be argued that remedy balances the mission of the REC to protect the public from an agent who has fallen short, in this one instance, of performing her fiduciary duties, and her ability to earn a living in a profession for which he has been trained, and in other areas of the practice of brokerage in which she may provide a valuable service to the community.

Real Estate transactions take place all over the country on a daily basis. They occur with great frequency and in many cases a Real Estate Attorney (lawyer) is not involved. Below are just a few example scenarios where you might need to call in someone who is an expert in real estate legal matters.

Zoning

Are you on your way to becoming the next big real estate investor? Thinking about flipping or renting a property? Then you definitely will want to retain the services of a legal professional versed in this area. Local zoning codes can be very complicated, and with the amount of money involved in your investment, you will want to be sure you follow the book to the letter or risk unexpected losses in time and money.

Landloard / Tenant Affairs

Before you decide to take matters into your own hands,  be sure to consult a real estate attorney. There are rules and laws involved that it is very likely that you aren’t aware of. In Philadelphia, Pennsylvania for example, but you cannot evict a tenant without filing a civil suit and taking said tenant to court. Unfortunately it’s not as simple as changing the locks while they are away.

Just In Case

Whether buying a house as a new home or an investment vehicle, the purchase is most likely going to be one of the largest you make in your life. You might just sleep a little better knowing that there wasn’t something you overlooked in your mortgage or if you are concerned that your agent may not have told you everything that you really needed to know. It may be worth it in the long run into legal guidance costs into the overall price tag on your investment.

Authored by: Harper Dimmerman & James M. Lammendola
The Descriptive/Normative Tension In Land Development

James M. Lammendola & Harper J. Dimmerman

Some may contend that the concept of real estate development, by its very definition, requires at least some modicum of vision aimed at meeting future demand in the marketplace. In fact, some developers have the capacity to manufacture demand, creating a community so enticing that buyers, who may not have originally been targeting a specific locale, alter their perception of what they want or even need. In other words, there are those projects that have the potential to spark a population spurt in an otherwise slow growth area. Even with the most ingenious foresight however, land use restrictions can occasionally rear their head, quelling the passion associated with entrepreneurship.

On January 27, 2011, our Commonwealth Court handed down an unpublished opinion which in our estimation, illustrates the “do’s” and “don’ts” when proposing a curative amendment to a municipal zoning board. Numerous landmines confront the unwary developer in a staunchly agricultural township. Plus the “fair share” principles announced by the Pennsylvania Supreme Court in 1978 can wreak havoc upon developers who wish to penetrate an area that purports to have sufficient housing to satisfy present demand.

In Cherokee – Rush Associates, Inc. v. Rush Township and Board of Supervisors of Rush Township, et al, 2011 Pa. Commw. Unpub. LEXIS 94 the Rush Township Board of Supervisors (Board) denied an application for a curative amendment to allow Cherokee Rush Associates, Inc. (Cherokee) to develop seventy-five one-acre lots for single-family residences, with on-site sewer and water, in an Agricultural Zoning District located in Rush Township, Northumberland County. The zoning requirements place significant restrictions on the number and types of structures that can be erected in the district. Specifically the tracts under consideration are along Pennsylvania State Route 54 between the hamlets of Elysburg and Danville.

Pursuant to The Municipal Planning Code, 53 P. S. 10609.1, a curative amendment must contain five categories for the Board’s consideration. In relevant part, an application must include its impact on 1) roads, sewer and water facilities, 2), the suitability relating to intensity and impact of use, 3), how it impacts natural features such as woodlands, natural features and aquifers, to the degree which they are protected or destroyed and any adverse environmental impacts, 4) the impact of the proposal on the preservation of agriculture and land uses and 5) the impact on the regional housing needs and the effectiveness of the proposal on providing housing units of the type actually available and affordable by those otherwise unlawfully excluded by the challenged provisions of the ordinance.

As a preliminary observation, the Court took Cherokee to task for failing to submit any of the required documentation concerning water and sewer use as well as other potential environmental impacts. Consequently, the matters the Court considered, among the list of errors presented for review by Cherokee, was that the curative amendment was improperly denied because the ordinance as applied is exclusionary and that the planned development would meet the needs of those willing to live in the township, a need which Cherokee alleged was not being met. For the purpose of this case, the crucial factors that a Board must consider are whether the amendment will cure an exclusionary impact on residents or potential residents of the township as well as whether there is a demand for the proposed housing that it is not being met and which the curative amendment may ameliorate.

The nature of testimony gleaned from four Board hearings was relatively predictable. A representative of the developer, an engineering and planning firm and a local real estate agent all testified in favor of the amendment. Whereas, a Township engineer and zoning officer, another planning firm and adjoining property owners testified against the amendment. Despite the sizeable volume of testimony offered by the developer and its allies, the Board logically found that testimony to generally be unpersuasive. Testimony was submitted that Rush Township was experiencing growth from 1990-2000, albeit Northumberland County suffered population loss. In that ten-year period, Rush Township grew by merely ninety-two people. And from 2000-2006, the population grew another thirty-seven people, for a total of 129 people over the course of a significant span of time. During that interval, seventy-five additional housing units had been constructed. The developer pointed to the close proximity of both Bucknell and Bloomsburg University, Merck Pharmaceuticals, a federal prison and four other prisons as well. Yet none of the aforementioned employers were closer than twelve miles with some being as far away as twenty-eight miles. Finally, in the estimation of the applicant, the proposed seventy-five homes were necessary to meet an anticipated population surge.

The opposition naturally pained a much different picture, honing in on the extremely slow growth. The average of seven or eight homes constructed annually between 1970-2000 had been more than sufficient to meet the needs of buyers in the region. Two other telling statistics stunted the developer’s case as well. The Board received testimony that 800 other lots were available in the township for residential housing. Finally, the average price of a home in Rush County was only $91,000.00, not in the quarter to a half million-dollar price range being proposed by the developer. The demographic figures and current opportunity for residential development in other sections, only bolstered the Township’s position, vis-à-vis the “fair share” principle, articulated by the Pennsylvania Supreme Court decades ago and designed to ascertain whether local zoning ordinances accommodate the needs of all who wish to reside within a given municipality. A zoning ordinance which violates “fair share” principles constitutes a due process violation under both the Pennsylvania and United States Constitutions.

The Court, in Surrick v. Zoning Hearing Board of the Township of Upper Providence, 382 A.2d 105 (Pa. 1978), laid out the following three-prong test when applying this “fair share” concept: 1.) if in fact the municipality is a logical place for development, it must bear its rightful proportion of the burden; it cannot ignore the needs of surrounding areas, 2.) the present level of development is examined considering population density, the percentage of undeveloped land and the percentage of that actually available and 3.) if the municipality is an appropriate area and is not highly developed, whether the development would have effect of “zoning out” the natural population growth. By examining the projected growth of the township, access to major roads, anticipated economic development and the growth of neighboring communities, the Court had little difficulty concluding that Rush Township was well within its right to deny the curative amendment in Cherokee.

There was simply no need, real or imagined, for such a massive concentration of upscale homes in that Township. Also, since there was no cognizable “fair share” issue, Rush Township’s actions were consistent with general welfare principles, aimed at preserving the agricultural character of the Township. Undeniably though, the question of whether a developer should be permitted to incur the risks inherent in making this sort of investment, on its own property, lingers despite a legally sound analysis. Might not the success of a luxury project, over time at least, alter the socioeconomic landscape of a given region, transforming it into something altogether different because of the natural evolution of things? It is sometimes difficult to strike a balance between development and preservation. Perhaps too much regulation, even when well intended, subverts the true nature of things. At the end of the day, who is to say whether or not a particular area is ripe for development?

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Harper J. Dimmerman is an adjunct professor at Temple University’s Fox School of Business and co- chair of the law practice management committee of the Philadelphia Bar Association. He represents clients in general litigation, various land use, residential and commercial real estate matters. His firm also provides approved attorney title insurance services and real estate consulting statewide. He can be reached via e-mail at harper@hjdlaw.net or telephone at 215-545-0600. His blog is landdweller.com

James M. Lammendola is an Instructor at Temple University’s Fox School of Business who was in private practice for twenty years. He may be reached via e-mail at james.lammendola@temple.edu or telephone 267-254-3324.

THIS ARTICLE APPEARED IN THE LEGAL INTELLIGENCER (MARCH 2011). THE UNAUTHORIZED REPRODUCTION OR DISSEMINATION IS STRICTLY PROHIBITED. COPYRIGHT ALM.

Greetings!

John Adam Di Pietro, Esquire, an experienced commercial real estate attorney and I are pleased to announce that we have officially begun to offer real estate consulting services. What does this mean and how is it any different from legal services? Simply, we now enjoy the freedom to play a much broader role in the commercial real estate world.

For example, we are frequently approached by newer real estate ventures in search of the best possible financing alternatives. Now we will be utilizing our lending resources and assisting them with positioning to maximize the potential for stronger financing. As to developers, for instance, occasionally they demand a real estate specialist with a legal background to coordinate a specific project. Take zoning for instance. Now we can do just that.

Please call my office to schedule a consult or to discuss these consulting services in greater detail.

All the best,

Harper J. Dimmerman, Esquire

The Law Office of Harper J. Dimmerman P.C.

THIS ARTICLE APPEARED IN THE LEGAL INTELLIGENCER (JANUARY 2011). THE UNAUTHORIZED REPRODUCTION OR DISSEMINATION IS STRICTLY PROHIBITED. COPYRIGHT ALM.

In a case that has the potential to alter or abolish the procedure by which landlocked property owners are afforded relief, the Supreme Court of Pennsylvania appears to have left the constitutionality of Pennsylvania’s Private Road Act in grave doubt. In a recent decision, In the Matter of: Opening of a Private Road For the Benefit of Timothy P. O’Reilly, 5 A.3d 246, the Pennsylvania Supreme Court remanded the case for reconsideration. The Court took issue with the Commonwealth Court’s holding that the Pennsylvania Private Road Act, 36 P.S. 2731, (hereinafter PRA) does not affect an unconstitutional taking of private property. Over a three justice dissent, the Supreme Court determined that the Commonwealth Court engaged in a flawed analysis in upholding the challenge to the constitutionality of the PRA. The Court unequivocally declared that the taking of private land for private use is a taking. Nevertheless, the Court was not prepared to use this particular case to abandon long-standing precedent.

The PRA has been on a collision course with the Fifth Amendment and the Pennsylvania Constitution for some time now. And what makes the decision all the more interesting is how the seemingly insurmountable conflict between the ability of a landlocked property owner to gain access to a public road against the right of a private property owner not to be forced to have a private road transverse his land will be resolved. The PRA provides the statutory basis for a landlocked property owner to apply to a quarter session court to gain access to a public road through private property. It mandates a Board of Viewers visit the site(s) at issue. A Board enjoys the discretion to place a right of way wherever it deems necessary, so long as it considers the statutorily prescribed factors pursuant to 36 P. S. Section 1785. Those factors, predictably, concentrate upon the shortest distance, the best ground to have a private road, the wishes of the petitioner, compensation and to create the least injurious solution vis-à-vis other affected property owners.

The backdrop of this impasse began when the landlocked landowner (hereinafter O’Reilly) successfully persuaded the trial court in Allegheny County to award him a private road over the lands of an individual landowner and a neighboring condominium complex. O’Reilly’s property became landlocked as a result of the Commonwealth’s exercise of eminent domain to build a portion of Interstate 79 over his property. The lower court opined that the PRA should be analyzed as an extension of both the Commonwealth’s exercise of its police power as well as an extension of the doctrine of easement by necessity which gives a landlocked landowner a right of use, not ownership, in the land of another. The trial court did note; however, that if it was bound by the plurality opinion in the 2002 Pennsylvania Supreme Court decision of In re: The Interest of Robert W.Forrester, et al, 836 A.2d. 102 (Forrester) that PRA serves only private interests, then the constitutional foundation of the PRA would appear to be fatally undermined. Constrained by precedent, the lower court could only uphold the constitutionality of the PRA.

On appeal, the Commonwealth Court refused to characterize the creation of a private road under the PRA in favor of O’Reilly as an unconstitutional taking, despite the 2007 Pennsylvania Supreme Court’s holding in Middletown Township the Lands of Josef Stone, etal, (Stone), 939 A.2d. 331. Stone held that the PRA will pass constitutional muster only when the public, not a private person, is the primary and paramount beneficiary. The Commonwealth Court appears to have tried, albeit unsuccessfully, to characterize the PRA’s application as benefiting the public since it is in the public’s interest to grant landlocked owners access to public roads over the lands of another. Otherwise, landlocked property would be unproductive and unmarketable creating a situation that is detrimental to all of the citizens of Pennsylvania. The Commonwealth Court characterized the PRA as an appropriate exercise of police power and also attempted to fight back the constitutional challenge by reviewing the not only the 19th century enactments of the PRA but also its origins in the pre-Commonwealth, 18th century, Provincial Legislature. In short, the Commonwealth Court reasoned that all lands in Pennsylvania are encumbered by an incorporeal six percent burden for the erection of public roads which includes private roads.

Although a considerable portion of the Commonwealth Court’s opinion was dedicated to a lengthy and complex analysis of its incorporeal burden rationale, the Supreme Court was not persuaded that this history is proof of the PRA’s constitutionality, even going as far as to characterize the analysis as “misguided.” The Court reasoned that the Commonwealth Court erred because it did not evaluate this particular application of the PRA under the “primary and paramount beneficiary” standard, articulated in Stone, which necessitates an analysis of who is the true primary beneficiary. In short, the key is that if the benefit to the public is incidental and not primary, then the application of the PRA amounts to an unconstitutional taking. The Court even cited an Amicus brief which pointed out that eight other states have declared their respective PRA’s as unconstitutional.

Finally, the Supreme Court majority took the Commonwealth Court to task for failing to examine the arguably relevant details regarding the manner in which the condemnation of a portion of O’Reilly’s land for Interstate 79 and the application of the PRA to his neighbor’s lands may have been interrelated. In other words, it was important to know whether the use of the PRA had been contemplated at the time the Commonwealth’s exercise of eminent domain caused Mr. O’Reilly’s land to become landlocked. The Court appeared concerned that issues may not have been properly preserved on appeal as well as whether the sequence of events may be outcome-determinative as to whether the public is fairly regarded as the primary and paramount beneficiary in the context of the PRA’s application to the lands adjacent to O’Reilly’s.

Given the complexity of the issues, the reasoning of the dissenting Justices deserves careful consideration. In addition for questioning the need for a remand, the dissent cited a number of factors that call into question the majority rationale. The factors include the use of the PRA is akin to the doctrine of easements by necessity (as both are avenues of the last resort), the legislature’s apparent lack of motivation to repeal the PRA, and the Court’s passing on numerous opportunities to declare the PRA unconstitutional. And last but not least, in the wake of the 2005 United States Supreme Court decision of Kelo v City of New London, 545 U. S. 469, the Pennsylvania legislature specifically permitted the use of eminent domain procedures under 26 Pa. C. S. 204 (b) (9). According to the dissent, the aforementioned statute specifically states that eminent domain procedures may be utilized when a private landowner becomes landlocked as a result of the use of eminent domain, such as occurred to Mr. O’Reilly.

Unless the dissent’s arguments and the reliance on police power principles carry the day, the stage may be set for a forthcoming significant change in Pennsylvania law. The lesson here may be that, in light of the Court’s holding in this case and in Stone, it appears that the taking of private property for private use under the PRA, albeit a compensated transaction, can only be sustained if the Court accepts the proposition that the primary and paramount beneficiary is the general public.

James M. Lammendola is an Instructor at Temple University’s Fox School of Business who was in private practice for twenty years. He may be reached via e-mail at james.lammendola@temple.edu or telephone at 267-254-3324.

Harper J. Dimmerman is an adjunct professor at Temple University’s Fox School of Business and co- chair of the law practice management committee of the Philadelphia Bar Association. He represents clients in general litigation, various land use, residential and commercial real estate matters. His firm also provides approved attorney title insurance services and real estate consulting statewide. He can be reached via e-mail at harper@hjdlaw.net or telephone at 215-545-0600. His blog is landdweller.com
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It’s a rare occurrence but every once in a while I have the luxury of indulging in a bit of channel surfing. This afternoon the excitement lasted for a whole thirty minutes or so, until the house phone rang and woke the sleeping baby. Anyway, I wound up selecting one of those History Channel documentaries (the only HD channel playing anything remotely entertaining – those commercials are all hype), the sort that make you feel like you’re actually learning, justifying the time wasted by zoning out to TV. The subject was entertainment in the Roman Empire, which we all know wasn’t too dissimilar from the sporting events of today. Instead of the Lincoln Financial or whatever they’re calling it these days, the citizens had the Coliseum, which arguably was more advanced architecturally. And rather than pampered football stars making more than the GDP of some small nations, they had slaves trained to be gladiators, fighting for their survival and their freedom. Apparently each time these fighters stepped into the Coliseum, they had a 1 in 5 shot of even making it out alive. And for those who lived to see another day, they were housed in barracks style quarters right nearby, living, eating and sleeping mortality.

Anyway, watching the show got me thinking about interpretations of justice. At least the way the spectators were portrayed, they just sat by idly, mercilessly as other human beings were dismembered and disgraced, all for the sake of entertainment. The gorier the better too, akin to the perverse sense of pleasure derived from rubbernecking at a car wreck, secretly craving to see faces of death. The lunchtime intermission, which preceded the gladiator battles, was a special treat for the ravenous onlookers. That was when the criminals were executed with a virtual cornucopia of barbaric torture devices or perhaps, the least painful – crucifixion. Apparently they had no prisons there, which made committing crimes somewhat foolish. And for those falsely accused? Well, like the remaining pieces of the gnarled animals and gladiator corpses, they were just dumped into the Tiber River. Out of sight out of mind. Notions of due process were not even a twinkle in the eye of Mother Justice during these ancient times. With the complex labyrinths of tunnels designed to heighten the dramatic impact of the spectacles, a lot of thought clearly went into suspending disbelief, with a blatant disregard for human rights.

Compare this to a system, which in my lowly opinion, has swung entirely too far in the other direction. Now we have murderers and predators roaming the streets freely, mocking the justice system as they search for their next unsuspecting victim. Landlords too afraid of inquiring about whether or not someone’s been convicted of a sex crime, courts enlarging the rights of pro se litigants for fear of frivolous appeals, lenders with too powerful a lobby to be checked, scam artists preying upon the elderly, businesspeople defrauding creditors with the aid of the federal bankruptcy laws. I see far too many plaintiffs who should be defendants and far too few consequences for duping the system. When it comes to money and freedom, people will say and do just about anything, ala O.J. Simpson. A clear conscience is no longer in vogue and I’m sure there’s an app for repenting by now. Like the visionaries of yesteryear, the ones wielding the power these days are a bit too consumed with staging the semblance of fairness. Anyone out there have a little gladiator in them, someone who’s willing to risk their reputation for justice’s sake? I only have had the privilege of meeting a few.

Harper J. Dimmerman, Attorney at Law, is also an adjunct real estate law professor, published legal columnist and lecturer. His law firm focuses on general litigation as well as real estate law matters. Areas of law practice include: general disputes, general litigation/trial matters, appellate litigation, commercial litigation, personal injury, mortgage foreclosure defense, approved attorney title insurance, commercial real estate, homeowners association law/condominium law, landlord & tenant law/evictions, confessions of judgment, partition actions, ejectments, quiet title actions, residential real estate/buying & selling a home, eminent domain & condemnation, zoning, planning & land use.

When advising clients in rural sections of the Commonwealth, it would seem incumbent upon counsel to apprise the client of the Private Road Act, which has the potential to become a proverbial thorn in the side when successfully employed.  Perhaps there is no better form of due diligence when acquiring real property than physically exploring potential idiosyncrasies of the intended purchase.  Are there any unusual facets such as unrecorded easements or even land-locked properties, both adjacent and non-adjacent?  Just last month, our Commonwealth Court concluded a protracted piece of litigation, dating to July, 2001 in Appeal of Doberman Group, Inc. (2010 Pa. Commw. Ct., Unpub. Lexis 723, 10/21/10).

A Petition to Appoint a Board of View was filed by Hawkwing Partnership (Hawkwing), an allegedly land-locked property owner in Granville Township, Mifflin County, in need of a right of way across an unsuspecting neighbor’s land, Doris W. Hann (Hann).  More specifically, the demand was that viewers permit a private road across a portion of Hann’s property, said to be shortest and most practical route to the nearest public road.  Unsurprisingly, Hann challenged the request, essentially contending that Hawkwing was not in fact land-locked and that other alternative access routes existed that did not infringe upon her property rights.

As a matter of law, the Private Road Act (36 P.S. 2731) provides the statutory basis for Hawkwing’s request and empowers property owners to apply to quarter sessions courts which mandate the viewers visit the sites at issue.  A Board enjoys the discretion to place a right of way wherever it deems necessary, so long as it considers the statutorily prescribed factors pursuant to 36 P. S. Section 1785.  Those factors, predictably, concentrate upon the shortest distance, the best ground to have a private road, the wishes of the petitioner and to create the least injurious solution vis-à-vis other parties.

A hearing was held on September 26, 2001, where it was disclosed that Hawkwing had been offered a right of way on property owned by the five members of the Brown family (Brown), on land adjacent to that of the appellant, Doberman Group Inc. (Doberman).  At the hearing, the Board also noted that two other private roads should be considered – one that runs across the parcel owned by two other landowners and a second that slanted across property belonging to Brown and Doberman.  Consequently, Hawkwing petitioned the Board to include those routes and their owners as respondents as well, and indicated a preference for the Brown/Doberman land. Ultimately, a right of way was granted in favor of Hawkwing across the Brown and Doberman properties.

The Board of View made certain findings which appear to have made its decision a no-brainer, if you will, as a result of testimony gleaned from the president of Hawkwing, the respondent property owners and a private consultant.  In a nutshell, the Board found that the other properties under consideration did not fit the statutory criteria.  The properties were eliminated from consideration because a private road would have to be constructed over both of the other properties viewed by the Board.  Even though a road traversing one site would possibly be a shorter route to the public road, the contractors would have to engage in substantial excavation.  The other site posed problems relating to drainage and a sloping grade.  Hawkwing already paid for a right of way over a paved road across the Brown property that connected to the Doberman property.  Consequently, the Board determined that Hawkwing would be granted a right of way over the private paved road across the Doberman property and over the Brown property to the public road.  Part of the road is the same right of way that Doberman enjoyed over the Brown property since 1996.

The gist of Doberman’s appeal was that the Board abused its discretion by suggesting alternatives not presented in the original Petition and that errors occurred in the calculation of the award of damages.  The scope of review of an appellate court in reviewing the Board’s actions is limited to jurisdiction, regularity of the proceedings, the law and whether abuse of discretion occurred.  The abuse claim arose from the Board’s suggestion that other alternatives be considered.  Critically, the Commonwealth Court emphasized that the viewers have the power to suggest alternatives and that the ultimate location of a proposed road of the road is wholly within the province of the viewers and the viewers are better able “to select a location than any judges sitting in a courthouse,” page 11 citing Holtzman v. Etzweiler, 760 A 2d 1195 (Pa. Comwlth.(2000). In short, the Board’s findings were consistent with the previously enumerated criteria and there was no abuse of discretion in the Board’s suggestion of alternatives.

Three due process issues were also discussed in the opinion, only two of which merit attention.  For whatever reason, Doberman did not appear at the November 2002 view and hearing held after it was joined as an additional respondent.  Doberman did not file an objection to the proceedings until two weeks after the report of the viewers was filed in May 2003.  Doberman raised issues of no service of process, lack of jurisdiction and abuse of discretion.  Despite alleged irregularities as to service of process, Doberman was found by the trial court to have adequate actual notice of the proceedings, curing any alleged deficiencies.  Doberman claimed that the Common Pleas Court did not have jurisdiction to proceed because two alleged Hawkwing co-owners did not join in the Petition.  This challenge was not considered because of procedural irregularities in preserving the record for appeal by Doberman.  The opinion suggests this ancillary issue remains unresolved in the local Common Pleas Court.

Doberman did participate in the March 2006 damages hearing however.  In addition to subsequently objecting to the damages calculation, Doberman raised two alleged irregularities concerning the survey and the absence of a Board member that were summarily dismissed.  More significantly, the Common Pleas Court adopted an appraiser’s conclusion that the sales comparison approach would be utilized to determine that the diminution of value of the Doberman’s fee interest.  The path to reaching this $14,016.19 figure is too long to enumerate but the key point is that the Court accepted highest and best use of the 185 acre Doberman property as vacant woodland, suitable only for timber or recreation.  Doberman raised pertinent issues such as the feasibility of building on the site, Doberman’s expense in maintaining its right of way over the Brown property and the purpose and frequency of Hawkwing’s eventual use.  The Commonwealth Court readily adopted the trial court’s reasoning without specifically enumerating its reasoning in disposing of the challenge to the damages award.  The Doberman Appeal is illustrative of the practical ramifications which could stem from an access challenged neighbor, impacting even the least suspecting landowners in the area.  Anticipating these sorts of private road issues can only add value to our services.

Harper J. Dimmerman is an adjunct professor at Temple University’s Fox School of Business and co- chair of the law practice management committee of the Philadelphia Bar Association. He represents clients in general litigation, various land use, residential and commercial real estate matters. His firm also provides approved attorney title insurance services and real estate consulting statewide.

James M. Lammendola is an Instructor at Temple University’s Fox School of Business who was in private practice for twenty years. He may be reached via e-mail atjames.lammendola@temple.edu or telephone 267-254-3324.

When advising clients in rural Pennsylvania, it would seem incumbent upon counsel to apprise the client of the Private Road Act, which has the potential to become a proverbial thorn in the side when successfully employed. Perhaps there is no better form of due diligence when acquiring real property than physically exploring potential idiosyncrasies of the intended purchase.

Are there any unusual facets, like unrecorded easements or even land-locked properties, both adjacent and non-adjacent? Just last month, our Commonwealth Court concluded a protracted piece of litigation, dating to July 2001, in Appeal of Doberman Group Inc.

According to the opinion, a petition to appoint a board of view was filed by Hawkwing Partnership, an allegedly land-locked property owner in Granville Township, Mifflin County, seeking a right of way across the land of a neighbor, Doris W. Hann. More specifically, the demand was that viewers permit a private road across a portion of Hann’s property, said to be the shortest and most practical route to the nearest public road. Unsurprisingly, Hann challenged the request, essentially contending that Hawkwing was not in fact land-locked and that other alternative access routes existed that did not infringe upon her property rights.

As a matter of law, the Private Road Act (36 P.S. 2731) provides the statutory basis for Hawkwing’s request and empowers property owners to apply to quarter sessions courts, which mandate the viewers visit the sites at issue. A board enjoys the discretion to place a right of way wherever it deems necessary, so long as it considers the statutorily prescribed factors pursuant to 36 P.S. Section 1785. Those factors, predictably, concentrate upon the shortest distance, the best ground to have a private road, the wishes of the petitioner and to create the least injurious solution vis-à-vis other parties.

A hearing was held on Sept. 26, 2001, the opinion said, where it was disclosed that Hawkwing had been offered a right of way on property owned by the five members of the Brown family, on land adjacent to that of the appellant, Doberman Group Inc. At the hearing, the board also noted that two other private roads should be considered — one that runs across the parcel owned by two other landowners and a second that slanted across property belonging to Brown and Doberman. Consequently, Hawkwing petitioned the board to include those routes and their owners as respondents as well, and indicated a preference for the Brown/Doberman land. Ultimately, a right of way was granted in favor of Hawkwing across the Brown and Doberman properties.

The board of view made certain findings — which appear to have made its decision a no-brainer, if you will — as a result of testimony gleaned from the president of Hawkwing, the respondent property owners and a private consultant. In a nutshell, the board found that the other properties under consideration did not fit the statutory criteria. The properties were eliminated from consideration because a private road would have to be constructed over both of the other properties viewed by the board. Even though a road traversing one site would possibly be a shorter route to the public road, the contractors would have to engage in substantial excavation. The other site posed problems relating to drainage and a sloping grade. Hawkwing already paid for a right of way over a paved road across the Brown property that connected to the Doberman property. Consequently, the board determined that Hawkwing would be granted a right of way over the private paved road across the Doberman property and over the Brown property to the public road. Part of the road is the same right of way that Doberman enjoyed over the Brown property since 1996, the opinion said.

The gist of Doberman’s appeal was that the board abused its discretion by suggesting alternatives not presented in the original petition and that errors occurred in the calculation of the award of damages. The scope of review of an appellate court in reviewing the board’s actions is limited to jurisdiction, regularity of the proceedings, the law and whether abuse of discretion occurred. The abuse claim arose from the board’s suggestion that other alternatives be considered.

Critically, the Commonwealth Court emphasized that the viewers have the power to suggest alternatives and that the ultimate location of a proposed road is wholly within the province of the viewers and the viewers are better able “to select a location than any judges sitting in a courthouse,” citing its 2000 opinion in Holtzman v. Etzweiler . In short, the board’s findings were consistent with the previously enumerated criteria and there was no abuse of discretion in the board’s suggestion of alternatives.

Three due process issues were also discussed in the opinion, only two of which merit attention. Doberman did not appear at the November 2002 view and hearing held after it was joined as an additional respondent. Doberman did not file an objection to the proceedings until two weeks after the report of the viewers was filed in May 2003, the opinion said. Doberman raised issues of no service of process, lack of jurisdiction and abuse of discretion. Despite alleged irregularities as to service of process, Doberman was found by the trial court to have adequate actual notice of the proceedings, curing any alleged deficiencies. Doberman claimed that the common pleas court did not have jurisdiction to proceed because two alleged Hawkwing co-owners did not join in the petition. This challenge was not considered because of procedural irregularities in preserving the record for appeal by Doberman. The opinion suggests this ancillary issue remains unresolved in the local common pleas court.

Doberman did participate in the March 2006 damages hearing, however. In addition to subsequently objecting to the damages calculation, Doberman raised two alleged irregularities concerning the survey and the absence of a board member that were summarily dismissed. More significantly, the common pleas court adopted an appraiser’s conclusion that the sales comparison approach would be utilized to determine that the diminution of value of the Doberman’s fee interest. The path to reaching this $14,016.19 figure is too long to enumerate but the key point is that the court accepted highest and best use of the 185-acre Doberman property as vacant woodland, suitable only for timber or recreation. Doberman raised pertinent issues such as the feasibility of building on the site, Doberman’s expense in maintaining its right of way over the Brown property and the purpose and frequency of Hawkwing’s eventual use.

The Commonwealth Court readily adopted the trial court’s reasoning without specifically enumerating its reasoning in disposing of the challenge to the damages award. The Doberman appeal is illustrative of the practical ramifications that could stem from an access challenged neighbor, impacting even the least suspecting landowners in the area. Anticipating these sorts of private road issues can only add value to our services. •

Harper J. Dimmerman is an adjunct professor at Temple University’s Fox School of Business and co-chair of the law practice management committee of the Philadelphia Bar Association. He represents clients in general litigation, various land use, residential and commercial real estate matters. His firm also provides approved attorney title insurance services and real estate consulting statewide. He can be reached via e-mail atharper@hjdlaw.net or telephone at 215-545-0600. His blog is www.landdweller.com .

James M. Lammendola is an instructor at Temple University’s Fox School of Business who was in private practice for 20 years. He may be reached via e-mail at james.lammendola@temple.edu or telephone at 267-254-3324.

When a supplier of goods or a lending institution extends credit there is an element of risk even in a strong economy. When the housing market in general, and the construction industry in particular, are in a downturn, the creditor’s primary concern, once creditworthiness is established, will be priority over other creditors.

In a 2-1 opinion filed on May 28, the Superior Court sent us all a reminder of the importance of the common law equitable lien and how, in the appropriate circumstance, the equitable lien holder will enjoy priority even against a trustee in bankruptcy and a secured creditor. Even though the events that gave rise toTrevdan Building Supply v. Toll Brothers Inc. and Gulf Coast Bank and Trust Co. occurred in 2005-06, its relevance is even more obvious in today’s market.

The Superior Court considered whether the Montgomery County Court of Common Pleas erred in holding that the security interest of Gulf Coast Bank and Trust Co. in any present or future funds owed to Houston Drywall by the developer Toll Brothers had priority over Trevdan’s unpaid invoices for the materials it provided to Houston Drywall for use on two Toll Brothers residential construction projects.

The Trevdan court reviewed an order that awarded $89,194 of $118,934.63 in interpleaded funds to Gulf, an assignee of Houston Drywall, a bankrupt building contractor. The balance of the interpleaded funds was virtually equally divided between Toll Brothers, which received attorney fees in the amount of $15,000, and Trevdan, which received $14,740. The Superior Court reversed, concluding that the equitable lien of Trevdan in funds held by Toll Brothers for Houston Drywall had priority over the claim of both Gulf and a trustee in bankruptcy. Before examining the reasoning behind the court’s decision, a summary of the lengthy procedural history follows.

According to the Superior Court opinion, Toll Brothers contracted with Houston Drywall to perform work on two residential construction projects. Houston Drywall then contracted with Trevdan to supply it with the materials. Soon thereafter, Houston sold Gulf its rights to all unpaid present and future invoices, which included the drywall invoices billed to Toll Brothers.

Gulf timely perfected the assignment by filing the appropriate UCC-1 financing statement and served Toll Brothers with notice of its security interest. Trevdan’s invoices to Houston were unpaid when Houston discontinued operations in September 2005, the opinion said. Trevdan promptly demanded payment from Toll Brothers. Five weeks after its unmet demand for payment, Trevdan sued for $128,653.16.

A few weeks later, the opinion said, Houston filed for Chapter 7 bankruptcy protection and listed Trevdan as an unsecured creditor. As a secured creditor, Gulf was successful in having the automatic stay lifted by year’s end. In early January 2006, the trial court granted Toll Brothers’ interpleader petition and added Gulf Coast as a party plaintiff.

In a series of rulings from December 2006 through January 2007, the trial court denied Trevdan’s petition for payment against Toll Brothers, ordered Toll Brothers to interplead the disputed funds in full, discharged Toll Brothers from any liability to Trevdan, dismissed Toll Brothers from the case, and ordered the lion’s share of the funds be distributed to Gulf. The trial court based its finding that Gulf’s security interest was superior to Trevdan’s equitable interest in large measure by distinguishing the facts of Trevdanfrom those of the U.S. Supreme Court’s holding in 1962 in Pearlman v. Reliance Insurance Co. and the Pennsylvania Supreme Court’s 1965 decision in Jacobs v. Northeastern Corp. and 1982 decision inWilliard Inc. v. Powertherm Corp.

The gist of Trevdan’s claim is that, despite Gulf’s status as a secured creditor of Houston Drywall, its claim to the funds cannot be superior to its equitable lien because Houston is in default of its obligation to Trevdan. In short, because Trevdan fulfilled its obligation to deliver materials, Gulf has no right to payment from Toll Brothers until Trevdan has been paid in full. The trial court did not agree with Trevdan’s contention, but the Superior Court did.

The trial court recognized that an unpaid equitable lien is enforceable against an owner, but it held that Trevdan’s lien was distinguishable from the lien in Pearlman andJacobs and, therefore, inferior to Gulf’s. The claimants in Pearlman and Jacobs were sureties involved in public contracts “… who had stepped into the shoes of the contractor and paid the [material men],” the Superior Court opinion said, quoting the Montgomery Common Pleas Court. The trial court noted that the Pearlman and Jacobs courts applied the doctrine of equitable subrogation in order to allow the sureties to be reimbursed for paying the material men. Trevdan was neither involved in a public contract nor was it a surety. Consequently, the trial court concluded that the rationale that unpaid laborers and material men have an equitable lien in funds retained by the owner was inapplicable to Trevdan apparently because it was not a surety.

The Superior Court found the reliance on those factors by the trial court misplaced. The court emphasized that Gulf’s security interest applied only to payments due to Houston Drywall. The payment was due not upon performance of the drywall installation, but upon Houston Drywall’s mandatory delivery to Toll Brothers of a complete release of any liens. Gulf’s right to payment of Houston Drywall’s receivables never matured as Houston Drywall failed to satisfy its contractual obligations to Trevdan in the first instance.

The contract between Houston Drywall and Toll Brothers mandated that Houston Drywall pay all sums due for materials and certify that all payments were made and all outstanding liens satisfied as a condition of payment under the contract. Since Trevdan was unpaid and the agreement between Houston Drywall and Toll Brothers authorized Toll Brothers to pay any unpaid subcontractors, no money could possibly be owed to Gulf.

Simply stated, Gulf cannot benefit, at Trevdan’s expense, from Houston Drywall’s material breach of contract to both Toll Brothers (failure to pay a subcontractor and satisfy its lien) and Trevdan (failure to pay for materials). In addition, Houston Drywall’s bankruptcy had no bearing on Gulf’s right to the interpleaded funds since the equitable lien preceded the voluntary petition in bankruptcy.

The Superior Court, quoting Pearlman, wrote, “The bankruptcy act does not authorize a trustee to distribute other people’s property among the bankrupt’s creditors.” The Superior Court specifically endorsed Trevdan’s contention that it is even more imperative that equitable liens be given priority in private projects since payment bonds are not required on private contracts.

Finally, the Superior Court reversed the lower court’s award of attorney fees to Toll Brothers over what the court perceived as its “ignoring Trevdan’s equitable claim to payment as well as its undisputed contractual right to pay Trevdan and charge the payment to invoices owed to Houston Drywall.” The Trevdan court cited Williard to drive home the point that a contractor’s promise to the owner that its subcontractors have been paid is material not only as a matter of contract law to protect an owner from legal liability to unpaid subcontractors, but also has the effect of protecting “an owner’s interest in developing and maintaining good relations with the subcontractors, as well as with others in the construction industry and in the community.”

Despite what was assuredly not the desired result for the secured creditor, it is refreshing to know that non-statutory liens remain a vital concept in contract law.

HUD No. 10-173

Brian Sullivan

(202) 708-0685

FOR RELEASE

Friday

August 6, 2010

FHA LAUNCHES SHORT REFI OPPORTUNITY FOR UNDERWATER HOMEOWNERS

Effort designed to encourage principal write-downs for responsible borrowers

WASHINGTON – In an effort to help responsible homeowners who owe more on their mortgage than the value of their property, the U.S. Department of Housing and Urban Development today provided details on the adjustment to its refinance program which was announced earlier this year that will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth. Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain ‘underwater’ non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.

The FHA Short Refinance option is targeted to help people who owe more on their mortgage than their home is worth – or ‘underwater’ – because their local markets saw large declines in home values. Originally announced in March, these changes and other programs that have been put in place will help the Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012.

“We’re throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined,” said FHA Commissioner David H. Stevens. “This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product.”

Today, FHA published a mortgagee letter to provide guidance to lenders on how to implement this new enhancement. Participation in FHA’s refinance program is voluntary and requires the consent of all lien holders. To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth and be current on their existing mortgage. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal to or greater than 500. The property must be the homeowner’s primary residence. And the borrower’s existing first lien holder must agree to write off at least 10% of their unpaid principal balance, bringing that borrower’s combined loan-to-value ratio to no greater than 115%.

In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent. Interested homeowners should contact their lenders to determine if they are eligible and whether the lender agrees the write down a portion of the unpaid principal.

To facilitate the refinancing of new FHA-insured loans under this program, the U.S. Department of Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens. To be eligible, servicers must execute a Servicer Participation Agreement (SPA) with Fannie Mae, in its capacity as financial agent for the United States, on or before October 3, 2010.