Real Estate Disclosures - Murder/Suicide Not a Defect

 Last Monday, July 21, 2014, the Pennsylvania Supreme Court entered what should be the final opinion with respect to whether a home seller in Pennsylvania needs to disclose that a murder/suicide took place in the home.  I had posted two previous blog articles, one on February 28, 2012, entitled “What Do You Mean My House Is Haunted”, and a second one on January 30, 2013, entitled “Real Estate Disclosures – Does It Matter If My House Is Haunted”.

You may remember that this case involved a lawsuit by a home buyer who, after settlement, discovered that the home she had bought and improved had been the site of a murder/suicide where a previous owner had allegedly killed his wife and himself on the property. She contended she would not have bought the house had she known of this crime. Originally a three judge panel of the Superior Court held, in a two to one decision, that the murder/suicide could be a material defect in the property requiring disclosure under Pennsylvania disclosure law. In January of 2013, the Superior Court reversed the panel’s decision on the basis that the disclosure of psychological defects would be a descent down a very slippery slope. 

The case was appealed to the Supreme Court and, in Monday’s decision, the Supreme Court, in what they stated was a matter of first impression, decided the underlying question . . . whether psychological stigmas are material defects. The Court determined that to require the disclosure of psychological defects would clearly be beyond the intent of the disclosure law. The Plaintiff argued that the psychological stigma on the property reduced its value and that the failure to disclose this tragic event constituted a material defect. The Court, again mentioning the slippery slope of determining what a particular buyer may find objectionable, stated that efforts to define those that would warrant mandatory disclosure would be a Sisyphean task. (We will all remember that Sisyphus was punished for chronic deceitfulness by being compelled to roll an immense boulder up a hill.)

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Countdown for Annual Tax Assessment Appeal Filing

The deadline for challenging your 2014-2015 Lancaster County property assessment is August 1, 2014.  Appeals filed after August 1, 2014 won’t be heard until 2015 and won’t take effect until 2016.  And if you are relying upon an appraisal to support your appeal, the written appraisal report must be filed with the Lancaster County Assessment Office by August 15, 2014.  This means the time to act is now.

How do you know whether an assessment appeal is warranted?  We look at the current assessment, the common level ratio, the current total tax millage rate and evidence of current fair market value.  Current assessments and property account numbers are posted online. (The property account number, and in some cases, the assessment, is listed on recently issued school district real estate tax notices.)  The common level ratio (CLR) is the factor applied to the assessment that converts the assessed value into fair market value. As of July 1, 2014, the common level ratio increased to 1.26. Total tax millage rates now include 2014-2015 school district taxes.     

Property owners should multiply their assessment by the CLR (1.26) to see if the fair market value is accurate. For example, an assessment of $100,000 implies a fair market value of $126,000 [$100,000 times 1.26]. 

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Property Taxes, Assessments, Appeals and Appraisals

Do you think you're paying too much in real estate property taxes?  Other than lobbying your school board, municipal leaders and county commissioners, there is not much you can do about the millage rate.  It may be time to review and possibly appeal your property assessment. 

Once a year, Lancaster County provides taxpayers the opportunity to challenge their assessment.  The deadline for filing is August 1.  You may need an appraisal to support your argument that your assessment is too high.  The time to get that is now.  Supporting appraisals should be submitted no later than August 15. 

See my blog from last year to help you determine whether filing an assessment appeal makes sense for you. Generally, if you can prove that the fair market value of your property is less than 1.27 times your assessment, an appeal has merit.  (Although the common level ratio will change July 1, you can still utilize the 1.27 factor for the purpose of making projections.) 

If you have questions, or need to connect with an appraiser who is familiar with the assessment appeal process, please call or email us, but do so soon so that we can get your appeal in under the August 1 deadline.

Christina Hausner is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, PA. She received her law degree from Duquesne University School of Law and practices in a variety of areas.

Real Estate Disclosures - Does it matter if my house is haunted?

In February of 2012, I wrote a blog post entitled What do you mean, my house is haunted?   I commented on the case Milliken v. Jacono where the purchaser of a home had sued the seller and the seller’s real estate agent for fraud and misrepresentation when, three weeks after closing, she learned that a previous owner had allegedly killed his wife and himself in the property. She contended that she would not have bought the house had she known of this crime.  A three judge panel of the Superior Court, at that time, by a two to one decision, held that the murder/suicide could be a material defect in the property requiring disclosure under Pennsylvania’s Disclosure Law.  The panel decided that a jury could decide if this event was a material defect in the property.

The panel’s dissent pointed out that psychological defects may vary greatly from person to person and questioned whether or not disclosure is limited only to murder/suicide. Requiring disclosure of psychological defects would be a “descent down a very slippery slope”. 

The slippery slope argument was persuasive to the entire panel of the Superior Court who recently issued a six to three opinion and found that psychological damage to a property cannot be considered a material defect in the property which must be revealed by seller to buyer.   In reaching this conclusion, the majority of the Court noted that certainly, in the age of the internet, the modern homebuyer has a powerful tool to uncover the notorious history of a house or neighborhood.  

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The Anatomy of a Refinance

Just when you think interest rates are the lowest they've ever been, they drop again. This past year has seen such low rates that people are increasingly considering refinancing their mortgages. Refinancing has many advantages, including lowering monthly payments, the possibility of paying off your mortgage earlier, and the potential to eliminate private mortgage insurance (PMI).

Suppose you owe $180,000 on your 30-year mortgage and your interest rate is 6.0%. By refinancing at 3.75%, your monthly principal and interest payments would drop from $1,079.19 to $833.61. Also, if you financed your home with a loan that required less than 20% down, you could eliminate your monthly PMI payment, depending on an appraisal and your principal balance. Refinancing in this situation would dramatically reduce your monthly mortgage payment.

The two biggest decisions you make when refinancing your home are choosing your bank and the title company. Banks' underwriting fees can vary greatly, as can their interest rates. Many people will look solely at the monthly payments when making this decision; however, consider the amount of time it would take to make up the difference of a $25 monthly payment if the bank with a lower interest rate had an origination charge that was $2,000 higher than another (without considering the time value of money, that's 80 months, or almost 7 years). Keep in mind that in addition to origination fees, there are the additional costs of the bank obtaining your credit report, an appraisal and tax certifications.

In addition to selecting a lender, you also have the ability to select a title company. Banks require title insurance to be obtained on their mortgages, and this requires a title company to issue the insurance. Many borrowers do not know they have the ability to choose their title company. While the price of the title insurance premium is set by the state and therefore will not vary between title companies, the service a borrower receives will. Some title companies offer the added benefit of a lawyer reviewing and explaining your loan documents and answering any questions you may have at closing.

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Lancaster County Real Estate Taxes: Making Sense of Common Level Ratios and Millage Rates

Only 19 days left to challenge tax assessments. In Lancaster County, all appeals of the assessment must be filed by August 1, 2012. An appeal filed after that date will be heard in 2013. 

New common level ratio (CLR) numbers are in place for the period 7/1/12 - 6/30/13. Lancaster County's CLR dropped from last year's 1.31 to 1.27. In addition, total tax millage rates now include 2012-2013 school district tax rates. This information is relevant in deciding whether to file an assessment appeal. CLR is the factor applied to the assessment that reflects the ratio between assessment value and fair market value. For example, an assessment of $100,000 infers a fair market value of $127,000 [$100,000 times 1.27]. Residential and commercial property owners can multiply the assessment by the CLR to see if the fair market value is accurate. If not, an assessment appeal may be in order. 

The millage rates determine the total annual property tax load. The first three digits of your property account number correspond to the municipality in which it is located.  Assuming the property with the $100,000 assessment is in Manheim Township, line 390 tells you that Manheim Township residents pay a total of 24.0285 mills annually, representing annual total taxes of $2,403.

You can find your property's account number and check your property's assessment online. In addition, the account number is listed on the school district real estate tax notice.

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What Do You Mean, My House is Haunted?

Buyers want to make an informed decision when they purchase a house because their home is where they spend most of their time. Unfortunately, it is impossible to know the entire history of any particular property. Unwelcome "surprises" may lurk behind walls or under carpets and remain undiscovered until remodeling time. That is why looking over the seller's disclosure statement, ordering a property inspection and obtaining title insurance are such important steps in the home buying process.

Buyers use all of their senses in choosing a property. The first step while walking through the home is to look for problems. Smelling mold or smoke can deter some homebuyers, as can feeling extreme dampness in the air or hearing floors and windows rattle in the wind. All of this can help, but what about the sixth sense?

Very few people want to buy a house that is supposedly "haunted." (Yes, there are some who consider supernatural activity a selling point; see Haunted Real Estate is Scary Good Investment.) Realtors know that homes adjacent to cemeteries, on top of ancient burial ground or with disturbing histories, otherwise known as stigmatized properties, can be difficult to sell. In Pennsylvania, a three judge panel of the Superior Court recently decided that a jury may determine if a home seller is required to disclose a murder/suicide as a substantial defect in a home.

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It Takes a Village: Pastors and the Law

Some say it takes a village to raise a child. Others say it takes a family. I recently became convinced that it takes a law firm to advise a pastor who is administering a church. While preparing to participate in a class on church administration as part of the ministerial formation requirement for students at the Lancaster Theological Seminary, I became convinced that any pastor in a parish setting needs a law firm on call. Anecdotes related by the adjunct professor, the Reverend Dr. Barbara Kershner Daniel, about her years in the parish ministry further illustrated the need.

Pastors face many decisions in the course of their work, from choosing a form of organization for their church to managing property matters. Depending upon denominational polity and local requirements, pastors face concerns in the buying, selling and mortgaging of real estate in addition to those which an individual or commercial enterprise would encounter. Real estate law and church law such as the United Methodist "trust clause" intersect.

Changes in worship style and advances in technology now necessitate that each pastor become familiar with licensing and permissions. The new intellectual property issues go far beyond the standard church performance exception to copyright law that for many years made such concerns unnecessary. Printing hymns in bulletins, using screen projections, not to mention sharing podcasts and streaming videos, now demand that each pastor become his or her own intellectual property lawyer.

Having some working knowledge of real estate and intellectual property law is hardly enough. In what can be a highly competitive fundraising environment, pastors must also understand the administration of estates and trusts. The more estate planning knowledge pastors have, the more effective they will be in raising funds for their churches.

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Fees for Lancaster County Assessment Appeals in 2012

Starting next week, filing an assessment appeal in Lancaster County will cost $25 for almost all residential property owners. The 2012 fees for annual farm property and commercial property appeals will be $50 and $75, respectively.

The purpose of the new fees is to cover administrative costs generated by the appeal process. The fees are comparable to those imposed in Dauphin and Chester Counties, where the residential appeal fees are also $25. While the fee is new in Lancaster County, it is still a fraction of the cost of many civil action fees, which can add up to hundreds of dollars. For example, filing a civil action to challenge a decision by the Board of Assessment Appeals will be $158 in 2012.

The Lancaster County Property Assessment webpage has more information on the appeal process in the County. In addition, it is always beneficial to seek the guidance of an attorney if you are considering filing an assessment appeal. Our firm regularly represents residential and commercial clients.

Does a Tax Assessor Have the Right to Enter and Inspect My Home?

Earlier this year, we filed residential real estate tax assessment appeals in Lancaster County on behalf of several clients. An appraiser from the County Assessment Office showed up at the door of one of our clients wanting to look at the property to ostensibly resolve a discrepancy between the County's records and the appraisal of the property that we submitted to the County Board of Assessment Appeals. Our client was not home at the time so the representative left a message and a business card and a yellow form asking for information with respect to the number of rooms, size of finished basement, size of finished attic, number of fireplaces, heating and cooling systems, plumbing, utilities, remodeling and new construction. (We are also familiar with property owners being mailed forms requesting information, particularly after having obtained building permits.) We wondered under what circumstances a representative of the Tax Assessment Office has a right to this particular information, and more particularly, what right does such a representative have to enter property and inspect? 

Our research yielded no direct answer to this question in Pennsylvania. However, we are aware that in some states legislation was enacted that specifically denies the right of entry, and some specifically grant the right of entry. Other statutes don't directly address the question of authority to enter, but can be construed to grant that power by implication. Pennsylvania is one of several states in which the statute is silent on the power of entry. Under those circumstances, we refer to the Fourth Amendment to the United States Constitution prohibiting unreasonable search and seizure, and we would advise a property owner that although they could allow a tax assessor entry by permission, if they chose not to do so, a warrant would need to be obtained by the tax assessor in order to enter without permission. In addition, once a case is in litigation, the solicitor for the County Board of Assessment Appeals could seek a Court Order to allow inspection in order to establish the fair market value of the property at a hearing. 

If a representative of the County seeks entry to your property or additional information for tax assessment purposes, you should consult an attorney to determine what approach is in your best interest. I have found in my own experience that I am often able to resolve these issues without the need for an inspection of the property.

Christina Hausner is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. She received her law degree from Duquesne University School of Law and practices in a variety of areas including Real Estate.

Is Downtown Lancaster the Right Location for Your Business?

Downtown Lancaster is currently experiencing a growth spurt in terms of businesses starting or moving to the area. This growth is in part fueled by the arts, which has helped downtown Lancaster retailers see a boom in business. Retailers see a tremendous amount of traffic due to the popularity of Lancaster's First Friday events. Downtown Lancaster has established itself as a trendy place to shop for unique and stylish products, such as eco-friendly bicycles, organic food, gourmet chocolates and vinyl records. For some business owners or entrepreneurs starting a new business, the image that Downtown Lancaster has created presents a great opportunity for growth in a slumping economy.

If you are considering a downtown location for your business you should consider a variety of factors before making a decision.

  • First, create a business plan with Downtown Lancaster as your location. What type of customers do you serve or plan on serving? Are they the type of customers who will frequent Downtown Lancaster? Will transportation be an issue for these type of customers? Visit the shops in Downtown Lancaster and see if your product or service fits in with other retailers and offers similarly unique and stylish qualities as other shops.
  • Second, how will rent compare to where you are currently operating or other areas where you would consider operating? Base rent should not be the only types of comparison. If you're communicating with a broker, ask for a draft of the lease. Is the lease gross or net? A basic gross lease only includes base rent, while a standard net lease includes operating expenses and real estate taxes. In addition, some landlords (such as those in shopping centers) will charge a percentage of net income as additional rent. You may find that provisions of a lease for a downtown location are more ideal for a start-up business.
  • Finally, if you're considering moving downtown you should attend First Fridays, if you haven't been attending already. First Fridays are immensely popular and it's important to understand what you're getting into. These events are a great opportunity for businesses to funnel traffic into their spaces and familiarize potential customers with their products and services.
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Taking a Disaster Loss Tax Deduction

In a recent blog article, Christina Hausner explained how Lancaster County residents affected by the recent flooding may be eligible for property tax relief. In addition to those tax advantages, taxpayers may be able to deduct uninsured losses resulting from catastrophic damage. 

The Internal Revenue Service allows deductions for "casualty losses," which are defined as the complete or partial destruction of a taxpayer’s property resulting from an identifiable event that is sudden, unexpected and unusual. Disaster losses are casualty losses that occur within an area that has been declared a disaster area by the federal government. 

There are two methods of determining the dollar amount of a disaster loss. The first method is to have a qualified appraiser determine the fair market value of the property immediately before and immediately after the disaster, the difference of which would be the loss. The second method takes into account the actual cost of repairing the property in determining the loss, which can only be done when the property is actually repaired. In addition, no part of a loss for which the taxpayer has been reimbursed or for which there is a reasonable prospect of reimbursement is deductible. Another limitation is that disaster losses are generally subject to a floor equal to 10% of the taxpayer’s adjusted gross income (AGI). This means that the loss can only be taken to the extent that it exceeds 10% of the taxpayer’s AGI.

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Lancaster County Residents affected by Flood may be Eligible for Property Tax Relief

On September 15, Aaron Zeamer blogged about how the flooding in Lancaster County resulted in an extension of income tax deadlines. Additional tax relief as a result of flooding could be a reduction or elimination of property taxes. If you have suffered a "catastrophic loss" due to mine subsidence, fire, flood or other natural disaster which exceeds 50% of the market value of your real property prior to the loss, you have the right to appeal your real estate assessment to the County Assessment Board. The Board has the duty to reassess your property to reflect the loss in value from the date of the loss to the end of the taxable year. In addition, any property improvements made after the loss in the same tax year shall not be added to the assessment roll for the remainder of the tax year but shall be added for the following year. If this is done, tax authorities need to reflect the reduced assessment in the form of a credit for the succeeding tax year, or if the property owner applies, taxing authorities shall pay a refund. 

We recognize that the broad scope of the term "catastrophic loss" probably means that you may have bigger problems to face than getting your property taxes reduced, but in the event that you have suffered such a loss, this is another means of relief. 

Tenant Wage Attachment, a Rarely Used Landlord Remedy

Being a landlord can be a very rewarding investment if you have great tenants that pay on time and take care of your property. When the wrong tenant moves in, however, if can be a nightmare. If you've ever had a tenant not pay, you probably know how things usually go. You give notice, file a complaint with the local District Justice, follow all of the required procedures to evict the tenant and get a judgment. It doesn't take long to realize this judgment is only as valuable as the tenant's ability to pay. In addition, trying to track down the tenant to collect on this judgment is costly and time-consuming. What you might not realize is a landlord in Pennsylvania can attach a tenant's wages directly from his or her paycheck to pay the judgment, but doing so requires planning at an early stage.

Pennsylvania law allows a landlord to attach ten percent (10%) of the net wages from a tenant's paycheck. The Prothonotary will contact the tenant's employer who will send the check for the attached wages to the Prothonotary, which passes on the money to the landlord and reduces the judgment.

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Tips from a Lawyer for Choosing a Remodeler

Anyone who has remodeled their home more than once knows that it can be a roll of the dice. While there are many credible remodelers out there who will perform as promised and complete the job on budget, there are some who fall far short of those standards.

I have heard horror stories about this from some of my clients. In one case, a remodeler gutted a large portion of a client’s home and refused to continue on the job unless the client paid twice the amount that was originally agreed upon. I have also heard reports of shoddy workmanship, inflated budgets and, in some cases, remodelers who take a down payment and never show up. While such remodelers are in the minority, as a consumer it is important to take steps that will reduce the likelihood of selecting a bad remodeler.

One of the first steps is to check with Pennsylvania Attorney General’s website to see if the remodeler has registered as required under the Home Improvement Consumer Protection Act (the “Act”). The Act requires all persons or business entities that perform home improvement services to register, at which time they receive a registration number. Home remodelers are required to put that number not only on their advertisements, but also on any contracts they enter into with consumers. Thus, if the remodeler you are considering does not have a number or is not including it on their contracts and advertisements, you should be concerned.

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Lancaster County Property Tax Assessment Appeals Due August 1

Last week Derek Dissinger wrote about the changes to the Lancaster County common level ratios that went into effect on July 1. Another good date to remember in relation to the common level ratio changes is August 1, which is the due date for property tax assessment appeals.

The common level ratio (CLR) is important to property tax assessment appeals in that it is used most often to check the accuracy of the assessment against a recently obtained appraisal. We apply the CLR to the appraised value to see where the assessment ought to be. Taking the total millage rates for school, municipal and county, and multiplying them by the existing assessment and the assessed value we believe to be more accurate based on the appraisal, yields the annual tax burden. By comparing the two, we can estimate the annual savings that would result from obtaining a reduced assessment, and make an informed decision about the cost effectiveness of an appeal. In my previous article, Falling Real Estate Values Offer Opportunity for Property Tax Savings, I use my own home purchase to show how an appeal can create a substantial tax savings.

Most often, a recent appraisal, or a recent sale or purchase, of the property is necessary to establish fair market value. Again, the deadline to file assessment appeals is August 1, so if you would like some information about whether it makes sense for you to pursue, contact our office. 

Christina Hausner is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. She received her law degree from Duquesne University School of Law and practices in a variety of areas including Real Estate.

2011 Common Level Ratio for Lancaster County

The Pennsylvania State Tax Equalization Board recently changed the common level ratio for Lancaster County from 1.33 to 1.31. The common level ratio is the ratio of assessed value of properties to fair market value for each county.  If the fair market value equals the assessed value, the ratio would be 1.00, which is the case following an assessment.  If an assessment occurs next year, the ratio will fall to 1.00.

The common level ratio is used annually for the distribution of state subsidies for each school district and also as a measure of the fair market value of real estate for calculating realty transfer taxes.  The changes in the common level ratio reflect the changes in property value.  It is also a good measure of cost of living.  The common level ratio last year in Philadelphia, for example, was 3.13.

Small Business Administration (SBA) Expands 504 Loans to Refinances, Giving Greater Financing Options to Local Businesses

The United States Small Business Administration (SBA) recently took a step toward helping small businesses refinance their commercial loans. Many loans to small businesses have balloon payments where a large portion of the amount borrowed becomes due at the end of the loan. Usually these loans are refinanced so the balloon payment is never made but, in light of the Great Recession, these options may be limited or unavailable to small businesses. I saw an article in the Central Penn Business Journal that local economic development corporations (EDCs) were pushing the opportunity to refinance under the SBA 504 lending program, which historically was only available to new purchases of property and equipment. Under the new program, however, eligible small businesses will have the benefits described below of the 504 program to refinance existing loans.

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Recent Repeals: PA Residential Sprinkler Systems & 1099 Reporting Requirements

It doesn’t happen often, but sometimes the government realizes that it may have bitten off more than it can chew and reconsiders its actions. Such reassessment occurred twice this past April when both the Pennsylvania and federal legislatures repealed unpopular portions of legislation they had previously enacted. 

On the state level, the legislature repealed a 2009 addition to the state’s Uniform Construction Code which required residential builders to include sprinkler systems in new construction. Some have estimated that sprinklers add $2,000 to $4,000 to the price of an average new residence. Many builders and real estate professionals asserted that the additional cost would depress an already struggling home builders’ market. Thus, last month, the state legislature reconsidered and authorized a repeal of the provision and Governor Tom Corbett signed the repeal into law on April 25.

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Do-it-Yourself Legal

Do-it-yourself projects, like remodeling your bathroom or building a deck, can save money and provide a sense of accomplishment by doing something on your own that you would ordinarily hire another person to do. With any do-it-yourself project there are risks involved, such as increased cost if you have to hire a professional in the end or if your inexperience causes other damage. 

The internet has allowed individuals to perform some legal functions on their own. Many government websites, for example, offer forms with detailed instructions that can be very helpful for people seeking to help themselves with certain issues. There are also websites that offer forms and additional services for a fee. These websites are required to stop short of offering legal advice because they are not law firms, which is made very clear on LegalZoom's website: "LegalZoom is not a law firm, and the employees of LegalZoom are not acting as your attorney….if you need legal advice for your specific problem, or if your specific problem is too complex to be addressed by our tools, you should consult a licensed attorney in your area." Because these sites are not law firms, they are also not subject to the rules that govern lawyers. This is why they are able to do things lawyers can't do, such as use celebrity endorsements. 

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Benefits of Preapproval by the Attorney General of Consumer Contracts

In 1993 Pennsylvania signed into law the Plain Language Consumer Contract Act (PLA). The PLA requires any "consumer contract" to meet a test of readability, meaning it is easy to read and understand, which takes into account both the contract's language, form and design. The Act covers any contract with an individual except contracts over $50,000, securities, insurance, real estate, commercial leases, and documents by financial institutions regulated by certain other state and federal laws. Notably included in the definition are residential leases. In addition to the requirement that language be easy to read and understand, the Act imposes certain other language requirements to be included in consumer contract. For example, a contract must state if the party doing business with the consumer retains a security interest, and that the consumer may lose certain property if he or she does not fulfill the obligations under the contract.

If a seller or lessor violates the PLA's test of readability, the violation triggers several damages imposed by the Act. Damages include compensation equal to actual loss suffered by the consumer, statutory damages of $100 or if the contract is less than $100 the amount of the contract, court costs, attorney's fees and "any equitable and other relief ordered by the court." 

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Landlord Tenant Law: Beyond the Basics

On July 13, 2010, I will again be serving as a faculty member for the Seminar “Landlord Tenant Law; Beyond the Basics”, which will be held in Harrisburg. This is the second year that I have served on the faculty and I am looking forward to interacting with my colleagues and other professionals who handle landlord and tenant problems on a regular basis.

This seminar presents an opportunity to update lawyers, property managers and other real estate professionals about the status of landlord/tenant issues and any recent changes to the law. Last year, it provided every participant with an opportunity to ask questions and discuss particular issues that they encounter in their everyday dealings with tenants and landlords. If you are interested in attending this seminar you can register at the Sterling Education website.

It is my hope and expectation that this year's seminar will be as successful and productive as last year and I am looking forward to it.

First-Time Homebuyer Tax Credit Extended Into 2010 and Now Available to Certain Existing Homeowners

In a previous post, the 2009 Homebuyer Credit Extension and Related Divorce Issues, and in a more recent post, I discussed a possible extension of the First-Time Homebuyer Tax Credit, which was applicable only to home purchases completed on or before November 30, 2009. Well, congress has indeed extended the credit into next year and also made it available to certain taxpayers who already own a home.

For first time homebuyers, the credit is now applicable if the sales contract is fully executed by April 30, 2010 and the closing occurs by June 30, 2010. Moreover those dates are extended to April 30, 2011 and June 30, 2011 respectively for qualifying members of the military serving extended duty outside of the country. You are generally a qualified first-time homebuyer if you have not owned and used another personal residence at any time during the three years prior to the date of the new purchase.

The credit remains to be valued at the lesser of 10% of the purchase price or $8,000 and can be part of your refund if you owe less than $8000 in taxes. There are also phase-outs of the credit for taxpayers with certain adjusted gross incomes (over $125,000 for singles and $225,000 for married couples), but those are significant increases of the original income caps. Further, the credit is not available when a home purchase price exceeds $800,000. For more information on the mechanics of the original credit, please refer to this previous post and the other posts mentioned above.

A reduced amount of the credit (up to $6,500) is also now available to certain existing homeowners who have lived in their current home for five out of the last eight years. The same deadlines, income caps and purchase price limitations discussed above apply. Moreover, although your new home must be your principal residence, there is nothing in the new legislation requiring you to sell your existing home.

Thus, if you are even thinking of purchasing a new home, it may be a good idea to check out your local market because April will be here before you know it.

Extension Pending on First-Time Homebuyer Tax Credit

CNN is reporting that the Senate will likely extend the credit through April of 2010.  In addition, they are also planning on adding a $6,500 credit for current homeowners who have lived in their current residence for at least five continuous years.  If you are interested in learning more about the  first time home-buyer tax credit refer to my previous blog posts 2009 First-Time Homebuyer Tax Credit and 2009 Home Buyer Credit Extension and Related Divorce Issues.

Training Session for Certified New Homesale Professionals

On September 29, 2009, Matt Grosh and I served as faculty members at a training session for Certified New Home Sales Professionals, which was held at the Lancaster County Association of Realtors. The three-day training was focused on marketing and selling new construction and offered continuing education credits to real estate agents with varied levels of experience.

The focus of my presentation was on the Fair Housing Act of 1968 and 1988 (FHA) and its effect on the marketing, advertisement and sale of new homes. The FHA provides for equal treatment of protected classes and individuals regardless of their race, religion or national origin. Matt Grosh focused his presentation on contract law and the effect of contract principles on agreements for the sale of real estate.

The seminar gave the participants an opportunity to discuss the methods by which they advertise and market their homes and how they avoid issues that could cause concern for disparate treatment in home sales. There were a number of questions regarding how to market properties without running afoul of the federal and state fair housing statutes. The discussion generated during the question and answer period was additionally informative and productive. There were approximately 25 real estate agents in attendance, many of whom are also members of the Building Industry Association of Lancaster County.

Residential Energy Tax Credits

Many of you have received marketing materials from contractors of various types encouraging you to take advantage of recent changes to the rules regarding residential energy tax credits.   This opportunity to make your home more energy efficient and save money on taxes was created by the American Recovery and Reinvestment Act of 2009 (the "Act"). 

The tax savings arise out of revisions to two separate credits. The first is known as the Credit for Non-Business Energy Property, which was not available for the 2008 tax year. It allows taxpayers to claim a credit equal to 30% (up from 10% prior to the Act) of the cost of qualified energy-efficient improvements made to their residences in 2009 and 2010. Qualifying property can include such items as high efficiency heat pumps, air conditioners, water heaters, windows, doors, insulation materials and certain roofs. For a more precise list of qualified improvements, please see the Energy Star website.    Originally, there was a lifetime cap of only $500.00 for this credit. However the Act made two significant changes to the cap: 1) the maximum amount was raised to $1,500.00; 2) the cap is now only applicable to the 2009-2010 tax years combined and not to a taxpayer's lifetime.

The other credit is the Residential Energy Efficient Property Credit. This credit is equal to 30% of the cost of residential energy efficient property placed in service before January 2017. Examples of such property improvements include solar electric and water heating systems, small wind energy systems and geothermal heat pumps. Again, a more specific list of qualified energy systems can be found on the Energy Star website. This credit has already been extended through 2016, and applies to vacation homes in addition to principal residences. Previously, credits for solar, wind and heat systems were capped at $2,000.00, $4,000.00 and $2,000.00 respectively. However, the Act removed those caps entirely, providing the potential for substantial tax saving for environmentally conscious taxpayers.

2009 Home Buyer Credit Extension and Related Divorce Issues

Back in July I wrote about the first-time homebuyer tax credit that applies to home sales occurring before December 1, 2009. However, there is some great news for prospective homeowners unable to squeeze in a purchase in that timeframe: Reuters is reporting that the credit may be extended for another six months. With bipartisan support in Congress and recent hints that President Obama will back such an extension, the amendment is likely to pass.

Also, we have received queries from readers regarding the effects of divorce on the credit. A common occurrence in divorces is that an ex-spouse's name continues to remain on a deed while he or she no longer lives in the residence. As long as the ex-spouse has not lived in the house at all over the past three years, and as long as the divorce was finalized three or more years ago, the ex-spouse will qualify as a first-time homebuyer because the house is not his or her primary residence. Of course, this assumes that the ex-spouse does not reside in other real property that he or she owns.

The situation is different when a married couple is separated and the divorce has not been finalized. Under the rules governing the credit, ownership of a primary residence by one spouse imputes ownership onto the other spouse even if they are legally separated. In such a case, it does not matter if the other spouse's name is on the deed or not both spouses will be disqualified as first-time homebuyers.

2009 First-Time Homebuyer Tax Credit

Although we still have a long way to go until we see our way through the recession, Reuters recently reported that home sales have risen for the past three straight months. As a result, it might be the right time for first-time homebuyers to dip their foot in the pool. And don't let a house like this discourage you because there is a major incentive to purchase a home this year: the first-time homebuyer tax credit (the "Credit").

The Credit generally allows qualifying first-time homebuyers to claim a federal income tax credit that is equal to the lesser of ten percent of the purchase price or $8,000 depending on your filing status. However, the purchase must occur before December 1, 2009. Unlike the 2008 version of the Credit, which was essentially a fifteen year interest-free loan, the 2009 Credit does not have to be repaid as long as the house is not resold for at least three years. The Credit does not apply to houses located outside of the United States.

Even if you don't think you are a "first-time homeowner", you may be for purposes of the Credit. A person is generally a qualified first-time homebuyer if they have not owned and used another personal residence at any time during the three years prior to the date of the purchase. Thus, if you previously owned a residence but sold it more than three years ago, you can qualify as a first-timer. Additionally, if you owned a home within the last three years but did not use it as your residence, you could still qualify. However, for married couples, both spouses must qualify regardless of their filing status.

Tax credits in general are preferable to deductions because they apply directly to your income taxes and do not merely reduce your taxable income. Additionally, even if you have no taxable income but otherwise qualify for the Credit, you will be able to file a return for the sole purpose of claiming the credit as your refund.

The Pennsylvania Home Improvement Consumer Protection Act is Effective July 1

 July is probably my favorite month of the year for many reasons - lots of warm weather ahead, my birthday, my daughter's birthday and three whole weeks of the Tour de France. However, many home improvement contractors haven't been looking forward to the onset of July this year because the Pennsylvania Home Improvement Consumer Protection Act (the "Act") goes into effect today. I had previously written about whether a contracting business needs to register for the Act and how to ensure home improvement contracts are enforceable under the Act.

 In addition, this Act will have implications for how firms are rendering services. One of our clients took a proactive approach and sent emails to their entire customer base. This email explained that there was a provision in the Act stating that any contract subject to the Act (generally over $500) must include a provision that allows the homeowner to cancel the contract without penalty within three business days of signing. Essentially this provision could delay contractors from commencing home improvements for three days. Which could be problematic for customers looking for even a small project to be completed immediately.

However, this three day period is waived if the work requested falls into the emergency provisions of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Those provisions allow the three day period to be waived by the customer if the home improvement services needed are " . . . a bona fide immediate personal emergency. . . ." In addition, the customer must provide a personal and signed statement in their own handwriting that describes the situation and acknowledges not only the need for an immediate remedy but also an express waiver of their right to cancel.

If a bona fide emergency does not exist, it is probably not a good idea to begin work until the three day period has run because the contractor runs the risk of the contract being cancelled during that time, which will likely prevent the contractor from being reimbursed for the work performed. It is also a good idea to contact the existing customer base and notify them of this new policy.

Ribbon Cutting Ceremony for the Lancaster County Convention Center at Penn Square

Yesterday Craig Russell and I attended the ribbon cutting ceremony for the opening of the Lancaster County Convention Center and Penn Square Marriott. We have served as solicitors for the Lancaster County Convention Center Authority since July 2007, and it has been an interesting and challenging assignment. We appreciate the opportunity to work with dedicated and capable Authority employees Kevin Molloy, Mary Ellen Davis and Lynette Colon, as well as Board Chairman Art Morris and other Board members, who volunteer their time and have provided talent, judgment and commitment to the project.

As you can imagine, everyone at yesterday's ceremony was excited and in a great mood. The contributions of politicians and community leaders, contractors and construction managers, architects, and owners were acknowledged.   For us, who reviewed countless two dimensional plans and documents referring to various spaces, it was great to see the real building, not a concept, computer model or something on paper. We discussed that one of the most gratifying things about doing real estate development work is the opportunity to see a tangible and enduring end result. That is surely the case with the Lancaster County Convention Center, and we appreciate the opportunity to be part of the project.

P.S. We had dinner at the Penn Square Grille, which is located on street level facing King Street, where Appel & Weber used to be. Let me recommend it - beautiful, gracious service and fantastic menu and food.

Thoughts on Seminar - Landlord & Tenant Law: Beyond the Basics

On Tuesday, June 2, 2009, I served as a faculty member for "Landlord & Tenant Law: Beyond the Basics". The seminar was offered by Sterling Education Services, Inc., and approximately twenty-five people from varying backgrounds attended. Although there were lawyers in attendance, the majority of the participants were property managers and landlords who deal with ongoing and troubling tenant issues on a daily basis. Some of our clients attended and as part of our discussions, shared some of the challenges they face in managing the landlord/tenant relationship.

 My presentation focused on problem tenants, landlords' rights and options when a tenant is in default of his or her lease, and handling an eviction hearing before the Magisterial District Judge. Several topics sparked discussion among and questions from the participants, including the treatment and/or handling of illegal immigrants in a rental situation, and how and when to dispose of personal items left behind by a tenant who has vacated the leased premises. The varied levels of experience among the participants gave each audience member an opportunity to hear about different ways in which to proceed with a difficult tenant situation, which they may have never considered.

 Regardless of whether we were talking about a tenant's failure to pay rent, failure to abide by the rules and regulations, or failure to notify the landlord of problems with the leased property, our discussions always came back to the lease provisions. This seminar reinforced for everyone in attendance the importance of having a written lease that clearly sets forth a tenant's obligations. From time to time, as new tenants are coming into a residential or commercial property you may own, consider revising an outdated lease. 

East Lampeter Township Agricultural Land Use Issue Decided by Pennsylvania Commonwealth Court

East Lampeter Township lost its appeal to the Pennsylvania Commonwealth Court in the case of In Re: Agricultural Security Area in East Lampeter Township.  The case is an ongoing battle between the township and a group of Amish farmers who wish to create an Agricultural Security Area (ASA) for their properties in East Lampeter Township, Lancaster County.  In 2007, the farmers petitioned the Township to establish an ASA as permitted by the Agricultural Area Security Law. The farmers wanted the Township to designate an area encompassing 13 farms as an ASA.  After the petition was filed, the Township Planning Commission recommended that all but one of the properties be included in an ASA. However, after two public hearings were held, the Board of Supervisors concluded that the ASA was not necessary. Specifically, the board determined that the Township had adopted planning tools that would prevent inappropriate development of agricultural lands.

The farmers appealed to the Lancaster County Court of Common Pleas and a two-judge panel reversed the Board's decision, giving the farmers their first victory. On appeal to the Commonwealth Court, the Township argued that it had the discretion under the Agricultural Area Security Law to decide whether to create the ASA. The Pennsylvania State Association of Township Supervisors (PSATS) also weighed in on the appeal, contending that the General Assembly intended to give substantial discretion to the governing body of a municipality with respect to the creation of an ASA. The Commonwealth Court, indicating that the Lancaster County judicial panel adequately considered the issues, disagreed and affirmed the decision, giving the farmers another victory. Some additional details about the case are outlined in a June 2 article in the Lancaster New Era.

The Township could seek review by the Pennsylvania Supreme Court. However, appeals to the Commonwealth's highest court are discretionary and the court refuses the majority of requests for review. Only cases presenting novel questions or questions of first impression are accepted for review.

This case could set a precedent for agricultural landowners across Pennsylvania. If a governing body rejects a petition for an ASA and does so for reasons not enunciated specifically in the statute, the decision could be challenged.

Landlord & Tenant Law: Beyond the Basics

Julie Miller will be on the faculty for the Sterling Education seminar, Landlord & Tenant Law: Beyond the Basics on June 2, 2009. This seminar is an opportunity for property managers, developers, building owners, leasing agents, landlords & tenants and other real estate professionals to continue their education.

Program Summary

"This landlord-tenant law seminar covers the rights and responsibilities of both parties in rental agreements. Our presenters, experts in the successful management of rental property, will share their experience and judgment on handling the more difficult legal and practical aspects of landlord-tenant law and provide workable answers to your questions. You will benefit from this seminar if you are involved in any aspect of property rentals."

If you are interested in attending you can register at the Sterling Education website.

Are Your Contracts Enforceable under the New Consumer Protection Act?

In a previous post, I described the new Pennsylvania Home Improvement Consumer Protection Act (the "Act"), which takes effect on July 1, 2009, and identified which types of contractors are required to register. If the Act applies to you, it is important that the contracts you enter into for home improvement work conform with the Act's requirements. A failure to do so will generally prevent you from being able to enforce the contract if your client fails to pay.

In order to comply with the Act, contracts must:

  • be legibly written and contain the registration number of the contractor along with the Bureau of Consumer Protection's toll free number, which currently is (888) 520-6680;
  • be signed by the contractor and the homeowner or their respective agents;
  • lay out the entire agreement related to the work to be performed and include copies of all required notices and special clauses;
  • include the date the contract is entered into and the approximate starting and completion dates;
  • contain the name, address (no PO boxes) and telephone number of the contractor and any subcontractors known at the date of signing the contract;
  • describe the work to be performed, the materials to be used, and provide specifications that cannot be changed without a written change order signed by the parties;
  • include the total sales price due under the contract, along with any down payments and amounts advanced for the purchase of special order materials;
  •  identify the current amount of insurance coverage maintained by contractor with minimum amounts of $50,000 each for personal injury liability and property damage; and
  • provide owner with a "right of rescission" which allows the homeowner to rescind the contract within three business days of signing without penalty.

However, even if all of the above conditions are met, a contract will be generally voidable under the Act if it contains any of the following clauses:

  • hold contractor or subcontractors harmless in matters of liability;
  • waivers of government health, life, safety or building code requirements;
  • confession of judgment;
  •  waiver of right to jury trial or any rights under the Act by homeowner;
  •  an assignment of or order for the payment of wages or other compensation for services;
  •  any clause prohibiting homeowners from asserting any claim or defense they would otherwise have under the contracts;
  • any award of attorney fees or legal costs to contractor;
  • any provisions relieving contractor of liability connected to contractor's collection of payments or repossession of goods;

Also, a contract cannot contain an automatic or recurring renewal provision unless the contract clearly and conspicuously states a procedure through which a homeowner can cancel the renewal through written notice to contractor via first class mail that is postmarked at least three business days before the renewal is to occur. In addition, the contractor must notify, via mail, the homeowner of such right to cancel the renewal no earlier than 20 days nor late than 10 days before the renewal.

Further, an arbitration clause may be attached as an addendum, but it must strictly adhere to the form required under the Act. Finally, a fully executed copy of the contract must be provided to the homeowner on the day of signing. Please let us know if we can help if you have any questions regarding your contracts or the Act in general. Also, for more information, please see the PA Attorney General's list of related FAQs or the Building Industry Association of Lancaster County's information page.

Does Your Contracting Business Need to Register for the PA Home Improvement Consumer Protection Act?

A few years ago, Dateline NBC ran a piece with several horror stories from victims of unlicensed and unscrupulous home contractors. In some cases, unwary consumers shelled out more than $100,000 and faced foreclosure without work being performed. Because the contractors in question were typically not licensed, their victims could not track them down and obtain refunds. 

Such news is not just disconcerting to consumers. The majority of contractors who run their businesses in a conscientious and professional manner can be just as frustrated with such reports because it reflects poorly on them. 

The Pennsylvania Legislature has recently addressed this issue in enacting the new Pennsylvania Home Improvement Consumer Protection Act (the "Act"), which takes effect July 1, 2009. The Act requires home improvement contractors to register with the Attorney General and provide detailed information on the identities of their principals and the location of their offices. Such information in intended to be used to keep track of consumer complaints against individual contractors and to help consumers locate contractors to properly enforce contractual agreements.

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Falling Real Estate Values Offer Opportunity for Property Tax Savings

One advantage of falling real estate values may be the opportunity for property owners to obtain a lower assessment which results in lower property taxes. Property assessments are based on fair market value. When a factor known as the common level ratio is applied to the assessment amount, the resulting dollar amount should be the fair market value. 

In Lancaster County, the common level ratio for the period July 1, 2008 to July 1, 2009 is 1.36. Accordingly, an assessment of $100,000 means that the fair market value of the property should be $136,000. If the property has a fair market value of less than the assessment with the common level ratio applied, the property owner may petition the County Assessment Office for a reduction in assessment. Generally, it is necessary to have an appraisal or some documentation in support of the fair market value. 

Last summer my husband and I bought a home for a price that was approximately $20,000 less than the value calculated by applying the common level ratio to the assessed value. We were able to get our appeal in before the August 1, 2008 deadline, and in November, our assessment was reduced by $20,000 based on our purchase price. In the world of property assessment and taxes, this is not earth shattering, but it will save us close to $500 a year in taxes. 

Assessment appeals must be filed on August 1 of the year preceding the tax year on appeal. If the fair market value of your property is significantly less than your assessed value with the common level ratio applied, and you can establish your fair market value in some way, it may be worthwhile to file an appeal with the Assessment Office. We would be happy to help you with that process, and you should contact our real estate paralegal, Sharon Friesen, or me.