Lancaster Law Blog : Lancaster PA Lawyer & Attorney : Russell Krafft & Gruber Law Firm : Pennsylvania : Lancaster's Legal Link

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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.

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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.

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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.

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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.

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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.

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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.

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 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.

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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.

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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. 

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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.

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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.

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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.

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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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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.