Court Refuses To Appoint A Conservator To Property
Written by: Alan Nochumson
Last month, in Champagne v. The Thomas Cole Group, 2016 Phila. Ct. Com. Pl. LEXIS 140 (April 5, 2016), Judge Arnold L. New of the First Judicial District of Pennsylvania issued a memorandum opinion refusing to allow the appointment of an individual to serve as conservator to rehabilitate an alleged blighted property under the Abandoned and Blighted Property Conservatorship Act, 68 P.S. Section 1101, which is commonly referred to as Act 135.
According to LexisNexis, New wrote the second published memorandum opinion ever analyzing the vast powers and limitations of Act 135.
Act 135, which became effective in February 2009, authorizes a state court to appoint a conservator to rehabilitate a deteriorating building structure at the sole cost and expense of the property owner. For all intents and purposes, if a conservator is so appointed, the conservator takes possession of the property, undertakes its rehabilitation, and is paid directly by the property owner for rehabilitation work or may force the sale of the property in order to receive payment for the rehabilitation work. The process for the appointment of a conservator under Act 135 commences by way of petition to the Court of Common Pleas in the county in which the property is located.
In terms of content of the petition, under Section 1104(b) of Act 135, “The petition must include a copy of any citation charging the owner with being in violation of municipal code requirements or declaring the building to be a public nuisance, a recommendation as to which person or entity should be appointed conservator, and a preliminary plan with initial cost estimates for rehabilitation of the building to bring it into compliance with all municipal codes and duly adopted plans for the area in which the building is located and anticipated funding sources.”
Act 135 mandates under Section 1105(a) that the state court must hold a hearing as to the petition within 120 days from the filing of the petition seeking the appointment of the conservator.
At the hearing before the state court, under Section 1105(d)(5), at least three of the following must be established:
• The building or physical structure is a public nuisance.
• The building is in need of substantial rehabilitation and no rehabilitation has taken place during the previous 12 months.
• The building is unfit for human habitation, occupancy or use.
• The condition and vacancy of the building materially increases the risk of fire to the building and to adjacent properties.
• The building is subject to unauthorized entry leading to potential health and safety hazards.
In Champagne, on Aug. 17, 2015, David Champagne initiated proceedings under Act 135 by way of a petition relating to a then-abandoned and vacant two-unit residential condominium building located in the Fairmount section of Philadelphia where construction remained incomplete, the opinion said.
In the petition, Champagne alleged that The Thomas Cole Group, which acquired the property in late 2009, had walked away from constructing the property in 2012, the opinion said.
After the petition was filed, Dietz & Watson, Inc. Maryland Employees’ Pension Plan sought to intervene in the proceedings as an interested party and strike the petition for the appointment of a conservator under Act 135.
In the petition to intervene, Dietz & Watson disclosed that it possessed a mortgage against the property in the face amount of $365,000 based upon a promissory note delivered to The Thomas Cole Group and that, due to multiple amendments to the promissory note, the principal amount due thereunder actually increased to well over $500,000.
According to Dietz & Watson, months prior to the filing of the petition for the appointment of a conservator by Champagne, it filed and obtained a confession of judgment in its favor and against The Thomas Cole Group.
Dietz & Watson then alleged that, pursuant to the confession of judgment, a sheriff’s sale of the property was scheduled for Nov. 10, 2015, the opinion said. According to the opinion, the Philadelphia’s Sheriff’s Office identified the pending sheriff’s sale as a foreclosure sale.
In the opinion, New noted that soon after Dietz & Watson discovered the existence of the proceedings as to the property under Act 135, it out of an abundance of caution, elected to file a foreclosure action against The Thomas Cole Group.
New subsequently granted Dietz & Watson’s petition to intervene in the proceedings under Act 135 and scheduled a hearing on Champagne’s petition to appointment himself as the conservator of the property.
After the hearing, New found that the requirements of Act 135 were not satisfied, in that, among other things, Champagne was prohibited under Act 135 from being appointed as a conservator since the property was, for all intents and purposes, subject to a foreclosure proceeding and in the process of being sold by way of a sheriff’s sale. Champagne then appealed Judge New’s ruling.
On appeal, Champagne argued that New committed an error of law by applying the prohibition on pending mortgage foreclosure actions to the confession of judgment and subsequently scheduled sheriff’s sale.
Champagne argued that Section 1105(d)(3) only prohibits a state court from appointing a conservator under Act 135 if the property is subject to a pending foreclosure action and makes no reference to the property being subject to a sheriff’s sale by way of other judicial proceedings.
In response to that argument, Dietz & Watson emphasized that the sheriff’s sale based upon the confession of judgment acted as a mortgage foreclosure for purposes of the Act 135.
Dietz & Watson pointed out that the sheriff’s sale had been deemed a “foreclosure sale” by the Philadelphia Sheriff’s Office and had the same effect as a mortgage foreclosure action.
In the opinion, New discussed how a mortgage holder has the option in Pennsylvania of proceeding in rem or in personam. Unlike a judgment in foreclosure, New noted that a confession of judgment is one obtained against the obligor, is general, is not restricted to the mortgaged property, and constitutes a lien generally on real estate owned by the obligor.
In comparison, New explained that a mortgage foreclosure is an action in rem and the judgment entered is against the land.
While acknowledging that at the time of the filing of the petition for the appointment of a conservator, the property was not the subject of a “mortgage foreclosure action” in the traditional sense, New concluded that the confession of judgment obtained by Dietz & Watson served as a pending mortgage foreclosure under Act 135.
At the time the petition to appoint the conservator was already filed, New noted that Dietz & Watson had sought execution of the judgment by confession via the sheriff’s sale of the property.
Simply stated, New concluded that Champagne’s “reliance on the difference between in rem and in personam proceedings is an overly broad application of the law to a statute with a very distinct purpose.”
New reiterated that Dietz & Watson, in opposition to the petition for the appointment of a conservator, represented its intention of purchasing the property at the sheriff’s sale and beginning rehabilitation shortly thereafter.
Taking into consideration the advanced stage of execution proceedings in the confession of judgment action and its intention to rehabilitate the property, New determined the purpose of the act would not be fulfilled under such a strict application of Act 135.
New also took into consideration the rights of Dietz & Watson as the most senior non-governmental lienholder on the property. Under Section 1105(e)(2) of Act 135, the state court is directed to give first consideration for appointment as conservator to the most senior nongovernmental lienholder on the property.
As such, New indicated that Dietz & Watson’s right to serve as conservator trumped the appointment of any potential conservator proposed by Champagne. In other words, even assuming a conservatorship was warranted, which New did not believe was the case, he noted that Dietz & Watson would have likely been appointed as conservator.
Dietz & Watson purchased the property at the sheriff’s sale. I represented the corporate entity which eventually purchased the property from Dietz & Watson. As part of the property acquisition, Champagne agreed to withdraw the pending appeal.
Reprinted with permission from the May 17, 2016 edition of The Legal Intelligencer © 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.
