Conservatorship: Appointing a third party to enter onto someone else’s property and complete the improvements needed to make it safe
Conservatorship allows a third party appointed by the court to enter an owner’s property and make repairs to bring it up to code. Under Act 135, the Blighted and Abandoned Property Conservatorship Act(67) enacted in 2008, a neighbor, nonprofit organization, municipality, school district, or redevelopment authority petitions a judge to appoint a responsible party to bring a neglected property into compliance with code standards. An owner can step in at any time to terminate the conservatorship, but the owner must reimburse the conservator for all costs incurred before regaining control of the property. Once the property has been rehabilitated, if the owner has not approached the court to regain possession after paying all costs, the conservator may seek the court’s permission to sell the property. The Housing Alliance Conservatorship Handbooks offer extensive information and sample documents on using conservatorship to eliminate blight.
What does it do?
The conservatorship process offers the individuals or organizations most adversely affected by a property a court-supervised method to enter onto that property and complete the improvements needed to make it safe. Under the law, a court may appoint a third party to take possession and control of a property in order to make needed repairs and bring the property back into productive reuse. The court appoints the conservator after a formal process and hearing, including notice to the owner(s) and others who have an interest in the property. The conservator has the power to borrow money against the value of the property to finance repairs and improvements, purchase materials needed for rehabilitation, take over existing leases and enter into new leases for up to one year, receive public grants or loans, and sell the property with clear and marketable title. A conservator has super-priority status over other lien holders so that the conservator can obtain adequate compensation for the improvements made. Conservatorship can also be used to clear title where a tangled title issue prevents the property from being transferred to a responsible buyer.
How do we pay for it?
Conservatorship includes a need to pay for the expenses involved in petitioning a court to have a conservator named and for the rehabilitation or demolition of the property. To ensure that resources exist to pay the expenses, some jurisdictions have petitioned for conservatorship only after they have identified a buyer for the blighted property, so that they can provide marketable, clear title to the buyer and be certain to recover costs incurred. Other possible funding sources include Community Development Block Grant, HOME, Neighborhood Assistance Program tax credits, and other state and federal funds. Although conservatorship is more expensive than basic code enforcement because of the legal work involved, it is much less expensive and faster than eminent domain. Conservatorship has the added benefit of not saddling a municipality with owning the property; the process conveys only the right of possession.
To cover the costs of rehabilitating a vacant building, the conservator has several options. The conservator can finance the rehabilitation by borrowing against the property and obtaining a super-priority lien sufficient to cover the cost of rehabilitation. Where the property has insufficient value to cover the cost of rehabilitating it, public or private funding sources and any income from the property’s rental or sale may be necessary to fund the rehabilitation. Some private conservators have used their own funds or hired self-financed contractors to perform the work.
What types of property are covered?
Any building that has (1) not been legally occupied for at least 12 months, (2) not been marketed in the 60 days before the conservatorship petition was filed, (3) has not been acquired by the owner in the previous six months, except for related transfers, (4) is not already in foreclosure proceedings, and (5) has at least three violations contained in the Act 135 list of nuisances and code violations.
What challenges will it solve?
Where code enforcement has failed to motivate an owner to take action or there is no owner present against which to enforce the codes, conservatorship allows for the rehabilitation of a property and transfer of title in a way that will contribute to the health of the community. Conservatorship does not require local government to take ownership of blighted properties.
Where does it apply?
Any Pennsylvania party of interest—including lienholders, residents, or business owners within 500 feet of the property; or a nonprofit corporation (including a redevelopment authority, a municipality, or a school district)—may file for conservatorship.(68)
How does it work? What is needed to use this law effectively?
The conservatorship process begins with the filing of a petition by a party of interest. The owner, all lienholders, and the local and county governments receive notice of the action, of the hearing date, and of their right to intervene. The court sets a hearing date within 120 days of the filing of the petition. At the hearing, the court receives evidence on why a conservator should be appointed. Before appointing a conservator, the court must be satisfied that the building meets all of the following criteria:
- It has not been legally occupied for the previous 12 months.
- It has not been actively marketed for the previous 60 days.
- It has not been sold within the previous six months. Sales to family members or related corporations do not meet this exemption.
- It is not subject to an existing foreclosure action.
- The vacancy is not due to the owner’s being away on active duty military service.
- It meets at least three of the indicia of blight listed in the conservatorship law.
After determining that a conservator should be appointed, the court looks for a competent individual or entity to serve, considering the following in sequence: the senior lienholder, a nonprofit or governmental entity, or an individual (or other entity). The conservator takes possession of the property (but not title to it) and has all the powers of the owner. For the purposes of applying for funds, approvals, and permits, the conservator is considered to be the owner. The actual property owner, however, retains liability, including the obligation to pay taxes and assessments. After being appointed, the conservator must submit a plan to the court and to all parties, including a cost estimate, a financing plan, and a description of the work to be done. When the work is completed, the conservator submits a final accounting to the court.
What policies and practices will increase our chances of successfully using this tool?
Sometimes an owner appears in court to defend against conservatorship and promises to improve the blighted property. When that happens, it is advisable to keep the conservatorship petition active (rather than to dismiss it) until the owner brings the property up to code. In recent cases where the owner failed to take action, keeping the petition active allowed the court to retain oversight over the case.
Where the conservator needs financing, Act 135 requires the conservator to approach the senior lienholder for financing. If the existing mortgagee provides additional financing, the first mortgage is increased to cover it. If the first mortgagee declines, the conservator can approach a different lender and offer a priority lien.
What legal documents will we need?
A full set of all needed documents is available in the 2011 Regional Housing Legal Services Conservatorship Implementation and Best Practices Manual.
Who is using the tool now?
Across the state, conservatorship has been used in a variety of ways. Here are two examples.
The first case was filed in St. Clair Borough, Schuylkill County. The borough was appointed as conservator and used conservatorship to clear title and transfer the property to a next-door neighbor. The neighbor tore down the structure and use the land as a side yard. Under this model, the municipality finds a buyer before filing for conservatorship and uses the process to transfer clear title. The borough’s solicitor has used the same model to file 14 conservatorship cases with various municipalities as plaintiff and conservator.
The Ogontz Avenue Revitalization Corporation in Philadelphia filed under Act 135 to repair a blighted property on a commercial strip. The owner of the property refused to fix up or sell the property for a reasonable amount of money. The owner appeared in court to defend against the conservatorship and agreed to sell the property for the amount determined by a court-ordered appraisal.
How can we combine this with other strategies?
Conservatorship builds on other tools, especially code enforcement, to prod reluctant owners into fixing up their properties. If an owner fails to respond to code enforcement efforts, conservatorship is a good and effective option.
67. Abandoned and Blighted Property Conservatorship Act, Act of Nov. 26, 2008, P.L. 1672, No. 135. Cl. 68.
68. In Philadelphia, nonprofit corporations must be working within a mile radius of the property. Nonprofits must have as one of their purposes community development, economic development, historic preservation, or affordable housing.