Virginia Real Estate, Land Use & Construction Law : Virginia Construction Lawyers & Attorneys : Bean Kinney & Korman Law Firm : VA Real Estate, Land Use & Zoning

After much back and forth, the Soil and Water Conservation Board announced on January 14th that they voted to suspend their hotly debated changes to stormwater regulations to permit an additional 30-day comment period.  The stage was formally suspended on January 26, 2010 which means that the status will be stuck in suspension until a new round of comments opens from February 15 through March 17.

We reported on the both the initial regulations and later changes to the proposed regulations which eased some of their impacts on the home building industry.  The Home Builders Association of Virginia indicates that they mobilized significant response and opposition to even the later round of regulations.

In addition to the underlying technical tug-of-war, there are two interesting political subtexts which may sweep this issue off the table.  First, in the intervening time since the regulations were first proposed, the Republican former Attorney General, Bob McDonnell, has won the Governor's race, Governor Tim Kaine has left office,  and Governor McDonnell has been sworn in.  The impact of the new Governor on these regulations is unknown at this point, but the suspension may be a significant indicator of future direction.

The import of state regulation may be swept away by federal intervention.  The US Environmental Protection Agency has sought comments and then transmitted a second notice on specific stormwater management regulations.  Chesapeake Bay run-off continues to generate active press and political reaction, so the states may ultimately be preempted by federal action in this arena.

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In 2002, Brenda Kersey received a $71,397 mortgage loan to purchase a home in Richmond, Virginia. The loan was a Federal Housing Administration (“FHA”) loan governed by FHA regulations. PHH Mortgage Corporation was the holder of the note in connection with Ms. Kersey’s loan.

Like so many unfortunate homeowners, Brenda Kersey fell behind on her mortgage payments. PHH appointed the Professional Foreclosure Corporation of Virginia (“PFC”) as substitute trustee on the Deed of Trust securing the mortgage and instructed PFC to foreclose on Ms. Kersey’s home. PFC scheduled a foreclosure sale without having or attempting to arrange a face-to-face meeting between PHH and Ms. Kersey.

The deed of trust allowed foreclosure only if the holder of the note complies with FHA regulations. One of those regulations is 24 C.F.R. Section 203.604 (b), which states in part:

The mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid. If default occurs in a repayment plan arranged other than during a personal interview, the mortgagee must have a face-to-face meeting with the mortgagor, or make a reasonable attempt to arrange such a meeting within 30 days after such default and at least 30 days before foreclosure is commenced….

Based on PFC’s failure to schedule a face-to-face interview before initiating foreclosure, Ms. Kersey filed a complaint in the Circuit Court for Richmond City seeking a declaratory judgment that PHH failed to comply with the deed of trust sufficiently to go forward with the foreclosure. PHH removed the matter to the United States District Court for the Eastern District of Virginia, Richmond Division, and moved to dismiss the action under Rule 12(b)(6) for failure to state a claim.

In a memorandum opinion in Kersey v. PHH Mortgage Corporation, Judge Williams refused to dismiss Ms. Kersey’s complaint, concluding that there was a “distinct and ripe controversy” as to whether PHH owed Ms. Kersey a face-to-face interview prior to foreclosing on her home.

PHH’s first argued that Section 203.604 and the National Housing Act (“NHA”) do not grant a plaintiff a private cause of action. Judge Williams dispensed with this argument by concluding that Ms. Kersey was not bringing a claim under the NHA and Section 203.604, but rather was seeking a declaratory judgment based on a state law breach of contract claim. Interestingly, Judge Williams hinted to PHH that perhaps it could assert that Ms. Kersey’s failure to make timely payments constituted the first material breach between the parties that would have relieved PHH from the obligatory face-to-face meeting.

PHH’s second argument was that it fell under an exception found in Section 203.604 (c), that a

face-to-face meeting is not required … if [t]he mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either.

PHH has loan origination branches, but no servicing branches, within 200 miles of Ms. Kersey’s property, and pointed to an interpretation of this exception on HUD’s website that Section 203.604 relates only to mortgagors living within a 200-mile radius of a servicing office. Judge Williams refused to be swayed by the interpretation on HUD’s website, finding the exception in Section 203.604 (c) to be unambiguous. According to Judge Williams, a lender could escape the face-to-face meeting requirement only if the following are not located within 200 miles of the mortgaged property:

1. the mortgagee;
2. the mortgagee’s mortgage servicer;
3. a branch office of the mortgagee;
4. a branch office of the mortgagee’s mortgage servicer.

Judge Williams found that PHH could not therefore escape its face-to-face obligation when Ms. Kersey’s complaint alleged that PHH maintains “branch offices” within 200 miles of the mortgaged property.

It will be interesting to see if PHH ultimately prevails by alleging that Ms. Kersey committed the first material breach when she fell behind on her payments.  However, stepping back from the legal analysis for a moment, maybe there is a point to these face-to-face meetings, even if they are time consuming.  In the right situation, such a meeting could enable lenders and borrowers to come up with a mutual plan to avoid painful and costly foreclosure proceedings. 

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Rockville based contractor Hann & Hann will pay $600,000 plus the plaintffs' legal fees to settle a wage and overtime based class action suit.  As reported in the Washington Post by Rubin Castaneda on January 30, 2010, Hann & Hann agreed to pay overtime plus 50% for every employee working with the company not paid overtime between May 8, 2006 and May 8 2008.

There are a couple important subtexts to this case and settlement.  First, reports describe the 200 plus employees and former employees as almost all Spanish speaking immigrants.  This naturally raises questions not only of immigration status, but also of whether the contractor was perceived as taking advantage of employees less able to defend themselves.  In this case, the employees not only had the Immigrant and Refugee Rights Project at the Washington Lawyers' Committee for Civil Rights and Urban Affairs on the case, but also were represented by Arnold and Porter pro bono.

Second, claims by employees for unpaid overtime and wages have been a hot topic over the last several years (some more detailed discussion touching on this is available here at Daniel Schwartz' excellent blog).  In many ways, the issue of classification of exempt and non-exempt employees which dictates whether overtime is required dovetails quite closely with distinctions between independent contractors and employees which we recently discussed.  Back wages, penalties and attorneys' fee claims are a big risk in this arena, as is the underlying threat of more involved scrutiny as the weight of the government comes to bear.  Contractors should:

• Take employee classifications seriously
• Understand that mistakes in classifications can translate to serious damages
• The short term benefit of cutting corners can come at a cost that buries your company
• As a result, handle classifications conservatively and pay out overtime accordingly

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The Empire State Building retrofit project is reaching for rarefied air: improved energy efficiency,  reduced carbon emissions, and rapid and healthy return on investment.  Recent case study documentation for the project suggests this project will hit the ball out of the bark on all fronts.  Highlights include:

An estimated 38% energy savings compared to high level class A office space

A 3.1 year payback on the incremental cost increase to fund proposed energy efficiency measures

• An 9.2% estimated tenant space savings when increased project costs are weighed against the net present value of energy savings to tenant space fit-outs
• Reduction of well over 100,000 tons of CO2 emissions over 15 years

This project concept directly touches on the concepts of energy efficiency, performance and return on investment that formed the backbone of the recent Trends in Building Green seminar we discussed here.  The Empire State Building project also serves as not only a model, but a potential market game changer and advances many of our predictions for this next building cycle.

On a personal note, I spend a lot of work time looking "green" issues from a contracts, client or risk management perspective.  I spent a lot of personal time thinking about sustainability for its own sake in the context of raising a family and working towards a sustainable future economically and environmentally.  I like environmental sustainability for its own sake, but I love when creative and motivated people fuse the moral high ground with economic success.

Image by Amitmogha

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With well over two thousand bills filed for this session, I was curious to see what our local urban delegates and senators have chief-patroned this year.  So here's what they're up to:

Delegate Brink has patroned HB 1260, which proposes that the Uniform Statewide Building Code should also apply to buildings or structures built on state-owned property and that the Department of General Services would act as the building official for all such buildings.  He has also patroned HB 1314 which contemplates providing financial incentives equal to twenty percent of delinquent taxes collected by tax collectors, chargeable to the taxpayer in addition to the amount of the delinquent taxes.

Senator Whipple has also patroned two bills.  SB 665 would clarify the authority of the Common Interest Community Board relating to disciplinary actions and fact finding procedures.  SB 681 suggests delaying the effective date for the stormwater management regulations passed last session for a year.

Adam Ebbin, via HB 1222, proposes that electric utilities establish a fund to allow voluntary contributions by customers so that the SCC can use the money to incentivize projects that incorporate photovoltaic devices, solar water heating devices, or solar space heating.  He also thinks that HOT lane shoulder widths should be wide enough to handle transit vehicles, HOV service does not deteriorate, and ingress and egress from local connector streets are adequately addressed (see HB 1223).  Delegate Ebbin also thinks vehicles used in abductions should be forfeited (HB 1113)  and that your income tax filings should be due on April 15 to sync up with the federal deadline, rather than May 1st (HB 1278). 

Delegate Englin wants online political advertisements to be subject to disclosure requirements regardless of space to do so (HB 1261) and  wants to see automatic acceptance of service members to Virginia colleges who were in the top 10% of their graduating class (HB 274).

Senator Ticer wants to amend the charter of the City of Alexandria so that the board of review of real estate assessment is composed of nine members rather than five members, with five members appointed by the circuit court and four members appointed by city council (SB 572) and to allow for TDRs in zoning ordinances in localities with the urban county executive form of government (SB 636).  She also would like to see a license plate for recycling advocates (SB 709) and some careless driving offense proposals (SB 566).  She also proposes relaxing campaign contribution reporting requirements for local officials (SB 723).

Delegate Hope thinks that the Commonwealth Transportation Board ought to give first priority to funding transit operating costs rather than transit capital projects (HB 421), wants to prohibit smoking in all public buildings (except certain portions of corrections facilities) (HB 1351), and most notably, is chief patron of the Green Public Buildings Act (joined by Brink and Ebbin) (HB 1264), which would require all new construction public buildings over 5,000 SF (or renovations amounting to over 50% of the value of the building) to achieve LEED Silver certification or Green Globes two globe standards, achieve energy savings that exceed ASHRAE 90.1-2004 standards by at least 15 percent for new construction and 10 percent for major renovation, and  to provide water use savings of at least 25 percent over the baseline standard established in the federal Energy Policy Act of 1992.

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The Trends in Building Green panel last Thursday morning was a great success.  There were a couple interesting take-aways from the panel's materials and presentations:

• Smart property owners need to be taking energy savings seriously; Tommy Russo, Chief Technology Officer of Akridge, described their highly detailed efforts to analyze and implement projects with a reasonable return of investment horizon;
• Per Tom Mawson, Executive Director of the USGBC National Capital Region Chapter, the "USGBC is all about market transformation"
• Bobby Christian, CEO of Green 20 Now, LLC, and Mike Scelzi, President of Net Metering, Inc. demonstrated just how far we have come with access to energy metering information, and its implications on operations and cost savings
• Chris Pyke, Director of Research for USGBC, provided a wonderful overview of where LEED has been and where it may be going, in particular in the context of on-going performance of buildings and where those measures may not match design.  For Chris and USGBC, the question primary question: "Is there a commitment to demonstrated performance ... which is leadership" with regards to energy efficiency and sustainability.
• I covered some of the press crititiques of LEED, what the actual projects demonstrated, and finally where the performance debate may create significant liability issues in the future

My presentation is here for those who are interested.  Mike Scelzi was also kind to provide his presntation as well.  Please feel free to contact me if you have any questions or are interested in tracking down some of the participants or issues we covered.

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Owners, developers and builders working in the renovation arena beware: the EPA's new regulations on lead paint take effect on April 22, 2010.  The regulations are contained at Title 40, Part 745 of the Code of Federal Regulations.  There are some very important highlights:

Effective April 21, no firm may offer or perform renovations in "target housing" without certification (40 CFR 745.81). Target housing means any housing constructed prior to 1978, so renovators working in homes, apartments or condominiums built prior to 1978 need to take this seriously.

There are only very limited exceptions, such as where a certified inspector has determined the project is free of lead paint beyond permitted levels (40 CFR 745.82). Projects with no children or pregnant woman that are owner occupied can also qualify for excluding coverage, but only if the owner signs off that the firm is not required to meet the regulatory practices (40 CFR 745.82).

• Firm's performing renovations have extensive obligations to give disclosure and notice to building occupants in writing prior to renovation, including providing mandating EPA publications (40 CFR 745.84)
• The regulations further include specific work practice standards, so watch out for potential employee personal injury claims and OSHA inspections and violations as well (40 CFR 745.85)
• Even relatively minor work is swept up in the requirements: generally work disrupting more than 6 square feet of painted area is regulated (40 CFR 745.80, 745.83)
• Persons and firms performing work in this arena must provide their customers the EPA's brochure, Renovate Right (40 CFR 745.81)(please note: the publication requirement is already in effect, so if you are not doing that now, you need to start immediately!).

On a final note, there is an entire training and certification regime established by the EPA.  In a down economy, this may be a good area to jump in and develop expertise and a market niche.

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Virginia Delegate Mark Cole is up to it again, proposing another amendment to the business, professional and occupational (“BPOL”) tax laws. Delegate Cole sits on the House of Delegates Finance Committee, and represents the 88th District, spanning Stafford, Spotsylvania and Fauquier Counties and the Town of Remington. As you may recall from my last blog post on proposed business tax reforms in the Commonwealth, he sponsored HB 57, which would freeze BPOL tax rates, and prohibit those localities that do not have a BPOL tax from imposing one.

Currently, the BPOL tax is targeted at a business’s gross receipts, defined by Virginia Code Section 58.1-3700.1 as a company’s “whole, entire, total receipts, without deduction.” Delegate Cole’s proposal, HB 110, would allow localities to decide whether to impose their BPOL tax on a business’s gross receipts, or on its Virginia taxable income.  HB 110 provides two methods to calculate "Virginia taxable income," depending on which is applicable to the business -- a calculation under Virginia Code Section 58.1-322 (Virginia taxable income for residents) or under Virginia Code Section 58.1-402 (Virginia taxable income for corporations). 

Undoubtedly, localities may be skittish of these changes in the face of some very hard economic times and dwindling local budgets. However, businesses should view HB 110 as a welcome change to take the sting out of what many consider to be the harshest aspect of the BPOL tax – the notion of taxing gross receipts with no ability to consider adjustments or deductions.
 

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A post yesterday from our friend Chris Hill at Construction Law Musings really resonated with me on a critical skill that many lawyers seem to lack.  The post, "What Owners Look for in Green Building and Why Contractors Should Care" advocated that contractors should know and understand what project owners were looking for in green buildings.  As Chris states well, "Knowing the other side's playbook is one way that a football team can prepare, the same holds true in pre-construction negotiation of contracts."

This same concept can and should be applied in every legal context.  If I cannot understand the strengths and weaknesses of not only my case, but also my opponent's, I am wearing blinders and courting disaster.  Not being able to play both sides of the chessboard is asking for surprises.  In negotiations, that means losing ground unnecessarily.  In litigation, it can mean flat out losing the case.

For years, a pocket classics translation of Sun-Tzu's absolute must read, The Art of War has lived on my desk.  A classic passage from centuries ago echoes this issue:

So it is said that if you know others and know yourself, you will not be imperiled in a hundred battles; if you do not know others but know yourself, you win one and lose won; if you do not know others and do not know yourself, you will be imperiled in every single battle.

For clients on the receiving end, you should understand and cherish the need for your lawyer to play the "devil's advocate" role in testing assumptions, articulating weaknesses, and educating you regarding the strengths and weaknesses of your position.  Ultimately, that very approach may mean success or failure of your matter.

Image by vlasta2

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