Lancaster Law Blog

Proposed Law Would Create Online State Construction Notices Directory

Derek Dissinger — Mon, 17 Jun 2013 10:45:15 -0500

Recognizing that in this day and age everyone is adept at using the internet (including my mother on Facebook), a pending house bill would move the world of mechanics' liens into the digital age and require contractors to preserve their claims prior to beginning work by filing a notice that the contractor will provide services or materials within 20 days of starting the work.

House Bill 473 of 2013 (HB 473), which is currently pending in the state legislature, would create an online State Construction Notices Directory effective July 1, 2015. What the online directory would do is allow a homeowner to register his property and project online prior to the commencement of construction and post a notice at the property informing contractors that the project is registered online. Contractors then have an affirmative duty to monitor the website for appropriate notices of commencement and file a notice of furnishing of labor, services and/or materials within 20 days after first performing work or services or furnishing materials in connection with improvement of the property. The notice the contractor must file can be served in a variety of ways, such as personal service, certified mail or for the computer savvy, on the website. A prerequisite to a contractor's ability to file a mechanics' lien is satisfying this requirement of properly serving a notice of furnishing labor, services and/or materials.

HB 473 gives some indication of how the website will function. It requires information to be categorized, so presumably searchable, by county, property owner's name, property address or general contractor's name. The Department of Labor and Industry is tasked with contracting with a third party administrator to service the website.

A public hearing was held on April 11, 2013. We'll continue to monitor the progress of this bill and post updates.

Derek Dissinger is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Duquesne University and practices in a variety of areas.

What Rights Do Grandparents Have Under The Pennsylvania Custody Act?

Julie Miller — Thu, 30 May 2013 10:24:28 -0500

Most people know that grandparents have some custody rights under Pennsylvania law. What they may not know is what exactly those rights are. What happens when a grandchild is taken out of the grandparents' custody when the parents have already agreed that the child could live with them? Can grandparents have primary physical custody when there is still one parent in the picture? The Pennsylvania Custody Act answers these questions and gives grandparents rights to intervene in a custody action in certain circumstances.

According to the Pennsylvania custody law, grandparents have standing (the right to legally intervene) in a custody action to ask for periods of partial physical custody or supervised physical custody of their grandchildren if certain criteria are met. These criteria include the death of a parent, separation/divorce proceedings between the parents or a situation where a child has already been living with a grandparent or great-grandparent for over a year. Even if the criteria are met, grandparents should consult a family law attorney when they are seeking custody so that they are aware of their rights and the steps they need to take.

Partial or Supervised Physical Custody

One situation where grandparents are allowed to intervene for partial custody or periods of supervised custody is when a parent of a child is deceased. Grandparents may also seek partial custody when the parents of the children are separated or divorced. If either parent has filed for divorce or if the parents have been separated for at least six months, grandparents have legal standing to seek custody.

Sometimes, grandparents already have had physical custody of a child for a period of time, and suddenly a parent decides to remove the child from their home. There are rights for grandparents in these situations too, as long as the child has been living with the grandparents for a period of at least one year. If that is the case, the grandparents must file an action for custody within six months of when the child was removed from their home.

Primary Physical Custody

The law also allows grandparents to ask for primary physical custody of their grandchildren, but the requirements that must be met are much greater than those for partial custody. If the grandparents have already exercised parental duties, just like anyone who has acted in loco parentis to a child, they have standing to file for primary physical custody. The specific circumstances in which grandparents may file for primary physical custody when they are not currently acting in loco parentis are:

When the relationship between grandparent and child began with the consent of a parent or under a court order.
When a grandparent assumes responsibility for a child who has been determined dependent in a matter pursuant to the Juvenile Act and who is substantially at risk due to parental abuse, neglect, drug or alcohol abuse or incapacity.
When the child has resided with the grandparents for a period of over one year and a case has been brought by the grandparents seeking custody within six months after the child was removed from their home.

While the provisions of the Custody Act require the Court to determine what is in the best interest of the child, the standing requirements can limit a grandparent's ability to seek primary physical custody of children. I have experienced situations where the parents are separated and one parent decides that they will not allow their child visitation with grandparents. In Lancaster County, our Court generally allows contact and will enter a custody schedule for partial physical custody or visitation for the grandparents. Of course, that does not happen every time, as circumstances differ. But in general, grandparents in this situation will not be barred from visitation as long as the Court determines it is in the best interest of the child.

These are many other issues that can be raised before the Court prior to the entry of a custody order. If you or someone you know has questions about what rights they may have with respect to their grandchild or grandchildren, those questions should be directed to an experienced family law attorney.

Julie Miller is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. She received her law degree from Dickinson School of Law and practices in a variety of areas including Family Law.

Lowering Blood Alcohol Content Levels for DUI

Matthew Grosh — Thu, 23 May 2013 09:49:53 -0500

The National Transportation Safety Board caused a stir recently when it recommended lowering the blood alcohol level for driving under the influence to .05 percent nationwide. The legal limit in Pennsylvania, as well as in almost every other state, is currently .08 percent. A recent article from the Pittsburgh Post-Gazette, and other online sources, made some interesting points related to the NTSB’s announcement.

The primary point of the Post -Gazette's article is that even if the change is made, it would not likely be made soon and could perhaps take decades. Even the Executive Director of the Pennsylvania DUI Association, which supports the lower BAC change, admits that making the change could take "awhile".

You may remember that back in 2003 the Pennsylvania Legislature reduced the legal limit from .10 to .08. Pennsylvania was one of the last states to lower its BAC to .08 and it did so only in response to the federal government’s announcement that if it did not do so, it would lose highway funds. One of the more interesting aspects brought up by the article was that the reduction to .08 percent was the result of a two decade process. One of the primary concerns back then was that the lower limit would target people having drinks with dinner instead of highly intoxicated drivers who cause the majority of DUI-related accidents.

The Post-Gazette article also states that while Pennsylvania is reviewing the NTSB’s recommendation, there are no current plans to lower the standard to .05. Moreover, a recent piece by USA Today states that the Governor’s Highway Safety Association supports the current .08 alcohol threshold, citing that when the limit was at .10 it was very difficult to get it lowered to .08. The Agency also does not expect any state to go to .05 percent.

The Pennsylvania Tavern Association, which opposes the proposed change, believes that the answer lies in increasing penalties and treatment for highly intoxicated drivers. A piece posted on Denverpost.com has a similar take, arguing that stronger penalties for repeat offenders and drivers with much higher BACs will be more effective than lowering the BAC standard. Another alternative would be to charge those caught driving with a BAC between .05 and .08 with an offense that is less severe than driving under the influence, such as a summary charge, which would be the equivalent of a traffic ticket. In fact, Colorado currently has exactly such a law called “Driving While Ability Impaired” with penalties and consequences that are less strict than regular DUI charges.

The USA Today article further points out that the advocacy group, Mothers Against Drunk Driving, while not opposing the NTSB’s recommendation, would rather focus on pushing for better technology to prevent convicted drunk drivers from operating a vehicle after drinking. In Pennsylvania, such ignition interlock devices are required for certain repeat offenders as I have discussed in a previous post. The devices require repeat offenders to blow into a breathalyzer-type device before they are allowed to start their car. If the device detects alcohol, the ignition system becomes disabled.

In any event, it is clear that despite all the recent buzz the NTSB’s announcement has made, if any changes are made, they will not likely be in the near future if at all. We will be sure to stay on top of this matter, so please check back for any updates.

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Villanova University and practices in a variety of areas including DUI/ARD.

Pending Mechanics' Lien Legislation to Impact PA Lenders

Derek Dissinger — Wed, 15 May 2013 10:19:01 -0500

The Pennsylvania Supreme Court sent shockwaves through the lending world in May 2012 when it issued its opinion in Commerce Bank/Harrisburg v. Kessler. In the case, the Court held that a bank's open-end mortgage was subordinate to a mechanics’ lien because part of the mortgage proceeds were used to fund soft costs like taxes and certain fees.

The Open-End Mortgage Exception

Kessler stands for the basic proposition that "all means all" in Pennsylvania's open-end mortgage statute, with “all” referring to the amount of the loan proceeds that must go directly toward construction costs in order for an open-end mortgage to fall under the exception to Pennsylvania’s Mechanics' Lien Law. While typically a mechanics’ lien has priority under the law, the exception allows an open-end mortgage to have priority over a mechanics’ lien when the proceeds of the loan secured by the open-end mortgage fund “all or part of the costs of completing erection, construction, alteration or repair of the mortgaged premises." In order to obtain this priority, the Pennsylvania Supreme Court decided that all of the proceeds of an open-end mortgage must be applied to hard costs, which greatly impacts lenders in Pennsylvania.

New Legislation Following Kessler

This year, new legislation was introduced which seeks to remedy this problem for lenders in two ways. First, the open-end mortgage statute would be amended to specifically allow proceeds to be used to fund soft costs, such as title insurance, transfer taxes, legal fees, engineering fees, accounting fees, architectural fees and management fees. Second, a mortgage will qualify as an open-end mortgage if at least 60.00% of the loan proceeds are used for these eligible costs. Metro Bank would have prevailed in Kessler if either one of those provisions were included in the statute at the time.

If Senate Bill No. 145 is passed, Pennsylvania lenders will be better protected with respect to their lien priority for construction loans. Until then, there are some steps that can be taken to protect those security interests.

Tips for Lenders

If Senate Bill No. 145 is passed in Pennsylvania, then open-end mortgages will receive priority over a mechanics' lien only if more than 60.00% of the proceeds of the loan secured by the open-end mortgage are used to fund hard or soft construction costs. Until the bill is passed, lenders will need to find ways to ensure that their open-end mortgages receive a first priority lien whenever they are financing soft costs. Here are a few tips for lenders in light of the current developments stemming from Kessler.

Don’t Finance Soft Costs. The easiest solution to avoid the mistake made by Metro Bank in the Kessler case is to require the borrower to pay for soft costs out-of-pocket. Many borrowers are either going to be unable to pay these costs out-of-pocket, or are not going to be happy with the out-of-pocket costs because they are intending on having them financed with the loan. This may, however, be a good starting point in terms of setting the borrower's expectations and maintaining a good working relationship.

Fund Soft Costs With an Unsecured Loan. Metro Bank could have reduced the uncollectible portion of its loan in the Kessler case by funding the hard construction costs with an open-end first priority mortgage on the property and then funding soft costs with an unsecured loan. If this approach had been taken, then Metro Bank would have enjoyed a first priority lien on the property for a large portion of its exposure, but its unsecured loan for the soft costs would have still been subordinate to the mechanic’s lien (and thus, worthless). Using a loan to fund soft costs will be more attractive to some borrowers than paying for them out-of-pocket, although the financing will likely be more expensive than the loan secured by an open-end mortgage, as banks take higher risks with unsecured loans.

Use An Acquisition Loan Followed By a Construction Loan. In my opinion, the best option for lenders is using a purchase money facility and an open-end construction mortgage. The other exception to the priority of a mechanics' lien under the mechanics’ lien law, along with open-end mortgages, are purchase money mortgages. Unlike open-end mortgages, purchase money mortgages are eligible to finance closing costs. Therefore, a lender can extend to a borrower a purchase money mortgage to acquire the mortgaged property (where applicable) and use such loan to finance transaction costs. They can then issue a second priority open-end mortgage for construction. In this case, both mortgages would have priority over mechanic’s liens.

Until legislation is finalized, lenders will need to balance protection of their security interests with maintaining good working relationships with their borrowers. Pending legislation will go a long way towards easing fears regarding perfection and priority of security interests, but until that occurs lenders should ensure they are keeping Kessler in mind when extending construction loans.

Derek Dissinger is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Duquesne University and practices in a variety of areas.

Consumer Alert

Derek Dissinger — Tue, 30 Apr 2013 12:54:17 -0500

About a week or so ago the stack of letters pictured to the right arrived in the mail like a stack of Christmas Cards. The letters were from "Corporate Records Services" and stated on the front of the envelope "IMPORTANT ANNUAL MINUTES REQUIREMENT STATEMENT." Initially, the letters appeared to be a mass mailing or simple junk mail solicitation. Russell, Krafft & Gruber, LLP received these letters because in the past many clients used our firm's address as their registered corporate address with the Department of State. It was clear that someone had logged onto Pennsylvania's Corporation Bureau website and sent a mailing to every registered corporate address. We still didn't know exactly what this was, but on the front of the envelope it stated "THIS IS NOT A GOVERNMENT DOCUMENT", so we knew it was a private company soliciting Pennsylvania businesses.

Alas, the mystery was solved when I saw Matt Miller's article on pennlive.com which stated that the US Attorney's office filed a civil suit against Aaron Williams and his business Pennsylvania Corporate, a California company, for trying to scam Pennsylvania companies with a similar or identical mailing. The mailing indicates that corporations are required by law to have annual meetings and minutes and that the company sending the form will satisfy this requirement for $125. Admittedly, the mailings we received do not have the same language as the mailings referenced in the suit, which stated failure to remit the $125 fee could result in the companies losing their limited liability protection and lead to dissolution, however, the fee charged is identical and the letter certainly creates the appearance that it is a government mailing and a legal requirement, despite the language on the front and the sheet inside pictured above.

In addition, the Pennsylvania Department of State has issued an Important Consumer Alert regarding these letters. If you receive a similar letter in the mail we recommend you do not pay the $125 fee or fill out the form . Instead contact a licensed attorney to assist you with your business matters. Although you will not automatically lose your limited liability protection or be dissolved for failing to keep annual minutes and hold annual meetings, it is still a good idea to keep your records up to date for a number of reasons. First, it helps bring all of the shareholders or members together to discuss the issues facing your business on an annual basis. Second, there is some truth to the assertion that failure to follow corporate formalities could lead to "piercing the corporate veil" in the event you're sued, although it is rare.

Derek Dissinger is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Duquesne University and practices in a variety of areas including Business Law.

IRS Announces Three-Month Extension Following Boston Marathon Explosions

Charlee Schmidt — Thu, 18 Apr 2013 09:42:14 -0500

On the day following the horrible events in Boston on April 15, the Internal Revenue Service announced that it would provide a three month extension for taxpayers affected by the explosions to file and pay their federal taxes.

While the extension automatically applies to taxpayers who live in Suffolk County, Massachusetts, it also applies to victims, their families and first responders who live elsewhere. The extension also applies to taxpayers whose tax return preparers were adversely affected.

During the extension period, no filing or payment penalties will apply. However, interest will still apply to any payments made after the April 15 deadline. Interest will be charged at three percent, compounded daily.

Eligible taxpayers living outside of Suffolk County can claim the extension by calling the IRS at 1-866-562-5227 beginning on April 23. Eligible taxpayers who receive tax penalty notices can also call this number to have those penalties abated.

Within the next week, it is expected that the IRS will issue a notice clarifying the application of the extension and the determination of who will be eligible.

THINK Before You Fire - What Claire Underwood Did Wrong

Christina Hausner — Tue, 16 Apr 2013 10:22:07 -0500

Although I don't spend much time watching TV, I came across the new Netflix series House of Cards in which all 13 episodes were released at once for back to back watching. I enjoyed the series for its political perspective, but found it interesting as an employment lawyer as well.

Claire Underwood played by Robin Wright is the cold and beautiful wife of Francis Underwood, House Majority Whip (Kevin Spacey). Claire is the director of the non-profit Clean Water Initiative (CWI). In the beginning of the season, she fires half her staff, assigning the actual serial ax job to the office manager, who is terminated by Claire immediately after the firings are completed. She then actively recruits Gillian Cole (Sandrine Holt). When Claire first interviews Gillian, she is ill and, even before she is hired, Claire sends her to her personal physician, all expenses paid, a novel recruiting tool. Once she is on the job for a few months, Gillian tells Claire that she is pregnant as an explanation of why she cannot fly on CWI business. Gillian begins missing work periodically, and childless Claire makes a remark questioning her priorities and commitment to CWI. Ultimately, Gillian defies Claire on a matter of principal and Claire fires her on the spot for her insubordination. When Claire is later visited by counsel, we find out that not only has Gillian sued CWI but that she will not accept any monetary amount to settle her claim. Gillian tells Claire that the publicity resulting from her suit will cost CWI, Claire and her high profile politician husband more than any settlement payment and insure a better world for her unborn child. She also has many witnesses happy to testify for her including the former office manager, and adds that any embellishment of her testimony is justified by the need to expose CWI as a sell-out to corporate interests.

The biggest mistake Claire made was impulsively firing pregnant Gillian as an angry reaction to her defiance. There was no plan, no forethought, no documentation of problematic work performance and no consultation with counsel or her Board. Claire acted out of personal anger and did not consider CWI's best interests or the risks associated with such action.

The impersonal and cruel way the former employees were terminated was another mistake. How you fire can be more important than the actual act of termination. This is particularly so in the case of a non-profit which is at least perceived to be more charitable and humane than the for profit business world.

Finally, not such a good idea to get personally involved with a prospective employee's health care. The more you know, the more an improper motive can be assigned to you.

We'll have to wait until the release of Season 2 to find how this works itself out.

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 has practiced in the area of employment law for over 25 years.

Employment Law Lessons From The Penn State Scandal

Christina Hausner — Wed, 03 Apr 2013 10:26:25 -0500

"Lessons from the Lion's Den: Employment Law Takeaways from the Penn State Scandal" is the title of one of the sessions I will be attending at the Employment Law Institute, a gathering of employment lawyers in Philadelphia later this month. I anticipate this will be a popular session as the Penn State scandal has changed much of the way we approach not only employment law but education processes and non-profits' conduct as well.

As a volunteer Master Gardener through the Penn State Cooperative Extension, I have been recently notified that all Master Gardeners must have background checks performed. One of the forms that I just received and must complete, along with all other volunteer Master Gardeners, is a Disclosure Statement in which I must report professional misconduct or sanctions, and any harassment or discrimination that I was found to have committed by any court, adjudicative body or administrative body including, but not limited to, any findings of harassment or discrimination made by present or former employers. I am further to report any felony or misdemeanor for which I was convicted or pled no contest.

Although I am told that engagement in such conduct may not, in and of itself, disqualify me, failure to disclose this information or any misrepresentation is grounds to revoke my volunteer certification as a Master Gardener.

Certainly, criminal convictions in which an individual is afforded due process protection, and which are public record, are something that is reasonable to report. However, findings of harassment or discrimination made by present or former employers is not in the same category. I advise both employers and employees that any internal investigation of harassment or discrimination in the workplace is distinguishable from criminal process in that due process rights do not exist. Someone about whom a harassment or discrimination complaint is made is not entitled to counsel, not entitled to cross-examine his or her accuser and not entitled to notice of interrogation.

Requirements for disclosure, such as I just received, will increase the pressure on both employers and employees to engage in a more legalistic process within the workplace before findings are made that could have long term ramifications.

ARD and Expungement of Criminal Record

Matthew Grosh — Thu, 14 Mar 2013 11:27:36 -0500

We have previously written that one of the most important advantages of the Alternative Rehabilitative Disposition option when facing a DUI is that it will not count as a criminal conviction. Further, once you complete the ARD program, you can have the charges completely expunged from your record. Some of my clients ask me why it is so important to have a clean criminal record (and by clean, I mean having no convictions for misdemeanors or felonies). The following is a list of areas to illustrate how having a criminal record can have a negative impact on your life:

Employment

Employers can generally use your criminal record as a determining factor in hiring and firing, and most employers prefer not to employ those with criminal records. An ARD is no guarantee that the charges or conduct which supported the charges will not be a problem in employment, but there is no question that it is preferable to a conviction or guilty plea that cannot be expunged.

Travel

A criminal record can make it difficult for you to travel outside of the country. Some countries refuse to allow entry and others require you to deal with red tape, such as filling out waivers, releases, and other documents, before they will let you enter.

Housing

A criminal record could also affect your ability to live in a particular place or building. This is not the general rule, but some condominium and planned communities have restrictions preventing sales of real property to persons with criminal records.

Credit

A criminal record can also have a negative impact on your credit score. Primarily, the impact comes from the employment problems discussed above limiting or reducing your income, but it could also impact your ability to obtain certain loans, especially those subsidized with government funds.

Privacy

In Pennsylvania, it is possible to research the criminal court docket in almost every criminal case, including ARD cases. Thus, anyone could go online and find a person's case, the charges against the person and the outcome of the case. Most people are not comfortable with that information being so public.

Family

If you are currently going through custody or a divorce proceeding, this could have a negative impact on your position.

There are various other effects a criminal record can have on your life. If you are charged with DUI, consider speaking with an attorney who can guide you through the process of determining whether you qualify for the ARD program.

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Villanova University and practices in a variety of areas including DUI/ARD.

Teenagers and Custody Issues

Julie Miller — Tue, 26 Feb 2013 10:38:01 -0500

Custody can be a tricky issue no matter what the child’s age. When you add a teenager into the mix, it can be even more difficult to navigate the correct procedures for custodial parents and non-custodial parents to follow. Teens often have strong opinions on which parent they prefer to live with, opinions that can change rather often or unexpectedly. The issue becomes even more clouded when a teen is close to age eighteen. Parents often wonder to what extent they should treat their teens like adults in making major decisions such as which parent to live with.

In my family law practice, I have encountered situations where a non-custodial parent wants to follow the wishes of a teenager and allow him or her to move into their home. For example, the question may be, “Can my sixteen-year-old daughter just move in with me? Even though the Custody Order gives my ex primary physical custody, isn’t she old enough to decide where she wants to live?”

I always caution parents in this situation. Do not allow your teenager to just move in with you on a whim or because he or she is upset with the other parent. The existing Custody Order is an enforceable legal document and non-compliance could result in contempt proceedings being brought against you. Regardless of the fact that the teen could be only months away from the age of majority, a Custody Order is a directive from the Court, and both parents are obligated to comply with it.

That said, the Pennsylvania Custody Act mandates that the Court determine the best interest of the child, including the “well-reasoned preference of the child, based on the child’s maturity and judgment.” The child’s own preference is a factor that is, by law, secondary to their best interest. That means that the outcome is not always what the child wants. However, for teenagers (those over the age of 12), preferences can weigh more heavily in the Court’s decision, depending on maturity level and other factors. My experience is that courts are reluctant to give a teenager carte blanche in choosing which parent they live with. In fact, I have heard Lancaster County judges say many times that this choice is “not up to a teenager.” Parents are the people who make that decision.

Ultimately, it is a parental decision, and if the parents do not come to an agreement about primary physical custody, then it is be up to the Court. When new circumstances arise where a parent may wish to reassess the current custody arrangement – relocation being a prime example, or changes in a child’s preference – it is best to consult with a family law attorney before taking any action.

How Far is Too Far? A Must-Read for Custodial Parents Seeking to Move

Julie Miller — Fri, 15 Feb 2013 12:47:01 -0500

As family law attorneys, we often encounter the issue of relocation in custody situations. I previously wrote about the top custody myths in Lancaster County and addressed a common myth that parents have in custody situations -- "I can move wherever I want and take my children with me." This assumption, as I point out and as Holly Filius expands on in her blog post about changes to the Pennsylvania Custody Act, can be hazardous for parents who do not understand or know about the notice requirements of the law. These requirements are discussed frequently in family law sites and blogs, but what many clients wonder is how far a move has to be in order to trigger the notice requirements required by law. Is it okay to move to the next neighborhood? The other side of town? What about 30 miles away?

The Custody Act defines relocation as any move that significantly impairs the non-custodial parent's ability to exercise custodial rights to the children. Any move that falls under this definition requires the custodial parent (the parent who has physical custody of the child or children the majority of the time) to follow the notice procedures of the Act. This begs the question, how far can a move be before it "significantly impairs" the other parent? Here in Lancaster County, a move is usually considered relocation if the custodial parent proposes to move with the children to a different school district. Changing districts could make it difficult for the other parent to complete the necessary custodial exchanges and take the children to any events or appointments they have while under their care. Although there are some Pennsylvania school districts that are geographically small, rural ones can be spaced far apart so that even moving to the "next district over" could create a significant distance to travel.

I recently was involved with a case where the custodial parent, without advance notice, moved to a home about 50 minutes from the former marital residence where the parties lived together with the child before separating. The custodial parent did not move outside of the county, but did remove the child from the school district in which they were enrolled. Because the 50-minute drive significantly impaired the non-custodial parent's ability to exercise custody of the child, the court ordered that the child be returned to the non-custodial parent. The outcome of that case, which was favorable to the non-custodial parent, most likely would have been much different had the moving parent complied with the relocation provisions of the law.

The lesson for all parents is this: custodial parents seeking to move with children should not only follow the procedure set forth in the Custody Act, but also use common sense. Notify the non-custodial parent in advance of the move. Provide the address, telephone number, name of the school district and the names of the people living in the house. If faced with a proposed relocation by a custodial parent, non-custodial parents need to be aware of their rights, and if necessary consult with an attorney regarding a challenge to a move.

Privatizing the Liquor System in Pennsylvania

Aaron Zeamer — Tue, 05 Feb 2013 10:32:37 -0500

The idea of getting the State of Pennsylvania out of the alcohol business has been kicked around by numerous legislatures over the last couple of years although, to date, none of the proposals have gained enough support to really spark a serious debate. That may be changing. Governor Corbett’s major initiatives for 2013 include ensuring that the privatization of all of the state’s alcohol sales becomes a reality. The big question being asked right now is whether the idea is good for Pennsylvania. The answer to that question seems to depend entirely on your perspective. Whether you are a consumer, a restaurateur, a business owner or simply an interested taxpayer, the answer to whether this idea is a positive thing for the State of Pennsylvania can be drastically different.

As of right now, the proposal is over 200 pages but the following are a few of the specifics which have been circulated thus far:

Full privatization of wholesale and retail alcohol sales;
Wholesale will be brokered by brand, with a valuation formula used to determine the cost of each item;
The holder of a wholesale license has the right to distribute the brand statewide;
The creation of five retail licenses:
- Wine and spirits retail license;
- Big box stores;
- Grocery stores;
- Pharmacies; and
- Convenience stores;
Limits will be set for some of the foregoing license categories while others will be application based with no set limit;
Beer distributors will have the ability to enhance their licenses in order to sell wine and they will be able to purchase a wine and spirits retail license to sell a mixed six pack; and
Restaurants and hotels will be able to sell six bottles of wine and up to a thirty pack of malt or brewed beverage for off-premise consumption by paying an annual fee.

Looking at the above proposals, from a consumer’s perspective, the privatization and the above additional options for consumers would provide significant convenience and conceivably would result in better prices because of increased competition. Furthermore, adding additional retailers to include some of the large retail outlets which appear in many other states would also likely provide for additional selection and larger inventories for some retailers.

From the perspective of an individual or a business who is already involved in alcohol sales, there is likely to be significant opposition and pessimism with regard to the proposed plan. Currently, as consumers are well aware, options to purchase alcohol are generally limited in Pennsylvania. The current licensees and business owners likely will want to keep it that way to protect their market. There also seems to be limited incentives for current licensees under the new program. Specifically, while restaurants have the ability to sell additional quantities of alcohol under the new proposal, it is unlikely that the vast majority of restaurants will be interested in selling thirty packs or multiple bottles of wine. Also, individuals who currently own or operate a retail distributor, unless they wish to enhance their license to sell wine and mixed six packs, there is little benefit to them as well. More specifically, for the current retail distributors, there is going to be significant added competition by the big box stores, grocery stores and even pharmacies and convenience stores. Customers may not be able to purchase larger quantities of alcohol at the pharmacies or convenience stores; however, simply having the option is likely to cut into some of the business that current distributors enjoy.

From a taxpayer’s perspective, and depending on your ideological alignment, some individuals may just desire for the state to remove itself from the alcohol sales business. There has long been a debate about whether a state should be in the business of selling alcohol and the privatization plan would certainly eliminate that concern. From a purely tax perspective, the Governor’s office has indicated that there would be no significant loss in revenue to the state as a result of the privatization. The initial projections are that the state would lose approximately $500,000,000. in revenue from alcohol sales but would have significant cost savings in not having to operate the stores and employ the workers to run them. There is also an expected increase to the state in application fees and fines collected in enforcement of the liquor laws.

Whether the privatization of the sale of all alcohol in Pennsylvania will generate enough support to become a reality in 2013 remains to be seen. A Sunday News article summarizes opinions of some local residents and legislators. You can be certain that you will hear about this issue throughout the remainder of this year from all sides of the debate.

Aaron Zeamer is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. He received his law degree from Widener University and practices in a variety of areas including Business Law and Liquor License matters.

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

Craig Russell — Wed, 30 Jan 2013 11:48:30 -0500

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.

Pointing to the ethics of the disclosure in this case and citing Shakespeare “truth will come to light; murder cannot be hid long”, (Shakespeare, Merchant of Venice, Act I, Scene II). The Court's opinion points out that the reputation of a property can have an economic benefit as well as a detriment. “George Washington slept here” is worth something and ill will, conversely, may depress the value of a property. To the extent the buyer in this case would have been able to prove casual connection between a significant reduction in value and the non-disclosed murder/suicide, such non-disclosure would amount to a “material defect” requiring it to be spelled out under the seller’s disclosure statement.

However, not only did the Court decide that psychological damage to a property cannot be a material defect and disclosure is not required under the Disclosure Act, the Court also considered whether or not the failure to disclose amounted to common law fraud or violated the provisions of Pennsylvania’s Unfair Trade Practice and Consumer Protection Law. Under neither theory is disclosure required. Under common law fraud, liability exists only for failing to reveal objective material defects which the Court concluded was not the case with psychological damage. The Court also determined that the seller in this case simply did not engage in any deceptive conduct. The seller merely declined to inform the buyer about a fact of which the seller was under no obligation to disclose.

Although I haven’t seen a list of haunted houses in Pennsylvania, I did come across this disclosure of 6 real all-American haunted houses. If you happen to be a buyer who is in the market for a haunted house, this might be a place to start.

Craig Russell is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Temple University and has been practicing in the area of real estate law, both commercial and residential, for over 40 years.

Adoption Tax Credit Survives Fiscal Cliff

Matthew Grosh — Tue, 22 Jan 2013 10:29:40 -0500

There is good news for taxpayers who have recently adopted a child or are planning to adopt a child in the near future: the adoption tax credit, which I have discussed in previous posts, has survived the fiscal cliff. The American Taxpayer Relief Act of 2012, which was passed by Congress and signed by President Obama on January 1, 2013, permanently extends the adoption tax credit.

In general, the credit allows parents to apply the ordinary and necessary expenses involved with adoption, including attorney fees, travel expenses, adoption fees and court costs, against their federal tax liability. Because the maximum amount of the applicable credit is indexed for inflation, the amount changes from year to year. For 2012, the maximum credit is $12,650 per adopted child.

There are, however, some income restrictions. The tax credit begins to phase out at income levels that reach $189,710. Any taxpayer with an adjusted gross income over $229,710 is prohibited from utilizing the credit.

One potentially negative change is that the credit is no longer “refundable”, which means that it can only be applied toward existing tax liability. For example, if your tax liability for 2012 is $8,000, the credit can be used against that entire amount. However, because the credit is not refundable, the taxpayer will not receive a refund of the additional $4,650 that the credit provides for. If the credit were refundable, which it was for tax years 2010 and 2011, the taxpayer would receive additional $4,650 as a refund from the IRS.

Care should be taken when claiming the credit because there are numerous procedural steps that need to be met. In addition, there are expense substantiation requirements, however the substantiation rules are relaxed to some extent with regard to taxpayers who adopt children with special needs. Moreover, taxpayers who claim the credit will increase the likelihood that they will face an Internal Revenue Service audit. As a result, I strongly suggest consulting with a tax professional to determine how to calculate the credit and properly claim it on your tax return. For more information, please see the IRS website.

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree and LL.M. in Taxation from Villanova University

Nonprofits and Deferred Compensation Plans

Matthew Grosh — Thu, 17 Jan 2013 11:01:26 -0500

One challenge many nonprofit organizations face is competing against for-profit businesses to attract key employees and administrators to run their operations. More often than not, nonprofits just do not have the funds to match their for-profit counterparts. Fortunately, there are plenty of qualified administrators out there who are willing to take a lower salary from a nonprofit because they believe in that organization’s mission. However, there is another incentive that most nonprofits have that is not available to for-profit businesses: Section 457 Deferred Compensation Plans (“457 Plans”).

As the name suggests, 457 Plans are authorized by Section 457 of the Internal Revenue Code. This section allows tax-exempt organizations and government agencies to establish a deferred compensation plan for key employees. Each year the nonprofit can divert a portion of the employee's salary (up to $17,500 in 2013) into the 457 Plan instead of paying it directly to the employee. Because those funds go into the Plan the employee is not taxed at that time. Instead, taxes on the amount diverted into the Plan are postponed until the Plan is authorized to dispense funds from the 457 Plan to the employee.

The Plan then acts similarly to a pension or 401K plan in that the money accumulates from year to year in the Plan and generates income on investments. As a result, these Plans are extremely helpful in helping a nonprofit’s key employees plan and save for retirement. Another advantage of a 457 Plan is that the tax on the income on those investments is also postponed until the employee actually starts receiving benefits from the Plan.

Section 457 is clear that the employee cannot begin receiving benefits until the employee reaches the age of 70 ½, the employment relationship with the nonprofit ends or the employee faces an unforeseeable emergency, whichever is earlier. In addition, the employee can designate beneficiaries to receive benefits upon the employee’s death. Taxes are then paid on the funds as they are disbursed to the employee.

Another advantage of 457 Plans is that they are fairly flexible. They can be funded with direct payments of cash, but also by life insurance premiums and annuities. Moreover, the funds in the Plan can be used as collateral by a nonprofit organization seeking a loan.

Of course setting up a 457 Plan requires care because there are several technical requirements that need to be met. As a result, I strongly suggest that a nonprofit organization considering establishing a 457 Plan consult with a tax law professional. For more information also see the Internal Revenue Service website.

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree and LL.M. in Taxation from Villanova University.

The Effect of Fiscal Cliff Legislation on Estate Planning

Matthew Grosh — Fri, 11 Jan 2013 14:45:56 -0500

In a previous post, Disclaimer Trusts – a Flexible Option in an Uncertain Estate Planning World, I discussed the uncertainty that the then looming “fiscal cliff” crisis created in the estate planning world. Now that the “fiscal cliff” has been averted through the American Taxpayer Relief Act of 2012 (the “Act”), which was approved by Congress on January 1, 2013, such uncertainty has been eliminated.

Prior to the Act, in 2012 estates valued below $5,120,000 were shielded from the federal estate tax by the estate tax credit. If the Act had not been approved by Congress, beginning in 2013, the credit against the estate tax was scheduled to fall to only $1,000,000. This created some confusion with clients who did not know if the estate tax would apply to them because their estate values fall somewhere between $1,000,000 and $5,120,000.

The Act did several things to clear up such uncertainty. First, the Act has permanently set the credit against the federal estate tax at $5,000,000, indexed for inflation. Thus, my clients whose estates are between the $1,000,000 and $5,000,000 values now know that the federal estate tax will not apply to them.

The Act also made the “portability” of the credit permanent. The portability provisions essentially allow the estate of a decedent to make an election permitting his or her surviving spouse to transfer the unused portion of the decedent's credit against the estate tax to the surviving spouse. The surviving spouse can then use that additional credit against lifetime gifts and against the estate tax at his or her death.

For example, if Bob passes and his estate uses only $2,000,000 of his credit, his estate can transfer his $3,000,000 unused credit to Betty, his surviving spouse. Adding that amount to the $5,000,000 credit she already had, Betty now has an $8,000,000 credit that she can use against lifetime gifts or against the estate tax at her death.

Prior to the Act, the portability provisions with regard to the estate tax only applied where both spouses passed between December 31, 2010 and before January 1, 2013. This meant it was rarely useful. However, now that the portability provisions have been made permanent, they will generally be available to all decedents with a surviving spouse, no matter when the surviving spouse passes.

However, the elimination of uncertainty did not come without a cost. The Act raises the top tax rate on estates and gifts to which the tax applies from thirty-five percent to forty percent. Apparently, the debate over the federal estate tax was one of the potential deal breakers in the Senate. Republicans wanted a complete repeal of the estate and gift tax while President Obama sought a forty-five percent tax rate with a $3,500,000 credit. Thus, the changes made by the Act were the result of concessions by both sides.

Planning for your estate, especially if federal estate taxes may be involved, can be a complex matter. However, it is also an important matter so I highly suggest consulting with an estate planning professional if you have any questions about your estate planning needs.

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Villanova University and practices in a variety of areas including Estate Planning.

The Anatomy of a Refinance

Derek Dissinger — Tue, 08 Jan 2013 14:52:08 -0500

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.

If you are in the unfortunate position that your home has lost value since you purchased it, refinancing may not be an option, because cash would have to be brought to closing so that the bank's loan is within a certain loan-to-value ratio, generally 80-90%. What this means is that the amount of the loan, divided by the home value, comes to one of these percentages. For example, if the bank requires 80% loan-to-value and your principal balance of your mortgage is $180,000, your home would need to appraise for $225,000. If it appraised for less, you would be required to pay the difference.

For borrowers whose homes have lost value, there is the option to refinance through the Home Affordable Refinance Program (HARP). The eligibility requirements are provided on the government's website, but generally a loan is available to cover 105% loan-to-value, which provides assistance to borrowers who purchased their homes right before the recession began. For more information on these type of refinances, visit www.makinghomeaffordable.gov. Most local mortgage lenders can also assist you with these loans.

Happy Holidays!

Charlee Schmidt — Fri, 21 Dec 2012 11:27:44 -0500

We wish all of you a happy and safe holiday! Our office will be closed on Monday, December 24^th and Tuesday, December 25^th.

Holiday Custody Schedules Don't Have to Cause Holiday Stress

Julie Miller — Fri, 14 Dec 2012 16:32:08 -0500

I once had a client call me on Thanksgiving Day because she had a custody dispute with her ex-husband about who was to pick up their child at 4 p.m. The police were called and actually intervened, their child was distraught and the entire holiday was ruined for everyone, extended families included.

Without fail, every year after the holiday break I receive calls from clients with concerns about problems that arose during a custody exchange or the late arrival of a parent. Folks, juggling holiday activities with children is difficult even for intact families. It only gets more difficult when parents are separated and have their own individual plans for celebrating. My advice for making sure that you and your kids get through the holidays without a lot of aggravation and stress about custody issues is to plan ahead. Know what the holiday schedule will be well in advance of the holidays. If that means hashing it out with your ex weeks or months in advance, then do it. If you're having difficulty reaching an agreement about a schedule, transportation or exchange times, seek the input of an attorney to clarify what your rights and obligations may be.

Embracing the holiday and focusing on making this a joyous time for your children can help you to successfully make it through the holiday season .

The EXTRAordinary Give- Making a Difference in Our Community Today!

Charlee Schmidt — Fri, 30 Nov 2012 09:28:44 -0500

Today is Lancaster County’s first 24-hour online giving challenge. The Lancaster County Community Foundation has set aside $250,000 to match a portion of donations made to preregistered nonprofits on November 30, 2012. There will also be an additional $50,000 in prizes offered throughout the day.

You can make your donation at www.extragive.org today until 11:59 pm. This is your chance to donate to those nonprofit organizations that benefit the community you live, work, and play in.