Pennsylvania Counties Are Prepared for Disaster Are You? Every county in Pennsylvania is statutorily

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1 Real Estate Update AUGUST 2006 Pennsylvania Counties Are Prepared for Disaster Are You? A fter Hurricane Katrina ravaged New Orleans and the Gulf Coast, every listserv connected with the real estate legal community circulated s with questions about the condition of courthouse records and recorded documents such as deeds, easements and mortgages. These documents a vital part of the real estate economic engine of a community were in buildings that in many cases were under water. Without access to such documents, properties could not be bought and sold, title could not be established and rights of parties to the use of properties could not be determined. Over and over people asked, What happens now? The question resonates beyond the Gulf Coast and other hurricane-prone areas. Pennsylvania has 67 counties, each storing invaluable real estate records, and each with a different level of preparedness for disaster. Some counties have set up sophisticated computer tracking systems for recorded documents, others have only just begun to develop such systems. If a massive hurricane or other catastrophe struck any part of Pennsylvania, would important real estate documents be safe? Anyone old enough to recall the devastation that followed In This Issue 3 New Rules Likely to Spur CDBG Use in Brownfields 4 National Flood Insurance Program: The Basics Every county in Pennsylvania is statutorily required to maintain recorded documents records digitally or on microfilm. Hurricane Agnes in the Wilkes-Barre- Scranton area in 1972 knows this is not an abstract question. And not all potential damage is weather-related fires and other disasters could easily cause widespread damage to real estate documents. To help measure the level of risk, Pepper surveyed several county Recorder of Deeds offices in Pennsylvania to find out how prepared each county is to protect recorded documents in the event of a natural disaster or other casualty. Our survey included Allegheny, Washington, Westmoreland, Chester, Delaware, Montgomery, Bucks and Philadelphia counties. We found good news. Every county in Pennsylvania is statutorily required to maintain recorded documents records digitally or on microfilm (65 P.S (1998)). All of the counties surveyed met this requirement, and some went beyond this requirement with more than one back up system in place. However, no county surveyed had a written policy for document retention and protection, and only one, Montgomery County, had begun work on such a policy. Allegheny County has several back-up systems. As required by statute, Allegheny County places all documents on 35 mm archival film, and stores these films in a separate location. In addition, the county scans new documents into a server as they are recorded and the data is transferred daily to a CD. Allegheny also has its documents available on the Internet, with scanned document images available back to September 2001, and subdivision plans available back to The county is continuing to scan its documents, moving backwards from Washington County places all documents on 35 mm archival film, which is stored off site. It also keeps hard copies on site. Westmoreland County scans all recorded documents into a computer database. It keeps a copy on site and sends an additional electronic copy to the county courthouse. Also, the recorder s office keeps electronic copies off-site at a secure location in Ohio. In addition, the courthouse sends all electronic copies to an off-site location, which includes copies of documents that the recorder s office has provided to them. Chester County scans in all recorded documents. At an off-site location, Chester County keeps a replicated server that replicates the main production server on site and backs up material every four minutes. The county also has a contract with an archival company that gathers copies of images of recorded documents and makes Disaster continued on page 2

2 Disaster, continued from page 1 them available to the recorder s office and via the internet. Records also are maintained on microfilm and burned on CD. Chester County sends copies of its microfilm to Boyertown, Pennsylvania to be stored in underground facilities known as the caves. The county has microfilmed documents dating back to Additionally, Chester County maintains a contract with a flood preservation vendor who is on standby to freeze-dry any documents that become wet and restore them at an off-site facility. Delaware County microfilms all recorded documents. Master copies of the microfilm are maintained at the recorder s office and copies are sent to the caves in Boyertown for preservation and storage. The county also maintains a contract with a vendor in South Carolina which electronically gathers images of the recorded documents on a daily basis. This vendor has images dating back to 1982 available. The vendor is continuing to gather data going backward in time and will eventually gather all documents dating back to the 1700s, which will then become available via the Internet. Montgomery County scans its recorded documents into a computer database with a mainframe backup maintained at the county courthouse. The county also burns images of the documents onto CDs and ships these CDs to an off-site vendor that creates a microfilm copy. The master copy of the microfilm is maintained at the recorder s office with copies sent to Boyertown for preservation and maintenance. The county also maintains a contract with a vendor in South Carolina that electronically gathers images of the recorded documents on a daily basis and makes them available via the Internet. Bucks County microfilms all documents. Copies of the microfilm are sent to the caves in Boyertown for preservation and maintenance. The county also maintains a contract with a vendor in South Carolina that electronically gathers images of the recorded documents on a daily basis. While no system is foolproof, most counties have built in redundancies to protect valuable information should the primary system be compromised. Philadelphia County, Lancaster County and Lehigh County follow similar retention procedures as those listed above. All have contracted with vendors that electronically gather images of the documents on a daily basis and retain them at off-site facilities. From our admittedly less than scientific survey, it appears that Pennsylvania s counties have systems in place to adequately protect real estate recorded documents. While no system is foolproof, most counties have built in redundancies to protect valuable information should the primary system be compromised. However, businesses (and individuals where applicable) can take simple steps to protect themselves: adopt a written retention policy for important documents and keep specific records of where such documents are located on and off-site keep building and floor plans at an easily accessible off-site location to help identify key areas in the company s facilities, such as electrical boxes, master telephone switches; computer server rooms, to enable personnel to quickly identify critical areas for recovery purposes protect deeds, easements and other recorded documents in a fireproof safe. For individuals, small versions of these safes are available in any office supply store. keep multiple copies of a property title policy (and copies of the documents referenced in the title report) along with conveyance deeds and any recorded encumbrances occurring after the policy issue date, in more than one place (preferably on and off-site in easily accessible areas) to aid in the recovery of such documents in the case of a casualty keep contact numbers for your mortgage company and title company in a secure place that can be easily accessed after a casualty choose a reputable title company that has the capacity to store information on recorded documents for their property transactions, and a title company that has a valid back-up system for such documents in place. The vital role that title companies have played in producing necessary title information in the aftermath of a natural disaster cannot be downplayed. The storage policies of a title company can mean the difference between reproducing a recorded document in time to protect yourself after a disaster or waiting for months, or even years, until such information can be reconstructed. Protecting real estate documents is not the first thing that comes to mind when thinking about disaster preparedness, yet it can be a critical issue. While it is impossible to prepare for every potential disaster, having a plan in place before disaster strikes can help give peace of mind and avoid at least one potential problem in the chaotic aftermath. Author: Christine S. Kimmel kimmelc@pepperlaw.com 2

3 New Rules Likely to Spur CDBG Use in Brownfields T he U.S. Department of Housing and Urban Development (HUD) recently published its Final Rule for Community Development Block Grant (CDBG) funding of brownfields cleanup and remediation of other environmental contamination. Although the final rule leaves the previously published proposed rule substantially intact, it does make noteworthy changes in response to industry comments. CDBG regulations now provide greater direction to grantees and industry participants who use CDBG funds for redevelopment of abandoned, idled or under-used properties where expansion or redevelopment is complicated by the presence or potential presence of environmental contamination. The regulations now unambiguously expand the slum or blight national objective criteria to include known and suspected environmental contamination as blighting influences. The final rule also permits CDBG grantees to adopt definitions for blighting influences based on state or local law provided grantees retain site specific applications and records to support blighting definitions. In addition, an area s slum or blighted designation must be reevaluated every 10 years for continued qualification. HUD s Proposed Rules In 1998, Congress made clear its intent to open the CDBG program for use as an environmental clean-up tool, including a specific statement in its 1999 HUD Appropriations (P.L ) to make CDBG available for environmental remediation and related brownfields projects. While this opened the door for expanded brownfield activity, some regulatory impediments remained. To use the block grants for environmental remediation, a loose interpretation of national objectives as stated in existing rules was required. The regulations now unambiguously expand the slum or blight national objective criteria to include known and suspected environmental contamination as blighting influences. On July 9, 2004, HUD published proposed rules to conform existing regulations for CDBG use in brownfields cleanup, development or redevelopment, within existing CDBG eligibility categories. The proposed rules also changed CDBG s national objectives as they relate to brownfields and attempted to clarify other confusing regulatory language. Final regulations and a response to public comment were published in the Federal Register on May 24, 2006, and became effective on June 23, Final Rule Changes Since HUD s 2004 regulatory revision was considered adequate with respect to its clarification of CDBG availability for Brownfield and other environmental cleanup efforts (and inclusion under slum or blight criteria), the final rule made few specific changes. The proposed regulations, however, were over-restrictive in the modification of slum and blight requirements. HUD s initial effort mandated that at least 33 percent of all properties in a slum or blight eligible area meet one or more specifically listed conditions. In addition, the slum or blight designation for any given area was subject to re-determination every five years. Both of these conditions were significantly revised. Percentage of Property in Blighted Area. HUD s proposed rule required properties in a slum or blight area meet one or more specifically listed conditions for designation, including: deteriorating or deteriorated buildings or improvements abandonment chronic high turnover or vacancy significant property value decline or abnormally low property values environmental contamination. Although grantees were offered limited ability to define these conditions, an area that had already reached the 33 percent threshold for deterioration also may have entered a downward spiral that could not be reversed without extraordinary financial assistance. Many who commented on the proposed regulations argued that areas ripe for improvement with CDBG funds would be lost due to the unnecessarily high threshold, which had not previously existed for the slum or blight designation. The final rule states that only 25 percent of properties throughout the area must meet one or more of the conditions, and that an open parcel might be considered vacant for these purposes. Need for Re-Determination of Blighted Designation. HUD s proposed rule required that any area designated as slum or blight be subject to review and re-designation every five years. Commentators pointed out that this would trouble long-range planning and overburden administrators. Some commentators even CDBG continued on page 4 3

4 CDBG, continued from page 3 argued for a 40-year designation cycle. While HUD was unwilling to stretch that far, it did make an adjustment. Final regulations now require CDBG recipients to maintain documentation on the boundaries of the slum or blighted area and the conditions and standards under which it initially qualified. Re-designation review, however, is required only once every 10 years. CDBG use in brownfields and environmental remediation has increased steadily over the past two years. With final regulations now in place, and taking into account matters discussed above as well as technical revisions for displacement, relocation, lead paint and asbestos remediation, CDBG funding is likely to continue to grow as a tool for meeting environmental challenges to community redevelopment projects. Authors: Blair L. Schiff schiffb@pepperlaw.com Scott Fireison fireisons@pepperlaw.com National Flood Insurance Program: The Basics T he stark images of New Orleans underwater in the aftermath of Hurricane Katrina served as a reminder that flood risks are a required consideration in most decisions to build or to rebuild. Evolution of Federal Program Federal flood control activities have evolved as the government continues to seek ways to mitigate the consequences of flooding. Until the mid-1960s, federal involvement was limited to flood control projects, such as dams or levees. However, private insurance companies were not able to provide flood insurance at affordable rates, and flood losses and the cost of disaster relief continued to rise. As a result, legislation passed by Congress in 1965 to provide relief to victims of Hurricane Betsy also authorized a study of the feasibility of national flood insurance, which eventually led to the National Flood Insurance Act of The 1968 Act, which created the National Flood Insurance Program (NFIP), sought to provide relief to individuals for losses through flood insurance, to reduce additional losses through State and community floodplain management, and consequently to reduce federal costs for flood control and disaster relief. (The program was extended to cover mudslides in 1969 and flood-related erosion in 1973.) The NFIP tasks included identifying and mapping floodplains resulting in Flood Insurance Rate Maps (FIRM) to help educate people about potential risks and provide information required for floodplain management and the flood insurance program. Under the 1968 Act, if a community adopted and enforced a floodplain management ordinance to protect new construction from flood hazards, subsidized insurance rates were available for buildings in flood hazard areas before a FIRM was developed for the community. Initially, the federal government relied on the incentive of subsidized flood insurance to achieve the desired goal of shifting development from flood prone areas. However, experience demonstrated that this was not sufficient. In 1972, Tropical Storm Agnes caused extensive river flooding in the northeastern United States. Most of the affected property was uninsured, and the cost of disaster relief was as high as for any prior flood disasters. In response the Flood Disaster Protection Act of 1973 moved beyond strictly voluntary measures. Under the 1973 Act, federal agencies are prohibited from providing financial assistance for acquisition and construction of buildings in communities that failed to participate in the NFIP by designated deadlines. Additionally, federally regulated or insured lenders and federal agencies were obliged to require flood insurance for loans or grants for acquisition or construction of buildings in Special Flood Hazard Areas (SFHAs). (An SFHA has been defined as land in a floodplain that has at least a one percent chance of flooding in any year, commonly referred to as a 100-year flood.) Today, regulated lenders are still obligated to require flood insurance for property located in SFHAs in participating communities, although the 1973 Act was amended in 1977 to permit lenders to make conventional loans for property located in SFHAs in non-participating communities, if the lenders notify the owner or lessee about whether federal disaster assistance will be available. In 1994, the 1968 Act and the 1973 Act were amended by the National Flood Insurance Reform Act, which among other things imposed new requirements on mortgage originators and servicers (including mandatory escrows for flood insurance and mandatory provisions for forced placement NFIP continued on page 5 4

5 NFIP, continued from page 4 of insurance); codified the Community Rating System of the NFIP, which provides flood insurance premium discounts for communities that establish programs that go beyond NFIP minimum requirements; and provided added emphasis on activities designed to further mitigation of future flood damage. Flood Hazard Identification and Assessment By statute, the Federal Emergency Management Agency (FEMA) must identify and evaluate flood risks. From the beginning, the NFIP has used the 100-year flood as the standard (referred to as the Base Flood). Since information necessary to define flood risks necessarily requires time to develop, the insurance program began on an emergency basis with Flood Hazard Boundary Maps that identified only the boundaries of 100- year flood floodplains on an approximate basis. For most communities, a more detailed study was subsequently conducted, typically using engineering methods based on computer models and/or statistical techniques. A detailed Flood Insurance Study (FIS) typically includes identification of the following: 100-year flood elevations (Base Flood Elevations, or BFEs) in terms of either water-surface elevations or depth of water flow above ground water-surface elevations for the 10-year, 50-year, 100-year and 500-year floods boundary of the regulatory floodway (for non-coastal SFHAs), which is a stream channel and adjacent floodplain areas that must be kept free of encroachment so that discharge of the Base Flood (100-year flood) does not increase the Base Flood Elevation by more than one foot boundaries of the 100-year floodplain (the Special Flood Hazard Area, or SFHA) and the 500-year floodplain with the results included in a Flood Insurance Rate Map (FIRM). Recent efforts by Congress to refine and extend the flood legislation have included a focus on the problem of repetitive losses. Flood elevations for rivers, streams and lakes are determined by taking into account precipitation and runoff, with SFHAs identified as A Zones on the applicable FIRM. For coastal areas, factors include storm surge, wind direction and speed, and wave heights, with SFHAs identified as either A Zones or V Zones where V Zones are the more hazardous areas with conditions that support damaging waves of at least three feet in height. FEMA has issued guidelines that provide technical requirements and specifications for Flood Hazard Maps and related matters. A draft FIS is developed under procedures found in 44 CFR Part 65 and Part 66. Before the FIS becomes final, it is subject to a statutory public comment and appeals period, where property owners and tenants have an opportunity to challenge elevation determinations based on scientific or technical objections. FEMA has developed several procedures for amending current FIRMs, including a Letter of Map Amendment (LOMA) to correct a map when a specific property has been inadvertently included in an SFHA, a Letter of Map Revision (LOMR), a Letter of Map Revision based on Fill (LOMR-F) and a Physical Revision and Republication (PMR) to document changes, generally based on manmade changes to the floodplain. Properties may be removed from the 100- year floodplain based on protection from a levee or floodwall system that meets criteria set forth in 44 CFR As Katrina demonstrated, relying on a protective system can be catastrophic if the system fails to provide the expected protection whether because the system fails or the flood event exceeds the 100-year flood design basis. A significant percentage of the flood maps are now more than ten years old. FEMA recognizes that these outdated maps require modernization. As development occurs, flood hazards generally increase, and outdated maps tend to understate flood risks. In addition, current techniques promise more accurate, useable products. Unfortunately, FEMA lacks the funding required to implement its proposed map modernization plan. Floodplain Management A community must adopt and enforce a floodplain management program that meets NFIP criteria before FEMA can provide flood insurance for property in the community. The program requirements are designed to minimize future flood damage. As a general rule, a new or substantially modified building in an A Zone must have the lowest floor elevated to at least the Base Flood Elevation, and a new or substantially modified building in a Z Zone must be elevated so that the bottom of the lowest horizontal structural member of the lowest floor is at or above the Base Flood Elevation. As indicated, these requirements apply to both new buildings and those that are substantially improved or substantially damaged meaning the cost of the improvement or restoration is 50 percent or more of the market value of the building. Also, for non-coastal A Zones, a community must designate a regulatory floodway that can carry away water from a 100-year flood without increasing surface water elevation more than one foot at any point. National Flood Insurance Flood insurance covers damage and loss to real and personal property caused by floods. NFIP continued on page 6 5

6 NFIP, continued from page 5 Under the NFIP, policies are issued both by state licensed property and casualty insurance brokers and agents who deal with FEMA, and by private insurance companies who issue policies and adjust claims under the Write Your Own program. Generally there is a 30-day waiting period before a policy becomes effective, which is designed to prevent the opportunistic purchase of flood insurance in connection with progressive river flooding. There are three policy forms: (1) Dwelling Form for 1-4 family buildings and individual condominium owners, (2) General Property Form for more than four-family residential and non-residential buildings, and (3) Residential Condominium Building Association Policy Form for condominium associations. Residential buildings under the first two forms are eligible for up to $250,000 building coverage and $100,000 contents coverage. Non-residential buildings are eligible for up to $500,000 building coverage and $500,000 contents coverage. Under the third form, a condominium association can purchase building coverage that includes all of the units and improvements in the units for up to $250,000 building coverage per unit and $100,000 The devastation caused by the 2005 hurricane season has led to further examination of the difficult questions surrounding decisions to rebuild in flood-prone areas. contents per building. Certain other types of coverage are also available, depending on the form. The Problem of Repetitive Losses Recent efforts by Congress to refine and extend the flood legislation have included a focus on the problem of repetitive losses. For example, the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 established a pilot program for mitigation of repetitive loss properties (i.e. currently insured properties that have experienced two or more flood losses of more than $1,000 each within a 10-year period). The devastation caused by the 2005 hurricane season has led to further examination of the difficult questions surrounding decisions to rebuild in flood-prone areas. Is it appropriate to continue to rely on New Orleans levees to protect against future flood? If the answer is yes, but only if sufficient funding is available to properly maintain the levees, what happens when promised funding is not made available? What are the consequences of writing off an entire city? Can we afford to rebuild New Orleans? Can we afford not to? The answers to questions such as these will inevitably have a profound effect on future development of our national policy on flood hazards Author: Vicki R. Harding hardingv@pepperlaw.com PEPPER2 A Pennsylvania Limited Liability Partnership The material in this publication is based on laws, court decisions, administrative rulings and congressional materials, and should not be construed as legal advice or legal opinions on specific facts Pepper Hamilton LLP. All rights reserved. 8