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Services Available
Federally Assisted Housing and Community Development Programs
Our practice in this area is supported principally by a number of lawyers in our Washington, D.C. office, with other attorneys with relevant experience in our other offices. The practice is national in scope. We work on matters throughout the country closing loans, handling various aspects of housing and community development projects, and obtaining public financing for projects, as well as implementing legislative, regulatory and litigation strategies in Washington, D.C. and in various jurisdictions throughout the country.
We represent clients directly with the U.S. Department of Housing and Urban Development (HUD), the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Department of Defense (DOD), the Federal Reserve Board (FRB), the Office of Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Internal Revenue Service (IRS).
Our close physical proximity to these agencies and our experience with their programs is particularly helpful in obtaining agency approval of business plans, defending against administrative enforcement actions for alleged regulatory violations, resolving disputes over use of grant funds, and negotiating the purchase of assets from government agencies. It also facilitates participation in available agency financing programs, negotiating workout arrangements on troubled properties, and keeping abreast of pending legislative and regulatory requirements and their impact on our clients and their business activities, whether profit, nonprofit, or governmental.
Our clients include virtually all of the participants in the housing process: lenders, mortgage and investment bankers, public housing agencies, managers, contractors, underwriters, developers, national and local nonprofit entities, and mortgage insurance companies. We are active in and familiar with all HUD housing, community development, public housing, Empowerment Zones, FHA and GNMA programs, the multifamily programs of Fannie Mae and Freddie Mac, and the requirements of the Community Reinvestment Act (CRA), as well as a number of state housing finance agency and public housing authority programs and the evolving programs of the Department of Defense. We represent nonprofit and for-profit housing developers and managers and have organized scores of nonprofit development entities, as well as nonprofit/for-profit joint ventures to take advantage of federal funding opportunities.
Beyond performing the basic legal work necessary to structure and close transactions, we assist clients in identifying potential opportunities and problems as well as keeping them informed of other available options. In representing nonprofit and public entities, we normally become key members of the client's organization. We do not just "lawyer" or "paper" a deal. Clients rely on us to provide advice and counsel beyond the scope of conventional legal issues, and often ask us to evaluate or resolve all manner of issues, including underwriting assumptions, feasibility, program design, social service components, operation and compatibility, as well as other "business" issues.
We are active in virtually every national professional organization and trade association involved in these issues, and speak regularly at their meetings. In addition to project-specific services, Pepper lawyers often prepare summaries of federal and local real estate law requirements, including those established under the Internal Revenue Code, HUD regulations and program guidance handbooks, and local zoning and property tax ordinances. Additionally, the firm publishes the Housing Update, a periodic review and analysis of current affordable housing legislative and regulatory developments.
As lenders', owners' and agency counsel, our attorneys have been involved with public sector entities, including local governments, special-purpose authorities and nonprofit developers in constructing, rehabilitating and managing low- and moderate-income housing receiving federal and state financial assistance. We negotiate on behalf of clients with federal departments and agencies and, when necessary, we institute or respond to litigation in federal and state, trial and appellate courts.
In addition to providing legal advice and analysis of applicable federal laws and regulations along with evaluation and use of state financing support and applicable requirements for assistance, we have provided advice regarding the operating of public housing projects and low-rent housing programs, as well as structured development activities and the use of federal funds. We have counseled owners, lenders and purchasers in HUD multifamily loan and property sales as well as in HUD's Section 236 decoupling, and Mark to Market programs. We have undertaken such diverse tasks as reviewing and revising required federal eviction procedures and leases to assisting in obtaining special purpose federal grants, ranging from assistance with Enterprise Zone applications to preparation of proposals for special rehabilitation grants. Our attorneys have helped local governments prevent threatened HUD litigation to take over local government programs and activities, and have represented developers, managers and lenders in HUD debarment and Justice Department proceedings.
We have assisted in disputing various Inspector General audit findings against local governments and developers. We have restructured HUD-FHA-insured and Section 202 loans, Elderly Direct Loans, Urban Development Action Grants (UDAGs) and Housing Opportunity Development Action Grants (HODAGs) and helped prevent attempts by HUD to terminate UDAG financing or recapture HODAG grants. Our attorneys have also been successful in obtaining the benefits of HUD's LIHPRHA and ELIHPRHA programs for our clients.
Mortgage Lending
We are experienced in representing lenders in conventional apartment and commercial property mortgage financing transactions, as well as the multifamily, health care and seniors' housing programs of Fannie Mae, Freddie Mac and HUD. Our services include the documentation and closing of loans secured by projects throughout the country, and advising lender clients of rights and remedies flowing from the origination, sale, pooling, securitization, and servicing of multifamily and commercial mortgage loans. We understand the subtleties of the various lending programs under which the loans were made, in addition to variations dictated by the peculiarities of individual jurisdictions such as Mortgage Consolidations (New York, Maryland and Florida), Texas Title Requirements and Illinois Land Trusts.
With specific reference to the "governmental" programs of Fannie Mae, Freddie Mac and HUD, our lender representations include, as necessary, legal support at all levels of the loan closing process from drafting the loan commitment to delivering loan servicing binders. This requires active coordination with the lender client, borrower's counsel, lender's warehouse bank, and the legal staffs of Fannie Mae, Freddie Mac or HUD. We also assist with case-specific, issue-resolution matters involving the secondary mortgage market and HUD staff.
Pepper attorneys have closed billions of dollars in multifamily and commercial loans nationwide. The core goal is to take whatever steps are necessary to assure a smooth, event-free, and uninteresting closing. We proceed on the theory that a loan closing is a celebration of the end of a frequently arduous process. This approach serves the dual business interests of the lender by freeing underwriting and origination staff to handle new business, and by leaving the borrower with a positive impression of the lender.
To this end, we consciously work to resolve all issues in advance of the closing, endeavor to remain accessible to all parties, prepare all closing documents, develop settlement sheets, physically attend closings (as dictated by the program or the context), package and deliver in a timely manner complete loan delivery packages to Fannie Mae, Freddie Mac or Ginnie Mae standards, and forward fully indexed servicing binders to the lender and courtesy copies of loan dockets to the borrower and its counsel.
Mortgage Lending Regulation/Secondary Mortgage Markets
We represent and assist financial institutions and mortgage bankers in their efforts to comply with federal consumer credit protection statutes and related regulations such as the Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Home Mortgage Disclosure Act, Community Reinvestment Act, Fair Credit Reporting Act, etc., and with the statutes and regulations of all 50 states dealing with loans to consumers, and the licensing and regulation of lenders and servicers. We also advise financial institutions and mortgage bankers in areas of federal authority and preemption affecting their landing activities, including the establishment of offices beyond their home state borders to accomplish expansion and service objectives, and issues involving exportation of interest rates and/or preemption of state usury and other laws.
Such engagements involve new product design and implementation and the preparation of documentation, disclosures, and procedures for various types of mortgage products, as well as open- and closed-end secured and unsecured credit programs. These programs range from more traditional products such as standard adjustable rate mortgage loans and home equity lines of credit to innovative reverse annuity mortgage products and price-level adjustable mortgages. We also conduct audits involving detailed review of the forms and procedures used by lenders to assure their compliance with all applicable federal and state requirements.
Dispute Resolution, Prepayment Lockouts and 2530 Clearance
Over the last few years, difficult multifamily markets in many areas of the country and the benefit of lower interest rates have increased the need for advice concerning prepayment overrides for FHA mortgage loans (often backed by GNMA securities) still within their prepayment lockout period. We help owners and managers accomplish prepayment authorization and resolve 2530 difficulties as a result of mortgage defaults (as well as REAC-triggered flags). Often, the repositioning plan of a troubled project involves a refinancing at lower rates to allow for solvent operations. HUD is concerned that owners with projects that are not truly troubled will instigate defaults to obtain HUD approval of the lockout override. Whether justified or not, the result is that the project owner, manager and other key participants can encounter problems with future 2530 clearance. Our experience in resolving 2530 clearance precedes this recent activity by more than 20 years.
Our HUD dispute resolution team is headed by Sheldon Schreiberg and includes Jerry Salzman, who joined us after 31 years at HUD. In addition to 2530 clearance, the team helps work through REAC and other enforcement difficulties. The growing number of flags and clearance requests now requires early and direct action to prevent otherwise consistent and strong portfolio developments and operations from being waylaid by economic difficulties at a single project.
Low-Income Housing Tax Credit Development
Since enactment of the Low-Income Housing Tax Credit (LIHTC) in 1986, Pepper attorneys have represented profit-motivated and nonprofit developers of low-income housing, as well as syndicators, equity investors and lenders. We prepare credit applications; draft and negotiate acquisition and partnership agreements, offering memoranda, financing documents, and construction and investment agreements; and render opinions on all aspects of the development process to take advantage of the tax credits under Section 42 of the Internal Revenue Code.
We were active in the lobbying that led first to the enactment and then to the permanent extension of the LIHTC. Our attorneys obtained some of the earliest waivers from the Internal Revenue Service as they affected property acquired from the Resolution Trust Corporation and HUD. We assist our clients with ongoing compliance, monitoring and certification requirements at the state and federal levels ,and are particularly experienced in transactions involving a layering of financing sources.
Our tax credit development experience includes helping private developers and public housing and nonprofit organizations meet their community development goals by obtaining private investment through the LIHTC program. In the past few years, we have represented such groups in Colorado, Connecticut, Delaware, Maryland, Mississippi, New Jersey, Ohio, Pennsylvania, Louisiana, Nevada, Texas, Virginia and the U.S. Virgin Islands.
Our services for nonprofit developers go beyond what is generally required by more experienced private developers and are akin to those required by public housing authorities. Our attorneys participate in not only the application process and construction and investment document and agreement drafting, but also negotiate the terms of financing and partnership arrangements. Our attention to these "business terms" requires a sensitivity to the special circumstances and mandates of charitable and public organizations and their communities. Our judgments on matters of commercial practicability and acceptability are often required where large, financially dominant for-profit investors confront local public agencies or less sophisticated local nonprofits. We maintain our awareness of the evolving standards of the IRS concerning for-profit/nonprofit partnerships and HUD guidelines governing private/public partnerships for mixed finance development.
Public and Structured Finance
We represent real estate developers (profit and nonprofit), underwriters, brokers, management companies, government agencies, and special purpose issuers on a variety of issues relating to financing real estate transactions. This work includes debt and equity financing and the structuring of investments, tax-driven limited partnerships, and mortgage-backed securities transactions. Our experience and depth is well known in the housing industry and among major investment and commercial banking houses.
Pepper is a nationally recognized, "Red Book" listed, bond counsel firm with over 35 years of public finance experience. The firm's public finance lawyers act as bond counsel or as issuer's counsel, underwriter's counsel, credit bank counsel, trustee's counsel, tax counsel, or borrower's counsel with respect to public offerings or private placements of securities issued to finance or refinance capital improvement projects, including housing and industrial projects, hospitals, and universities, for governmental entities, nonprofit corporations, and commercial and industrial enterprises.
A significant element of nearly all such securities offerings is qualifying the interest on the obligations for the exemption from federal income tax available for obligations issued by state and local governmental entities. Our Washington office is close to the Internal Revenue Service and the Treasury Department and its lawyer are familiar with their procedures and key personnel.
For many of our clients, our work includes involvement in the legislative process; we regularly deal with housing, banking and tax issues before Congress and the Executive branch.
Public Housing
The firm has represented the Redevelopment Authorities of Philadelphia, Pittsburgh, Kansas City, and Houston, as well as the Housing Authorities of Baltimore, Maryland; Camden, New Jersey; Butler County, Pennsylvania; Huntington, West Virginia; Philadelphia, Pennsylvania; Wayne County, Michigan; the U.S. Virgin Islands and others in their planning of development, financing, purchase, sale, operation or rehabilitation of multifamily housing projects. We also recently were engaged by the housing authorities of Tucson, Arizona and Pittsburgh, Pennsylvania, to provide services in connection with construction contracting and claims resolution; environmental matters; public sector procurement; real estate and development of real property; and statutory and regulatory compliance.
Our firm has helped these and other public agencies prepare bid packages and handle bid disputes, negotiate pre-development and development agreements, including family self-sufficiency components, draft forms of contract for construction management and service contracting, handle contractor and design professional claims, and litigate, arbitrate, or resolve by alternative dispute resolution procedures claims arising from defective design or construction. We have counseled a number of housing authorities on securitizing their capital grant funds with tax-exempt bonds.
As another example, for almost five years, we have been engaged by the Housing Authority of the City of Camden, New Jersey. We assist the Authority in its operational and financial reengineering, and in its efforts to rehabilitate public-owned housing stock and to offer tenants home ownership opportunities. Pepper provides counsel with regard to compliance and contracting under an existing HOPE VI grant, as well as the Authority's application for additional HOPE VI funding. Our attorneys also advise the Authority under its HOPE I and Turnkey III programs.
Additionally, the firm acts as the Authority's general outside counsel, reviewing and prosecuting all litigation and pre-litigation issues, including disputes between the Authority and contractors or subcontractors; employee matters, such as labor union negotiations and employee dismissals; and procurement-related issues.
We also have provided services in connection with HOPE VI development projects of the Housing Authorities of the cities of Philadelphia; Wilmington, Delaware; Benton Harbor, Michigan; Utica, New York; and the U.S. Virgin Islands, where we have negotiated and drafted development agreements, reviewed regulatory and programmatic requirements and assisted in program design, organizational structure planning and implementation, construction and contracting matters, and provided counsel in procurement and contracting disputes.
Nonprofit Housing
Increasingly, federal, state, and local housing agencies, including HUD and the RTC, have shifted their housing assistance programs to public and nonprofit agencies. Pepper Hamilton is a leader in this field. A few of the nonprofit housing entities for which we have worked include affiliates of the Volunteers of America, Christian Relief Services Charities, Inc., Cornerstone Housing Corporation, the National Housing Trust, the NHP Foundation and National Church Residences. We have closed one of, if not the first, resyndication of a HUD-financed Section 202 project with Low-Income Housing Tax Credits.
Through these relationships, as well as through our profit-motivated developer experience, we have developed a broad practice in affordable housing, including housing management, rehabilitation, development and financing. Our nonprofit clients have recently acquired properties in Arizona, Arkansas, California, Colorado, Florida, Kansas, Louisiana, Maryland, Michigan, Missouri, Nevada, New Jersey, New Mexico, New York, Pennsylvania, Texas and Virginia, as well as Puerto Rico. Financing sources utilized include Section 8, Fannie Mae, tax-exempt bonds, private credit enhancement, HUD and state housing agency insurance, the Federal Home Loan Bank Affordable Housing program and unrated bonds.
Pepper lawyers handle the structure and formation of partnerships and limited liability companies used by exempt organizations as acquisition vehicles, as well as investment partnerships formed with exempt partners. We also handle sophisticated income, estate and gift tax planning for closely held corporations, their executives and their owners, including issues associated with Subchapter S and limited liability companies, partnerships, and private foundations.
In addition to our housing clients, we are counsel to a myriad of tax-exempt institutions such as hospitals and universities in connection with their real estate ownership, labor issues and charitable giving programs, including endowment funds, outright and restricted gifts, charitable remainder trusts and charitable lead trusts.
We establish Section 501(c)(3) organizations for individuals and corporate entities, and assist with issues such as the formation of the entity, the submission of a ruling to the Internal Revenue Service to confirm the tax-exempt status of the entity, the registration under any applicable state charitable solicitation act statutes and sales tax exemption, and the filing of federal income tax returns (Forms 990 and 990-PF) for such entities. We provide advice to enable a charitable organization to qualify as a public charity rather than as a private foundation, which often requires a detailed scrutiny of the organization's sources of support and relationships with other charitable organizations which it may "support" under the tax laws. We provide advice in areas such as permitted lobbying activities and the applicability of the private foundation excise taxes.
We have established and received Internal Revenue Service private letter rulings for schools, civic organizations, business leagues, community charitable programs, and other federal and local community service organizations. We have also established scholarship programs for private foundations maintained by private corporations for their employees' children.
Senior Housing and Assisted Living
Senior housing and assisted living is a rapidly growing sector of the real estate industry. Our services to this sector include advice on HUD- and GNMA-insured construction and permanent financing of housing, independent living, assisted living, skilled nursing homes, and hospitals and HUD Section 202 properties.
Clients include lenders, developers and operators. We provide basic business and tax planning, corporate articles and bylaws, joint venture agreements, and applications for IRS tax exemption, including clarification of relationships between profit and not-for-profit partners. We also represent hospitals, health maintenance organizations, clinics, physician groups, insurance companies, and investment funds that provide funding for new assisted living and health care ventures. We have litigated complex insurance and reinsurance issues and counseled clients on relevant state laws and regulations, including Medicaid.
Procurement and Construction Contracting
Although not always considered during initial stages of affordable housing development, we understand that, in addition to mixed finance, HUD, real estate and public housing experience, planning for rehabilitation and redevelopment often require legal services in connection with government contracting and procurement, construction contracting, government contracting regulation, and, in some cases, contracting dispute resolution.
Pepper Hamilton represents public housing authorities, other government agencies, contractors providing supplies and services to federal and state agencies, and public/private partnerships in procurement matters.
We are not only familiar with general government procurement regulations at the federal and state levels, but are conversant with the regulations and guidance governing procurement in a public housing setting, including HUD Handbook 7460.8, Procurement for Public and Indian Housing, the necessary HUD forms, and the applicable Public and Indian Housing Notices, such as 97-40 which transmitted the new Form HUD-5370 and 95-55 which transmitted the new Form HUD-51915. We also counsel state and local agencies on the proper administration of EPA and HUD grants. We address direct and indirect cost issues, structuring of overhead rates and other selective costs controlled by OMB Circulars A-121, A-122 and A-133.
This experience has helped us to prepare solicitations for service providers, management agents and developers for public authority clients in compliance with government procurement requirements. In this context our Housing and Community Development Group has represented the Housing Authority of the City of Camden, NJ, where we helped revise and implement the Authority's procurement program, enabling the Authority to engage private sector construction and service contractors for its modernization and development program. Our lawyers continue to advise the Authority in its issuance of Requests for Proposals and their compliance with HUD regulatory guidelines for public housing procurement.
Our services have included the drafting of individual and form contracts for all public housing authority procurement and outsourcing, as well as providing advice on compliance with the requirements of public housing mixed finance regulations, HOPE VI guidelines and other federal funding initiatives. We also advise housing authorities regarding permissible and preferable forms of contract, involving the use of an option clause as an approved method for obtaining additional services at set prices (provided that the Authority possesses discretion regarding the exercise of the option), as opposed to an Indefinite Quantity Contract form, which requires the Authority to guarantee that a minimum amount of services will be ordered.
Construction Contracting
The experience of our affordable housing lawyers also spans the legal tasks that arise in connection with construction contracting and other contracts. The Housing and Community Development Group has lawyers with knowledge of the specialized regulations that govern contracting at federal and state levels. We handle all aspects of public and private construction contracting and government contracting for other goods and services as well.
Our representation of housing clients has included drafting forms of contracts for construction and design services in compliance with HUD requirements regulating subsidized projects and those applicable to public housing authorities, including Handbook 7417.1, Public Housing Development, 24 CFR 85, and the appropriate Public Housing Notices. In our preparation of contracts we have, where required, incorporated the appropriate HUD form language, such as Form HUD-5370, HUD General Conditions of the Contract for Construction, Form HUD-51915, Model Form of Agreement between Owner and Design Professional, and Form HUD-5195A, Contract Provisions Required by Federal Law and Owner Contract with the U.S. Department of Housing and Urban Development.
Over the past 35 years, we have represented public and private owners, contractors and developers, architects, engineers, subcontractors, suppliers and sureties in virtually every major contracting discipline. Our services include advice before disputes arise and resolution of disputes, via negotiation, mediation, arbitration, litigation, or alternative dispute resolution procedures such as mini-trials. The firm has represented clients in state and federal courts throughout the nation and before federal and state boards of contract appeals. We have negotiated and litigated contractor claims involving private owners, the federal government, and a number of state government procurement agencies. We also are experienced in arbitration under American Arbitration Association and other applicable rules and in the more innovative alternative dispute resolution procedures such as mediation and mini-trials.
Related Services
One of the benefits of working with a firm with the depth and breadth of Pepper Hamilton is that clients have immediate access to attorneys concentrating in disciplines related to, but different than, those immediately affecting the client's current activities or concern. Examples of key areas that greatly affect our clients are summarized below.
Bankruptcy. In addition to representing lenders and debtors in single-asset real estate cases, we assist in other types of bankruptcy proceedings. For example, we represent Chapter 7 trustees in the sale of real property -- ranging from manufacturing facilities to shopping centers, including public auctions, private sales and sales that involve seller financing. In representing creditors' committees in large cases, we address a variety of issues, including the assumption or rejection of leases, the sale of real estate by the debtor, and taking real estate collateral to secure the creditors' claims through mortgages and collateral trusts.
In the context of public housing, our attorneys have represented authorities in situations where contractors have filed petitions for bankruptcy, requiring that the authority, in either a defensive or offensive posture, enter the action before the bankruptcy court. We obtained an emergency hearing before the bankruptcy court and have successfully argued for the release of the Authority from bankruptcy proceedings of a contractor.
Real Estate Taxation. We are frequently retained in matters involving the myriad of federal, state and local taxes affecting real estate, including local engagements and those ancillary to real estate and commercial transactions. Such matters involve the tax assessment of real estate, use and occupancy taxes, and transfer and documentary taxes, as well as the validity and impact of liens on real estate relating to the gamut of federal, state and local taxes.
For a major nonprofit housing developer, our attorneys were successful in leading an effort to amend Colorado legislation affecting the developer's tax-exempt status. We have had major successes in obtaining substantially reduced assessments through mass tax assessment appeals on behalf of condominium associations and large groups of homeowners. We have also successfully negotiated substantial reductions on behalf of groups of similarly-situated industrial owners, such as parking garages and other specialty properties.
With regard to real estate transfer taxes, which can run as high as 5 percent of the value of a transaction in some jurisdictions, we have had extensive experience and success in creatively structuring or restructuring transactions to avoid or reduce such exposure.
Zoning and Land Use. We handle all aspects of zoning and land use practice, including land development approvals, variances and special exceptions, zoning appeals, and zoning code compliance. Our clients range from health care and educational institutions to business and entertainment companies to residential and commercial real estate developers. For example, we have obtained a declaratory judgment from the Delaware Supreme Court on the doctrine of implied restrictive covenants, and one of our partners has structured an entire new municipality in his representation of one of the major participants in the development of a community.
Environmental. The firm's Environmental Practice Group works closely with the affordable housing practice. We frequently handle real estate transactions that require sophisticated environmental knowledge. For example, we have represented lenders to, and sellers of, environmentally-contaminated properties, as well as sophisticated buyers of impacted property in appropriate due diligence, remediation and regulatory compliance.
Taxation. The firm's Tax Group understands the tax consequences of real estate ownership and development and the tax planning and structuring needs of real estate-owning partnerships and corporations. Our tax attorneys advise on the tax consequences of acquisitions, debt structuring and modifications, and stock restructurings, and they are experienced in advising national and local tax-exempt organizations engaged in real estate activities.
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