Frank Kosir Jr. of Meyer Unkovic & Scott.

Pennsylvania courts have recently handed down several important decisions in the realm of real estate law that provide context for future cases.

• The Superior Court affirms that retroactive application of statutory provisions is prohibited where such application would create new substantive rights.

In Johnson v. Phelan Hallinan & Schmieg, 2018 PA Super 141 (2018), the Pennsylvania Superior Court held that the 2008 amendment to Act 6's definition of “residential mortgage” could not be retroactively applied. On May 23, 2002, Ed Ella and Eric Johnson gave a mortgage secured by property in Pittsburgh. In connection with the mortgage, the Johnsons signed a promissory note, under which they defaulted in 2009. The lender commenced a foreclosure action against the Johnsons, and the trial court entered judgment for the lender.

During the pendency of the foreclosure action, the Johnsons commenced a class action lawsuit against Phelan Hallinan & Schmieg, LLP, the lender's counsel, asserting a violation of 41 P.S. Section 406 through counsel's seeking and obtaining attorney fees not incurred in the foreclosure action. In support of their argument, the Johnsons asserted that 41 P.S. Section 406 provides that no “residential mortgage lender” shall contract for or receive attorney's fees from a residential mortgage debtor except in three enumerated instances.

Counsel filed preliminary objections asserting that the Johnsons' claims were barred, as their mortgage was not a “residential mortgage” under Section 101 of Act 6 in effect when the mortgage was executed in 2002. Rather, in 2002, Section 101 of the act defined “residential mortgage” as “an obligation to pay a sum of money in an original bona fide principal amount of fifty thousand dollars ($50,000.00) or less …” The trial court sustained the preliminary objections and our Superior Court affirmed, finding that the 2008 amendments could not be applied retroactively.

In support of its conclusions, the court noted that the Pennsylvania legislature expressly prohibits retroactive application of statutory provisions where such application would create new substantive rights. In this instance, the 2008 amendment to Section 101 would create legal rights to which the Johnsons were not entitled to at the time they executed the mortgage and therefore could not be applied retroactively.

• Special exception applicant avoids being barred by res judicata, but still has grant of use variance reversed.

In Fowler v. City of Bethlehem Zoning Hearing Board, 2018 Pa. Commw. LEXIS 171 (May 22, 2018), our Commonwealth Court held that an application for a special exception was not barred by res judicata, as the applicant presented different theories and sought different relief than it did in a previous request. However, the Commonwealth Court reversed the trial court's grant of a use variance because Morning Star Partners, LLC failed to provide evidence of an unnecessary hardship.

Morningstar is the owner of a .198-acre parcel of real property situated in Bethlehem. Erected on the property are a large single-family residence, two smaller buildings that house retail space on the first floor and an apartment on the second floor, and a detached garage with an apartment above. The property is in a RT-residential (RT) district, which is high density residential. Retail is not permitted in the RT district, but the retail on the property is a lawful nonconforming use. Morningstar purchased the property to use it for its financial services office, which is not permitted in the RT district, and sought, in 2013, a special exemption or variance. In its application, Morningstar proposed converting the single-family residence into an office and maintaining the two retail spaces.

The zoning hearing board denied the 2013 application, and its determinations were affirmed on appeal. In 2014, while its appeal was pending, Morningstar filed another application seeking a use variance and dimensional variance, which the zoning hearing board denied on res judicata grounds. Morningstar did not appeal and, in 2016, submitted a third zoning application seeking a special exception to change a nonconforming use to another or, in the alternative, a use variance to convert the existing residence and retail building into offices and one apartment. The zoning hearing board denied the special exception request but granted the use variance.

Thereafter, several objecting property owners appealed the grant of use variance asserting that it was barred by the doctrine of res judicata. The trial court denied the appeal, and the Commonwealth Court affirmed, concluding that the 2016 application proceeded under different theories and sought different relief than the 2013 application. Nonetheless, the Commonwealth Court reversed the grant of the use variance, finding that Morningstar had not established an unnecessary hardship.

Frank Kosir Jr. is an attorney at Pittsburgh-based law firm Meyer, Unkovic & Scott. Frank can be reached at [email protected].