FRHA suing city

Published 7:05 pm Tuesday, May 26, 2020

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The Franklin Redevelopment and Housing Authority’s ongoing dispute with the city over whether three apartment complexes collectively owe more than $400,000 in back taxes has now escalated to a legal battle.

On April 1, the FRHA filed a lawsuit against the city in Southampton County Circuit Court, seeking the correction of allegedly “erroneous” tax assessments and emergency temporary injunctive relief from a lien the city’s tax attorney, Jason A. Dunn, imposed on the three properties in March.

Ordinarily, housing authorities in Virginia operate as tax-exempt non-profit organizations. But in 2013, the FRHA began the process of deeding the three apartment complexes — known as Berkley Court, Pretlow Gardens and Old Town Terrace — to two limited partnerships: Berkley Court Apartments LP and Pretlow-Old Town Apartments LP. This process, which was completed in 2014, allowed each partnership to apply for low-income housing tax credits as a means of securing funding for planned renovations. The city now claims that these properties, by virtue of now being owned by partnerships rather than the FRHA, are no longer covered under the FRHA’s tax-exempt status and therefore, should have been paying real estate taxes for the past several years.

According to the notice of tax lien Dunn sent to Truist Bank on March 9, which is included as “Exhibit H” in the FRHA’s complaint, the amount Berkley and Pretlow now allegedly owe in back real estate taxes, penalties, interest and attorney’s fees through March 30 now totals $443,952.69. This notice, according to the complaint, froze Berkley’s and Pretlow’s respective operating accounts and tenant security deposit accounts.

The affected bank accounts are necessary for Berkley and Pretlow to transact business including, without limitation, collecting rent payments, paying operating expenses and making mortgage payments,” the complaint states. “The treasurer’s lien jeopardizes Berkley and Pretlow’s ability to pay utility providers, third-party vendors and management and maintenance staff, and puts their tenants — Franklin’s most disadvantaged residents — at risk of utility interruption or unresolved maintenance issues … at a time of national emergency caused by COVID-19.”

The FRHA’s complaint lists three plaintiffs: the authority itself, Berkley Court Apartments LP and Pretlow-Old Town Apartments LP, with the partnerships and the FRHA each represented by different attorneys. Representing both partnerships is Shane L. Smith of the Norfolk-based firm Williams Mullen. Representing the FRHA is Regis N. Rice and Sarah E. Nelson, both of the firm Rice & Gregg P.C., which is also based in Norfolk.

Despite the separate legal representation, the complaint refers to each partnership as a “subsidiary” of the housing authority and claims the FRHA “has at all relevant times controlled and managed the general partner in both Berkley and Pretlow.” It then argues that as such, these properties should remain exempt from the assessment and payment of real estate taxes.

The suit further alleges that the city’s valuation of each apartment complex is overly high, claiming that the city had assessed the Berkley property at over $3 million for the past several fiscal years, when in fact the actual fair-market value was allegedly no greater than $1,995,000. Similarly, the city assessed the Pretlow property at $2.1 million, despite its fair-market value allegedly being only $1.1 million. For Old Town, the city has assessed $1.8 million, despite an alleged fair-market value of no more than $968,000.

The plaintiffs have since withdrawn their request for emergency temporary injunctive relief from the tax lien, but are still seeking to have the court declare Berkley and Pretlow included under the FRHA’s tax-exempt status, and are still alleging that the city has overvalued these properties.

FRHA Interim Executive Director Loretta Batten was unable to be reached for comments on the lawsuit by press time. City Manager Amanda Jarratt, when asked about the lawsuit, said she could provide no comment on pending legal action. The city, however, filed a demurrer to the remaining points of litigation on May 5.

A demurrer is a legal motion that admits the truth of a plaintiff’s presented facts, but contends that the facts are either irrelevant or insufficient to justify ruling in the plaintiff’s favor. The city’s demurrer argues that “any tax-exempt status of the properties, which is alleged solely by operation of the agreement between the city and the FRHA, was lost, as a matter of law, upon FRHA’s sale of the property to Berkley and Pretlow to be operated for revenue to Berkley and Pretlow.” As for the alleged overvaluation, the city’s demurrer argues that the plaintiffs have failed to allege facts sufficient to establish “lack of uniformity in the assessment of real estate taxes or that the challenged assessments were not made in accordance with generally accepted appraisal practices.”

A trial date has not yet been scheduled, as more demurrers are scheduled for Friday, Aug. 21, at 9 a.m., in the Isle of Wight County Courthouse.