RESOLUTION SUPPORTING PASSAGE OF PENNSYLVANIA S.B. 1262
AMENDING THE DEFICIENCY JUDGMENT ACT

WHEREAS, many commercial mortgage loans are made on a non-recourse basis (that is, the creditor's recourse is limited to the mortgaged property) and with limited or partial guarantees;

WHEREAS, it is becoming more common in commercial mortgage transactions to contain exceptions, or "carve-out" provisions, to such non-recourse provisions making certain items the personal, recourse obligation of the borrower;

WHEREAS, the 1995 Third Circuit Court of Appeals case, Federal Home Loan Mortgage Corporation v. Arrott, casts serious doubt on the enforceability of these carve-out provisions or partial guarantees due to a very literal reading of Pennsylvania's Deficiency Judgment Act (the "Act") and may create a serious impediment to the flow of commercial credit in the Commonwealth;

WHEREAS, there has long been confusion under the Act as to when the six month period within which a creditor must file its deficiency judgment petition commences;

WHEREAS, there have always been certain provisions of the Act that are unclear or are inconsistent with other provisions of the Act;

WHEREAS, legislation has been drafted by the Pennsylvania Bar Association's Real Property, Probate and Trust Law Section and approved by the Pennsylvania Bar Association's House of Delegates to (a) amend certain provisions of the Act in order to overturn the Arrott decision, (b) amend the provision relating to the commencement of the six-month period for the filing of a deficiency judgment petition in order to make it clear when that period commences and (c) clarify the above-referenced ambiguities in the Act and to correct the internal inconsistencies (herein, the "Proposed Legislation");

WHEREAS, the Proposed Legislation was passed unanimously by the Pennsylvania Senate as Senate Bill No.1262 and sent to the Judiciary Committee of the Pennsylvania House of Representatives;

WHEREAS, the Proposed Legislation was approved by the Judiciary Committee of the Pennsylvania House of Representatives and sent to the floor of the House for a vote;

WHEREAS, before a vote could be taken on the Proposed Legislation, an amendment to Senate Bill No.1262 was proposed by a member of the House of Representatives which would amend the Pennsylvania Declaratory Judgment Act, the effect of which amendment was to hold up the vote on the Proposed Legislation until the next session of the House;

WHEREAS, it is believed to be in the best interests of all parties to commercial mortgage transactions that the Act be amended so that lenders and borrowers alike can rely upon its provisions and have a better understanding of their rights, remedies and liabilities thereunder;

WHEREAS, the members of the Financing & Securitization of Real Property Committee of the Real Estate Section of the Philadelphia Bar Association believe that the support of the Proposed Legislation by the Philadelphia Bar Association would aid in the passage of the Proposed Legislation;

NOW, THEREFORE, BE IT RESOLVED that the Board of Governors of the Philadelphia Bar Association supports passage of the Proposed Legislation;

AND BE IT FURTHER RESOLVED that the Chancellor, staff and Legislative Liaison Committee use their best efforts to ensure passage of the Proposed Legislation.

PHILADELPHIA BAR ASSOCIATION
BOARD OF GOVERNORS
ADOPTED: July 22, 1998