I do not recall that, although we do have copies of those checks that I could supply to Council.
In addition, we are still faced with substantial claims as a result of liens and encumbrances that exist on this property. We have met with the City of Philadelphia in an effort to help the homeowners in connection with the transfer tax issues that have arisen on these properties since all of transfer taxes were underpaid, in our opinion. And so when I hear the word "trust" that was used by so many of the homeowners, I find that we fell prey to the same situation at Fidelity National, which has cost a substantial amount of money already and will cost much more down the road.
Thank you very much. Councilwoman Tasco. 276 12/14/99 COM. & EC. DEV. - RES. 990859
I want to ask you a question. Is First Fidelity National Insurance Company paying the full-time amount of realty transfer tax to the City of Philadelphia and the Commonwealth of Pennsylvania?
No. We are presently negotiating with the City of Philadelphia in an effort to cover what would be the buyer's portion of the transfer tax on the properties. It has become a very complicated issue, madam, in light of the allegations that have been made regarding the actual value of these properties. As the City Solicitor's Office will tell you, we commissioned an appraisal to try to determine what the actual value of these properties are, because that is what is used to calculate transfer tax on these properties. And working with the City Solicitor's Office, we are preparing a pretty detailed schedule, setting forth what we believe the values are, setting forth what transfer tax was actually paid on these properties, and what transfer tax would be due from the homeowners on these properties. It is typical in the City of 277 12/14/99 COM. & EC. DEV. - RES. 990859 Philadelphia -- in fact, in Pennsylvania -- for transfer tax to be split equally between the buyers and the sellers. And our proposal to the City is going to be that we satisfy the obligation that would be the buyer's obligations in these transactions if Mr. Berg is unsuccessful in his present proceeding before the Tax Review Board to have his position declared correct, and that is that the transfer tax is only due on $15,000, which was the land value. We do not believe he will be successful in that, and we've told the City that if he is not, we would like to make arrangements to satisfy the obligation of these homeowners.
And weren't these transfer taxes due at the time of settlement?
And the transfer taxes were paid at that time based on the land value of the property. Mr. Berg's position, ma'am, was that because these are modular homes, that the homes themselves are not subject to transfer tax, that only the land is subject to transfer tax. We disagree with that position, and that's why we've stepped up to the plate and gone 278 12/14/99 COM. & EC. DEV. - RES. 990859 into the City in an effort to deal with that problem.
Well, what happened at the time of the settlement? Did that discussion take place during the settlement, at the time of the settlement?
Transfer taxes were calculated based on the land sale at the time of settlement. And, in fact, those monies were remitted to the City with the deeds because you must remit transfer tax --
Who determined at that time at the title company that that was the appropriate amount to pay?
That is not the title company's determination; that is the determination of the parties to the transaction as to what the value of the property is on which the transfer tax is being determined. The tile company has nothing to do with the value of the property; the title economy merely calculates the appropriate percentage based on the value supplied by the parties to the transaction.
Well, what 279 12/14/99 COM. & EC. DEV. - RES. 990859 protects you from this kind of situation if the State requires -- I mean, I don't know about how the value is calculated, but if it's a value calculated on the value of the property, then you as the insurer would be held accountable or responsible for the value of -- it doesn't seem to me that the real-estate transfer tax should be on the property and not the land. I mean, what is the practice in the state?
Well, ma'am, I agree with you, and that's why I do not believe that Mr. Berg will be successful in his efforts to have a determination made by the City that the transfer is only on the land and not the modular homes. At the time a deed is filed, there is a transfer tax affidavit signed by the parties to the transaction, in which they set forth the value of the property. The problem that you had in this case, and the problem that the Department of Records had in determining what was going on here, was these properties had not yet been assessed by the City of Philadelphia and did not have a value apportioned to them at that time. So if you look at the transfer tax 280 12/14/99 COM. & EC. DEV. - RES. 990859 affidavits, which accompanied the deeds, and you do not have to put the actual consideration in a deed; you can put $1. And the reason you're allowed to put $1 is because you must accompany the deed with a transfer tax affidavit. And you pay a tax based on the higher of either what you paid for the property or the fair market value, which is assessed by the City. The Department of Records was at an extreme disadvantage in this case because these properties had not been assessed, so they had no 13 way of determining what the actual consideration was that was paid for the property.
Why are they allowed to file the deed then? Is Miss Decker here?
There is nothing wrong with the deed. The deed itself has -- if you check any of these deeds, and I will be more than happy to send you copies, the deeds had completed transfer tax affidavits attached to them, indicating that the consideration paid for the property was $15,000, because the position of Mr. Berg was that the transfer would be paid on the land, because 281 12/14/99 COM. & EC. DEV. - RES. 990859 the home is much like a trailer that you bring in, and you don't tax the trailer. So there was nothing for Ms. Decker or her office to see that was amok in the document that was supplied because I'm sure her office sees many documents that come in on new construction where there are not actual assessed values that are available to someone filling out the transfer tax affidavit. I'm assuming that's correct.
So if a homeowner bought a house for $132,000, and you negotiate somehow with the City for the fair market values only on what you negotiated and not on the 132,000. Would --
What we are discussing with the City, and I think what I'm, at this point, permitted to say is that we are trying to determine a number that's satisfactory to the City that represents the true value of these properties. There will then be, once that true value is determined, a multiplication factor applied to it, which is the transfer due to the City and to the State. At that point in time, the proposal 282 12/14/99 COM. & EC. DEV. - RES. 990859 that we have already made to the City -- and it's not yet been decided upon because there's too much information still to gather -- is that Fidelity National Title Insurance Company will pay to the City of Philadelphia the buyer's portion of the transfer tax, which is one half the transfer tax, in consideration for the City agreeing to release the homeowners of any additional obligation with respect to the taxes. Now, the City statute does permit the City to go completely against Mr. Berg for the full amount of the transfer tax and completely again the homeowner for the full amount of the transfer tax. That's not the way it's customarily done in this state; it's normally split equally. And we have said to the City that we think with the injustice that these homeowners have suffered, that they should not be asked to ante up the full amount of the price, that it would be appropriate for one half to be paid, and we, the title company, have indicated a willingness to pay that sum, once we're able to determine what that sum is. And it's been quite a chore, I must 283 12/14/99 COM. & EC. DEV. - RES. 990859 tell you, in finding all of the properties, number one; and secondly, then determining what their real value is.
Okay. I'm finished. Thank you very much. I think we're finished with both of you.
I just have one final question of Mr. Berg. I want to go back to Miss Delores Osborne-Gerrick. I want to ask one last clarifying question. In this mortgage that Miss Osborne- Gerrick gave us, she was supposed to begin her first payment of this mortgage on January 1, 2001, and you testified to the fact that you gave her that time, but your letter is dated April, 1996, and you're asking -- you're saying that she's behind in her mortgage payment. I mean --
Council Lady, to answer that question, I haven't seen the documents in five years or four years. If you'll let me see it, I'll answer it.
All right. (Mr. Berg looks at document.) 284 12/14/99 COM. & EC. DEV. - RES. 990859
My brief reading tells me that that's not what it says. What it says is that the whole amount is due on January 1st and she was to pay interest in the meantime.
She was to pay interest in the meantime, the balance, the $16,000, the principal. I mean, it was an interest-only loan.
Okay. Well, the $16,000 loan carried a 9 percent interest. She was supposed to pay interest monthly at 1/12th of $16,000 every month. She paid nothing. In all events, the whole balance was due in five years; it is what is known as "a balloon loan." She paid nothing. I sent her a Dunning letter, she negotiated with me, and I agreed not to ask for any money until 2001. And it's that simple.
Thank you, Councilwoman. Just very quickly. Mr. Berg, what current licenses do you have to conduct business in the City of Philadelphia?
I moved from the city in the middle of March, I believe, of 1999.
You don't have to live in the city to do business in the city. When did you stop doing business in the City of Philadelphia?
Well, I guess I would have 286 12/14/99 COM. & EC. DEV. - RES. 990859 to go back to my accounting records and see when was the last time I got a fee from a Philadelphia resident. I don't remember. It was sometime last year but I just don't recall.
Well, didn't Mr. David pay you for your idea for 20th and Geary?
Yeah, but that wasn't a consulting fee; that was a capital gain, and that's not -- I'm not required to be licensed to buy and sell things and make a profit on them. Only if you do it as a business.
No. There's a distinction between doing it as a business and doing it occasionally. This was a one-time thing, it's been one time in two years.
You lost me. Mr. David's firm is either located or doing business in the City of Philadelphia, correct?
My client does not know that for sure. Mr. David can answer that question.
My client does not know for sure. Mr. David can answer that question.
But your client was a vice president and then a consultant for Mr. David for First Anthony Residential Capital Corporation; isn't that correct?
I mean, it's just -- I mean, Mr. David does business in Philadelphia, right? Isn't First Anthony either located or engaged in business in Philadelphia?
Councilman, my problem is this is not his only business; he has an office in Philadelphia that I know of.
Oh, I'm sorry, in the Monroe 288 12/14/99 COM. & EC. DEV. - RES. 990859 Office Center near City Line, but virtually everything --
Okay, so if he has an office in Philadelphia, then I believe the code says that he is doing business in Philadelphia. Isn't that correct, Madam Solicitor?
So he's doing business in Philadelphia, and you were a vice president and subsequently a consultant to him in Philadelphia on the 20th and Geary Street project because it was your idea; is that correct?
And you received a fee for your services; isn't that correct?
We received a consulting fee to Gordon Development Group. Gordon Development Group paid me salary and paid my expenses and --
Gordon Development Group is a business; is that correct?
Does Gordon Development Group have a business-privilege 289 12/14/99 COM. & EC. DEV. - RES. 990859 license?
What do you mean your understanding is? It's your business, isn't it? You don't know whether your business has a business-privilege license?
I have filed them with my accountant, and I believe we have a business- privilege number.
Well, the company got a fee, you have to pay taxes on income for the business; isn't that correct?
Councilman, the tax returns are with my accountant now, and if you ask me a question as to what tax you're talking about, I will get you an answer.
Well, I'm just trying to understand whether you're in business or not. You were in business as a vice president and 290 12/14/99 COM. & EC. DEV. - RES. 990859 a consultant with First Anthony, you received a fee for your idea. Mr. Anthony has a business in Philadelphia, you received --
Mr. David of First Anthony paid you a fee for an idea for a project in Philadelphia. You said that you no longer engage in business in Philadelphia. I asked you, did you receive a fee for your service from Mr. David for your First Anthony Project idea?
Gordon Development Group received money on account of a fee, and we received that over the period of a year or so.
Councilman, you're trying to have me characterize cash that we got, and I think my accountant did not characterize as income; he might have characterized it as a loan on an account of a fee that we haven't paid yet.
Who negotiated this deal, your accountant or you? I mean, it was your idea, right?
I submitted to Mr. David drafts of an agreement; none were ever executed. We just went ahead. He gave me a monthly check on account of expenses, and we never agreed to what it would be. It has been only been reduced to writing in the last day or so.
All of which leads to, you were conducting business in the calendar year 1999, correct?
And I'll go back to my original question: do you have a business- privilege license?
But I didn't receive any 292 12/14/99 COM. & EC. DEV. - RES. 990859 money. I didn't receive any money.
It doesn't matter. You have a business here in Philadelphia.
I told you that I believe that Gordon Development has a business-privilege license. I'm almost certain of it.
Okay. And do you still have a business-privilege license?
Yes. If I had it then, I have it now 'cause it would only be a year old.
Okay. I only had to ask you a second time because your original response was, you don't have a business-privilege license, right? I mean, I can replay the question if you'd like, but I asked you that question about five minutes ago and your answer was no. 19
Oh, Councilman, I'm sorry. I thought I told you that I believed that Gordon had a business-privilege license, but I did not. I thought that that's what I said to you.
But Gordon is your business, right? The business has the business- privilege license. I'm not asking you, do you 293 12/14/99 COM. & EC. DEV. - RES. 990859 have in it in your wallet right now? You are the business, the business --
I thought you were asking if the business has a business-privilege license to the best of my knowledge. I will check on it, but I believe that we do.
You know, it must be incredible sitting down at the settlement table with you. (Applause.)
Madam Solicitor. I'm sorry, Mr. Berg, do you have anything else you wish to say?
No. 22 Madam Solicitor, Mr. Solvibile, Mr. Perry, Miss Decker, Miss Kaplan, Mr. Kishinchand, Mr. Glancey, and if there is anyone from the Revenue Department, what I would like you to do is 294 12/14/99 COM. & EC. DEV. - RES. 990859 review whatever filed and record you have as it relates to Mr. Berg, the testimony from this particular hearing, the testimony that may have been submitted by residents of the City of Philadelphia who have found themselves in some situation, and develop on behalf of this committee a task force to deal with any proposals, change in regulations or procedures, to assist the City of Philadelphia in ensuring that nothing like this ever happens again. (Applause.)
Secondly, as it relates to L&I, for whatever has come out of this particular hearing or any previous discussions, meetings, testimony, or other various and sordid horror stories, if there are any procedures by way of taking action with regard to Mr. Berg regarding any license that he may or may not have now, in the past, in the future, or any that he forgot about this afternoon, if there are procedures available to us for any revocation or suspension of those particular licenses, I would ask that you research that and report back to the Chair what your findings are and what procedures are 295 12/14/99 COM. & EC. DEV. - RES. 990859 available to the City of Philadelphia in that regard. Lastly, Madam Solicitor, I would ask that you provide to the committee, as you may be able to by law, any information or documents subsequent to their filing of any complaints that may be made by the City of Philadelphia to the District Attorney's Office, the Pennsylvania State Attorney General, and the U.S. Attorney's Office with regard to any and all matters involved in the John Berg situation.
I don't have any questions; I just have a comment. It is quite evident that these people here have been victimized, and they trusted an individual who came to them with a slick tongue and velvety words, took them in, sucked them in into his confidence and then proceeded to make them victims of all of that we've heard here today. And I'm very careful with my words because I do know that there is an ongoing lawsuit here. 296 12/14/99 COM. & EC. DEV. - RES. 990859 So I just want to express my frustration. Mr. Berg, you and I met back in 1993 when you wanted to do Mt. Airy Avenue, and I will remind you that you promised to do a retaining wall for me, and that is still falling, and you never did the retaining wall, and I should have known then that there was nothing -- that I could not and should not trust your word. So you see these people here, you ought to have some feeling of compassion or some feeling of guilt that you have hurt these people and made them victims. We want to thank all of you for coming. As a District Council person, I will pay particular attention to any new construction going on in the 9th Councilmatic District. I will certainly work with City Planning and L&I. I want to be alerted to any new construction, whether it is properly zoned or not. Before the permits are issued, I want to know about them so we can check them out to protect the people in my district, and I'm sure I speak for all the other District Councilmembers. Thank you all very much. 297 12/14/99 COM. & EC. DEV. - RES. 990859
Thank you. Thank you Councilwoman Tasco. This hearing will stand recessed to the call of the Chair. (Adjourned at 8:30 p.m.) - - - 298 C E R T I F I C A T E I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Tuesday, December 14, 1999, were reported fully and accurately by me, and that this is a correct transcript of same. RE: COUNCIL COMMITTEE ON COMMERCE & ECONOMIC DEVELOPMENT RESOLUTION NO. 990859 __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter