Going under contract on a Condemed Property

8 Replies

Hello BP members! 

My name is Robyn, I'm a new rehabber/flipper. I located a great deal on a vacant condemned property that is paid for in full sitting on over $300k in equity. The owners want to sell however the house is under receivership by the local city. What steps do I need to take to get around this? This is my first deal. Any help or tips?

I called my local government about a condemned property and the inspector for that area of the city was tremendously helpful. She actually remembered the property (it was a little unusual as a duplex that someone had run wires across the units). They can tell you the citations that need to be fixed for it to be considered habitable. You will need to work with them for inspections. Good luck!

Hello @Waynbrooks. I didn't mean get around it as in avoiding the court appointed receivership, I mean't overcome. Bad choice of words. Have you done any deals under a receivership and what was the outcome?

Be sure to pull the Title to make certain the city did not issue a Demolition Order and record it on title. If a Demo order is recorded on title then that supersedes and lenders mortgage lien so no lender will give you a rehab loan for it if that's what you are planning ? 

@Perry Farella Do you suggest to put the house under contract and then open up escrow & title search? I would like to get a purchase and rehab loan on this property. The code violations are based on the property being left vacant with no upkeep, making it a public "nuisance" to the neighborhood. The house is fully paid off with an ARV of $450K.

Yes, you can get the property under contact with a period of time for an attorney to review Title. Then if you see a Demo order recorded on title by a judge in the past you will know that must be removed prior to any lender agreeing to put a mortgage lien on the property. Then cancel the contract would be my view.  Lenders generally will not lend on a property where the collateral for the mortgage Is subject to demolition at the city's whim.

I'm not even sure a Hard money lender will agree if a demolition order is on title. I have seen that if you can produce a rehab plan and show permits, architects plans , a court will remove the demo order.

I mention this only because I saw it happen recently for a individual who bought a house at a tax sale for $9000. Then he discovered the judge from Housing court had previously put a demo order on the house due to a past owners negligence and not correcting numerous code violations, also recorded on title. The city lawyer insisted to the judge the demo order must stay regardless of the rehab work already in progress and the city had passed the first electrical inspection. The owner wanted to get a refinance rehab loan to finish the house but it could not be closed until a judge agreed to remove the demo order. Finally the judge did remove the order based on seeing a loan approval , plans etc. Caused the buyer much higher carrying costs and months of delay in securing the rehab loan to finally finish the house. Code violations recorded on title are OK as the rehab loan can address them. But a demolition order is very difficult to remove fi the city wants to be tough on derelict properties, even though they have a great ARV an d potential to help life the neighborhood.

My Blog below has examples of how rehab loans can work or I'm happy to provide further details.

@Robyn Watkins Ask how the receivership works. In baltimore once a receiver is appointed their job is to sell the property to someone who is qualified to get it renovated. They are sold at auctions.

If the receivership case is not completed and a receiver has not yet been appointed, you may be able to buy it from the current owner.   Before doing that, talk to the city attorney and see if they will stand aside to let you purchase and renovate.