Real Estate Investor · South Jordan, UT · Member since 2017 · 86 posts · 34 votes
Hello everyone. So last year I bought a 7 units apt for 1.06 million dollars. Everything looks great on paper. Bought it with 3% seller financing on a 8% cap. What could go wrong right?
Only thing is I didn’t check with zoning and took the sellers word for it. It turned out that the house is zoned for single family. And other 6 units are build illegally now the city want us to tear down the whole thing, the entire lot!
Lesson learned is always verify all the info and make sure the building is zoned correctly!
My question for all you investor is that if I tear down the whole thing and try to building 8 townhouse on it whats the all in cost I’m looking at? And how much can I use finance? Or should I just stop paying the seller and let him foreclose on me so I will be only losing about 250k with my down payment?
Hello everyone. So last year I bought a 7 units apt for 1.06 million dollars. Everything looks great on paper. Bought it with 3% seller financing on a 8% cap. What could go wrong right?
Only thing is I didn’t check with zoning and took the sellers word for it. It turned out that the house is zoned for single family. And other 6 units are build illegally now the city want us to tear down the whole thing, the entire lot!
Lesson learned is always verify all the info and make sure the building is zoned correctly!
My question for all you investor is that if I tear down the whole thing and try to building 8 townhouse on it whats the all in cost I’m looking at? And how much can I use finance? Or should I just stop paying the seller and let him foreclose on me so I will be only losing about 250k with my down payment?
I, being a little more prone to taking the attack mode, would hire a real estate attorney and file a lawsuit for fraud, misrepresentation, unjust enrichment, wire fraud and I'd throw in contract violations for good measure. It's not a "little" issue and he either knew or should have known and should have declared that to you in the paperwork. He would settle the lawsuit for your $250,000 I'm betting.
That being said, I understand most people won't go that route, but it is available.
@Mike Hern why would you let a foreclosure go against you when the contract was perpetrated in fraud?
??? He said "Bought it with 3% seller financing on a 8% cap."
That means the seller is doing the financing & wouldn't be able to foreclose while in litigation. The attorney would see to that. Thanks for your question, tho'.
Also, a little tip: Seller financing very rarely gets reported.
@David Li Is there any way you can stablish whether the seller was aware that the units had to be demolished or they were illegal. Perhaps check if they were ever given notice from the city. Even if you are in a buyer beware state, if this seller knowingly hid this from you, I would think this is fraud. And yes if they were represented the agent too has some liability on what they did know.
That amount of money needs the help of a lawyer. I would not look for a real estate attorney. they tend to do little more than closings. You need a contracts attorney with experience in litigation.
First - Sue the heck out of the seller
Second - Sue the City. Yes. In my experience, if the city sends a notice to tear down, they will just double down if you inquiry nicely about it. BUT if you come with a kick *** lawyer, you can have a better chance.
In NYC where I own my buildings, before I ever put in a bid for a home, I always go down to the basement and check the Meters.
For a 4 family, I expect to see 4 Gas Meters, one for teach Kitchen in the building.
I then need to see 5 Electric Meters, 4 for each apartment and 1 for the Common.
In NYC, these are all owned by the Utility Companies and they cannot add meters at will. They can only add them as according to the Legal Occupancy of the building.
If there is a discrepancy between the number of the meters and the units, I go to the buildings department and pull the current Cert of Occupancy myself.
Of course this doesn't help you now, but it might help others from getting into your situation.
One thing you can potentially do is look at your Contract of Sale, if you have one.
Was it done with an Attorney or other professional that has E&O? It may be possible to sue for misrepresentation if it's in the Contract.
I'm not an Attorney, but I would investigate anything that I can and sue for anything fraudulent.
Wow, this is crazy. It's one thing to finish a basement or add a bathroom without a permit, but this is next level. They built an additional 6 units on a lot with an existing home that was zoned for 1 unit? Wow. Did they build these units years ago or just recently? Did you receive a seller's property disclosure and if so did they acknowledge un-permitted work and zoning compliance issues? Did you get title insurance with enhanced coverage by any chance? Was the wholesaler licensed and insured? Sorry for asking more questions than providing answers... just stupefied... ...there's no way the seller didn't know that they needed a permit, or didn't know the property zoning. The city also should have known about the situation, and could have put a lien on the property before so that it would have shown up on title work... it seems crazy that code compliance didn't catch on to 6 units being built with no permits, and that the title company didn't see that either... just wow. Sorry you're dealing with this and GOOD LUCK! Get a sharp lawyer involved immediately.
So we bought it on seller financing, we gave the seller about 220k in down payment. The term is good because is a 3% interest rate.
What I’m worried is that we can’t rent out any of the units anymore so I either default on the loan or I tore down everything and build 8 more units on the lot
City told me r4 allowed up to 8 units
Okay...so this is Not a zoning issue. —Typically, this means the units, if built/modified to current codes, can be permitted after the fact, with additional fees/penalties. ——Are you saying there was one unit and someone built an additional 6 units with no permit? —When were these unpermitted units built? —Did your seller build the unpermitted units, or did he buy it this way? —What exact Written notices/communications have you received from the city? —Looking at the city’s “enforcement file” on this issue, When was the first Notice of a violation issued —Who was this first notice sent to
Hello everyone. So last year I bought a 7 units apt for 1.06 million dollars. Everything looks great on paper. Bought it with 3% seller financing on a 8% cap. What could go wrong right?
Only thing is I didn’t check with zoning and took the sellers word for it. It turned out that the house is zoned for single family. And other 6 units are build illegally now the city want us to tear down the whole thing, the entire lot!
Lesson learned is always verify all the info and make sure the building is zoned correctly!
My question for all you investor is that if I tear down the whole thing and try to building 8 townhouse on it whats the all in cost I’m looking at? And how much can I use finance? Or should I just stop paying the seller and let him foreclose on me so I will be only losing about 250k with my down payment?
I'd have to wonder why neither the title company nor your closing attorney caught the issue ...
Contact a good lawyer immediatly and sue the seller. In 2022 anytime someone offers you seller financing need to be extreamly weary as they are likely trying to rip you off in some way, otherwise would just sell on market to the many qualified buyers a licensed broker can bring them.
Trying to think a little out of the box here. If your zoning R4 allows for 4 units, are you physically able to combine the 7 down to 4? Probably would hurt the rental income a tad, but the combined units should bring significantly higher rents then when they were smaller.
A far better outcome then being forced to sue the city or tear down your investment.
Hello everyone. So last year I bought a 7 units apt for 1.06 million dollars. Everything looks great on paper. Bought it with 3% seller financing on a 8% cap. What could go wrong right?
Only thing is I didn’t check with zoning and took the sellers word for it. It turned out that the house is zoned for single family. And other 6 units are build illegally now the city want us to tear down the whole thing, the entire lot!
Lesson learned is always verify all the info and make sure the building is zoned correctly!
My question for all you investor is that if I tear down the whole thing and try to building 8 townhouse on it whats the all in cost I’m looking at? And how much can I use finance? Or should I just stop paying the seller and let him foreclose on me so I will be only losing about 250k with my down payment?
I think the key thing is you write "I didn't check the zoning". The seller didn't hide anything, it was right there for you to identify. I believe you later wrote you bought through a wholesaler, so I assume the contract was filled with buyer beware caveats and do your homework admonitions.
Not sure of where you are and so forth, but tearing down and rebuilding seems a bit pricey and starting with an 8 cap seems like you would not be profitable and would be throwing good money after bad.
Consider speaking with a lawyer and suing to get your down payment back. Basically come out close to clean by taking seller to court and settling to give back for return of down payment (or a portion)…. Or go to the city and fight to get it rezoned, even into a 4 unit and spend money combining units fro 7 to 4, any tweak to existing building would be cheaper than tear down…. Try to work with city maybe a vet home or assisted living home might be allowed
Is crazy to me too, there’s no permit at all, and they just keep building more lol, everything was build between 1970 I believe
The story is that the seller ask to build a non conforming salon and some storage and city is ok with that, and the seller turned it into a 6 additional units with kitchen 🤦♂️