Executing deal on condemned property - how to do it?

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Executing deal on condemned property - how to do it?

Matthew Hull
New to Real Estate · Member since 2024 · 43 posts · 22 votes

Has anyone ever successfully executed a deal to close on a condemned property that is planned as a fix and flip?

I have one I'm working through right now am my my primary road block is that Title won't grant title insurance with condemnation on record (the condemnation is for code violations that can be remedied through rehab). I haven't checked with insurance on this to see if they'd do builders risk on a condemned property, but that might be a second roadblock. My hard money lender understands the project type and is fine with the condemnation status.

I'm curious how others may have structured deals like this to secure the deal while working through lifting the condemnation. 

I think my next step is to get a lawyer to help create a framework for this, but any insight from your experiences would be helpful. 

-Matt

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Jonathan BombaciBusiness Member
Real Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes
11mo

Hey @Matthew Hull We’ve taken on a bunch of condemned buildings in a number of states over the years, usually multifamilies. Most of the time the lender just needs to see that the city is okay with you bringing the property back. That usually means a building permit or something form the building department saying you can rehab it.

The main thing to check is whether the property has lost its grandfathered use. I’d start by meeting with the building commissioner and asking for a zoning determination. That will tell you if you can bring it back as the same number of units or if it needs to meet new zoning rules. Sometimes the city wants an engineer to signoff on it or something along those lines depending on how decrepit it is so understanding that upfront can save you some time and heartache later. 

For insurance, you’d just get a builder’s risk policy. If title is giving you trouble, that’s probably a separate issue and not really tied to the condemnation itself. Worth having your attorney dig into that a little.

Once you have something in writing from the city showing you’re cleared to move forward, you should be able to get title, insurance, and lending lined up.

We actually like working on condemned properties. The profit isn’t always huge, but it’s a great way to build trust with the city. Around here in New England, it’s almost impossible to build new housing, so bringing these buildings back to life makes a big difference. Its one of the ways we can add new units without displacing existing residents.

[email protected]978-710-8611
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  • Jonathan BombaciBusiness Member
    Real Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes
    11mo

    Hey @Matthew Hull We’ve taken on a bunch of condemned buildings in a number of states over the years, usually multifamilies. Most of the time the lender just needs to see that the city is okay with you bringing the property back. That usually means a building permit or something form the building department saying you can rehab it.

    The main thing to check is whether the property has lost its grandfathered use. I’d start by meeting with the building commissioner and asking for a zoning determination. That will tell you if you can bring it back as the same number of units or if it needs to meet new zoning rules. Sometimes the city wants an engineer to signoff on it or something along those lines depending on how decrepit it is so understanding that upfront can save you some time and heartache later. 

    For insurance, you’d just get a builder’s risk policy. If title is giving you trouble, that’s probably a separate issue and not really tied to the condemnation itself. Worth having your attorney dig into that a little.

    Once you have something in writing from the city showing you’re cleared to move forward, you should be able to get title, insurance, and lending lined up.

    We actually like working on condemned properties. The profit isn’t always huge, but it’s a great way to build trust with the city. Around here in New England, it’s almost impossible to build new housing, so bringing these buildings back to life makes a big difference. Its one of the ways we can add new units without displacing existing residents.

    [email protected]978-710-8611
    Candor Realty4.760 Reviews
    WebsiteView Page
    1Reply
    • Matthew Hull
      OP
      New to Real Estate · Member since 2024 · 43 posts · 22 votes
      11mo

      @Jonathan Bombaci Does the city actually remove the condemnation for you to get clear title? How does that work?

      0Reply
  • Matthew Hull
    OP
    New to Real Estate · Member since 2024 · 43 posts · 22 votes
    11mo

    Thanks, Jonathan! I figured it wasn't an impossible road. We've actually reached out to a handful of title companies and the condemnation is the problem for all of them. It's also in pre-foreclosure, but that should clear with the transaction. 

    We are working with the city to review the required work and see what paths forward we could take. 

    Would the city lift the condemnation in your situations before closing, or what? What kind of letter are they writing?

    0Reply
    • Jonathan BombaciBusiness Member
      Real Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes
      11mo

      @Matthew Hull depends on why it was condemned. That said most of the time it's condemned for a reason thet requires a significant repair that is making the building currently unfit for occupancy. Once the repairs are made they issue occupancy and the condemnation is lifted. On multi-families we often get temporary for some units while working through the full condemnation. For example we bought a 8 unit in Maine thet was condemned by the state for lead paint. It was 2 four units. One building in great shape the other demoed to the studs. Once we cleared the lead condemnation we got temporary occupancy on 4 units, so we could rent them out, while we work to put the other 4 units back together. 

      [email protected]978-710-8611
      Candor Realty4.760 Reviews
      WebsiteView Page
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    • Matthew Hull
      OP
      New to Real Estate · Member since 2024 · 43 posts · 22 votes
      11mo

      @Jonathan Bombaci right, but it sounds like you had ownership of them? How did you get title insurance with a condemnation notice on the property? I'm planning to follow the same pattern you're describing, I just need to get through the acquisition, which is being held up because it is condemned. 

      0Reply
  • Ken M.
    Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
    11mo
    Quote from @Matthew Hull:

    Has anyone ever successfully executed a deal to close on a condemned property that is planned as a fix and flip?

    I have one I'm working through right now am my my primary road block is that Title won't grant title insurance with condemnation on record (the condemnation is for code violations that can be remedied through rehab). I haven't checked with insurance on this to see if they'd do builders risk on a condemned property, but that might be a second roadblock. My hard money lender understands the project type and is fine with the condemnation status.

    I'm curious how others may have structured deals like this to secure the deal while working through lifting the condemnation. 

    I think my next step is to get a lawyer to help create a framework for this, but any insight from your experiences would be helpful. 

    -Matt

    Which state is the property in? If it's in foreclosure it could take 3 months or it could take a year and a half. It varies. If it has already gone through foreclosure, that issue should be taken care of already.
    0Reply
  • Matthew Hull
    OP
    New to Real Estate · Member since 2024 · 43 posts · 22 votes
    11mo

    Michigan.
    It isn't in foreclosure. It has been turned over to the county and they have until March to pay the back taxes. Can be remedied through the purchase. 

    0Reply
    • Ken M.
      Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
      11mo
      Quote from @Matthew Hull:

      Michigan.
      It isn't in foreclosure. It has been turned over to the county and they have until March to pay the back taxes. Can be remedied through the purchase. 

      Well, if it is no longer in the name of the owner, you don't need title insurance yet. Get a Title report (usually $60 or so), see if there is anything other than the county on it, and if not, you're in the clear. There is more to do going forward, but it may be a non issue at this point

      0Reply
    • Ken M.
      Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
      11mo
      Quote from @Matthew Hull:

      Michigan.
      It isn't in foreclosure. It has been turned over to the county and they have until March to pay the back taxes. Can be remedied through the purchase. 

      Your comment "they have until March to pay the back taxes."
      It isn't clear who "they" are. If "they" are the owners, I'd wait until they missed their opportunity to redeem. 


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    • Matthew Hull
      OP
      New to Real Estate · Member since 2024 · 43 posts · 22 votes
      11mo

      @Ken M. This isn't really about the back taxes. It's about the condemnation. 

      0Reply
    • Ken M.
      Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
      11mo
      Quote from @Matthew Hull:

      @Ken M. This isn't really about the back taxes. It's about the condemnation. 

      My mistake, I thought you wanted clear title.
      0Reply
    • Matthew Hull
      OP
      New to Real Estate · Member since 2024 · 43 posts · 22 votes
      11mo

      @Ken M. Regardless of what you're thinking about clear title and my lack of understanding, the issue is that the title companies won't provide title insurance with a notice of condemnation. That has to be cleared before they issue title insurance. I'm wondering how others have successfully purchased a property like this. 

      0Reply
    • Ken M.
      Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
      11mo
      Quote from @Matthew Hull:

      @Ken M. Regardless of what you're thinking about clear title and my lack of understanding, the issue is that the title companies won't provide title insurance with a notice of condemnation. That has to be cleared before they issue title insurance. I'm wondering how others have successfully purchased a property like this. 

      Your comment "Regardless of what you're thinking about clear title"

      I can't help you 
      I wish you the best. Find someone you trust a bought how to clear title (which includes condemnations). The property is worthless otherwise. 

      0Reply
  • Matthew Hull
    OP
    New to Real Estate · Member since 2024 · 43 posts · 22 votes
    11mo
    It has already run through title search, which is where the condemnation was revealed. It is in the name of the owner. The owner has time to remedy the delinquent taxes.
    0Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    11mo

    @Matthew Hull Reach out to the agency that issued the notice. Request a summary of the condition giving rise to the notice, whether the property can be transferred subject to the notice (or if there is a land records block — not likely), and the exact process for having the condition inspected and use and occupancy approved after the repairs. The title insurer should be able to close with a special exception for the notice along with a notarized acknowledgment from the buyer regarding the exception and how to remedy it post-closing. 

    With a cash purchase this really should be a non-issue, IMO. If there is financing involved then you need a lender who understands the above and approves the rehab plans, because the exception is going to remain in the loan policy as well.

    Gimer Law516 Reviews
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    • Matthew Hull
      OP
      New to Real Estate · Member since 2024 · 43 posts · 22 votes
      11mo

      @Tom Gimer - this is very helpful. Sounds like we are on the right track. We have already reviewed the original code violation report and we are meeting with the inspector tomorrow to review any outstanding/unmet conditions. We've already done rounds with the city and county on whether this could transfer with condemnation attached and none of them had issues with the transfer of title with the condemnation attached. It has come down to the title agency. 

      Sounds like our next step is to find out the exact process for removing the notice/gaining approval for occupancy after repairs. Then we will work with the title company to list this special exception and what requirements they might have (notorized acknowledgement, etc) to allow for this. 

      As far as financing goes, our lender (hard money) is aware of this condition and is not concerned since this is a flip. 

      Thanks everyone. I will keep moving through this process. 

      0Reply
  • Peter Walther
    Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
    11mo

    I agree with Tom, if you and your lender know about the condemnation notice and any notices of violation, the title underwriter should approve issuing the policy with an exception for them.

    0Reply
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