Foreclosure - Code Violations - Lis pendens

11 Replies

Good afternoon to all ! 

I am analyzing 1 property which is listed on Hubzu auction. I found out that there are multiple code violations on the property and the seller (DEUTSCHE BANK) received LIS PENDENS from city Chicago which claimed  $4,500. Also, I found out that there are unpaid taxes in amount of $631 for year 2018. Square footage listed on auction is way above what is on tax records. I already contacted listing agent about that issue. 
My question is: If i buy property on this auction, am I responsible to pay for this stated above ? Please take a look at info bellow. Thanks

@Nikola Magdelinic

Per Hubzu... "Some liens that exist prior to the foreclosure may remain in place after the foreclosure. Properties are sold "as is" or "where is" with faults and limitations. Prospective bidders are encouraged to conduct independent due diligence such as performing a title search or seeking outside legal advice prior to the sale."

Promotion
Apartments.com
List, Screen, Lease, Get Paid, Manage.
No Better Place to Lease Your Place
Owners rely on the #1 rental site to get the best results from their rental properties.
Get Started Now

@Nikola Magdelinic , change of ownership doesn't mean the code violations disappear. There's zero justification for them to be removed simply because there's a new owner. Yes, you will be responsible for them. The good news is that code violations are the best to take over; in most places, they can be negotiated down once the problems are fixed. We once negotiated $20k down to about $7500. A client just last year negotiated $260k to $4k. 

List Pendens from Chicago will likely stay as well.....find out if it can be negotiated. 

FC tends to wipe out junior liens and some overdue condo fees, but not most. Also check water/sewer....there's probably a big bill for that waiting too. Good luck! 

Thank you gentlemen for your answers @Christopher Phillips  @Wayne Brooks @Tchaka Owen

There is an option for title insurance, I just read Purchase and sale agreement :

"Buyer's Option to Select Title Provider and Closing Agent. Buyer acknowledges that during the course of Buyer's negotiation with Seller, Seller selected its choice of (i) title insurance company licensed in the state where the Property is located to provide Buyer with its title insurance policy(ies) (the “Seller Title Provider”), and (ii) the closing agent, and Buyer was given the option of either: (a) Approving the Seller-selected closing agent and the Seller Title Provider, in which case Seller would pay for the cost of Buyer's title insurance policies and all related search fees in accordance with Section 8.2.2 hereof, AND one-half of all escrow and closing fees charged by Seller-selected closing agent, not to exceed Four Hundred Fifty Dollars and NO/100 ($450.00), unless otherwise required by law or agreed to in writing between the Parties; or (b) Rejecting the Seller-selected closing agent and the Seller Title Provider in favor of a different closing agent and title insurance company licensed in the state where the Property is located to provide Buyer with its title insurance policy(ies) (“Buyer Title Provider”), in which case Buyer would pay for the entire cost of Buyer's title insurance policies and all related search fees and all of the escrow and closing fees charged by the Buyer-selected closing agent, without any contribution from Seller, and the provisions of section 8.2.1 shall apply"

With the Owner's policy I will still be responsible for Lis pendens for code violations or not ? Thanks in advance

The policy is to protect you if something pops up that the title company did not find. As I stated earlier, new ownership doesn't invalidate those liens. 

BTW, if you do buy this place, you should accept their offer to select and pay for title insurance.

@Christopher Phillips   Agreed, but.....title insurance can’t be issued unless the liens are cleared by the seller OR there is an exception to them in the B Section exemptions.  

The intent of offering title insurance is to offer clear title.

@Nikola Magdelinic Since title insurance is being offered, that means they intend on delivering clear title.  But.....I always advise to Not take their “free” title insurance from their title co.  They routinely do a bare bones title search only for recorded liens.  A full search will include inquiry letters to various city/county depts looking for “pending” liens....these are typically code violations, utilities, etc.  Their title co will exempt these unrecorded liens in the B Exemptions, and their title insurance is not really free....they hit you with a bunch of other junk fees.

The LP is a non issue, as along the underlying lien is cured.

Note....the fines for the code violations may be paid but of course you still have to fix the underlying problem.....here, you can’t really pay off the fines without curing the problem first....I’d try to find out the local specific procedures and maybe a lot a few thousand extra to it.

Originally posted by @Wayne Brooks :

@Christopher Phillips   Agreed, but.....title insurance can’t be issued unless the liens are cleared by the seller OR there is an exception to them in the B Section exemptions.  

The intent of offering title insurance is to offer clear title.

@Nikola Magdelinic Since title insurance is being offered, that means they intend on delivering clear title.  But.....I always advise to Not take their “free” title insurance from their title co.  They routinely do a bare bones title search only for recorded liens.  A full search will include inquiry letters to various city/county depts looking for “pending” liens....these are typically code violations, utilities, etc.  Their title co will exempt these unrecorded liens in the B Exemptions, and their title insurance is not really free....they hit you with a bunch of other junk fees.

The LP is a non issue, as along the underlying lien is cured.

Note....the fines for the code violations may be paid but of course you still have to fix the underlying problem.....here, you can’t really pay off the fines without curing the problem first....I’d try to find out the local specific procedures and maybe a lot a few thousand extra to it.

 Wayne the OP indicates the LP was from the city of Chicago, assuming from code enforcement liens, which would survive the lender's foreclosure?  Unless they are paid off by the foreclosing lender, the city could still enforce this and proceed to foreclosure.  I ran into this a couple weeks ago doing DD on a note pool purchase, one asset had a fairly recent LP from the City for a code enforce lien on the property which existed prior to a previous foreclosure.   

With the Owner's policy I will still be responsible for Lis pendens for code violations or not ? Thanks in advance

@Nikola Magdelinic - Code violations transfer to the new owner & you will have to address them.  The owner's policy doesn't provide any protection or release you from the code violations.

@Chad U. My assumption, if it was not clear, is that the fines for code violation will be paid off by the bank/seller. The underlying cause for the violation, if it still exist, will of course have to be cured. 

@Wayne Brooks   like you suggest we ALWAYS use our own title insurance provider.. never use the auction companies you don't need title insurance until you really need it  … unless its a very low value asset where I may not care

for us as we never hold anything longer than humanly possible I want my title insurance so when I go to sell I use that same company.. and any boo's they fix   try buying with cheapo title and then have another title company not insure that will cure most from using the auction volume budget title insurer