Closing Tomorrow - Just Learned House is Condemned!

27 Replies

Hi BP Friends! 

You have yet to let me down and I am once again, as a beginner, asking for your help! 

I am scheduled to close on a property tomorrow. I contacted the city's electric company to start service and was told the electric meter was removed, but she'd inquire with the city to get it back in. She later contacted me stating that the city's building inspector would not be approving the start of electricity because "the house has been condemned and is supposed to be torn down." If the city knows of this, wouldn't the seller (PNC Bank / Auction.com) know of this? Is this grounds to cancel the contract? The property was listed as a house with square footage and a bedroom, not as land-only. We are scheduled to close tomorrow. State: WI

Please let me know your thoughts! 

Originally posted by @Theresa Harris :

Did you have a lawyer handling the closing?  I would talk to them and get the closing delayed until you sort it out.  All of this should have been disclosed by the seller.

I do not have a lawyer handling the closing. With closing tomorrow already, I'm thinking I should contact one or tell the title company I won't be signing. The closing will be via Docusign. 

 

We bought a house and when we went to pull the necessary permits we found out the house had been condemned. The county was more than glad to issue the necessary rehab permits to us and rescind the condemnation order. Saved them the expense of having to tear it down.

I would contact the city and see if they would be willing to do that. I don't see why they wouldn't.

Title companies are checking for liens and clear title. Condemnation orders don't show up in a title/lien search

Have you seen the property? If you're going to fix it up, you can probably get the condemnation rescinded. The question will be is the property repairable? You don't have much time to work with here but talking to someone at the municipality the property is in may shed some light on the situation.

@Theresa Harris

Yes, I would think it would've been caught during the title search? I even purchased title insurance. Not sure if that makes any difference.

I have the correspondence with the city in an email and my closing agent at Auction.com made sure to forward it to the title company.

Don't sign anything until this is resolved. It won't be closed until you sign on dotted lines.  If you put money down, demand it's returned immediately.  Get a lawyer if they refuse.  At least that's what I'd do.

There are lots of properties out there.  I wouldn't deal with any that turn into giant pains in the rear.  I'd just get out and look for another one without major headaches.

Just for grins, here's a story.  I studied for a real estate person's license in WA state when I was just 22 years old and pregnant with my daughter.  I learned about easements and how to read title reports as part of my education.

My husband and I looked at a property in Roslyn, WA - the town where Northern Exposure was later filmed, if anyone remembers that old TV show.  

It was a really cool old Victorian style fairly small two story house with a yard that would need a lot of work, but we were excited - both of us loved old houses and weren't afraid of the work and loved the idea of bringing that cool old building back to life.

But - when I got the title report, it contained multiple pages of easements - like you wouldn't believe.  

The town was a railroad town, but had also been mined.  So, under that town was an extensive network of old mining tunnels.  The easements said that if your house fell into the ground because of old tunnels dug under it - they weren't liable.  

And, the title report also included the information that the railroad owned all of the mineral and water rights under your house.  So, if they decided they wanted to move into your backyard and put in a drill for water, they had the right to do that.  Or to move into your backyard to start digging more tunnels under your house - and they weren't liable for any damages related to either.

Thank GOD I had already learned about easements and mining rights and how to read a title report, so as excited as we were to buy that house, I knew we had to walk away.

Moral to the story is - everyone really needs to learn any business that they are going to invest in - especially their own money.  That doesn't mean just reading online forum posts.  It means getting an education - and - learning the laws specific to the jurisdiction you are going to invest in, too.

Otherwise, you are ripe to be ripped off.  Buyer beware and all that.

@Melissa G. if the seller didn’t disclose, and the title company didn’t find it I would walk away from the deal, and find a new title company for the next deal. I am not a lawyer, but discovering that a property is condemned should be clear grounds to walk away from the deal and get your earnest money back.

@Melissa G.  I know WI has a 50% raze order law on the books, meaning if repairs on home will cost 50% or more of home value, it is condemned. Although as I understand it, it is rarely enforced. As ridiculous and borderline deceptive as it would seem, title searches don't usually find this info and title insurance policy don't typically cover it either. I would try and back out mostly on seller failing to disclose, but it is possible there was raze order and the govt failed to get in contact with previous owner, but order is still effective. I remember reading a post like this a bit ago, where the city in WI didn't even record it or anything.. it would have been completely impossible to find that information out in any way, and yet they somehow still have authority to impose the order. Totally insane... I would look into what is behind the order, call city to see if seller was ever notified or successfully contacted (wouldn't take seller's or agent's word for it even) etc. 

I would get a lawyer and in the meantime refuse to sign and make a push to get my money back. Good luck!

@Melissa G. Any town/city liens should have been uncovered during the title search. Do not close today until the situation is sorted through. Take your time and do not let the sellers rush you into a closing, they shouldn't after you explain to them why you want to extend. 

I would try and talk to building officials directly about the issue before proceeding. If the building is scheduled to be torn down there is probably no decision to really be made, but there is also the possibility that the rep from the electric company misinterpreted what the town official said. 

You have a lot riding on this so I would let everyone involved know you aren't doing anything until you hear from the city/town in an official capacity. Make the city officials put in writing whatever they tell you, this way things don't change down the line. 

@Melissa G. title companies insure clear title, meaning nobody else has priority to ownership and hinders clear title. Title companies have nothing to do with the condition of properties, city permits, orders, etc.

Do NOT sign to close if you don't understand what the status of the property is, what can be done, and if you're willing to accept that

Well your lucky this was caught now ! Clearly your not doing your due diligence on this ! Have you even seen this property with your eyes or just buying something because it looked like a deal on paper . Geez girl

I would start by contacting Auction.com and asking if they will refund your money.  This property is probably too big of a pain to deal with if your city wants to tear it down.

If that doesn't work, see if you can get the city to wait and let you fix it up.  Contact the city attorney and have them draft a document stating they will NOT touch the property for X-days, at which time it will be reinspected to determine if you have brought it up to standard.

If that doesn't work, I'd probably let it go.  The city has at least one attorney on staff.  You have to pay a retainer for your own lawyer if you decide to fight.  Good lawyers in my town charge $200/hour, and there's no guarantee you will prevail.  Call the loss tuition in the school of real estate investing.  I've paid some myself....and what I earned a bachelors degree in "Fighting the Govt is typically not worth it."

@Melissa G.

If it's under "condemned" status it's up to you to uncover. The bank and Auction.com most likely had no clue and I would bet in fine print somewhere you signed something stating that you are purchasing their lien on the property in an "ASIS/WHEREIS" capacity. Disclosure is for what is known. Since this bank never lived in the property I am guessing they didn't know (or at least you would never be able to prove it). 

As far as steps to go forward I would recommend talking to the building inspector and seeing "why it was condemned" and what they are going to require to allow it to move forward. Are they simply saying there are two broken windows and if you fix them you can go on.... or are they saying "Require a structural engineer to evaluate the North foundation"? Most inspectors don't just sign condemnation orders. They have to have paperwork to backup their findings. Simply beginning a dialog (I recommend in person) goes along way to seeing what they know. 

Originally posted by @Theresa Harris :

@Melissa G.   I would contact the title company and a lawyer.  I'm not familiar with title companies, but shouldn't they have checked with the city when pulling the title?  I would have thought something like it being condemned should have come up.

 I don't think the title company would have any indication that they would need (or should need) to contact the city. That's not what title companies do. They work on title, not on habitability of a particular property. It wouldn't have come up in any title search.

Originally posted by @Melissa G. :

Hi BP Friends! 

You have yet to let me down and I am once again, as a beginner, asking for your help! 

I am scheduled to close on a property tomorrow. I contacted the city's electric company to start service and was told the electric meter was removed, but she'd inquire with the city to get it back in. She later contacted me stating that the city's building inspector would not be approving the start of electricity because "the house has been condemned and is supposed to be torn down." If the city knows of this, wouldn't the seller (PNC Bank / Auction.com) know of this? Is this grounds to cancel the contract? The property was listed as a house with square footage and a bedroom, not as land-only. We are scheduled to close tomorrow. State: WI

Please let me know your thoughts! 

 Not sure how this works in Wisconsin but to use Chicago as an example, they put a big red X on the front of properties which are scheduled for demolition.  Once a property goes into the system marked as such, it is put on a list.  It can take literally years for the city to get to it.  During that time you could go to court and get the marked for demo status removed under certain conditions.  

In your case it is likely just a matter of talking to the right people at city hall and seeing what can be done.  Unsure about the legal aspects, recommend talking to a local attorney about this, and good luck!

OMG So many of these responses are CLUELESS! A Bank sell in the case of Auction.com (for PNC in this case) is sell an interest in real estate, they are not insuring anything, you are just buying their interest regardless of defects. A title search would not reveal a Raze or Repair Order, In WI it would be unusual for them to be recorded. Often notices are on the property but not always. the sellers title company generally does not check with the inspections department to see if there are any work orders or a raze order. They do get a "special assessment letter" but thats just things like back water bills, bills for noxious weed cutting, or snow removal the city did because the owner did not. Discovering this should have been part of YOUR due diligence process, you signed away your rights to back out for any reason when you signed that long contract in Docusign that you probably didnt read. I would bet there is language that covers this situation. Here are your options, dont close, and plead for your ernest money back (you wont get it) or close and see what it takes to get the order lifted. Buying Auction properties is not for everyone, its for the big boys and girls that know what they are doing, I buy at online, as well as sheriff and in person auctions, BUT I have also been party to over 800 transactions with 95% of them being in the Default world of real estate. I have been a broker since 2006 that specialized in REO I have seen this situation play out many times. at the end of the day. BUYER BEWARE.

@Melissa G.

I’m glad you were able to get out of the contract, but this what I do on every property as part of my due diligence and can also be used as a bargaining tool.  Once you are under contract submit a FOIA (Freedom of Information Request) request to the city/county or whatever jurisdiction your under.  First of all it’s free.  Request any outstanding liens, fines,   bills or ongoing litigation on the property.  Are there any current or previous code violations on the property.  A history of all permits issued on the property active and closed and all inspection reports.  Any zoning violations on the property, etc. You will be surprised in some cases what you learn.

A property that has been condemned does not mean it’s slated for demolition, but that could be the end result.  It means it’s unfit for occupancy.  There is not necessarily a lien on the property and will not show up on a title search.  A city can hold the amount of fines owed by waiting till you request the water/sewer being transferred to you or turned on.  There is no lien.  It’s unnecessary because there waiting for next owner or individual to come in.  There could be a $1000 outstanding water bill waiting for you.  I had a situation where there was a $4000 fine waiting for next buyer for the city cutting the grass from years ago, no lien filed.

All this should be done as part of your due diligence.  I’m glad in this case it worked out.

Kenneth, understand this was an Auction.com deal, "under contract" does not mean the same thing, when you are winning bidder you dont have a due diligence period, its yours, you bought it. this homework needs to be done upfront, in general a quick call to the inspectors office will reveal what you want to know. in most places a formal request is not needed, unless in a big metro. 

Originally posted by @Kenneth Garrett :

@Melissa G.

I’m glad you were able to get out of the contract, but this what I do on every property as part of my due diligence and can also be used as a bargaining tool.  Once you are under contract submit a FOIA (Freedom of Information Request) request to the city/county or whatever jurisdiction your under.  First of all it’s free.  Request any outstanding liens, fines,   bills or ongoing litigation on the property.  Are there any current or previous code violations on the property.  A history of all permits issued on the property active and closed and all inspection reports.  Any zoning violations on the property, etc. You will be surprised in some cases what you learn.

A property that has been condemned does not mean it’s slated for demolition, but that could be the end result.  It means it’s unfit for occupancy.  There is not necessarily a lien on the property and will not show up on a title search.  A city can hold the amount of fines owed by waiting till you request the water/sewer being transferred to you or turned on.  There is no lien.  It’s unnecessary because there waiting for next owner or individual to come in.  There could be a $1000 outstanding water bill waiting for you.  I had a situation where there was a $4000 fine waiting for next buyer for the city cutting the grass from years ago, no lien filed.

All this should be done as part of your due diligence.  I’m glad in this case it worked out.

 

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