Investor · Miami, FL · Member since 2012 · 136 posts · 5 votes
Whats the best way to deal with code/maintenance liens from city municipalities that are recorded as liens on REO, you know the $250/day liens. Some of these REOs im looking at are vacant since 2011 and the lien was recorded from that date, so were talking supposably over $100,000 in daily fines!! So for a property worth 200k selling for 120k is it the banks job to negotiate with the city to release the lien in order to convey title to the new buyer(me) who will clearly fix all the pending issues? I guess Im a little stuck on making my offers on these REOs with City liens.
REO, right? The bank should give you clear title when you buy. It would be their problem to resolve these issues. Be sure you buy title insurance, which banks usually provide if you use their title company.
REO, right? The bank should give you clear title when you buy. It would be their problem to resolve these issues. Be sure you buy title insurance, which banks usually provide if you use their title company.
In most cases in souh Fl, with a REO, the problem goes to the buyer, unless it's minor. The violations/liens can't be removed until the defect is corrected. Then, you can negotiate the pay off. The banks generally sell the property with the buyer asuming reponsibility of the liens, that being an exception in the title policy and deed.. Happens every day.
Jon Holdman Often when a bank has code violations that they have no desire to clear they will ask the buyer to sign a hold harmless on any and all code enforcement issues. I've walked away from several deals because of that.
Mike Nelson You should call the code enforcement office and see what their take is on it. I know the City of St Petersburg has a program where you can apply when you get the property under contract for a code amnesty program which will involve you clearing up all the violations that led to the fines and getting the property reinspected within 30 days. I've had 0 luck with Pinellas County Code Enforcement having any willingness to work with me on properties that have fines, they just tell me until the issue is cleared the fines will continue.....even if it changes ownership they wouldn't give me a grace period to correct them. Most places around here if you want to try to get them reduced you have to fix the issue and then take it to a special magistrate to appeal the fines....and there's no guarantee of what will happen.
So the risk to the investor/rehabber is the likely hood you will be stuck paying the 100k for a tree violation or tall grass once the issue is re mediated? In other words the city would be ### about it.. Can you have a written agreement with the city that the fines will be reduced to x amount once the issue is fixed?
You have to talk to code enforcement at that particular city. Each one is different, some will give you a ball park figure they'd negotiate to, after compliance, some won't.
I'm guessing a lawyer who has dealt with these issues in these particular cities is the best way to attack these opportunities... I would feel pretty sketchy using a code enforcement guys "ball park" figure. Or is this just part of the game for the investor who is willing to take the risk??
Mike Nelson From my experience around here they will not promise you anything. Until the violation is corrected there's really no way to appeal it. I've dealt with banks that have delayed closing so they could fix stupid little issues that have large fines and then go in front of a magistrate to get them reduced and they've usually had luck......but there's no way I'd buy a property with a $100k lien with the assumption I could make it go away (unless I can buy it for $100k below market value).
What sort of violations are resulting in these liens? Things that occur around here are for unpaid water bills and unmowed grass. Correcting these involves nothing more than paying the water bill and mowing the lawn. Banks do put some modicum of effort into maintaining the properties. Here they winterize the water system and, yes, do send someone to cut the grass and pick up trash.
Are you saying that in your area the bank would leave it to the end buyer to pay the past due water bills and fines for messy yards? Or are you walking about unpermitted additions or some such.
I've negotiated short sales where there were $70k in accumulating $100-250/day fines for broken fences, mold on outside walls, mold on roofs, improper driveway on side of unit, etc. And yep, they keep accumulating until corrected. But, we got this one paid off for $7k after the violations were corrected.
If it's lot clearing or utility liens those are straight forward and the banks will pay those. What he's referring to are the fines that the local governments place on properties for violating city codes. It could be an illegal addition or it could be peeling paint on a hand rail....often it's the same fine. I've seen properties with tabs running of more than $1,000/day for rotted wood that hasn't been fixed. There are properties in this area with $5M+ in code enforcement liens because the property has been sitting vacant and nobody has fixed what the government wanted fixed so now it's become a permanently unmarketable property falling into further disrepair.
Here's an article about Pinellas County code liens...it's from a year ago so most of those properties have tacked on another half million in liens.
I've negotiated short sales where there were $70k in accumulating $100-250/day fines for broken fences, mold on outside walls, mold on roofs, improper driveway on side of unit, etc. And yep, they keep accumulating until corrected. But, we got this one paid off for $7k after the violations were corrected.
The biggest problem with this for Mike's situation is they will not negotiate or promise you anything until after the violations are fully corrected.
Ok heres the situation, I looked at a property that is a short sale. The listing agents listing mentioned a code lien for landscaping. I looked in the public record and found that lien from the city , and another for pool barrier violation. The owner cut down a tree and failed to replace it with a new one. Lien was filed with the county and accrued $100/day penalty, no tree has been planted that I could see at the house and no release of lien in the county record, so from the date the fines start to today equals $68,200. The other lien was for no pool barrier, which is code here in Florida, that one notice date is up to $64,700. Someone put up some orange snow fence and put a cover over the pool (im assuming the bank for liability reasons), but there is no release of lien. I also found a mechanics lien from a contractor for $13,000. So thats a total of almost $146,000. The only way I can see them doing this as a short sale is for the bank to fix these issues with the city, and settle the lien with the contractor. There is no way I want to sign a hold harmless so I take the risk of the city liens being reduced. I have no problem putting in an offer, but I would only do so noting seller to deliver marketable title. Any suggestions??
Jon Holdman Cutting the grass and fixing the water is not that easy to take the Nuisance Lien in Jacksonville, FL. If the city sends someone out to take care of mowing or fixing water, the city figures it is their people's time and the property owner, now or in the future, needs to pay for city employee's time. Every now and then, the city will hold an amnesty program for past liens. Till then, you either pay it or let it grow and grow and grow with interest. Mechanic Liens do not show up on the Tax Collector's office here in Jax, you need to run a title search to see them.
Short sale and a REO are not the same thing. I lost out on a short sale property specifically because it had a couple of small city liens on it and the bank didn't want to deal with paying them. Had the short sale deal gone through, someone would have had to pay them in order to complete the sale. The seller had no cash, or it wouldn't have been a short sale. So they would have had to be have been paid out of the proceeds from the sale, reducing the net to the lender.
With a short sale, this isn't really, yet, the bank's problem. Its the seller's problem. I could see a situation where the bank just lets the property set, unforeclosed and still the property of the borrower, because they didn't want to take on the liability for those liens.
No liens show up here on tax collector records. Those all show up in the county records. That's a completely separate department here in CO, and in all the other states I've dealt with. The tax assessor's records would only show unpaid taxes, which I've had to deal with, too. Sigh.
Indeed I've been threatened by cities for tall grass and trash. Their letters state not only will I be fined by they will send an incredibly expensive crew out to cut the grass and pick trash. That usually motivates tenants to get moving and clean up.
When the bank takes it back, though, they will send a crew to deal with stuff like this. If they take it back at foreclosure, some liens do get wiped out. Not sure where these city liens fall in that order. Yeah, I guess I could see where a bank would be stuck with some lien after a foreclosure and then just pass it off to their buyer. Seem like cities are cutting off their noses to spite their faces. If properties are saddled with such large liens that nobody's willing to buy them, they're just going to set and rot.
I know the City of St Petersburg has a program where you can apply when you get the property under contract for a code amnesty program which will involve you clearing up all the violations that led to the fines and getting the property reinspected within 30 days.
Patrick, I just looked on the City's website and they also have the lien amnesty program. It states the liens can be brought down to 15% face value once all violations are inspected and accepted. So essentially I could factor roughly $20,000 into the purchase price to cover this.
How about short sales? If the short sale listing has 130k in code lien fines, and 13k in mechanics liens, are these the likely candidates that will go to foreclosure? Not that I "should assume" the bank wont accept a low offer I propose to the owner, but for a house that needs extensive rehab work, plus the cost of getting the liens removed from the city and contractors, there wont be much to offer on the property, it seems the bank will probably say "screw it we'll take our chances in a foreclosure auction?" I could be overreacting , but I have a short sale scenario I am looking at with these issues...