Tax, Legal Issues, Contracts, Self-Directed IRA

User Stats

6
Posts
4
Votes
Atisha Fordyce
  • Rental Property Investor
  • Philadelphia, PA
4
Votes |
6
Posts

I'm the Victim of Real Estate Fraud in Philly

Atisha Fordyce
  • Rental Property Investor
  • Philadelphia, PA
Posted Jun 1 2022, 14:34

I was blind-sided with the news that my recently bought two-family home is legally a SINGLE FAMILY dwelling. 

I closed on the home in November of last year. It appraised for $300,000. I live in one unit and rent out the other short-term on airbnb. 

I now have to obtain a Limited Lodging License in order to continue renting on airbnb. I went through the process in order to do so and was blind-sided at the L&I office with the news that the property I bought is not actually a multi-family home, but a single family home. 

The seller applied for RM1 classification but never obtained any permits to do the work of flipping the home from single-family to multi-family. All of the work that the seller did to the property was done ILLEGALLY, without any approval or permits. I went through the process of purchasing this home; having extensive credit checks done on me, paying for home inspections, paying for appraisals and expecting the utmost due diligence from my lenders, the appraiser they hired, my title company and realtor. 

Now, I am here today with the information that there was fraud somewhere along the line and I now can not LEGALLY rent out my home for the purpose it was purchased. 

I am kindly asking for your advice on what steps I need to take moving forward. I am in need of an attorney who will be able to fight on my behalf. I need answers and I need solutions. 

Community, thank you so much for your help.

-Atisha

Philadelphia, Pennsylvania

User Stats

207
Posts
161
Votes
Victor Menasce
  • Investor
  • Ottawa, Ontario
161
Votes |
207
Posts
Victor Menasce
  • Investor
  • Ottawa, Ontario
Replied Jun 2 2022, 10:41

Atisha, I'm sorry to hear about your troubles. I've done a lot of multi-family construction in Philadelphia and am very familiar with the zoning code. The zoning information is readily and publicly available and should be a due diligence item checked on the purchase of any property. Building permit checks should also be a due diligence item. Whether you have any recourse would depend on the what the terms were in your agreement of purchase and sale. If the agreement warranted anything about the property, you may have some recourse. If the agreement was purchased as-is, where-is, then you may be out of luck getting any compensation for damages. What is the address of the property?

User Stats

207
Posts
161
Votes
Victor Menasce
  • Investor
  • Ottawa, Ontario
161
Votes |
207
Posts
Victor Menasce
  • Investor
  • Ottawa, Ontario
Replied Jun 2 2022, 15:12

Atisha, I'm sorry to hear about your troubles. I've done a lot of multi-family construction in Philadelphia and am very familiar with the zoning code. The zoning information is readily and publicly available and should be a due diligence item checked on the purchase of any property. Building permit checks should also be a due diligence item. Whether you have any recourse would depend on the what the terms were in your agreement of purchase and sale. If the agreement warranted anything about the property, you may have some recourse. If the agreement was purchased as-is, where-is, then you may be out of luck getting any compensation for damages. What is the address of the property? I can make a few introductions to lawyers in Philly who I am confident can help. But before contacting a lawyer, I would try and figure out whether a retroactive permit can be achieved with minimal cost. That may be as simple as visiting the L&I office and having a conversation. Try calling the law office of Alan Nochumson in Philadelphia. Feel free to mention that I referred you. 

User Stats

1,884
Posts
2,504
Votes
Matt M.
  • Contractor
  • Easton, PA
2,504
Votes |
1,884
Posts
Matt M.
  • Contractor
  • Easton, PA
Replied Jun 2 2022, 15:39

Something smells fishy here. How did you go thru the entire process and nobody pulled tax records and saw it was zoned single family. Tax records website is the first place I go when I find a house that interests me or I’m just curious to find out who owns it, how much they paid, etc. 

it’s so important to do your own due diligence! 

User Stats

335
Posts
193
Votes
Joshua Messinger
  • Realtor
  • Poconos, PA
193
Votes |
335
Posts
Joshua Messinger
  • Realtor
  • Poconos, PA
Replied Jun 2 2022, 17:32

Hey @Atisha Fordyce

I'm so sorry to hear about what had happened to you and it must be even more frustrating with Philly adding in the new rules & regulations (this has been such a headache for my team and I).

The best advice I would be able to give is to get an attorney and go through all of the options you have on the table and add this to your due diligence checklist for next time you are looking to purchase a property. 

I hope this helps and if I can do anything for you in the future my inbox is open! 

Best, 

Josh Messinger

User Stats

217
Posts
88
Votes
Eric Greenberg
  • Investor
  • Philadelphia, PA
88
Votes |
217
Posts
Eric Greenberg
  • Investor
  • Philadelphia, PA
Replied Jun 3 2022, 04:37

Is there any documentation stating that the property is RM-1 and not RSA-5?  Or did your buying team just not mention that it may not be a legal duplex? From my experience the city doesn’t change the zoning but rather gives a variance to use that property in a different way than intended. 

I would guess over half of the properties I see do not have the correct zoning for what they are used for and/or remodels without permits. I’m not sure what legal action you had for the seller unless it was written down that it was RM-1 or had a variance for a duplex but either of those are easily searched for using Atlas. The next option is to hire a lawyer and try to get a variance which can be expensive, uncertain, and take months for an answer. Happy to answer any questions or point you in the right direction. 

User Stats

472
Posts
591
Votes
Yuriy Skripnichenko
  • Property Manager
  • Phialdelphia, PA
591
Votes |
472
Posts
Yuriy Skripnichenko
  • Property Manager
  • Phialdelphia, PA
Replied Jun 3 2022, 08:54

@Atisha Fordyce

Sorry to hear that happened to you. I would not call this a fraud though. It is a bad due diligence 

I second @Eric Greenberg on this. 

This should be a part of a due-diligence when buying a property. And a city certification along with a rental license should be requested as a proof of current use. Also as @Victor Menasce mention all of this is a public information and can be searched for. I'm not an attorney and this is not a legal advice, however I do not think you have any recourse for this. Your best option is to move forward and get a variance for your property. Here is a topic I posed couple years back on how the process looks like https://www.biggerpockets.com/forums/742-philadelphia-real-estate-forum/topics/511026-how-i-got-variance-for-duplex-in-philadelphia-aka-re-zoning. There are some changes but over all it is same 

Cheers, 

Yuriy 

User Stats

199
Posts
186
Votes
Michael Deering
  • Rental Property Investor
  • Lehigh Valley, PA
186
Votes |
199
Posts
Michael Deering
  • Rental Property Investor
  • Lehigh Valley, PA
Replied Jun 3 2022, 18:39

Interesting topic.  Would the Titling process catch something like this?

User Stats

14,684
Posts
25,932
Votes
Russell Brazil
  • Real Estate Agent
  • Washington, D.C.
25,932
Votes |
14,684
Posts
Russell Brazil
  • Real Estate Agent
  • Washington, D.C.
ModeratorReplied Jun 3 2022, 18:46

Did you actually ask anyone during the purchase?