Bought a 4 unit but tax record shows 5 units, what to do?

9 Replies

Hi everyone. I recently purchased a property in Providence and it was listed as a 4 unit and the building really does have only 4 units in it. However in the tax record this is listed as a 5 unit. The deal was made as a 4 unit and I even got conventional loan for it. I thought the lawyers would record the deal in the city and it will get converted to a 4 unit on the records too. However I went to the city to check 2 months later and they told me I have to start from scratch to get the record changed and they could put a lien on the house for no-permit work done if I don't.... What should I do? 

I am talking to the closing attorney and the Realtors but they are just finger pointing.. 

Has anyone gone through this before? Any advice would be helpful

I wouldn't make a big issue of it. If you manage to get a conventional mortgage, either as a OO or NOO, it's perfectly OK.

The only issue is you'll probably pay a little more in taxes, and 5 is often considered commercial, so I would check to see how much more you're paying in taxes.

I have a similar problem. The CO shows 2 units. The finance department of NYC shows 3 units. But tax wise, it's not a big issue for me, because of the good rents, it more than covers.

The reason why I let it go is you don't know what will happen, and when they check, they find a bunch of other things wrong. I had a surprise building inspection some years back and they found an illegal finished basement apartment downstairs, bought the house that way, and it cost me over $6,000 in fees, a year of hassle with expediters, permits, fines, plumbing inspectors, building inspectors, re-inspections, so I'm done with it. If they start with "we'll have to start from scratch", you better quit while you're ahead.

Just don't get them started with "you had no permit work done". An electrician I hired once to do extensive work to upgrade the house. We had to get a permit to replace the meters, among other work needed. On the scope of work for the permit, he omitted the rest of the work. So he told me, if I get a permit to change the meters, the inspectors come and look at the meters. If you put down a bunch of things, they'll go through your house, you don't know what else they'll find.

Yes, he's a licensed electrician, does good work, so I went along with it.

Hi Frank. Thanks for the quick feedback! It's good to see this happens else where too and good to get a sense of how much it could be to fix.. I am trying to use the fact that I just bought the house with no prior knowledge of this issue for either some leniency with the city or get some form of compensation from the seller.. Would this be an issue when trying to sell the property?

There's people called "expediters" whose function is the consult and deal with permit issues. In NYC, I used these folks on a number of occasions. 

And the money they can save you can be substantial. When I had the illegal basement unit, the city people said I have to demolish it, and turn it into a vacant basement first, the way it is in the building plan, And then I had to build the basement office from scratch, I had to submit drawings and get approvals. There were fines on top. I need permits both for the demolishing phase, the building phase. Total cost of all of this, $25K to $30K.

In other words, I had to start from scratch.

I hired an expediter, told him I have a business, and use it for my office. There were only minor changes needed to turn the apartment to an office, For instance, an office does not need a bathtub, a stove, so these would have to be removed.

He first approached the city and he was told what I was told, everything was to be ripped out, and put in again. Our plan was rejected. But he had a meeting with the assistant commissioner, whom he knows, the rejection of our plan was overturned, and approved. The whole project finally cost me $6,000 (compared to $30K) including the expediters fee.

He even filed the paperwork in such a way that it didn't trigger any fines. I googled your area, and found: Expediting in RI Check under services, then additional services. I would pay for consultation on what the "starting from scratch" is.

Great advice Frank! Thanks so much

In answer to your second question, no I don't think you will have a problem selling your house. In fact, you just bought it. If the was reversed, your had 5 units, 5 tenants,  the CO has 4, so you have one illegal unit which has to be removed.

You do not have an illegal unit.

I have the same issue with the building where the CO shows 2, and the Finance department shows 3. The CO controls, and I don't have an illegal unit. I closed, refied, go two different HELOCs. The only bad thing is I might pay a few more dollars in taxes.

@Robert Chen I'd ignore what the tax record (tax assessor) has, you want to find out what the building department has on file as the legal use. You can get the phone # here (use the Contact Us link on the page; BP won't let me post the phone) but you may have to go in person to have them pull the card; they're at 444 Westminster St (somewhat across from AS/220).

I suspect the building department will have 4 units, and then down the line you can try to get the tax assessor to update their records to reflect the 4 legal units - which you should do as soon as you can, because you're probably being taxed a lot more at 5 units than 4.

Either way, the deal has already closed, you're not going to get any help from the closing attorney or Realtors. I wouldn't worry about the bank, they chose to make the loan and they have their own records & due diligence. Keep paying the mortgage, obviously :)

Converting from a 5 to a 4 is common due to fire coding and sell-ability. Hard to believe, but because it's a residential vs. commercial loan (4 vs. 5), a 4 unit can in many cases sell for more than a 5 unit, just because the pool of buyers is so much more.

And you will want to add "confirm legal use with building department" to your due diligence check list for future deals. :)

Hi Anthony, yeah definitely a big lesson learned here. Thanks for the tip that there may be a disconnect between land use vs. tax records.. I suppose I will just need to keep going down the path and learn more as I go. 

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here