All Forum Posts by: Edward Schenkel

 @ and @Filipe Pereira:

Jason, you had the right inclination that typically a Seller pays for his/her own attorney's fees and is also responsible for back taxes, liens, etc because the seller is responsible for conveying marketable title. However, when you have situations outside the standard closing, everything really is negotiable. This is typically the case in short sales, wholesaling, lease to own agreements, seller financing deals, etc. In these type of deals, who pays what is negotiated more. Often times when you have a wholesale deal the Seller is motivated to sell because they are not in a great financial situation and do not want to wait to list the property and go through a real estate agent. Therefore, they sometimes need the buyer to pay the back taxes, their fees, etc. Just make sure all that is worked into the purchase price. Often times it is still very much worth it. I also see the Buyer sometimes paying for the Seller's fees and liens in a pre-foreclosure situation or short sale. So the answer to your question it is all negotiable and often times when the Seller is motivated and in a bad financial situation, the buyer negotiates to pay all Seller costs for a further discounted purchase price.

Also, if you decide to wholesale the contract, you should include certain provisions in the assignment of contract (for example that you are making no representations and you are relieved from all obligations under the contract). It is smart to have an attorney review the assignment even though it is typically a short document.

If you have any other questions, please let me know.

Regards,

Ed Schenkel, Esq.

What happens if you find yourself to be the owner of a two family house that is an illegal two family home (and not legally non-conforming)? First of all, you want to do your due diligence to make sure you know what your are getting into and hopefully you can get some sort of assurance from the Town that the two family is legally non-conforming. As discussed above, if multifamily is permitted in the zone, you are fine as well. But things happen and you may find yourself the owner of an illegal two family and the town is giving you a headache. Here are some options you can think about. 

1. Filing for a zone change or amendment to include multifamily. This will be very challenging and you will need to propose a new zoning regulation that will allow your property to be permitted in the zone that currently does not allow multifamily. You will likely need a public hearing or series of public hearings.  These are often hard to get approved. Moreover, you run the risk of the proposed amendment to the zoning regs being something called "spot zoning," which is not permitted. Spot zoning is a regulation that applies to only a small area (e.g. one property) so the amendment will need to be broader than just that. This is an expensive and challenging option. 

2. File for a variance. A variance is an exception to the zoning regulations. Typically, you need to demonstrate a hardship to get a variance granted. Hardships cannot be personal in nature and typically are created by the unique shape of the land or a change in regulations. It would be a tough argument to make that you have a hardship because you accidentally bought a two family, but every case is fact specific. A legitimate hardship for example is that the lot is now undersized and the set backs increased and you cannot build anything unless you get a variance. This is also a tough road and could be expensive to hire an attorney, surveyor, etc. 

3. Sue the seller and try to invalidate the sale and get your money back. You can argue that the Seller made a misrepresentation (this is why it is good to have the representation in the contract that it is a legal two family) and try to invalidate the sale. If it is sold as is, this becomes a tough argument. Every contract is different, but there may be a way to sue the seller under a theory of misrepresentation. Also, if the seller has moved far away and you cannot locate him, this becomes nearly impossible. This can also be a very expensive road as well. 

4. Negotiate with the town. Maybe you can work something out where they will not fine you for a year until you can fix the problem. Maybe there are some other creative solutions the town will suggest. 

5. The best option is to avoid this situation by doing your due diligence and knowing what you are getting into. 

Regards,

Ed Schenkel, Esq. 

@Filipe Pereira thank you very much for your valuable incite!! Great advice on rentals. 

More on the legally non-conforming two family topic. The first related topic I mentioned above is why it is it difficult to obtain financing on a legally non-conforming two family v. a two family property in a permitted zone? Well, I think that many lenders would not think to investigate this from the outset or some may rely on a title insurance policy (some policies insure against zoning violations). However, some lenders will ask about this and be hesitant to lend if the property is a legally nonconforming two family. Why? Well, the bottom line is that some lenders may see this as a higher risk. Even if there have been no problems, a cautious lender may see the potential for a neighbor to argue it is an illegal use and make a stink. In theory, the town could ask for proof that the use has existed prior to the zone change. This could be a headache, This would be rare but it is not unheard of. To mitigate this risk you can meet with the zoning department before you buy it to confirm it is legally nonconforming but the lender could still be extra cautious.

A second reason a lender may be more cautious is the possibility that you may not be able to rebuild the two family if it burned down. You may have to rebuild a single family or whatever is permitted under the code. Many towns have regulations that speak to what happens if a legally non-conforming structure burns down. Some regulations make it more difficult to rebuild the same legally non-conforming property. I have seen a number of regulations that provide that if more than 50% of the property burns you cannot rebuild the legally non-conforming property and have to build something that conforms to the current zoning. For these reasons, a lender may be cautious. However, many lenders I think would not ask any questions! I hope this post is helpful. happy hunting on two families, both in permitted zones and legally non-conforming! 

Regards,

Ed Schenkel, Esq. 

 @James Naz, glad my post was helpful. Sorry you had that headache with the office building! You have raised a couple of great issues for me to add some incite on related to legally nonconforming properties. Within the next few days I will be adding posts on (1) issues on financing legally non-conforming properties; (2) rezoning a property with zoning problems, such as the property you mentioned and 3) what happens when a legally non-conforming property burns down? can you rebuild the legally non-conforming property?

These are great issues that investors should be aware of and I will definitely be posting on these on the next couple days. 

Also, if you are still having a headache with your property and the city is giving you grief, message me - I may be able to help. 

A client called me the other day and told me he was thinking about signing a contract for a two-family home. The numbers looked good from an investment perspective, however he reviewed the zoning code and maps and realized that the two-family was not a permitted use in this particular zone. Therefore, his concern was that he was buying an illegal two family and it could be a potential headache down the road. What should he do?

Well, it is true that there are people who do major work to properties themselves without the required permits and as a result, there are illegal two family homes out there. You do need to be careful. The first thing you should do before signing a contract, is look at the zoning map and make sure that the a multi-family is permitted in the zone. If you do not have time, make sure there is a short contingency (along with the inspection, mortgage and any other contingencies) that will allow you an opportunity to check with the zoning department to make sure it is a legal two family. You can include this in the inspection contingency regarding the condition of the property.

If the multi-family is in a multi-family zone, you are fine. However, what do you do if you have a multi-family in a zone that does not permit multi-family housing? Is it illegal? Maybe, but not necessarily. 

There is a legal doctrine called "legally non-conforming use." This means that a use can be grandfathered in after the change of zone. Therefore, it is possible that the two family was at one point in time in a zone that permitted multi-family use, but then the town or city changed the zoning disallowing it. As long as the two family was a legal two family prior to the change in zoning, it is grandfathered in. 

Therefore, if you look in the zoning maps and regulations and see that your two family is currently in a zone that does not permit multi-family, you should confirm that it is in fact legally non-conforming. You can check the zoning records and town assessor and other records to confirm that at the time it was created, the owner took out the necessary permits to create a two family house (to make sure it was legally created). If you want to be very safe, I would recommend meeting with staff of the zoning department and confirming with them (in writing) that it is being treated as a legally non-conforming two family.

If you cannot confirm that it was legally created as a two family prior to the zone change but you feel it is a really good investment, you take a little bit of risk, particularly if the town or city will not give you any confirmation that is a legally non-conforming two family. The risk may be worth taking - may not. In theory, if it is an illegal two family, the town or city can fine you or even take legal action against you (legal action would be rare but they may fine you).

If you cannot confirm that it is a legal two family, I would suggest having a provision in the contract where the Seller represents that the property is a legally nonconforming two family. Also, if you purchase title insurance, the seller typically signs an affidavit that says he or she is unaware of any zoning violations. These things will help you if there is a problem with the town later (you can go after the Seller potentially for a misprepresentation but it will not solve the problem).

So in short, any investor in a two family should be aware of the legal nonconforming doctrine. If the two family is not permitted under the current zoning, you should do some research before you buy it to understand what you are getting into. 

Regards,

Ed Schenkel, Esq.

I am looking at condos in Stamford Connecticut. I am actually looking at a 4 bedroom in the city as a potential house hack. However, I am wondering what the BP community has to say about whether it is easier to rent out a 4 bedroom, 2 bedroom, or 1 bedroom in the city. I know what makes a good investment has a lot of different variables, but I am wondering if anyone has any advice about the number of bedrooms in an investment in a city. My common sense tells me that families that need a 4 bedroom would not want to live in the city; they tend to move out of the city when they have kids. However, more rooms and higher square footage could command a higher rent. Does anyone have any thoughts on this issue?

Hey BP investors, I will be posting another important tip later on today. It has come up in my practice and it is something that any investor investing in a multi-family unit should be aware of. Stay tuned.

Dear BP Investors,

I would like to share with you a simply yet important landlord tip. When you lease to your tenants and have them fill out the application, make sure to get their social security numbers. Why is this important? If they default, and you file an eviction lawsuit, having their social security numbers are important and here is why. If they do not do anything, which many tenants do, you will need to get a default judgment against them. To do this in CT, you need to file a military affidavit, which certifies that the tenants are not in the military. Most judges prefer that you look on the manpower website (military website) and input the tenants' names AND social security numbers, and get something saying that your tenants are not in the military. It is a lot harder to obtain this from the manpower website if you do not have the social security numbers. In fact, one case where my client did not have the social, the judge required us to submit other evidence that the tenants were not in the military and my marshal had to knock on the doors of half the street and sign an affidavit saying he spoke to the neighborhood and nobody said the tenants were in the military ! This delayed things 6 weeks. Bottom line - get the tenants; social security numbers so you will not run into this problem and you can easily get a default judgment / judgment of possession. This sounds simple, but it is important and every landlord in CT (and elsewhere) should be aware of this tip.

Regards,

Ed Schenkel, Esq.

@Bill R. -  You are very Welcome!