The property that I am purchasing contains a violation in New York City. What are my options?

This issue seems to come up, it seems, in every transaction. Typically, a seller made an improvement to the home without obtaining a new certificate of occupancy or proper permit. The most common examples are illegal decks, pools, extensions, finished basements, and converting garages into living space. A building inspector issues a violation when the building department is prompted to appear at the property for a routine inspection or receives an anonymous tip (usually from a disgruntled neighbor) that there are illegal structures on the property.

The violation usually requires remediation and payment of a fine. The payment of a fine does not necessarily mean that the violation has been cured. To remediate the violation, the homeowner usually has to restore the improvement to its prior condition or to obtain the proper permits to allow the improvement to exist. In either case, depending on the type of improvement, a building inspector may be required to re-inspect the property. In some cases, an affidavit called a certificate of correction may be submitted as evidence of remediation. A certificate of correction is an affidavit indicating that the work was done to remove the violation to comply with building codes. In some cases, in addition to the permit, a new certificate of occupancy may be required. A certificate of occupancy is a document issued by the building department of the municipality that the building may be occupied for its intended use.

Assume you have entered into a contract of sale for the purchase of a certain property and the title search discloses a violation. As a purchaser, you usually have three options when a violation appears on record:

  1. The seller is notified and remediates the violation. Under this scenario, there really is no issue because the seller shall deliver the property with all improvements containing the proper permits or with a proper certificate of occupancy.
  2. Accept the premises in “as is” condition subject to the violation. You must be careful in this situation because you have just purchased a property which requires you to comply with the building codes. When you attempt to sell the property, you may then have to remediate the violation (unless, of course, you can convince the purchaser to accept the premises “as is”). Even if the seller renegotiates the purchase price to entice you to close title, ultimately, you must remember that there is a chance that the improvement may not be legalized. Be careful and due your homework.
  3. Terminate the contract. A contract of sale usually contains specific language which requires that violations must be remedied by the seller for those violations which exist prior to contract signing. Further, a contract of sale can be cancelled if a building contains an improvement, which a seller has refused or fails to legalize. Careful consideration must be given to requiring that the seller remediate all violations that exist prior to closing. If contractual grounds exist for you to terminate the contract, this is an option that may be available to you.

What if I want to buy the property despite the knowledge of the existence of an illegal structure without a violation being issued?

This question is difficult to answer because it depends on the type of improvement. Just because a violation has not been issued does not necessarily mean that a violation will never be issued.

A purchaser may make a business decision and purchase the property “as is”. These purchasers take the chance that a violation will not be issued or purchase the property knowing that a violation will require remediation, but in the meanwhile, enjoy the improvement.

For example, one of the reasons you like a house is because the backyard is set up the way you like it with a nice pool and deck. Unbeknownst to you at the time of signing the contract, the seller did not secure the proper permits. At a certain point you discover the pool and the deck have not been legalized. You are now two months into the process (contract is signed, mortgage application has been approved, etc), and you think to yourself, I really do not care if it the pool and deck are legalized. If you purchase the property subject to the improvement being accepted in “as is” condition, then it becomes your problem once you purchase the property. This may be a risk you would be willing to take. However, you should keep in mind that there may be a chance that the improvement, in this case, the pool and the deck, may never comply with building codes.

Of course, if you are demolishing the building and improvements there is no real issue here because the removal of the improvement usually will satisfy the building department requirements to remove the violation.

However, some improvements simply cannot comply with building codes, i.e., an extension to a building. What then? You may be required to remove the entire improvement and restore the building to its prior condition. A huge expense for you and most certainly not what you had bargained for. This is a chance you should not be willing to take.

There is one other point worth noting, just because you accept the property in “as is” condition, does not necessarily mean that your lending institution will accept the property with the illegal improvement. So, prior to accepting the property subject to the violation, check with your lending institution.

In conclusion, when you purchase a property, careful thought should be placed into whether or not you should purchase a home with a violation existing against the property. The options available to you are to request that the seller remove the violation, accept the property “as is” subject to the violation (with or without a reduction in the purchase price), and to terminate the deal. The worst case scenario is that the condition cannot be remediated and you must remove the improvement.

The information contained in this blog is limited in scope, is for informational and educational purposes only, and applies, generally, to the five boroughs of New York City (Staten Island, Brooklyn, Queens, Manhattan, and Bronx).

Does a home inspector need to be licensed in New York?

Effective December 31, 2005, the real property law is amended by adding a new Article 12-B, “The Home Inspection Professional Licensing Act.” In essence, any persons engaged in performing home inspections of residential buildings for compensation, must be licensed.

Article 12-B of the Real Property Law is entitled “Home Inspection Professional Licensing.” The section law as written is clear as to the licensing of individuals who provide home inspections for compensation. The relevant text of the article is as follows:

§ 444-d. License requirements for home inspectors

No person shall conduct or represent that he or she has the ability to conduct a home inspection for compensation unless such person is:

  1. LICENSED as home inspector pursuant to this article; or
  2. a person regulated by the state or a political subdivision thereof as an ARCHITECT who is acting within the scope of his or her profession; or
  3. a person regulated by the state or a political subdivision thereof as an ENGINEER who is acting within the scope of his or her profession; or
  4. a person who is employed as a code enforcement official by the state or a political subdivision thereof when acting WITHIN THE SCOPE OF THAT GOVERNMENT EMPLOYMENT; or
  5. a person making home inspections for the purpose of meeting the requirements of section 444-e of this article to qualify for licensure as a home inspector.

Therefore, any individual who claims to be able to inspect a home for compensation must be licensed (UNLESS THAT PERSON IS AN ARCHITECT, ENGINEER OR CODE ENFORCEMENT OFFICIAL pursuant to §444-d).

What is Home Inspection?

Home Inspection is defined as the process by which a home inspector observes and provides a written report of the systems and components of a residential building including but not limited to:

  1. Heating System
  2. Cooling System
  3. Plumbing System
  4. Electrical System
  5. Structural Components – foundation, roof masonry structure, exterior and interior components or any other related residential building component recommended by the Home Inspection Council and implemented by the Department through the regulatory process.

Who must apply for a license?

Persons engaged in performing home inspections of residential buildings FOR COMPENSATION.

What do you mean by residential buildings?

A Residential Building means a structure consisting of 1 to 4 dwelling units and their garages and carports, but shall not include any such structure newly constructed or not previously occupied as a dwelling unit.

I am buying house, do I really need title insurance?

Prior to the closing of title, the public records are searched to find all document which affect the ownership of title, including among others, mortgages, judgments, and covenants, easements and restrictions. A title search is conducted against the property using an abstract search. The abstract search serves as the basis for the creation of a title commitment. Simply put, a title commitment is a report which discloses the results of the abstract in a standard form. Additional searches are performed at the request of the customer as part of the title commitment, i.e., a lender and a purchaser in New York request a certificate of occupancy search. A title insurance policy is issued based upon the results of the title commitment.

Title insurance is a policy issued by an insurance company guaranteeing that the title to real property is free and clear of all issues and properly in the name of the owner and that the owner has the right to transfer or sell the property to a purchaser. In the event that a title issue rears itself, the insurance company will pay the damages to the new title holder or take actions to correct the issue.

In my opinion, the definition of title insurance is a policy usually purchased by a buyer to protect against human error (i.e., mistakes in examining title) and adverse claims that exist against a property prior to the issuance of a title insurance policy (usually the date of your purchase). Essentially, any claim of right or lien prior to the date of your ownership (the date of your policy) is extinguished with the purchase of a title insurance policy. Without title insurance policy you are defending all rights and claims of others out of pocket. Do I need to tell you how much a lawsuit costs to defend? Imagine that you have a complete failure in title which would require you to forfeit the property. All the money you paid for the property would have been lost. Moreover, if for no other reason, once you sell the home, the title insurance policy serves to extinguish any matters prior to the date which you owned the property. In order to protect your property rights, you absolutely should purchase a title insurance policy.

What can possibly go wrong?

  1. Incorrect property descriptions
  2. Wild deed chains
  3. Wild mortgage chains
  4. Claims by those who stand to inherit, including, undisclosed heirs
  5. Fraudulent conveyances to defraud creditors
  6. Property placed on the wrong property during new construction
  7. Open mortgages of record
  8. Open liens and judgments of record
  9. Forgery
  10. Covenants, easements and restrictions

How much does it cost?

Title insurance is a one time charge at the closing of title. In New York, the cost varies based upon your purchase price and your loan amount. The fee is set by statute. The policy lasts so long as you own the property. Any transfer in ownership of the property voids the policy.

I received a notice in the mail that says I can get a copy of my deed by paying this third-party company. Should I pay it?

A company forwards you this letter which solicits you to buy a copy of your deed. In a twist of words, it appears that you need their service. You submit some monies and within a couple of weeks you get a copy of your deed.

Of course, my grandmother gets a copy of this letter and immediately calls me. Paul, you have to take a look at this paper, it looks like I have to pay these people. For whatever reason, my grandmother is not the only one that falls for this solicitation. I have had numerous clients and family members ask me the same thing.

I personally have received this notice from this company that in a round about way words their solicitation to entice you to get a copy of your deed. Obviously, I toss it along with my other junk mail. Is this a scam? To the extent that this company actually obtains your deed, it may not be a scam. But, let me ask you this, had you not received the letter, would you have thought about trying to get a copy of your deed? Can you trust that this company, which solicited you, will get your deed?

The fact that you have misplaced your original, recorded deed does not mean that someone can steal your house if the deed somehow falls into the wrong hands. The deed is recorded in the county clerk’s office (or register’s office) depending on the county. It is a public record, so you or anyone can obtain a copy of the deed by simply going down to the clerk or register’s office.

You may have a copy of the deed among your personal effects from your closing. I would be skeptical about purchasing a copy of my deed from a company that has solicited me. So, to that end, if your deed is lost, try locating the title company or attorney that closed your file. If a copy is not in their possession, you will be guided to the clerk or register’s office, which is where you should go anyway.

Who should pay the real property transfer tax?

In New York, the seller is required to pay the transfer tax. The amount depends on the county which the property is located and in some counties, it depends on the type of property, i.e., vacant land, 1 family, or commercial property.

A special exception applies to transfer of new construction residential properties. It is the custom of the industry in new construction conveyances for the builder to pass the transfer tax payment to the purchaser. This is a contractual agreement that a purchaser agrees to pay the transfer tax (this is not imposed by any governmental authority). Some builders are adamant about transfer taxes being paid by the purchasers and are willing to let the purchasers walk away from the deal. Of course, I would ask if that were to happen what kind of market are we in – a buyer’s market or a seller’s market?

In New Jersey, it is typical that the seller pays the transfer tax even on new construction. In recent years, however, builders have attempted to pass the transfer tax onto the purchaser. Once again, this is contractual.

Even with a buyer’s market, I have seen builders stick to the contract to the detriment of losing a deal. I would most certainly ask under that scenario, why not build the transfer tax into the price.