Catch 22
Ok, so here is the situation: I recently purchased a 6 unit apartment in need of total rehab. My original intentions were to do the work myself. The City had other plans for me though, and they are demanding that the building be brought up to current building code standards in 90 days from when they say go. That means I now must hire the work out in order to complete the task in 90 days. Paid 98K cash. Cash necessary for rehab, approximately 50K. Approximate value after rehab, 200k. Problem: Can't borrow on the equity (98k) because building is condemned. Need to borrow on the equity in order to lift condemnation. That's the catch 22. Any ideas? Z
Zach,
Do you have the funds or credit to pay for the materials? If so you might be able to find someone that will do the work and is willing to wait for payment until condemnation is lifted. I would also try a HML to pay for repairs till refi.
Sorry, my brain is full and I can't figure out what an HML is. Well, I have about 20k in reserves, and if I can get an equity line on my current residence, it will give me about 30k more, but I have to dump a house I'm a little upside down on right now in order to get my ratios to acceptable levels. I'm working on that now, but I might run out of time and the City is not being cooperative with me. I'm having a difficult time finding a qualified contractor as it is, but I think I did finally find one. The other wanted cash up front. This one might be more flexible, but I don't know how much. Zach
Hard money lender, ah, I just figured it out. Thanks, that might be a real option. Z
Offer the contractor a 10% higher price after he gives you his bid if he will wait for you to sell it or refi it. If he doesn't agree offer him 20% the point is if you think you can make some real money on this one quickly then find a way be creative
TBARBER
Zach - I'm speaking with absolutely no person experience in regard to your situation with the city, but what are the real consequences of not meeting the cities 90 day deadline? Aren't the out-comes going to be a few letters to you, then more time, possibly a few more letters and finally maybe a small fine or two?
Is this 90 days really a deal breaker or in reality will the city really have the teeth to do anything?
in my experience dealing with the city of Minneapolis for trees and messy yards my tenants have, they really just like to see you are trying. If you had a lot accomplished in 90 days and could explain why things took longer (i got sick, my regular job required overtime, etc) they would most likely give you more time. If there was a fine involved, how much could it be... maybe $1000? That probably cheaper than paying a GC an extra 10-20%.
Well, the reality, Mr Rehab, is that I really don't know. The city community development office was very helpful to me until I actually purchased the property. Or, to be more specific, began purchasing the property. The units were actually owned be three lenders, forclosed upon at three different times, and sold at three different times. They have 5 tax id's between them. The more details I give you the weirder it will seem, I assure you. Anyway, the problems began to occur when I went to get my building permits for the first two that I had bought (I had the team inspections already). Suddenly, some bigwig from behing the curtain came bellowing out that none of his coworkers was to assist me in any way, and that all processes involving my property were to cease. An explanation? There was none, except to say that the building was in litigation, and that I needed to contact the law dept. He was kind enough to provide the telephone number and the person who was in charge of the situation. I telephoned immediately only to find out nothing. After several referals to several superiors, I was cut short of all communication and told straight out, that they would no longer speak to me, and that they refused to allow me to make an appointment. I decided that it was time to contact an attorney. Through the attorney, I've been informed that the city will agree to 90 days for the rehab, but the agreement must be signed by a judge, and they have no idea when that might be. Considering it is now about 30 degrees F outside, I expect it to be soon. I've since come to learn that a neighbor is h*ll bent on having the city demolish the building, and that he has been trying to do so for many years. He seems to have some infuence over someone. Bottom line, My attorney assures me that extentions can be provided as long as significant progress is made, but considering the strangeness of this whole deal, it's easy for me to believe that I might be an exception to their usual order of business. That said, I've decided that the very best thing I can do for myself at this time is to work stricty withing their guidlines, and hope they eventually go away. Could be difficult when I think of the fact that my inspection reports, which were supposed to be complete in 7 to 10 days after the inspections, actually took two days less than eight weeks. That's not a typo, and come to think of it, I have only received one of the two I had done. I went to their office 3 or 4 times in between time, and telephoned at least once a week - sometimes 2 or 3 times. Every time they either had an excuse or said the reports were done and all I had to do was come in to get them. Lies, lies, lies, every time I've spoken to them. And they want all six complete in 90 days??? I guess I don't know how to answer your question except to say that if I don't do their 90 day thing, it automatically goes back on the "demo list", at which time I am banned from the property again (I did mention I was not permitted on my own property, didn't I?) and the whole process begins again.
And in response to the idea of offering a premium to the rehabbers in exchange for delayed payment. I think that is a very good idea, and I am going to think about making that work. Any more thoughts? - Zach
Wow, why aren't you investors jumping in and helping this guy? He's the anti-thesis of everything we want to see in a seller.
Which veteran investor heeds the call?
The forums are great advice but there's nothing like step by step instruction. Do the deal "here" in the forums publicly, explaining the steps and the reasons why you chose it over other options.
I saw 52k gross profit to be made if all information was right.
Zach,
You've got a real messy problem here and one that is going to require a real legal expert. Make sure the attorney you're using is aware of all the details!!! I would reccomend a formal hearing with the board and get everything from them in writing. By the way are any units occupied? Could it be that the land is worth more without the building? Could be there is some type of project coming up that you're not aware of and this property fits into it somehow.
maw - My attorney is well known and established within the local real estate community. He told me during our initial phone conversation " I am intimately farmiliar with the proceedures and processes regarding your situation". Good. That makes me feel better, but the proof will be in the pudding. As far as a hearing in front of the board, that goes beyond the scope of my experience, and I don't know the first thing about doing it or what I might accomplish. What do you think? As far as getting anything in writing, again, they refuse, but the attorney is trying to get written permission from them to allow me back onto the property to do the work that does not require permits, like clean up, etc. From what I've learned from the neighbors, the building has been unoccupied, except by vagrants and vandals, for about a year and a half. And as far as land value, most land zoned residential or multi isn't worth diddly squat around here. Many of the lots are sold only to cover the demolition costs of what was previously on the land. This particular lot, which is in a pretty good area, I wouldn't expect to be worth much more than those other ones. It does border a community center on one side, but I don't think that makes any difference, and besides, the city could have purchased it much easier than I did if they wanted it. In fact, I'd be happy to sell it to them if that was the case. No room for other development as far as I can tell, seems that it is making the best use of the land as is. Think of all the money they're losing by not allowing me to pay them taxes and inspection costs, registration fees, permit costs etc. I don't know what to think. Zach[ Edited by Zach on Date 11/10/2003 ]
You're right Zach there is a lot of confusing information you have provided. Either Minnesota is a very, strange separate world then the rest of the USA or there is more to the story.
You first said this was a 6 unit apartment building, however you went on to explain that there were three different lenders that means each unit has its own deed, to me that sounds like you bought 6 condos not an apartment building.
You talk about the city community development office, I deal with the building department for building permits, or zoning for zoning issues, community development office sounds like another animal.
You said "I had the team inspections already" what is a team inspection?
You said "the building was in litigation" but you never explained what the litigation is.
You said "my inspection reports, which were supposed to be complete in 7 to 10 days after the inspections, actually took two days less than eight weeks" when I have an inspector do an inspection for me I can have a report that same day. You can't be talking about the same thing here, what are you talking about? Then you went on to say the inspectors are lieing to you and dodge you? I hire an inspector, they work for me, I have no idea what you are talking about here, a city inspector? Why? What for?
You said "I am banned from the property again " how and why were you banned from your property?
There are so many details here that make no sense to me that I swear I am talking to someone in a foreign country and there is a translation problem.
Is there some key issue you have left out that will make this all make sense?
I will have more detailed info for you tomorrow, and will answer all of your questions. Sorry, I need to crash now, it's very late. Thank you for you interest.. Zach
Please check the second page of this topic. I had write this here because this is the last post I made on the first page.
[ Edited by Zach on Date 11/11/2003 ][ Edited by Zach on Date 11/11/2003 ]
I have followed these posting with great interest and the only item of which I am sure is, there is something wrong in Denmark.
Being tied up with containers into housing I cannot run up there and look although I am certainly tempted.
Some small little lynch pin of a fact is missing.
Lucius
Which city are we talking about? Pontiac?
Yes, we are talking about Pontiac. Ok, I agree that the building appears to be condos, but there are only five tax id numbers. That means that two units share one number, and that the other four each have their own. Don't know why or how, just is. The Community Development office is shared with the Building and Safety office. All of the very helpful employees are behind the same counter. I don't really know who works for which dept, only that I go there and tell them what I need, and either they "help" me, or they refer me to another person, possibly from the other dept. Before I bought the building, or began buying it, I should say, I went to visit this office 3 or 4 times to ask about it's status as a condemned building or whether it was on the "demo" list, and what I needed to know and do to make everything right. Their response on each occasion was to carefully explain the proceedure for removing the building from these lists. In a nutshell, this is what they told me: ---You must first order your "team inspection" from us. The team inspection is a "team" of four city employees - A plumbing inspector, an electrical inspector, a mechanical (heating and cooling) inspector, and a building inspector. They will arrive on their scheduled day, perform their respective inspections, and write their respective reports on the property in question. Within 7 to 10 days, that report will be available for you to pick up, or we can mail it to you. When you get the report, you will then be permitted to obtain the neccesary permits and complete the work that is specified in the report. If the report specifies that you must have a liscensed contractor to perform the work, then the contractor must get the permit and do the work for you. (for example, a liscensed electrician must perform the electrical work). If it does not specify that you need a liscensed professional, you can get the appropriate permit and perform the work yourself. When the work is complete, you call us, and we will send the inspectors out again, to inspect. If and when the work is approved, you will then be able to obtain your certificate of occupancy. We will remove the subject property from the demo and condemnation lists, pretend this never happened, and away you go. In the meantime, you are free to do clean up and perform other work at the property that does not require a permit. --- I went and asked, just to be sure, at least twice before I bought the first two units, maybe more. I really wanted to be sure I was not going to have the difficulties I am now having. And, by the way, I did ask for something in writing even at that time, at least something to get the neighbor off my back and to stop calling the police. They politely told me that they could not do that. The reason I went there several times after I bought it for what was practically the same series of questions is that every time I went to do some "clean up", either a particularly irrate neighbor showed up demanding that I leave and insisting that I was knowingly breaking the law to be there (without permits), or the local police would arrive and ask me to "call it a day". Or both. After the police had asked me to leave two or three times, they told me I would be arrested if I was found there again. I was finally, after several weeks, able to get an "unofficial" copy of the report for one of the two units I had inspected. The city said that even though it was unofficial, I could begin getting my permits. That suited me just fine, and so I filled out the permit application, which was given to a inspector of some sort right there in the office to review and sign. Unfortunately, this inspector had a question about some item on the report and went off to ask the peson who wtote it. When he returned, he was not with the person who wrote the inspection, but with another man who I had never seen before. This is the man I made referece to earlier who bellowed at me that I was not allowed on my property, and eventually gave me the telephone number of the city's law office. That law office would later varify, via my attorney, that I was not allowed on my property and that I would be arrested if I went there. Finally, as for what the litigation is, in order for the previous owner (bank) to keep this building in one piece (to protect their investment), they had placed a temporary restraining order on the demo order until they could sell it, at which point, the idea was that someone like me would either fix it, or take the fall for it instead of them. Of course, they will never have had any knowledge of the city's unwillingness to cooperate with me. I don't want to seem paranoid, but if I didn't know better, I'd think I was either being set up, or that the my neighbor has the means to persude the the city to make his wish come true to the tune of a wrecking ball. I just can't figure out what's going on here, or what to do about it. And I haven't even gotten to explaining about the other four units I haven't closed on. I don't know if I should close or not, but if I don't then someone else surely will, and you can all probably see the many disadvantages to having different owners of the same building. That is, if we can straighten out this mess. And Lufos, if you've read my other posts regarding this matter, then you might recall that I mentioned that the invester who owned this place before it was repo'd sort of "disappeared". I don't mean that the mob got him, but the building had the appearance on the inside of a rehab project where everyone suddenly dropped their tools and split. I am very concerned that the city made a deal similar to that which they are proposing for me, and that he was unable to finish in the allotted time. He had financed the building with these banks I'm buying from now, but because it was condemned when I bought it, I had to pay cash. My point is that no big institution is going to step in to deal with the city this time. I'm on my own. Well, I do have the attorney, but that guarantees nothing. All of your responses are very much appreciated. Zach[ Edited by Zach on Date 11/11/2003 ]
Hi Zach,
I am sorry for the ordeal you are living through. My only insight is for you to become familiar with the legal codes that they are using against you. Keep a diary of who you tals to , when it is, and what comes of it ( or not - like your inspection reports). If you could get in front of a judge, you could have a similar restraining order placed on the city to give you the opportunity to get the rehab done. The judge could then compel the employees to provide you with the inspection reports and permits and whatever else you list to him that you need to facilitate this rehab.
Then I would research the neighbor. What is his motivation for making your life a living hell? Kindly talk to him ( in the presence of a witness) and explain that - if given the chance - your efforts will improve the aesthetics of the neighborhood and raise his property value. It sounds like he may be in cahoots with the city.
What a nightmare! Good luck!
The neighbor has lived there for 32 years, and tells me he is retired and less than fifty years old. Retired, less than fifty, lived here 32 years and can't afford to move out of the war zone? That's what he told me when I suggested he find another place to live. But please don't misunderstand me, I am very polite, honest and sincere, and the conversation was quite a pleasant one. He explained that he wanted the building down, I explained everything you suggested and then some, and we agreed it was nothing personal between us. Then he went home to call the cops. As far as the building code requirements, it would be impossible to meet the 100%. I just don't know if it can be done for less than the cost of a tear down and new construction. It's a nice building, but there will always be some code violation if the city simply does not want the building standing. If you haven't read my post "about to lose 30+k", it will give you todays update on the situation. Thanks for you help - Z
Zach,
Contact the state and federal offices of housing and urban developement and explain the situation. Give them the specifics and ask them to intervene on your behalf. If you are looking to improve a blighted property they might be able to help. Best of luck
Now I understand the situation a bit better. This is a great warning to everyone in regard to condemend buildings that have lost their certificate of occupancy. A great deal of due diligence is needed before you purchase and a competent understanding of the laws and issues involved with bringing a building back to habitable. Good luck, I hope you find a way to avoid losing your investment in this one.