Brooklyn Secret Agent: Certificates of Occupancy

Today we bring you the thirteenth of an anonymous weekly column about real estate by one of the most experienced agents in Brooklyn:
This is a topic that causes a lot of unnecessary anguish for buyers and sellers of Brooklyn townhouses. More than any thing else, it is a reason to hire a Brooklyn real estate attorney to represent you. Their years of experience can be a tremendous help.

Let’s say you decide to put your house on the market. You have lived in it for a good many years and you have always had a tenant. Your real estate tax bill says it has been taxed as a two-family house. So it is reasonable to represent that it is a two-family house, right? Not necessarily.

Or, suppose you have an accepted offer on a house which has only one kitchen and has been occupied by one family for years. It seems reasonable to assume that it is a one-family house, right?  Maybe not.

It turns out that a house has more than one classification. The city’s Department of Finance may call a house one thing, and the Department of Buildings may call it another. In the end the buildings department has the last word. Things are simple if there is a Certificate of Occupancy. It will state unequivocally how many families can occupy the house. However, a huge number of houses in Brooklyn have no C of O. Unless permits have been filed for work done since the C of O law went into effect in the 1930’s, a house probably doesn’t have one. Without one, a title search has to be done and one may have to appeal to the DoB to rule on the subject. It is never comforting to be at the mercy of the buildings department.

Why does it matter? If you need the income from a tenant, you better have two-family status or your tenant could challenge you for illegally renting them an apartment. If you take out a mortgage on a house, the bank will insist that the house’s usage matches the C of O, or, if there isn’t one, the DoB’s status. When these don’t match (i.e. it is used as a one family but the buildings department knows it as a three family) your lender is going to reject it as collateral.

Where this really becomes a problem is when a contract is signed and no one has done a search to determine this until the closing is imminent. This happens ALL the time. It causes painful and expensive delays and blows up several deals every year. The obvious solution is for a seller to address this issue before listing the house, but few are willing. I have lost more than one listing by insisting that we establish the house’s status before putting it on the market. Sellers don’t want to engage their attorney before a deal is on the table. But the anguish of a failed deal far outweighs any upfront investment in a buildings department search.

Hopefully, forewarned is forearmed. As a buyer or seller, be careful of this issue. There are nuances to it that only a very experienced Brooklyn real estate attorney can handle. And that attorney is worth every penny.

12 Comment

  • How about when the building has a CoO of 4 units and is registered in the Department of Finance as 3 units?
    Would such discrepancy result in any liability? would it be picked up by the bank? Do the banks create a big issue out of it?

  • I’ve always been curious about this issue. My place was built in 1905 as a single family but has been lived in for many years as a 3-family. There’s no C of O, and bisweb says DoF status is “C0-WALK-UP APARTMENT.” Acris calls it a “3-family.” If use is changed to 2-family by simply removing a kitchen and occupying another floor, does this become a problem when selling? Or does it not matter? Is there any point in getting a C of O if there are no plans to sell? I’ve also heard that getting a C of O of any sort can require adding sprinklers/fire escapes. True?

  • My place has a C of O for 2 but I use it as a one having ripped out the daughter-in-law kitchen years ago. I’m told that keeping the C of O as a 2 would help w/ eventual resale even though it would take a lot of work to make it true. So I’ve left it even though the taxes are higher than they could be.

  • Not to be rude, but am I the only one that has been underwhelmed by these “secret agent” columns? Seems like many of the regulars commenting here know more and go into greater detail than these segments do… I’m appreciative of any and all contributions to the site, but was expecting more meat with these.

  • I agree with DeeBee, As a real-estate broker maybe you should not get involved with clients that refuse to deal with their C of O issues or lie about them. Most of these C of O issues can be resolved without an attorney. First you can prove how many electric meters, working kitchens are in the house. Filing a letter of no objection with the DOB. $25 include photos etc. Looking up I-Card info can also be helpful to determine your C of O status.
    A little footwork here you can resolve on your own.

  • Fred O,

    Not sure if this is any help. When we bought the house had no C/O and we had vaguely inconsistent and opaque DOB and DOF references as to whether house was a 1 or 2. We reno’d and our architect filed an alt-2 (which provides no new C/O). But the first line of the application read “renovate existing 2-family house.” That was approved by DOB and our architect says that is definitive.

    This was not a big snag at closing since the house was uninhabitable and we took out construction funds. Some disbursements were held to the end until we got sign off, so bank understood we’d end up with legal 2 whether it was one at time of purchase or not. But that was back in the boom years.

  • Several buildings in New York get by on a Temporary Certificate of Occupancy, and renew on a continual basis. The problem is if the building lapses on a renewal, your mortgage will be destined for failure. (by some miracle you could still attempt to get a Temporary Certificate of Occupancy just on your unit while the building sorts it’s own issues out to complete your mortgage). The second problem is that some banks or portfolio lenders will reject even a Temporary Certificate of Occupancy (which I believe is more of a rare incidence).

  • @ JIM…Can you or anyone else suggest a good Expeditor?

  • “When these don’t match (i.e. it is used as a one family but the buildings department knows it as a three family) your lender is going to reject it as collateral.”

    That was simply not true in my case. My home is now a one-family, but the CofO lists it as a three-family. I’ve taken out loans three different times, and while I’ve had to explain it to the banks, none ever rejected the house as collateral (the appraiser confirmed that my family was the only one living there, and that it wasn’t set up for more than one family).

  • I believe the problem occurs when you have a 1 family c of o and are using it as a 2 or 3 family.

  • how about this one:
    house build circa 1920, 2 family…1 on 1st, one on 2nd, and a cellar.
    no CofO
    house is remodeled in the 1990s, not filed, and is changed to a 2 family with 1 family on 1st and 2nd, and a clearly not legal to rent apartment in cellar.

    so, when selling this house…is it completely legitimate to market it as a 2 family?