Mortgage Contingencies
My wife and I are in the process of buying a 2-family house in Brooklyn right now. We signed a contract and were approved on our mortgage, until a contingency was placed on it by the bank. Like many 2 or 3-family homes in Brooklyn, there is an unregistered basement apartment. The bank is now…
My wife and I are in the process of buying a 2-family house in Brooklyn right now. We signed a contract and were approved on our mortgage, until a contingency was placed on it by the bank. Like many 2 or 3-family homes in Brooklyn, there is an unregistered basement apartment. The bank is now requiring us to get a C of O for the basement, or remove the kitchen of that apartment, neither of which are attractive options. What I’d like to know is if this is a common problem that people run in to when purchasing, or if my bank is just being very picky. If most banks approve mortgages despite an additional unit, then I will just bail on my bank and work with another one. Any thoughts are appreciated.
Thank you all for your comments. As slopefarm suggested, we are now working with a mortgage broker who believes he can find us a lender despite the current condition of the building. We understand the risks of having an illegal unit, and are planning to modify the building accordingly once we own it, but the mortgage contingencies have been a nuisance for us to figure out. In response to serpentor, I’ve looked at over 20 houses in the past six months or so, and 15 or 16 of those had some sort of illegal “garden apartment”. I’ve mostly looked in Bushwick and Bed-Stuy, so maybe this is more a feature in the housing stock in those neighborhoods than in other parts of Brooklyn, but I was surprised that the bank had such an issue with it. Thanks again for the help.
landofenchantment,
I’m with jre on this: this guy is trying to shake you down or he’s got some longstanding ethnic/racial/cultural beef with you or the seller and feels like f*cking with you. Either way. . Document the timing and new findings of each inspection and file a complaint.
And OP,
You’ll have a hard time getting a mortgage without removing the kitchen if the unit really is illegal. I’m with folks who pointed out that it isn’t really accurate to say that “many” homes have unregistered subterranean units. They exist, yes, but people often have to take them out to get mortgages.
Aside from the difficulty of evicting someone from an illegal unit (which I’ve only ever heard rumors about) there’s also a real safety question. What happens if there’s a fire (they do happen, especially in kitchens) — can someone who was sleeping in the next room walk straight out a door to safety? Or do they have to get up some stairs first? Through a lot of smoke?
The one who created the problem for you was “the appraiser”
Whose appraisal indicates that the building is a legal 3 family?
Now the bank has an appraisal showing a 3 family and a Certificate of Occupancy showing a 2 family and thus is unable to sell the loan.
In sum, the bank follows the appraisal. The easiest way to remedy this is to remove the appliances, cap the pipes, remove a couple of cabinets and ask the bank to have it re-appraised.
When the appraiser visits the premises, have someone point out that what appears to be a kitchen is just the remnants of a removed kitchen, this way the appraiser will not mess it up for you a second time around.
It used to be that the broker was able to pick their own appraiser and was able to influence the appraiser not to mention the third apartment, not so today with stricter guidelines where they are required to use appraisers cannot be influenced by the broker.
Any other option is not realistic. In certain instances, you are not permitted to turn a two family into a three family. For instance, the newly created livable area may exceed the allowable FAR (Floor area ratio) for the subject property.
Additionally, even if it is doable, the cost and time frame and dealing with the DOB make it an unrealistic option. The key here is “the appraiser”. Have the bank re-appraise the building as a two family and you can move forward.
If the bank refuses to re-appraise, move on to another bank.
Also, in response to the above comment from IronBalls, you can evict an illegal tenant, it is done on a regular basis and in most instances, you no longer need to do it in Supreme Court, you can do it in regular Landlord Tenant court.
Also with respect to the problems mentioned by landofenchantment you need to make an appointment with the Chief Inspector at the building department and ask him to put a stop to this nonsense.
The same inspector ought to catch all of the problems on the first visit. This used to be common during the times when inspectors were looking to be paid off. They would come back time and again with new issues until they were satisfied with the amount of the payoff.
I agree with Slopefarm on item #2–find out what the bank means by removing the kitchen. I remember hearing that a kitchen is sometimes defined by the presence of a stove etc. so with out certain appliances you could possibly have a rec room.
We are in the process of buying a 3-family in Brooklyn. We were supposed to close on June 6th and still don’t have closing date partly because there was a prior illegal basement conversion that doesn’t even exist anymore but is still on record with the DOB. I am a first-time buyer so I don’t know what the lending climate used to be back in the good ole days, but our lender will absolutely not let us close if there are any outstanding violations or complaints related to the property.
Problem with the original complaint is that once the DOB gets in to inspect to see that work has been done, there seems to be no limit to the amount of issues they can find that will lead to interminable delays. One inspector (same guy each time!) has been there 4 times now and each time he finds something new. The first time, he discovered the fire-escape was not on center and needed to be moved 6 inches to the left. The second time he noticed there was a safety sign missing from the common hallway. The third time he realized that the new boilers the seller had installed did not have inspection permits on file. This last time he noticed that a vent was the wrong size.
At first I didn’t mind the delays, because I figured it was good that they were finding all this stuff now and that the seller was having to fix it and not me later on down the road. But now I am starting to wonder if we will ever close. These inspectors should have some kind of a limit imposed: like if you don’t find it on the first two visits and it is not a serious safety issue…too bad!
What a racket.
I bought a 2 family with an illegal basement apartment. I easily turned the kitchen into a laundry room, removed the illegal shower and it became a duplex with the groundfloor apartment, enabling me to get as much rent or almost.
If you need the rental income to qualify for the mortgage, you may have a problem since the bank won’t recognize the unit. Otherwise, it’s actually pretty common to remove the fridge and oven for the purposes of inspection. You will have to decide if you want to take the risk and continue renting it after you close, but as someone else pointed out, if it’s above grade and has windows, it could just be that the house predates C of Os.
Does the house have a C of O? Most houses in Brooklyn Don’t.
If it does and it says “two-family” then you’re screwed, no way you will get a new C of O for about a year.
Usually removing the oven/range and labeling the room “wet bar” does the trick.
Obviously it’s much cheaper to remove the kitchen that to get a C of O which would require bringing the entire house up to code — usually lots of time and money.