Escrow for C/O

Jakester, I sent you an email.

ps158

in Legal 9 years and 10 months ago

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jakester | 9 years and 10 months ago

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I would love to hear if anyone has any insight/opinion of creating an escrow account contingent upon getting C/O paperwork in order. In a nutshell: I’m under contract to purchase a 2 family home in Brooklyn. It was built pre-1938, no C/O on file, but recently had renovations done to it (all alt-2 according to what I can see on the DOB website). The original lender that we intended to work with had issues with the C/O. We were referred to another bank that will be able to close on it, but our lawyer has recommended, and the seller is open to, setting up an escrow account contingent upon them getting the C/O in order after closing. I just wanted to see if anyone has had any experience with a transaction like this. In a recent post here, Slopefarm recommended the escrow route for someone who had a similar C/O issue, so that is an encouraging sign for me. My 2 main concerns are: 1) How likely is it that we would have an issue getting that C/O after closing? Of course we would have the escrow money as a compensation, but will it be a major issue in terms of having tenants or possible re-sale? So much of what I’ve read here makes me think that no C/O on a pre-1938 building still being utilized the same way should be no big deal, but obviously it IS a big deal to our attorney and the original bank. 2) Should we have any concerns about potentially renting out a unit (plan is to live in the other one), before the C/O is ironed out. Thanks for any thoughts guys!

HouseNut | 9 years and 10 months ago

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I can share my cautionary tale on escrow for C/O change… We had $40k in escrow for our C of O to be changed within one year from close. The contract language was pretty black and white. The sellers did a half-@ssed job of filing and it was disapproved. They didn’t refile, and then they didn’t respond to our request to release the escrow. The holder of the escrow cannot relaease the escrow until both parties agree (which I didn’t know), so we had to rack up close to $20k in legal fees to get the escrow, which took another 9 months after the date they were supposed to get the C of O. I am just now going through the process of getting it done myself.

slopefarm | 9 years and 10 months ago

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Did DOB approve the plans for the alt-2? Did a permit get pulled? Is the job complete and signed off by DOB? You may not need to get a new C/O if DOB signed off on the job under existing without requiring an Alt-1\. Bank should accept that and your lawyer should be able to argue that persuasively with bank. Of course that was in the wild west days of 2006\. We escrowed for violation removal (garbage, misc ecb), not c/o. Escrow $2500, we got it done for 1/3 of that, claimed against escrow and the seller was so happy to get $1600 and change back that they did not fight about drawing down the escrow.

jakester | 9 years and 10 months ago

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Super helpful guys. Thanks so much! HouseNut: Was yours a multi-family? If so, did you have tenants throughout the process? Slopefarm: all of the permits on the DOB site say they are approved. There was a “C/O search” in our title search that said the most recent permit was “approved” but “not signed off”. I’m not sure exactly what that means, though my best guess was that it gets “signed off” after the reno is done? Even if we technically don’t need the C/O, it’s been a learning experience to see how one bank wasn’t able to lend on the property as things currently stand… So I guess part of the concern is that it could slow us down from selling it down the line if our buyer can’t get financing…. Thanks guys!

ps158 | 9 years and 10 months ago

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I don’t think you’ll get a CO from DOB unless you’re actually CHANGING the occupancy (i.e. from 2-family to 1-family, or 1-family to 2-family). If you’re not changing the occupancy and want to keep it as a 2-family, what you need is a Letter of No Objection, which basically is issued by DOB in lieu of a CO. This letter states the DOB’s classification of the house (2-family, 1-family). My opinion is have the seller get the LNO before purchasing. Is there a way to private message here? If so, Jakester, feel free to contact me. If not, feel free to post your email and I can contact you.

resident2 | 9 years and 10 months ago

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This is an example of why it is crucial to use an Attorney that specializes in Townhouse sales; not co-op or condo sales, not general lawyering, not litigators that do Real Estate as well …. Because a Townhouse transaction attorney would know how to handle questions from out of state Bankers that have to make their loans conform to Federal needs, and lets face it most NYC townhouses do not even conform to NYC computer systems (its called checking the boxes) which is why this pre C of C issue is causing so many problems, as the Cities computer records do not compute. You and the sellers Attorney should both know that you do not need or want a new C of O based on the information that you have supplied. You need a clear representation from the buildings department and/or the title company that it is a legal two family. Check the sellers title policy from when they bought it, if they cannot find it, yes you will need to get a letter of no objection. Get a buildings department expeditor to get it, because getting all the historic information together can get complicated; as so much of it has been destroyed or miss filed.

jakester | 9 years and 10 months ago

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Thank you ps158 and resident2\. Your feedback is super helpful. PS158, I couldn’t figure a way to direct message you here. My email is jake@jacobpritchard.com I originally assumed that what we needed was a letter of no objection as well, so you the fact that you guys both pointed in that direction is really interesting. Our attorney is in the process of getting the permit paperwork etc. from the seller and has told us he will then be in touch with someone with experience in this area to make an estimate on what needs to be put in escrow to cover costs. I’m figuring that after this is done a lot more light will be shed on the process, and I won’t be too surprised if I hear back that we are actually looking for the letter of no objection. In any case, I’ll certainly loop back and post here for anyone elses future reference going through the same thing. Thanks guys!

HouseNut | 9 years and 10 months ago

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Jakester, no we didn’t have tenants. Ours was classified as an SRO (multifamily class B) but is configured as a single family.