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Emergency Repair Liens Can Cause Investors a Significant Loss

While investing in properties and notes in the New York boroughs, there are a few lien types that would attach to the property after the mortgage foreclosure or any transactions as a senior super lien. One of the lien types is placed by NYC Department of Housing Preservation and Development (“HPD”), called “Emergency Repair Lien”. The title search report ordered during due diligence on NY borough properties must contain a few additional searches outside of the public records filed in the recorder’s office. These additional searches include ECB Violations and Judgments, Department of Building Liens, Sidewalk Liens and Emergency Repair Violations. Additionally, water charge delinquency is considered to be a lien against the property and would attach after the foreclosure.
The Department of Finance which is responsible for collecting taxes will also collect any charges and fines for Emergency Repair Liens and bill these together with real estate taxes.
First, let’s show a few real examples of the building violations below.
An access door was cemented shut which is against the housing code. The Fire Marshall needs to have the access door dismantled and available for entry in the case of emergency.
The entrance door was completely closed off due to a fire at the property which caused the door to burn down. A functioning door is required for entry.
In some cases, HPD decides to pay for the utilities on the property on behalf of the owner, rolling the utility charges with penalties to the real estate tax bill.
Typically, the charges can’t be negotiated and should be paid as part of the real estate tax bill. Also, the interest and penalties accrue if the violation is not corrected. On one of the properties we researched, the violations were close to $57,000.00 for repair, inspection fees, AEP (Alternative Enforcement Program) fees, utility fees and administrative charges.
The cost of repair is determined after the corrective work is completed. The work may be done by an HPD employee or a private vendor hired by the city. If the property is sold to a 3rd party, all existing HPD unpaid charges must be brought current, and the utility account payment on the property should be transferred from HPD to the buyer.
Every time the city does an inspection, the typical charge is roughly $200.00 and is charged through HPD.
The property tax bill breakdown should have the prior year HPD charges and penalty fees should the investor want to verify what charges were transferred from HPD to the Department of Finance. Typically, the current year charges are what investors need to worry about, in addition to tax delinquencies which are supposed to be prior HPD charges and water delinquency. As a part of the due diligence, your title search should disclose the information if this search was performed.