Illegal Property Conversions Can Create Code Compliance Challenges

Illegal property conversions are becoming more common, and local municipalities are taking a more aggressive stance against properties that are being used for anything other than their designated zoned uses. This problem becomes even more challenging for lenders who take title to these converted properties through foreclosure. Code enforcement officials are requiring lenders to return these properties to their original use before the REO can be sold. The struggling economy may be contributing to this increase as property owners are trying to bring in additional income by renting out part of a property that is intended and zoned for single family use only. This includes conversions made to accommodate aging parents. Code enforcement officials’ primary concern is overall public safety; however, municipalities are looking for additional tax revenue that is derived from multi-use property designation.

In most instances, lenders are unaware of the code compliance changes they face when taking title to these properties through foreclosure. Once title is taken, lenders are responsible for the fines, lines, and costs to abate the violation. These costs can exceed the property value. It is important for lenders to understand these challenges and have a solution in place to address them.

For a related item in the news check out this video in which Mayor Bloomberg and Commissioner LiMandri announced the results of an undercover operation to crack down on illegally converted dwellings and hold property owners accountable for putting potential tenants and first responders at risk.