Code violations can sink a real estate sale
What comes to mind when you hear the term "code violation"? If you're like most people, you think of a breach of the local building code that regulates minimum construction standards.
But that's only one of 70 or so types of code violations that can be attached to a property, according to Rudy Krupka of Code Violation Services, a Windsor, Colo.-based firm that helps lenders uncover code violations. Worse, any one of them can sink a real estate sale.
The most troublesome code violations are unpaid property taxes and homeowner association fees. But a growing number of hard-hit municipalities are aggressively flagging homeowners who don't mow their lawns, who allow trash to collect in their backyards and who don't take proper care of their pools.
Typically, these violations occur when the property involved is being sold under some kind of duress — a foreclosure, for example, or a short sale. But they can pop up even when the house is clean as a whistle and the sellers are Mr. and Mrs. Perfect, as opposed to a distant lender or servicer.
Often, the issue is cleaned up before the house goes on the market, so the buyer is unaware of it. But the ticket doesn't go away. At the closing table, the local government is there with its hand out, demanding payment in exchange for letting the deal go through.
Sometimes, Krupka says, what started out as a $200 fine that went unpaid when it was levied years ago blooms into a five- or six-figure penalty by the time the place is sold. In one extreme case, a Florida property had $684,000 in fines, most of them the result of a barking dog.
Usually, the sanction can be negotiated down to a more reasonable amount. But that takes time, and the closing is delayed until everyone is satisfied.
Admittedly, barking dogs and uncut grass are extreme examples of code violations. More common are liens filed for unpaid dues and assessments by homeowner associations.
In 16 states and the District of Columbia, homeowner associations hold "super lien" status, meaning that liens placed against a property by a homeowner association take precedence over all others, including those filed for unpaid taxes.
If an association records its lien, it becomes public record and the title company will find it. But often, the lien isn't recorded.
If the lien is recorded, the homeowner association will step up to stop the sale until it recovers what is due, or the parties agree to pay at closing. But if the association does not learn of the transaction and it closes without the lien being satisfied, the lien transfers with the property, and the new owner is on the hook for what's owed, with little recourse against the seller except to sue.
Sometimes, a property can be the subject of multiple homeowner association assessments, one by the main association and another by the golf or tennis club. In one unusual case in Florida, several separate but related HOAs lined up to present past-due notices.
According to CoreLogic, a real estate information and analytics firm based in Santa Ana, Calif., code violations tend to be a larger problem in the handful of states and markets with the highest foreclosure rates and negative equity — Florida, Nevada, Arizona and parts of California and Michigan.
Very large fines are common in Miami-Dade County, Fla. But CoreLogic has found that officials there are more willing to stop issuing new fines if they see someone attempting to correct existing violations, and sometimes they will reduce fines significantly.
San Francisco, on the other hand, "has little empathy" for attempts to correct violations, according to a recent CoreLogic white paper. Another jurisdiction that sometimes plays hardball is Maricopa County, Ariz., which has required significant structural changes to correct conditions that have existed through several previous owners.
Source: Chicago Tribune