Don’t Let Violations Derail Sales or a Mortgage Refinance

Way back in 1990, the city’s Department of Buildings (DOB) instituted the Building Information System, a repository of data on properties across the city, including recorded complaints, violations, actions, applications, and inspections. Five years ago, some of that data began moving into the more user-friendly DOB NOW web portal. But the Building Information System is still in use. And it’s still causing headaches for people like Len Williams. 

“It’s become a real nightmare,” says Williams, a master plumber and owner of McCready & Rice Plumbing, who recently ran afoul of the Building Information System at a client building in Greenwich Village. After shutting off the gas in one riser so a kitchen in one apartment could be altered, Williams called in a DOB inspector to witness the pressure test so gas service to the line could be restored. 

“When I went to get the sign-off,” Williams recalls, “the DOB inspector said that because the gas meter was serving the laundry room, I had to prove the legality of the laundry room. The can of worms is that just because we did a modification to one apartment, now they start looking at the 40-year-old laundry room. Now there’s an open permit on the Building Information System. It’s public access, so banks and lawyers can see it. If banks see open permits, they might not refinance that building’s underlying mortgage. Lawyers might advise clients not to buy an apartment there.” 

Violations and open permits do come into play during mortgage refinancings and apartment sales, according to Andrew Freedland, who handles transactions at the law firm Anderson Kill. “It’s not killing deals, but everyone’s cognizant of it, and we have to address it,” Freedland says. “It can range from the bank demanding that the board open an escrow account to cover the cost of the repair. Sometimes I’m able to refinance an underlying mortgage when the lender agrees to give us, say, 60 to 180 days to resolve violations.” 

There’s a term for such an agreement. “We call it an ‘undertaking,’” says Harley Seligman, senior vice president at National Cooperative Bank. “It says that within x number of days, the board will remedy the violation. We keep the money in escrow until the board presents the documents showing that the violation has been fixed. Then we release the money.” 

Despite these possible workarounds, Freedland, the attorney, feels the pain of Williams, the plumber. “I represent a building from the 1960s that has a laundry-room violation with the DOB for not having sprinklers or sign-offs on the gas lines,” Freedland says. “They’re not allowed to operate any of the gas dryers. They’ve hired a plumber to help get a sprinkler system installed.”

Adds Bruce Cholst, a fellow shareholder at Anderson Kill: “Gas is the new asbestos. It’s scary because gas leaks conjure up images of no cooking or laundry room for six months. Buyers will be scared away by fear of an assessment or inconvenience. It could hinder the sublet or sale of an apartment.” 

Again, there is a workaround. “If there are outstanding violations,” Cholst advises, “the board should offer a letter of indemnification to any buyer or bank, which protects them from any loss that might arise from the violations. It’s a contractual obligation, a technique that’s used to assuage banks or lawyers representing buyers.”