Case Studies

Back

Adam Leitman Bailey, P.C. Due Diligence Report 9


DUE DILIGENCE REPORT

Prepared By

Adam Leitman Bailey, P.C.

120 Broadway, Seventeenth Floor

New York, New York 10271

(212) 825 – 0365

www.alblawfirm.com

June 25, 2015

Introduction

This report includes our due diligence research findings and analysis of the rent regulatory status of each of the residential units of [redacted]. This report confirms the dates within which the building participated in the J-51 Tax Benefit Program and the impact that participation had on the rent regulatory status of the units of the building.

Our research also includes a review of the status of any open violations the Department of Housing Preservation and Development of the City of New York and the New York City Department of Buildings issued against the building.

We also searched the files of the Supreme Court of the State of New York, New York County, the Civil Court of the City of New York and the Housing Court of the City of New York for pending litigation with respect to this building. Our court investigations also included a review of any judgments and liens held against the properties.

Our investigations produced the following results.

Legalizing Use of the Building

Building Overview

The building is located on the Northeast corner of [redacted] and consists of 14 Class A residential units spread over 4 stories. That use is inconsistent with the Certificate of Occupancy issued on June 18, 1979, by the Department of Building of the City of New York (“DOB”). The Certificate of Occupancy provides the building is five stories with retail space at the first floor and residential units over the remaining four floors. However, it only allows for 8 apartments fit for use as joint-living quarters for artists and designates the building as a Class A multiple dwelling. It further requires that at least one occupant of each apartment is certified as an Artist by the New York City Department of Cultural Affairs. We provide a copy of the Certificate of Occupancy together with this report. Identifying the 6 Illegal Apartments The Initial Building Registration1 filed with the Division of Housing and Community Renewal indicates that as of 1984 the “original” 8 units were apartments 3A, 3B, 4A, 4B, 4L, 5A, 5B and 5L. Based on that Registration and our review of the permits issued by the DOB, we conclude that the other 6 units listed on your rent roll are illegal units never registered with the DHCR and created by illegal construction2. For ease of reference, below we provide a copy of the rent roll and highlighted the illegal units in yellow.

Screen Shot 2015-10-16 at 4.22.06 PM

Notably, you indicated that apartment 3B, [redacted] apartment, is the illegal apartment since it was once part of apartment 3L which was owner occupied for many years and then divided for [redacted] to move into the building. Neither the apartment designations (i.e. 3B or 3L) nor the date she moved in are of great importance for our purposes since as more fully reported in the Court Investigations section of this report, you should evict [redacted] based on the fact that that apartment is an illegal unit.

The DOB issued a Stop Work Order against the Building based on complaints made in 2010 and 2014. Most notable is the 2014 Complaint which was based on the building’s use as a hotel. A screenshot of the Stop Work Order Complaints is pasted below.

[Redacted]

AirBnB

Our office has received information that AirBnB has been involved in this building. This is an extremely serious problem. The Mayor’s Office has a special unit devoted to shutting down short term rentals in the City. If it gets wind of the active presence of AirBnB, things can get very ugly very quickly and the fines can be crippling. We therefore urge you in the strongest terms possible to make sure that your tenants are not using AirBnB and that, for that matter, you are not as well.

The Impact of its Authorized Use as Joint-Living Quarters for an Artist

Use as joint-living work quarters for an artist historically placed buildings under the jurisdiction of The Loft Board of the City of New York, the agency that coordinates the legal conversion of interim multiple dwellings. Generally speaking, interim multiple dwellings are buildings that were formally commercial or manufacturing properties used for residential purposes, also commonly known as lofts. Similarly, apartments authorized for use as joint-living quarters for an artist also fell within the jurisdiction of The Loft Board. Since those properties failed to meet fire safety codes and other code requirements for legal residential use, the Loft Board was created and charged with the responsibility of governing the legalization of those properties. Once legalized, the property became subject to rent  stabilization. We verified that this building is not under Loft Board jurisdiction and herewith provide the list of 322 properties that do.

Recent changes in the Loft Law provide that the Loft Board is no longer accepting applications to legalize interim multiple dwellings like this building. Therefore, the only means of legalizing the current use of the building is to revert it back to its legal use or apply for and obtain a new certificate of occupancy, which regardless of your goals for the building, is an arduous, expensive and long process before the Department of Buildings, particularly for buildings that are designated landmarks.

The Building’s Landmark Status

We confirmed that this building is a designated landmark. Such designation always entails restrictions on what an owner can do with the property, particularly with regard to renovations of the property. The designations of buildings as landmarks vary considerably as to the extent of the prohibited changes to the building. While the most common restrictions have included changes to the façade of the building, this office has come across far more intrusive restrictions, including interior restrictions such as the kinds of permissible plumbing fixtures in the building. It is therefore necessary to thoroughly research just how restricted the designation of this particular building is, something which is outside of the scope of this report, but which this office would be pleased to do on your behalf if you so desire. In any event, you should assume that in an application for a new Certificate of Occupancy or in effectuating whatever your plans are for the building, you will encounter difficulty at the Landmarks Preservation Commission. We also note in passing that of all the agencies in the United States of America, decisions of the New York City’s Landmarks Preservation Commission enjoy the dubious distinction of nearly never being overturned by a Court. Thus, if there is something that you contemplate that runs afoul of the Landmarks Commission, to all intents and purposes, the Commission’s decision is highly likely to be absolutely final.

Furthermore, in applying for a new Certificate of Occupancy, the Department of Buildings may require notice of the application to the Division of Housing and Community Renewal, which will stimulate inquiry into the regulatory status of the apartments of the building. In New York City, rent stabilized apartments are generally those apartments in buildings with six or more units built between February 1, 1947 and January 1, 1974. Tenants in buildings of six or more units built before February 1, 1947, and who moved in after June 30, 1971 are also covered by rent stabilization. In this building, an apartment also became subject to rent stabilization when a tenancy was commenced during the period of time that the building received J-51 tax benefits.

Confirmation of J-51 Tax Benefit Program Participation

We verified the building’s participation in the J-51 program on the Department of Finance of the City of New York J-51 Benefit History website to determine the exact tax benefit periods. The building enjoyed a tax exemption from July 1, 1980 through June 30, 1992 and a tax abatement from July 1, 1979 through June 30, 1991. We attach copies of the J-51 Benefit History Summaries for the tax years 90/91, 91/92 and 92/933. Our research revealed that two remaining rent stabilized tenancies in Apartments 4L and 5B.

[Redacted]

Deregulation by Owner Occupancy

Historically, absent fraud, if an apartment is owner occupied for at least a 4 year period and is registered as such with Division of Housing and Community Renewal, then the apartment deregulates after the four year period. Notably, the prior owner here failed to file an exit registration designating the apartment as permanently exempt. What you are left with as the current owner is an apartment whose deregulation is not properly documented. Recent changes in the rent stabilization regulations do not allow for the deregulation by owner occupancy despite its owner occupancy for 4 or more years. Under the current law, the apartment is temporarily exempt from regulation during the years it is owner occupied. Therefore, Apartments 3A, 3L and 5A may still be subject to regulation, despite the fact that they are vacant now. Under the new regulations, you may apply a rent increase based on the legal rent prior to owner occupancy and consider the lease terms of tenancies after the owner occupancy in an effort to increase the rent to meet the high rent vacancy deregulation threshold. Unfortunately, however, if you do not have rental data from before the apartment became owner occupied, then there is no baseline to run those calculations. If that is the case, we recommend applying to DHCR for an opinion letter on the regulatory status of these apartment. Simultaneously, you may apply to the DHCR for permission to file an exit registration. Proper documentation is vital to the sale of a building as well as in a condominium conversion plan, which we understand are among your long term goals for the building.

New York City Violations Issued Against the Building

NYC Department of Buildings (DOB)

According to the DOB Business Information Systems online, the building has one open complaint and five open violations. Screenshots of the open complaint and violation list are below. As you may be aware, you can check the status of DOB violations on the Buildings Information Systems website of the NYC DOB.

[Redacted]

We understand you have owned the building since 2013 and are likely aware of the five violations considered open by the DOB for the building. Typically, we include this in our research because it often provides a background story to landlord-tenant relationships. In this case, we do not see any relationship to the tenants of the building or its rent regulation history but it is consistent with our findings on the illegal use of the building as two of the active violations are construction violations, one of which is for work without a permit. The remaining three are boiler, zoning and elevator violations.

Department of Housing Preservation and Development of the City of New York (“HPD”)

As of June 23, 2015, there are no violations considered open by HPD.

Property Shark Report

We provide the Property Shark Report for the building together with this report. It includes information pertaining to the neighborhood, ownership, property tax assessment, zoning and size.

Court Investigations

Housing Court

The only two notable housing court proceedings involve [redacted], the occupant of Apartment 3B, one of the illegal units. We have requested copies of the court files and will report further to you upon receipt. However, our research shows that the apartment is an illegal unit. Therefore, you may commence a summary proceeding to evict [redacted] based on the illegal status of the apartment.

Civil and Supreme Courts

Our court investigations revealed no Civil or Supreme Court cases concerning the building. We also ran a judgment and liens search based on block and lot number and found no judgments or liens against the building.

Conclusion

It is clear that this building has some extremely serious issues with illegality. We heartily recommend that the building be legalized in as many ways as possible as quickly as possible. There are bargain hunters out there who specialize in buying buildings like this one at depressed prices and then putting in the time and effort to legalize them and flip them at huge profits. It would probably make more business sense for you to do that legalization yourself and pocket the profits it will yield. Also, we note, that when a landlord develops a reputation for being one who brings buildings in conformity with the law, opportunities eventually start to open up on the City where the government itself gives the owners substantial assistance and works with the owner on waiving fines. It takes time to develop such a relationship with the City, but a number of our clients have used it as an immensely successful business model. If, on the other hand, you do not wish to invest that kind of capital, there is much to be said for selling the building and avoiding the personal liability that can arise from having a building with this much illegality. The law looks through layers of ownership to get to the real controlling parties. That can become extremely unpleasant.

Related Content

Chase Selects Adam Leitman Bailey, P.C. for Loan Closings FinCEN Geographic Targeting Order Renewed and Extended Adam Leitman Bailey, P.C. Successfully Defends Condominium Board’s Claims for Construction Defects Based on Architect’s Certification Adam Leitman Bailey, P.C. Protects Theater Sublease from Termination by Bankrupt Prime Tenant Adam Leitman Bailey, P.C. Wins Summary Judgment for the Lender’s Assignee in a Highly Contested Lost Note Foreclosure Proceeding Adam Leitman Bailey, P.C., Saves Family Business by Uncovering and Demonstrating that Previously Misinterpreted Century-Old Easement Prevented Business’ Trucking Route from Being Closed off by Adjacent Development How to Legally Encroach on Neighbors’ Land or Public Street To Glimpse the Future, View the Past Cabrini v. O’Brien Sky View Parc Purchasers Association, et al v FTC Residential Company II, L.P. Crave Crane Accident Trump Soho Association v Bayrock/Sapir Organization LLC “Save Harlem” Lorne v 50 Madison Avenue LLC Hartman v Goldman – Adverse Possession How to Become an Attractive Mortgage Borrower to Lenders Adam Leitman Bailey, P.C. Recaptures Multimillion Dollar SoHo Loft from Longtime Tenant-Artist by Establishing that the Unit Was Illegal for Human Occupancy Adam Leitman Bailey, P.C. Settles Extensive Litigation that Retained Title Counsel Could Not Adam Leitman Bailey, P.C. Obtains Injunction to Prevent Townhouse Renovations That Violated Adjacent Owners’ Right to Due Process Adam Leitman Bailey, P.C. Negotiates Favorable Access Agreement with Tenant On Behalf of a Condo Board across from a Building Being Constructed, Adam Leitman Bailey, P.C. Stops the Issuance of Permits and the Noise Adam Leitman Bailey, P.C. Defeats Fatal Statute of Limitations Bar to Foreclose for Plaintiff Note Holder Adam Leitman Bailey, P.C. Turns Down The Noise In Epic Battle To Do Justice For Family Adam Leitman Bailey, P.C. Attorneys Successfully Defend Lender Against Mortgage Fraudster Adam Leitman Bailey, P.C. Defeats Successor Sponsor Construction Defect Claim against Developer Who Bought Units from Bankrupt Sponsor Adam Leitman Bailey, P.C., Successfully Defends Condominium Board and Managing Agent Against Serial Litigant Adam Leitman Bailey, P.C. Obtains Winning Settlement Against Greedy Coop Board Adam Leitman Bailey, P.C. Helps Client Save Thousands in Closing Costs Adam Leitman Bailey, P.C. Wins Appeal for Lender in Highly Contested Foreclosure Proceeding Attorneys from Adam Leitman Bailey, P.C. Defeats Borrower’s Motion to Vacate a Money Judgment Adam Leitman Bailey, P.C. Achieves Settlement for Condominium Board Against One of NYC’s Real Estate Giants Understanding How to Save a Bundle of Money by Obtaining a CEMA Refinance Loan Adam Leitman Bailey, P.C., Prevails In RPAPL § 881 Proceeding; Client Gains Access To Neighboring Property For Construction Adam Leitman Bailey, P.C. Successfully Defends Against Multi-Million Dollar Lawsuit Complaining That Owner Unreasonably Withheld Its Consent To A Sublease, While Simultaneously Orchestrating $14.5 Million Sale of Subject Property Adam Leitman Bailey, P.C., Brings Owner’s Own Use Proceeding and Obtains Judgment of Possession of Rent Stabilized Apartment for Landlord Adam Leitman Bailey, P.C., Wins Certificate of Eviction After Prevailing At Mitchell-Lama Non-Primary Residence and Illegal Sublet Hearing at HPD Adam Leitman Bailey, P.C. Corrects MERS Error and Records a Rescission of an Erroneously Filed Satisfaction Without a Court Order Adam Leitman Bailey, P.C. Navigates Tax Liens and Forces Closing Adam Leitman Bailey, P.C. Records a Rescission of a Satisfaction of Mortgage Without a Court Order Adam Leitman Bailey, P.C. Summarily Evicts ‘Game the System,’ Squatter, Paving the Way for the Client’s Development of Its Mixed-Use Building Adam Leitman Bailey, P.C., Obtains Eviction in Civil Court and Settles Rent Claims for Commercial Landlord in Supreme Court Cases Adam Leitman Bailey, P.C. Does The Unthinkable To Provide Safety For Fellow Residents in Coop and Rightfully Evicts Dangerous Illegal Occupant Six Ways to Kill Mortgage Financing Approval Adam Leitman Bailey, P.C. Saves Day by Successfully Obtaining a Temporary Restraining Order in a Highly Complex and Contested Action Adam Leitman Bailey, P.C. Successfully Secures An Order Dismissing A Meritless Action Brought Against A Condominium Board of Managers By A Unit Owner Adam Leitman Bailey, P.C. Wins Brokerage Commission Case Through Persistent Investigation Into Scheme To Defraud Adam Leitman Bailey, P.C., Obtains Judgment of Possession for Landlord Despite Tenants’ Retaliatory Eviction Claim Adam Leitman Bailey, P.C. Defeats Law of the Case Doctrine Argument and wins Summary Judgment for Note Holder in Highly Contested Foreclosure Proceeding Adam Leitman Bailey, P.C. Salvages and Wins Summary Judgment for Plaintiff on Reply Adam Leitman Bailey, P.C., Successfully Defends Challenge To Landmarks Preservation Commission’s Determination To Permit Expansion Adam Leitman Bailey Devises Plan and Stomps Out Building Bed Bug Infestation Detective Work Finds Fraud Causing Sub-tenant to Pay Rent and Attorney Fees in Full Adam Leitman Bailey, P.C. Successfully Secures An Order Dismissing A Commercial Tenants’ Causes of Action in a Meritless Declaratory Judgment Action Brought Against The Landlord Adam Leitman Bailey, P.C. Fast-Forwards Foreclosure Proceeding for Lender with an Unrecorded Deed Adam Leitman Bailey, P.C. Shaves Off Months From Foreclosure Proceeding for Lender Adam Leitman Bailey, P.C. Protects Interests of Insured Lender in Defeating Borrower’s Allegations of Missing Ownership Interests Adam Leitman Bailey, P.C., Achieves Settlement With Sponsor Of Home Association Development To Remedy Construction Defects Adam Leitman Bailey, P.C. Threatens To Retain Contract Deposit, Forces Immediate Closing In Case of First Impression, Adam Leitman Bailey, P.C. Creatively Utilizes Archaic Code Section to Defeat Ice Cream Factory Tenant For Maliciously Wasting Water Adam Leitman Bailey, P.C. Compels Board to Remediate Illegal Floor and Pay Client’s Legal Fees On Trial in Front of the Board of Directors, Adam Leitman Bailey, P.C. Saves Shareholder from Pullman Eviction Adam Leitman Bailey, P.C. Successfully Protects Landmark Townhouse From Adjacent Construction Adam Leitman Bailey, P.C. Wins Over Million Dollar Tenant Buyout After Demonstrating Photography Business and Residence May Coincide Adam Leitman Bailey, P.C. Defeats Landlord’s Non-Primary Residence Cases Via Overwhelming Presentation of Tenant’s Life and Primary Residence FinCEN Geographic Targeting Order Adam Leitman Bailey, P.C. Obtains Dismissal of Six Environmental Control Board Violations in One Day, Saving Client Over $17,500 Battling the Landmarks Preservation Commission (“LPC”) and a Powerful Landlord Pays Dividends for The Cooperators of a Residential Building Adam Leitman Bailey, P.C. Defeats Borrower’s Motion to Dismiss and Wins Summary Judgment in favor of Lender in Highly Technical and Contested Foreclosure Proceeding Adam Leitman Bailey, P.C. Cuts Foreclosure Proceeding Duration in Half for the Lender Adam Leitman Bailey, P.C. Helps Former East Village Squatters Obtain Homeownership — For Free Adam Leitman Bailey, P.C. Saves Client’s Contract Deposit and Forces Sale After Court Grants Preliminary Injunction Adam Leitman Bailey, P.C. Successfully Represents Lender Defeating Forgery Claim Adam Leitman Bailey, P.C. Delivers Near Million Dollar Settlement For Pizza Restaurant Despite Client’s Lacking Legal Right to Possession in Foreclosed Building The Role of the Cooperative Transfer Agent Adam Leitman Bailey, P.C. wins Motion to Reargue on RPAPL § 1304 90 Day Notice Issue Adam Leitman Bailey, P.C. Achieves Miracle In Pullman Case Adam Leitman Bailey, P.C. Uncovers Red Flags During Rent Regulatory Due Diligence Causing Investor to Look Away from the Deal Adam Leitman Bailey P.C. Motion Leads to Freeing Condo Units for Sale/Successful Title Defense Plaintiff Discontinues Action to Avoid Going Up Against Adam Leitman Bailey, P.C. Adam Leitman Bailey, P.C. Protects U.S. Bank, N.A.’s Mortgage from a Condominium Common Charge Lien Foreclosure Sale and the Second Department Affirms Adam Leitman Bailey, P.C. Wins Appeal of an Illegal Subletting Holdover Proceeding Utilizing the Novel Argument That Protracted Negotiations Extended The Cure Period Adam Leitman Bailey, P.C. Vacates Last Tenant in Building After Forced to Bring Tenant to Court to Sign Lease Adam Leitman Bailey, P.C. Closes Multi-Million Dollar Commercial Building Changes to the Rules of FIRPTA Adam Leitman Bailey, P.C. Defeats Borrower’s Satisfaction of Mortgage Claims Providing Victory for Loan Servicer New Money Laundering Prevention Regulations Adam Leitman Bailey, P.C. Protects Voided Second Mortgage in Bankruptcy Adam Leitman Bailey, P.C. Wins Payoff Dispute Case in Favor of Title Company Adam Leitman Bailey, P.C. Wins Trial for Commercial Overtenant, Obtains Monetary Judgment for Unpaid Rent from Subtenant through the Date of Eviction and Balance of Sublease Term Despite Tenant’s Ownership of a Home and Taxes Filed at a Different Address, Adam Leitman Bailey, P.C. Prevailed In Establishing Primary Residence Adam Leitman Bailey, P.C. Works with Attorney General’s Office to Enforce $11 Million Judgment and with the Department of Buildings to Obtain a Certificate of Occupancy For the Building Adam Leitman Bailey, P.C. Creates New Law On Primary Residence Matters Adam Leitman Bailey Obtains Hundreds of Thousands of Dollars for Tenants and Forces Landlord to Repair Building On Appeal, Adam Leitman Bailey, P.C. Wins Tenant Right of First Refusal of Rent Stabilized Apartment Adam Leitman Bailey, P.C. Prevents Eviction of Tenant and Wins Damages and Attorney Fees using Federal Law Discrimination Statute Setting New Precedent, ALBPC Obtains A Victory for Condominium Board Understanding The New and Improved Condominium Form Contract of Sale TILA-RESPA Integrated Disclosure, “TRID”- Post October 3rd Adam Leitman Bailey, P.C. Wins Summary Judgment For Lender Despite Twenty-One Affirmative Defenses Asserted By The Borrower Headache Tenant’s Harassment Claims Squashed by Adam Leitman Bailey, P.C. New York Gym, Trying to Muscle Its Way Into Landlord’s Lobby, Throws In The Towel Adam Leitman Bailey, P.C. Due Diligence Report 12 Adam Leitman Bailey, P.C. Due Diligence Report 11 Adam Leitman Bailey, P.C. Due Diligence Report 10 Court Holds that Condo Sponsor’s Mechanical Engineer Cannot Avoid Trial Concerning Negligent Misrepresentations the Engineer Provided for Use in the Sponsor’s Offering Plan Adam Leitman Bailey, P.C. Due Diligence Report 8 Adam Leitman Bailey, P.C. Obtains First-of-its-Kind Appellate Ruling Enabling Condominium to Defend Its Ownership of Unit Adam Leitman Bailey, P.C. Achieves Remarkable $1.6 Million Buyout for Rent Controlled Tenant Common Sense Trumps Greed: Adam Leitman Bailey, P.C. Secures Injunction To Prevent Vote To Terminate The Proprietary Lease of a Thirty Year Shareholder Adam Leitman Bailey, P.C. Rescues Client’s Million Dollar Letter of Credit At the Eleventh Hour, Then Slams The World’s Largest Commercial Real Estate Services Firm, Landlord and Well-Known Fashion Design House in Illegal Kickbacks Case Condo Board – Right of First Refusal Luxury Ocean Front Home Purchase Adam Leitman Bailey, P.C. Forces America’s Leading Submarine Sandwich Chain To Fork Over Largest Payout In Its History Background TILA-RESPA Integrated Disclosure Rule and How it Will Benefit Borrowers Adam Leitman Bailey, P.C. Conceives and Executes Successful Strategy to Cancel a Notice of Pendency Adam Leitman Bailey, P.C. Savvy Lawyering Staves Off Eviction For Client Adam Leitman Bailey, P.C., Takes Over Rent-Control Succession Case Mid-Trial; Obtains Judgment of Possession for Landlord Adam Leitman Bailey, P.C. Protects Mortgage for Lender defeating Fraud Allegations Adam Leitman Bailey, P.C. Swiftly Settles Foreclosure Action in Favor of Lender Adam Leitman Bailey, P.C. Obtains Winning Settlement For NYC’s Best Cheesesteak Maker Mixed-Use Brooklyn Building Declared Not Subject to Rent-Regulation after Adam Leitman Bailey, P.C., Demonstrates at Trial that Building Contained Fewer than Six Residential Units Demolition Proceeds After Criminal Operation is Uncovered and Leads to Quick Surrender of Apartment Adam Leitman Bailey, P.C. Innovative Lawyering on Whether Rent Regulated Leases Could Be in Corporate Name Leads to Multimillion Dollar Buyouts Adam Leitman Bailey Due Diligence Report 7 Adam Leitman Bailey, P.C. Helps Upper West Side Condominium To Achieve Winning Settlement Exceptions To The Due on Sale Clause Adam Leitman Bailey, P.C. Defeats Borrower’s Motion to Vacate a Judgement of Foreclosure and Sale for Title Company Adam Leitman Bailey Due Diligence Report 6 Adam Leitman Bailey Due Diligence Report 3 Adam Leitman Bailey Due Diligence Report 2 Adam Leitman Bailey Due Diligence Report 5 Adam Leitman Bailey Due Diligence Report 4 Adam Leitman Bailey Due Diligence Report 1

Adam Leitman Bailey, P.C.

NEW YORK REAL ESTATE ATTORNEYS