I am conducting due diligence on a park that has about 70 code violations. The prior owner was absentee and the park from Google Earth looks post apocalyptical although the homes are not that old.
Can anyone offer advice on how to negotiate with the City Code office and possibly reduce or eliminate monetary fines associated with outstanding violations? I intend to setup a meeting with the Code Manager and negotiate compliance dates and eliminate/reduce monetary penalties and ensure the park is not targeted to have its license revoked or structures condemned. I assume the City has liens but have not gone so far in my research.
The 50 space park is a foreclosure and offers an excellent upside given it’s location in a large metro and that its on City utilities.
Check the Title Commitment and call the City about liens on the property first before you get too far into this. You may not be able to undo those as easily as a code violation.
Separate to this I have had many instances where the City worked with me on a Park that had issues like this. One of them offered to waive the fees for individual city water meters if I would address the code violations and clean up the Park. You can ask for favors as part of the negotiation, especially in smaller towns.
Some contracts have provisions for any outstanding code violation fees unpaid shall be deducted by the Title Company from the Purchase Price so that this becomes a non issue regardless of the outcome with the City.
If the Seller won’t budge on price you have to decide if can absorb that amount or see what the City says.
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We deal with this issue on a regular basis. You need to meet with probably both the inspector and the city manager at the same time, preferably at the property. Tell them all the things you’re going to do to bring the park back to life, and make sure that everyone is in agreement as to the plan. Then tell them that they are going to have to waive or reduce the fines (I’m assuming 70 x $200 = $14,000 so it’s not a tiny number) and work with you on the timing of getting the improvements done, or you’re going to walk the deal. They have more to lose than you do, since they know the current owner is never going to make the improvements and they are probably getting calls from neighbors ten times a day. Remember that the city officials get none of that money, so the big motivator is the aggravation from constant calls from the community – they will happily reduce or eliminate the fines if you can deliver on getting the calls to stop. But they might need some type of assurance that you are going to make the repairs, so they might make you post the the amount of the fines as a bond that they will release when you’ve fixed everything. You should definitely try to make the seller pay the cost of the fines, but you probably don’t want to blow the deal over that small an amount on a 50 space park that has everything else going for it.
Two additional items: 1) be sure and get a Certificate of Zoning from the city and 2) be sure to build in a huge amount for deferred maintenance, because if the guy was so bad off that he let 70 citations mount up, you can imagine what else is wrong with the utility pipes and any park-owned homes.
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Frank’s is great advice (of course).
Whenever you’re shopping the market you definitely want to meet the city officials and determine if they’re going to be a problem or a help. If they’ve got their minds made up already you’re not going to change them. But bring your resources, such as numerous articles Frank has authored (and others) and see if you can’t convince city to work with you because (you should convince them) you are going to be 100x better manager than the previous (nincompoop) who let the problems build up and you’re providing a valuable public service by providing an affordable place to live.
Who should you meet with? In a medium-sized suburb or city you could probably meet everyone you want, possibly not the Mayor or City Administrator but every department head under them. Let them tell you how they want you to run the park and be ready to do that if you’re going through with the deal. You can’t fight city hall and you want them on your “side” (against the tenants, if necessary). This is the essence of this business.
We have walked a deal and closed a deal both in great part determined on the quality of the local government.
In one case the town is a county capital and the city/county administration seems very on-the-ball, active, dynamic, etc. Interested in civic development.
In another case the town was a smallish ex-urban town near a major city with high growth potential in a great location, but local officials did not want to do anything to help and were hoping to hinder higher occupancy at the local (20% full) park. It was not the only “wart” on the deal, but knowing we’d be fighting city hall on every little thing made us walk the deal. I should mention that local council owned most of the (high-vacancy) local apartments.
Brandon@Sandell
Thank you all for the advice!