Builder changed 2 bedroom into a 3 bedroom illegally!

[smartmoney2000]

What is the name of your state (only U.S. law)? New York

I am in a dilemma.

I purchased a new construction 3 family home in 10/2008 from a builder/seller. Each apartment has 3 bedrooms (so I thought). Two weeks ago, I began that process of renting one of my apartments to a section 8 tenant. When the section 8 inspector came to assess the apartment, he stated that he could not pass the apartment as a 3 bedroom because it was actually a 2 bedroom apartment because the dimensions in the 3rd bedroom was not a standard size bedroom and the "inward window" (an opening in the wall that faces in the the apartment rather that outward) was not considered a legal window. Also, I cannot install an outside window because my house is adjacent to an apartment building and I don't have the required 30ft between the two.

When I went through the house with the builder/seller prior to purchasing, I inquired about the 3rd bedroom that had inward window and the builder told me that it was an approved window and would pass section 8 guildelines and that the window was considered ventilation.

Well needless to say, although it looked a little weird, the entire home with all "3 bedroom" apartments passed the The Department of Buildings inspection (I have the Certificate of Occupancy) and the bank's appraisal confirming that all 3 apartments have 3 bedrooms. My building is also registered. So as you can see, because I have documents to prove that my entire building "passed" the building codes, I did not anticipate any fraud.

When the Section 8 Inspector kept insisting that it was not a 3 bedroom, I went to the Department of Buildings and Chief Inspector provided me with the approved blue print of my house. Well, the blueprint indicated that the 3rd bedroom was actually a pantry and a closet. Apparently, AFTER, the Builder submitted the initial plans and got everything approved, they went back and changed the structure of the apartments by removing walls and made other changes to convert it into 3 bedrooms. They did not submit an amended building plan to indicate the change. Now the Department of Buildings is concern because the "changed structure" was not approved, so now I don't even know if my building is even safe to reside in.

To make problems even worse, (1) I cannot go back to my closing attorney because he has been convicted and disbarred with a class D felony....grand larceny.....yes, he was involved in a multi-million dollar mortgage scheme,
(2) the title insurance company is not accepting any responsibility and maintains that I have to contact my closing attorney.

So, I need some assistance. I feel that the bank should have some responsibility in addition to the builder/seller because it's appraisor passed and confirmed 3 bedrooms apartments which I am paying taxes and a mortgage on. I have a FHA loan which I know that prior to getting a FHA loan, they a sticklers making sure that property is up to code. If a Section 8 Inspector caught it, why didn't the bank's appraisor catch it??? Instead, they approved it.

When I resale, I cannot resale as 3 bedrooms and I cannot get the monthly rent for a 3 bedroom to help meet my monthly mortgage. So I am taking a lost all the way around.
PLEASE HELP!!!!!

 

[nextwife]

There is a difference between the requirements for rental in certain subsidized housing programs, and the general code requirements. First, the title insurance has nothing to do with whether the specific floor plan is acceptable for a certain type of rental. They are insuring you are getting full ownership and that they have disclosed all easements, ROWs, restrictions, etc.

Example: I own a bungalow single family that I rent out. For the county "rent assistance" program purposes, the "walk through" room in the front half of the second floor cannot be counted as a bedroom for rent assistance purposes. I call it an office, but my tenant has her niece use it as a bedroom. There were a number of other compliance issues that I had to contend with that would never have been required of an owner occupant.

What representations were made in writing as to compliance with the specific rental program you wished to use?

 

[latigo]

To begin I fail to see how your “dilemma” has been worsened any simply because your former lawyer’s license had been revoked.

But I do think that you share more responsibility here than you care to admit.

You claim that the contractor/seller" illegally" converted the units from two to three bedroom. But have offered no proof nor have you pointed to any laws, ordinances or regulations that were violated.

Moreover you write, “my entire building ‘passed’ the building codes”. So how could it be illegal? Just because it may not have complied with the standards required for subsidized housing does not make the structure illegal!

Then you write, “I didn’t anticipate any fraud”. Well what fraud has been committed and by whom?

The contractor did not tell you the building had passed “section 8 guidelines”. He expressed his opinion that it would pass section 8 guidelines!

Also, you purchased the three-unit complex as an investment to be rented to tenants desiring three bedrooms and assumedly to be rented to tenants qualifying for subsidized housing. And did so knowing that the interior designed “looked a little weird “ yet did nothing other than to rely on the contractor’s judgment. And now you are pointing your finger every where but in a mirror.
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You asked for opinions so I’ll offer mine.

First, I say forget about the lending bank’s appraisers, the title company, building inspectors, and anyone else innocently in the mix. They bear no culpability whatsoever.

Secondly, if you have any viable legal remedy it would be in the realm of equity for rescission of contract based upon a material representation made by the seller.

Personally from what we are given I don’t see that there was a material representation on the part of the seller - at least not one mentioned that would support a finding of the required element of fraudulent inducement.

Because in order to establish fraud as a ground for rescission the claimant must not only prove that the representation were material and knowingly false and were made for the purpose of inducement, but most of all that the claimant relied on the representation and had the right to rely on the representation.

Plus the claimant has the burden of proving all of these elements of fraud by clear and convincing evidence.
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Now there may be other critical factors here of which we are not made aware. For example the seller was clearly made to understand your intended use of the building and purposely deceived you regarding its suitability for that purpose.

So I suggest that you consult with an experienced, competent real property attorney who will be capable of reviewing all of it and tell you whether you have a makable lawsuit against your seller for rescission.

Good luck