What to do about "off the books" basement units

[Anders R.]

I am currently shopping for a multi-family rental in Brooklyn and Queens, NY.  This will be my first investment property.  I plan to do a house hack.

I regularly tour properties that are listed as a "legal 2 family" but which also have a third basement unit not mentioned in the listing description.  On one hand, this makes sense, since that third unit is needed to make the (very expensive) property cashflow.  However, let's say I go ahead and rent out one of these basement units.  What type of liability or legal issues may I be setting myself up for?  Would a tenant in such a unit be covered by my umbrella insurance policy?  (Eg. let's say they sue me for whatever reason, or let's say they cause damage to the property.) What about tax/accounting considerations?  Other legal concerns?

Bottom line question:  Are MFH with "unofficial basement units" something I want to get myself mixed up in?

Thanks in advance for any insights!