Zoning Issue Right Before Closing in Lincoln Park

[David Triplo]

I'm in the process of buying my first rental property in Lincoln Park and in a sticky situation.  The owner claimed it was zoned as a 3 flat, but the zoning certificate came in as a 2 flat a few days before closing.  The owner said he bought it as a 3 flat, it's taxed as a 3 flat and have paid water as a 3 flat for the 15 years he owned the property.  I did see a document from the city stating he didn't pull permits when he did some rehab work for the building.  The illegal garden unit is over 7.5 ft ceiling, has 2 exits (1 into the common laundry area for 2 units and outside exit), and have windows in all rooms.  The building has 2 parking spots, but possibly could pull off 3 if it's tight.  The surrounding blocks are designated for 3-4 flats and just this particular block isn't for some reason.  We were suppose to close at the end of the year.  I've given him a month to get the property rezoned but his expediter was unable to make the change.  

The seller decided to drop the price substantially as my rate lock deadline is approaching and I'm debating what to do.  I could probably get him to agree to a price where my cash flow would barely be positive as a 2 flat, but would have substantial upside if I was able to re-zone it.  Also, the garden unit is currently rented and they are great tenants and want to renew.  To reduce risks, I would be willing to move into that unit as all 3 are turnkey nice units.   

Does anyone have words of wisdom on the rezoning process?  Or if it's worth it to purchase a property knowing the main upside is in the rezoning?  I know an admin adjustment, a zoning change or a potential overhaul on zoning rules is possible in the next year or 2.  I'm also viewing it as an ability to live for free in a nice area where I would want to live anyways.  I am slightly concerned on resale value as well.  I'd appreciate any advice.    

[Henry Lazerow]

I had a similar issue in Roscoe Village. Owner claimed 4 units it showed 3 units on zoning doc. They used an old water bill showing it was 4 units to get the zoning doc changed during attorney review. This is a possibility but may take some time. Do not close on the deal unless the zoning doc shows legal 3 units. A legal 2 unit is worth much less then a legal 3 unit. You can kill the deal  with no recourse as long as your attorney review letter said something along lines of must show legal zoning for 3 units. Consult your attorney* 

If you want to see the grandfathered in route that got it legalized feel free to PM me your email I can send a copy of the PDF. Either way though I would not close unless the discount in price is very significant as in six figure discount.