The sewer company tells me that it's covered however, they need to file for a permit to dig through the NYC DEP (manages the water and sewer lines) on Monday morning, citing that it may take several days.   

I use Nuco filings.

They know you likely wouldn’t file a CA tax return - since you live out of state - so they found a way to make sure you do.Since you are losing money, most likely you can deduct losses against income and get the withholding back when you file a CA tax return in April.Confirm this with your tax person.

@Mohamad GueneCalifornia is generally more cumbersome than other states when it comes to taxes and filings.

Some people recommend filing in WY, other recommend land trusts, etc. 

You have a governmental authority using its power to hinder and regulate private transactions creating some kind of “litmus” test based on god knows whatYou have a seller remaining in a home he sold indefinitely.You have a lender that has twice filed for foreclosure You have a profit sharing arrangement upon resale with the seller/tenantYou’re performing repairs/maintenance on a house while occupied by the seller/tenantAny or all these are lawsuit magnets.If you buy a property, and the seller is a consumer, not an investor, you should NEVER do a profit participation.  

Show them how much you already lost due to their incompetent management and sitting vacant for six months.If they insist on pushing this, file a complaint with the state licensing board.

In which states would I have to file tax returns? 

If I were to form LLC to purchase this property, should I be filing in NY or MA?

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