Rehab deal went bad, now in foreclosure

This is an experience that went from good to extremely bad in less than 12 months.

My brother (partner) purchased a legal two family house with a finished attic in upstate NY. The title search came in clean with no violation therefore we proceed it with the deal.
During the rehab process the building inspector showed up to the house and made us stop the construction and told us tha the attic was illegal as per NY state laws and town.
We had to get approval from the NY State for a variance howeever it still requires an approval from the local building inspector and the zoning board.

At this point we decided to rent out the apts, but the rent roll does not cover the mortgate therefore the house went in to the final stages of foreclosure.

At this point we need to find out what are our options? and most important if the house sells at the auction for less than the loan, can the bank go after my brother for the balance?

please anyone advice us…

Options…call other investors. Take out a second against the property to stop the bleeding…bring cash to the closing table if needed…get it listed with a realtor…have someone work on a short sale.

The bank can come after you for the rest of the money they are owed. Most times they do not but you might be liable for some tax consequences for the difference of what you owe vs. what is sold for.


What part of upstate NY, I might have some advice or be interested in lending a hand.


the house is in Peekskill-Westchester county.

Alright, I still consider that downstate. I assumed you were talking about the Buffalo, Syracuse, Watertown areas.

Just looking over your post, you refer to it as a legal two family house but then say the building inspector said it was illegal.

I would look back into your contract with the seller, anything about zoning or supplying a C of O?

To me it sounds like it wasn’t currently rented when you bought it (since you had to do work on it). If so, how long was the house vacant, if less then 6 to 9 months you might be able to keep the zoning no matter what if its been used as a two family for the last 5 - 20 years (Time frames all depend on your local zoning laws)

Talk to the smaller local construction companies and supplier yards around there. You might find they have very close ties to the building inspector. You’d be surprised how fast they can change their mind if a contractor friend does a modification or two.

Good Luck