Columbia Heights council revisits potential for Point of Sale housing program

After hearing a resident’s story about becoming the victim of predatory remodeling, the Columbia Heights City Council during its Aug. 3 work session discussed the possibility of implementing a residential Point of Sale inspections program.

Proposed program 

In 2008, the city of Columbia Heights considered a program that would have required the inspection of all residential homes before they could be sold. If code violations were discovered during the inspection, the homeowner would have been required to make the needed improvements before the sale of the property would be authorized.

The proposed program was called the Residential Inspection Before Sale (RIBS) program. After extensive public debate, the City Council determined not to implement the RIBS program, which faced opposition from citizens and local real estate agents, Community Development Director Joe Hogeboom wrote in his report.

Columbia Heights resident Frost Simula has requested that the city reconsider implementing some type of Residential Inspection Before Sale program. He feels that a city-sanctioned inspection would have uncovered many of the problems and code violations in his home.

Predatory remodeling

In 2013, Simula purchased his house at 1700 49th Ave. NE in Columbia Heights for $174,000. It was listed as a four bedroom, two bathroom home. Simula didn’t know that six months earlier a flipper had purchased the house for less than $85,000. At that time, the home had three bedrooms and one bathroom before it underwent a four-month remodel.

Simula summarized some of the numerous problems he has discovered throughout his house, showing the council photos. A load-bearing support column was removed in the basement to make the space look more open, new shingles were put over the old shingles on the roof, and soldered plumbing unions were done in place, which badly burned the timbers next to them.

Plumbing was put in backwards, screws were put directly into pipes, hidden junction boxes and illegal wiring were discovered, and illegal duct work was found where proper fittings and unions were substituted for wads of duct tape.

Before Simula bought the house, a real estate inspector looked around, performed operational tests and reported findings. However, the inspector was unable to detect all of the problems because they were hidden behind finished drywall, concrete and woodwork.

The repairs are estimated to cost Simula between $70,000 and $100,000 to bring the house back up to code.

Simula said predatory remodeling is a type of real estate fraud where the seller is transferring building code violations to the buyer by hiding the problems behind repairs. When a building falls out of code, a building permit is required in order to make repairs, and a building official needs to complete an inspection, he said. However, a predatory individual can simply not pull a building permit, which is what happened in his case, and a licensed contractor was not used.

A seller is required to disclose all building code violations, and the buyer then becomes responsible for the violations. However, a predatory person will choose to not disclose those violations. In Simula’s case, he was coached by his realtor into waiving the seller’s disclosure notice, which means he bought the house “as is.”

Recourse options

Simula said the sale of his house cannot be reversed. Homeowners insurance does not cover fraud, suing the home inspector or real estate agent would only recover the cost of the fees, and it’s difficult to sue the seller.

The Contractor Recovery Fund is not an option for Simula because it can only be used in the case of licensed contractors. It compensates owners or lessees of residential property in Minnesota who have suffered an actual and direct out-of-pocket loss due to a licensed contractor’s fraudulent, deceptive or dishonest practices, conversion of funds or failure of performance.

Another option would be to walk away from the property and turn it over to the bank; Simula said the buyer basically has to declare bankruptcy. He recently recovered from bankruptcy after an out-of-pocket surgery, so declaring bankruptcy again was not an option.

Suggestions

Simula suggested that the city begin coming up with ways to deter predatory remodeling and provide some kind of recourse for victims. Communities in the Twin Cities have ordinances in place that require Point of Sale inspections and property maintenance certificates for single-family home sales. Additional actions could include making public building records available online, offering suspicious activity reports and building permits online, and offering a monetary incentive with a class for first time home buyers.

Work session discussion

“Frost suffered a great loss in purchasing this house in town,” City Manager Walt Fehst said.

After the council turned down the RIBS program in 2008, he said a lot of people were happy, but a number of people also thought it was a mistake. Having a Point of Sale inspections program for critical items would protect residents as well as maintain and improve the city’s housing stock, he said.

Fehst asked the council to reconsider a program that would deter predatory remodeling. “Realistically, do we have an obligation as a city to try to prevent that from happening?” he asked.

“There’s no question that Frost got really taken when he bought this house with these kind of problems,” Councilmember Bruce Nawrocki said. He asked if there have been other similar situations in Columbia Heights.

Frost said that before buying his house he made an offer on a different property in Columbia Heights. He withdrew his offer after the inspector found some very serious problems, and that house was later sold.

Larry Pepin, the building official for Columbia Heights, said he has come across similar situations in the city.

Regarding a potential Point of Sale program, Pepin said, “People that have maintained their home, they have nothing to fear. It’s people that have let things go or try to do things to better their home, but don’t get the permits for it and have it inspected. Those are the people that are opposed to us coming in and finding stuff.”

Nawrocki said he would like to know which cities have considered a Point of Sale program, but decided not to move forward with one.

Councilmember Donna Schmitt suggested the city offer an incentive program for first time home buyers, which would include a class with businesses, realtors and inspectors.

Hogeboom said the city would look into an incentive program and conduct more research on cities that are not interested in a Point of Sale program after discussing the topic. He also said staff could look at establishing more of a stakeholder engagement process and hear from people what their root issues are with a potential program.

Point of Sale program

Municipalities in Minnesota are authorized under state statute to create city-based inspections requirements of single-family homes before sale, Community Development Director Joe Hogeboom wrote in his report. The inspections are generally referred to as Truth in Housing inspections, Point of Sale inspections, or Time of Sale inspections. The inspections are based on individual cities’ minimum housing codes and evaluator guidelines. The housing inspections are completed on a report form provided by the city, and results must adhere to minimum city standards.

Depending on the city, work orders may be issued that must be completed before ownership is exchanged. State law authorizes fining or revoking the licenses of real estate agents and contractors who offer homes for sale without having the inspection done, Hogeboom wrote.

According to the Minnesota Association of Realtors, it is common for buyers of new homes to request independent inspections of homes prior to sale, regardless of whether cities have inspection requirements in place. It is also common for sellers to proactively perform pre-listing inspections.

According to Hogeboom, the cities that require an inspection by a city official prior to the sale of a home are New Hope, Richfield, St. Louis Park and Osseo. This past June, the Brooklyn Park City Council with a 5-2 vote repealed its Point of Sale ordinance. The city of Crystal is expected to discontinue its Point of Sale program in August, and Golden Valley only requires a private sanitary sewer line inspection.

The cities that require an inspection by an independent home inspection contractor before selling a home include Minneapolis, St. Paul, Bloomington, South St. Paul, Maplewood, Hopkins and Robbinsdale.

No communities in Anoka County currently require Point of Sale inspections.

According to Anoka County records, there is an average of about 10 to 15 single-family homes that change hands and sell in Columbia Heights each week. In 2008, based on contractor pricing for inspections, the city estimated that each inspection would cost about $185. Assuming that costs have increased to $200 per home based on inflation, a Point of Sale program’s annual operation costs would be between $104,000 and $156,000. Hogeboom said program costs in most cities are put on to the inspection, so it covers the cost of itself and is not something generally funded through tax dollars.

Building Official Pepin currently inspects all single-family residential rental properties before a new rental license may be granted. The criteria for new rental inspections would likely be used as a starting place if a Point of Sale program were implemented.

In addition to contractor’s costs, the city would also have to factor in additional resources for scheduling and data management duties associated with the program.

If the city were to initiate a Point of Sale program, the city could choose to pass inspection and administrative costs to the homeowners, or the city could choose to completely or partially subsidize the program. Homeowners could have additional costs associated with the inspections if corrections are made prior to sale, while other cities use the inspections as a notification and disclosure mechanism.

Next steps

City staff will gather additional information about a possible Point of Sale program. That information may be ready in time for next month’s council work session.

Contact Kassie Petermann at kassie.petermann@ecm-inc.com

The basement in the Columbia Heights home before any remodeling work took place had a load-bearing support column. (Courtesy of Frost Simula) A load-bearing support column was removed from the basement to make the room look bigger and feel more open. (Courtesy of Frost Simula) The phone service and cable TV service junctions had been covered up with drywall and huge globs of drywall mud in the Columbia Heights home. (Courtesy of Frost Simula) Columbia Heights resident Frost Simula discovered hazardous illegal wiring throughout the house. (Courtesy of Frost Simula) The laundry machines are unhooked, and the laundry tub and cabinet are removed. It’s discovered a floor drain was intentionally covered by the laundry tub base cabinet. (Courtesy of Frost Simula)
The house inspector did not detect the multitude of problems that were cleverly hidden throughout the remodeled home.  (Courtesy of Frost Simula)
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The laundry machines are unhooked, and the laundry tub and cabinet are removed. It’s discovered a floor drain was intentionally covered by the laundry tub base cabinet. (Courtesy of Frost Simula)