Selling a Red-Tagged or Yellow-Tagged Inherited Property in California

What Does a Red Tag or Yellow Tag Mean?

This is where I don't want to oversimplify.

People often use phrases such as “red-tagged” and “yellow-tagged” as though they have one universal meaning throughout California.

They don't necessarily.

The terminology, notices, restrictions and requirements can vary by city, county, agency and circumstance.

Depending upon the situation, a notice could involve issues such as:

• Unsafe occupancy
• Restricted access
• Structural concerns
• Fire damage
• Building or safety violations
• Unpermitted construction
• Electrical or plumbing hazards
• Severe property deterioration
• Hoarding conditions
• Sanitation concerns
• Required corrections
• Code enforcement actions

So if someone tells you:

“The house is red-tagged,”

my next question is:

“Do you have a copy of the notice?”

That's much more useful than guessing based upon the color.

Can I Sell a Red-Tagged House in California?

Possibly.

The existence of a red tag, yellow tag, code violation or unsafe-property notice doesn't automatically mean ownership of the property cannot be transferred.

But the particular restrictions and governmental requirements affecting the property matter.

There may be outstanding corrections.

There may be restrictions on occupancy.

There may be limitations on access.

There may be fines, liens or other unresolved matters.

There may also be requirements affecting what must happen before the property can be occupied again.

That's why the first step isn't necessarily:

Fix the house.

It's:

Understand the notice.

Once we know what the governmental agency has actually required, we can begin determining the appropriate selling strategy.

Don't Ignore the Notices

If you inherited the property, you may have inherited a stack of paperwork along with it.

Don't throw away notices from the city, county, building department, code enforcement or another governmental agency because you assume they're old.

Save them.

If possible, gather:

• Notices of violation
• Inspection reports
• Correction notices
• Red-tag or yellow-tag documentation
• Code enforcement correspondence
• Permit information
• Hearing notices
• Fine or penalty information
• Any documents showing completed corrections

Those documents can help us understand what has happened with the property.

If necessary, additional information may need to be obtained from the appropriate agency.

We want facts, not family recollections about what an inspector supposedly said two years ago.

Do I Have to Make All the Repairs Before Selling?

Not necessarily.

This is one of the first questions heirs ask.

They inherit a distressed property and immediately assume:

“The city wants these things fixed, so I have to spend $100,000 before I'm allowed to sell.”

Don't make that assumption.

Whether repairs must be completed before a transfer, what obligations may carry forward, and what a buyer may be permitted or required to assume can depend upon the jurisdiction, type of violation and specific governmental action.

We need to determine what applies to your property.

There may be situations where selling the property in its current condition to a buyer prepared to deal with the required work is possible.

There may also be circumstances where certain conditions must be addressed before a sale or before people can safely access the property.

Find out before spending the estate's money.

A Red-Tagged Property May Have a Different Buyer

A house with serious governmental restrictions isn't necessarily going to appeal to the ordinary buyer looking for a move-in-ready home.

That's okay.

The likely buyer may instead be:

• An experienced investor
• A contractor
• A rehabilitation buyer
• A cash buyer
• Someone experienced with code enforcement or distressed properties

The condition may also limit financing options.

That affects how we price and market the property.

It doesn't automatically mean:

“Take whatever the first investor offers.”

It means we need to understand the property's value with its current condition and restrictions taken into consideration.

As-Is Does Not Mean Worthless

This is especially important with inherited properties.

A red tag can make a house look like an enormous liability.

But underneath the violations is still real estate.

There may be substantial land value.

The location matters.

Lot size matters.

Zoning matters.

The remaining structure may have value.

Utilities and improvements may have value.

And the cost of correcting the problems matters.

An experienced investor may look at the same property that feels overwhelming to an heir and see a solvable project.

The question becomes:

What is that project worth in the current market?

That's what we need to determine before you accept an offer simply to make the problem disappear.

What If the House Is Unsafe to Enter?

Then don't enter it just because you inherited it.

A tag or governmental notice may exist precisely because someone determined there was a potential safety concern.

There could be:

Structural instability.

Fire damage.

Unsafe electrical conditions.

Contamination.

Sewage.

Severe mold.

Animal or human waste.

Blocked exits.

Damaged flooring.

Other dangerous conditions.

If access is restricted by a governmental agency, those restrictions need to be respected.

And even if access is technically permitted, that doesn't necessarily mean an untrained family member should be walking through an unsafe property.

Your inheritance did not come with a requirement that you personally become the demolition crew.

Qualified professionals may need to evaluate certain conditions.

What If the House Was Tagged Because of Hoarding?

This can become particularly complicated.

A severe hoarding property may have sanitation concerns, blocked entrances and exits, pest problems, structural issues, accumulated waste or other unsafe conditions.

Sometimes the contents themselves are only part of the problem.

Once they're removed, additional damage may become visible.

That could include:

Water damage.

Flooring damage.

Plumbing problems.

Electrical issues.

Mold.

Pest damage.

Deferred maintenance.

Before spending thousands of dollars emptying a severely hoarded property, let's understand the governmental requirements and the likely real estate strategy.

A clean-out may make sense.

Professional remediation may be necessary.

Or the property may potentially be marketed to an appropriate buyer in substantially its current condition.

What If the Property Was Tagged After a Fire?

Fire-damaged properties can involve additional complications.

There may be structural concerns, smoke and water damage, utility issues, insurance matters, permits and governmental requirements.

The structure may be repairable.

It may require extensive reconstruction.

Or the underlying land may represent much of the property's remaining value.

Don't automatically assume the estate has to rebuild the house before selling it.

Let's determine what exists today, what governmental restrictions apply, and what buyers may realistically pay for the property in that condition.

What About Unpermitted Additions or Construction?

Inherited properties sometimes contain improvements that were made years ago without permits.

Maybe someone enclosed a patio.

Converted a garage.

Built an addition.

Added electrical work.

Created an extra bedroom.

Or constructed another structure on the property.

The heirs may know very little about when or how the work was done.

If a governmental notice involves unpermitted work, we need to understand what the agency is requiring.

Don't assume that because the improvement has existed for 20 years it is automatically acceptable.

And don't assume you need to immediately tear it down either.

Get the information first.

What If There Are Code Enforcement Fines or Liens?

This is another reason to investigate early.

Depending upon the circumstances, a distressed property may have outstanding fines, assessments, liens or other obligations associated with code enforcement or property conditions.

Those amounts can affect the seller's proceeds and potentially the transaction itself.

Title and escrow can help identify recorded matters affecting the property, while the appropriate governmental agency can provide information concerning its own outstanding requirements or charges.

If there are liens, we need to understand:

What is owed?

What must be satisfied?

Is there enough equity?

What needs to happen for the transaction to close?

What If the Estate Doesn't Have Money to Make Repairs?

Then I especially don't want you assuming you have to personally finance them.

Maybe the estate doesn't have $50,000 available.

Maybe the heirs don't want to advance their own money.

Maybe the property needs far more work than anyone anticipated.

That doesn't automatically mean you're stuck with it.

Let's determine what the property might sell for in its current condition.

Then compare that with:

The cost of repairs.

The potential increase in value.

The time required.

Holding expenses.

Risk.

And the amount of equity available.

Sometimes fixing a property produces a worthwhile return.

Sometimes selling the problem to someone prepared to solve it makes considerably more sense.

What If There Isn't Enough Equity?

Now the situation may require another strategy.

Perhaps the property has:

A mortgage.

Tax liens.

Code enforcement liens.

Judgments.

A partial claim.

Other obligations.

And significant repair costs.

If the likely market value isn't enough to cover everything required to complete a traditional sale, we need to identify that before the estate starts spending money.

Depending upon the circumstances, additional negotiations or a short sale may potentially need to be considered.

Again:

Information before spending.

Can I Sell the Property If I Live Outside California?

Potentially, yes.

And this is particularly important for heirs and estate representatives who live in another state.

You may receive photographs of a tagged California property and think:

“I have to fly there immediately.”

Maybe you don't.

We can begin by gathering information remotely:

Where is the property?

Who has authority over it?

What notices have been issued?

Is anyone currently living there?

Is access permitted?

What is known about the condition?

Are photographs available?

Is there a mortgage?

What governmental agency is involved?

Much of the real estate process may also be handled remotely.

Don't book a flight simply because you think you need to stand in front of the red tag yourself.

What If I'm Embarrassed About the Property?

Please don't be.

I've worked with complicated inherited and probate properties before.

A house doesn't get easier to sell because nobody talks about what's wrong with it.

If the city is involved, tell me.

If the property was red-tagged, tell me.

If there's severe hoarding, tell me.

If there are sanitation issues, tell me.

If half the house was built without permits, tell me.

If you aren't sure anyone can safely enter, definitely tell me.

I would much rather know about a serious condition before someone attempts to enter the property.

We're not trying to impress me with the house.

We're trying to figure out what to do with it.

Don't Accept the First Cash Offer Just Because the Property Is Tagged

This is worth saying.

Distressed properties attract investors.

Sometimes an investor offer is an excellent solution.

Speed and convenience have real value, particularly when an estate is dealing with an unsafe property or ongoing governmental issues.

But first understand what you're selling.

An investor's offer will generally account for:

Repairs.

Governmental requirements.

Holding costs.

Risk.

Resale expenses.

And profit.

That's reasonable.

But you should still know approximately what the property is worth in its present condition before deciding whether the offer makes sense.

Complicated doesn't mean valueless.

Selling a Tagged Property Requires a Different Marketing Strategy

We don't market a severely distressed property as though it's an ordinary house.

If occupancy is restricted, buyers need appropriate information.

If access is limited, showings have to reflect that.

If there are known violations or governmental notices, applicable disclosure obligations need to be considered.

If the property requires extensive rehabilitation, the marketing should reach buyers capable of handling that type of project.

The goal isn't to disguise the problem.

The goal is to find the buyer for whom the problem is manageable.

That's a very different approach.

I Inherited a Red-Tagged or Yellow-Tagged House. Where Do I Start?

Don't start with a contractor.

And don't start with a dumpster.

Start with information.

Let's find out:

What governmental agency issued the notice?

What does the actual notice say?

Is occupancy prohibited or restricted?

Can the property safely and legally be accessed?

What corrections or other requirements exist?

Are there outstanding fines or liens?

What is the property worth in its current condition?

What would repairs cost?

Who is the likely buyer?

Can the property potentially be sold as-is?

Once we have those answers, the situation usually becomes much easier to evaluate.

Need to Sell a Red-Tagged or Yellow-Tagged Inherited Property in California?

You don't have to fix everything before calling me.

You don't need to understand California building codes.

You don't need to know whether the property can be financed.

And you don't need to make the house presentable.

Tell me what's going on.

If you have the governmental notices, we'll start there.

If you don't, we'll determine what information needs to be gathered.

I've been a California real estate broker for more than 26 years and work with probate, inherited, distressed and complicated property sales throughout Southern California.

A tagged property isn't necessarily an unsellable property.

It simply means we need to understand the problem before deciding how to sell it.

Call Dawn Anderson, Broker — Midas Realty Group

Red tags, yellow tags, code enforcement notices, occupancy restrictions, correction requirements and transfer requirements vary by jurisdiction and circumstance. Property owners should obtain information about the specific property from the governmental agency involved and consult qualified legal, building, environmental or other professionals when appropriate. This page provides general real estate information and is not legal, building-code, environmental, tax or financial advice.

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