Hard Money Loans for Properties with Code Violations

Hard money loans for properties with code violations are one of the most misunderstood corners of real estate financing — and one of the most profitable. When a city files a complaint and encumbers title, most buyers and most lenders walk away. Investors who know how to clear the case and present it to the right lender can buy at a deep discount and still get funded.

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What a code violation on title actually means

When a property racks up code violations — an unsafe porch, illegal conversion, overgrown lot, failed inspection items — the city doesn’t just send letters. In most municipalities, a complaint is filed and a case is opened for each violation, and that case encumbers the title. The lien or lis pendens shows up in the title search, and a conventional lender’s underwriting stops right there.

That’s why these properties trade at deep discounts. The seller often can’t fix the issues, retail buyers can’t get a mortgage against encumbered title, and the pool of capable purchasers shrinks to cash buyers and investors with asset-based financing behind them.

Hard money changes the math. Because underwriting is collateral-first — ARV, loan-to-cost, and exit — a lender like Jaken Finance Group can evaluate the violation case on its merits instead of auto-declining the file. For background on how that underwriting works, see what is a hard money loan.

Step 1: Get a zoning or real estate attorney into the case

Before you bring the deal to any lender, do what the video says: hire an experienced zoning attorney or real estate attorney who knows these cases and have them file an appearance in the open case.

The appearance does two things:

• It tells you the real status of the case. Is it a minor infraction awaiting proof of repair? A demolition order? A hearing date next month? The court file — not the seller’s story — is your source of truth.
• It gives the lender something concrete to underwrite. A letter from counsel summarizing each open case, the requirements to clear it, and the expected path to dismissal converts an unknown risk into a defined scope.

Most of the time — and this is a general statement, not a guarantee — the violations are minor infractions that the city will dismiss once cleared. Repair the porch, pull the retroactive permit, cut the lot, pass the reinspection, and the case closes. But you only know that after counsel has appeared and read the file.

Step 2: Put the violation cures in your rehab budget

Here’s the mechanic that gets these deals to the closing table: include every violation cure as a line item in your rehab budget.

When the scope of work explicitly covers the items the city flagged — with contractor pricing, not guesses — the lender can see that:

1. The loan proceeds fund the exact work that clears the encumbrance.
2. The case requirements are defined and achievable within the loan term.
3. The post-rehab collateral is a clean-title, retail-sellable property.

At Jaken Finance Group, when the violation cures are budgeted and counsel has confirmed the path to dismissal, we will likely be comfortable funding the deal. We can’t speak for every lender — many still decline anything with an open case — but that’s exactly why the discount exists.

Structure the budget the same way you would any flip scope: line items, draw schedule, and a timeline that clears the case well before your exit. If you’re new to formatting a lender-ready scope, our team walks borrowers through it during pre-qualification.

Why violation deals are so profitable

Code violation properties are profitable for one reason: most people don’t know how to navigate the mechanics. The buyer pool collapses, the seller is motivated, and the discount reflects fear rather than the actual cost of the cure.

Consider the typical spread:

Factor	Clean-title flip	Violation deal
Buyer competition	High — retail + investors	Low — informed investors only
Purchase discount	10–25% below ARV all-in	Often 30%+ below ARV
Extra cost to cure	—	Attorney + flagged repairs (usually already in rehab scope)
Lender pool	Wide	Narrow — asset-based lenders who underwrite the case

In many files, the violation repairs are work you were going to do anyway — the porch, the electrical, the roof. The “extra” cost is a few thousand dollars of legal work and some administrative follow-through with the city. The discount you captured at purchase is often several multiples of that.

The same dynamic drives other distressed niches we lend in — auction properties, probate collateral, and vacant and blighted properties. Complexity scares off competition; process captures the spread.

What to present to the lender: the checklist

Bring this package and you’ll separate yourself from every borrower who just forwards an MLS link:

1. Title commitment showing each open case or lien tied to the violations
2. Attorney case summary — status of each case, requirements to clear, expected timeline to dismissal
3. Line-item rehab budget that explicitly includes every flagged repair
4. ARV comps supporting the post-rehab value with clean title
5. Purchase contract reflecting the discount that makes the whole exercise worthwhile
6. Your exit — resale or refinance, with a timeline that fits the loan term

With that file, an asset-based lender can price the deal like any other fix-and-flip: leverage tied to ARV and loan-to-cost, rates on our fix-and-flip programs currently 8.99%–13.5%, interest-only during the hold.

In this video

• 0:00 — Code violations on title: what you need to present to the lender
• 0:10 — Why each violation has an open case encumbering title
• 0:17 — Get a zoning or real estate attorney to file an appearance
• 0:29 — Most violations are minor infractions the city dismisses once cleared
• 0:38 — Include the cures in your rehab budget so the lender can fund the deal
• 0:50 — Why violation deals are so profitable for investors who know the mechanics

Full transcript

For properties with code violations on title, here’s what you need to present to the lender in order to get it to the closing table. Generally speaking, there’s cases open for each of those code violations. A complaint was filed by the city and title was encumbered. If you haven’t already, you need to get an experienced zoning attorney or real estate attorney who’s familiar with these cases and go get them to make an appearance to understand the status of the case. Most of the time — and I say most generally, just put the disclaimer in there — most of the time they are minor infractions that once cleared, the city will dismiss the case. So, for a lender, if those items are included in your rehab budget, they will likely — and at least for us, right? I’m not talking about everybody — but they will likely be okay with funding the deal, given that the case requirements are pretty clear to clear those violations. Violation deals are very profitable deals because a lot of people do not know how to navigate the mechanics of it, and therefore you can make a lot of money if you’re buying at a deep discount.

Have a code violation deal under contract?

Send us the file — submit your fix-and-flip deal with the address, title commitment, attorney summary, and rehab budget, or tell us what kind of loan you need and a Jaken Finance Group lending specialist will walk through the case with you. Prefer to talk it through? Call (833) 264-7776.

Rates, terms and conditions offered only to qualified borrowers and are subject to change at any time without notice. Closing times are in business days and commence upon receipt of appraisal payment and satisfaction of borrower conditions. Closing times may be delayed due to appraiser property access. All loans are subject to full underwriting for loan approvals. Jaken Finance Group only finances non-owner occupied investment properties.

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Jaken Finance Group, 2300 Barrington Road, Suite 400, Hoffman Estates, IL 60196