Discovering an Unpermitted Addition After You Buy

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I just came across your article on unpermitted additions. I am having a really difficult time. We own a home in DELETED that we bought in 2006. It was listed as a 3/2 1400 sqft. We are now trying to sell it, had many offers, however, we found out that it is on file with the county as a 2/1. The city came and sent an order to comply telling us that basically 1/2 the house needs to be demolished! That it was not permitted. What does one do if the seller never disclosed? Is it possible that he never knew? Then what? Shouldn't our agent when we bought it have alerted us to this? We hate to fork out more thousands of dollars into this money pit. We bought for 700k and were listing it for 540k - so we are already losing a ton...then this happened. These additions were done 21 years ago - 4 owners ago! I know this is asking a lot, we are so desperate to find a solution, and nobody seems to know. Any advice or

Unpermitted Additions are a rat's nest of problems, and you are never certain of how it is going to work out because so much of the response is within the realm of bureaucratic discretion. You can't control what individual human judgment is going to make of your situation and how it will respond. I have seen situations where I thought there was no reason for doubt refused, and situations where I would have bet serious money against acceptance approved. I don't like it, but there are unavoidable risks you take in dealing with unpermitted additions. There is money to be made in dealing with unpermitted additions and making them legal, but you have to have a very clear understanding that there is a risk of major loss involved.

Your Buyer's Agent failed of due diligence not to inform you of this and the possibility of what you have now encountered in writing in a timely fashion to enable you to make an informed decision as to whether or not to continue the transaction before adverse consequences ensued. 99%+ of the time, I spot additions while looking at the property and 90%+ of them I can tell whether they were permitted.

Had you known before the transaction happened, or even when it closed, there would have been many actions you could have taken to protect yourself. Now, your options are far more limited. The only advice I can legally give you at this point is to talk to a real estate attorney. Chances are good you can sue the brokerage who represented you. Even if they were representing the sellers as well. You may also be able to sue the sellers and their agents because they should have been aware of the issue and properly disclosed it to you.

Had you known of the additions at the time you purchased the property, California at least has an innocent purchaser law. It won't protect you from having to remove additions that are unsafe or cause unsafe conditions (e.g violating setback requirements) but it will prevent your property from being re-assessed upwards. You bought a 1400 square foot 3 bedroom 2 bath, and your purchase price was for a property of those characteristics, so you should only be billed for taxes based upon your purchase price, rather than an additional amount representing what would be in another property additional square footage. Furthermore, they tend to work with innocent purchasers who bring the situation to their attention to see what can be done to bring the property into compliance rather that requiring the removal of the addition. But my understanding of the innocent purchaser provisions is that it has to be done within 3 years at most of the date of purchase (and not being a lawyer, I could be mistaken, so talk to a lawyer).

Had you known before you made an offer and been properly advised, odds are that you would not have made the offer unless you were getting a price that was simply too good to pass up. I hate discussing the possible upsides and downsides of unpermitted additions with clients simply because even in the most routine cases there is so much uncertainty that I can't offer even probability estimates of what will end up happening. It is a consequence of that individual bureaucratic discretion I was writing about earlier. It's probably better than any of the politically possible alternatives, but it removes predictability from the equation and it certainly provides motivation and opportunity for corruption.

Furthermore, because it is a source of uncertainty and risk, dealing with that uncertainty and risk and turning it into a certainty - in other words, a property that is fully approved as it sits - is an undertaking worthy of compensation. Lots of compensation in some cases such as this one. A property that's only permitted as an 800 square foot 2/1 is worth considerably less than the fully permitted 1400 square foot 3/2 next door even if they are otherwise identical, precisely because of the risk of precisely what happened to this person. Until the relevant agencies have fully permitted the additions, there is always the possibility that you will be forced to remove them. In extreme cases, I have heard of them condemning not just the additions, but the entire structure. I should also mention that even if the addition was completely to code when it was built, what governs whether the permit is granted retroactively is the code now, and I shouldn't have to mention that those codes have become progressively more restrictive.

Some additions are old enough not to require permits. Until about 1972 around here, this was the vast majority of all additions that happened. Unfortunately, it can be difficult to prove that the work was done before that date. If you bring the discrepancy between records and actuality to the attention of the assessor, you are more likely go be believed than if the assessor finds out through other means, but "likely" is not a guarantee and most people choose to hope the situation goes away on its own.

This is one of many situations that buyers get into because of the "store" mentality. You want to buy a refrigerator, you go to the refrigerator store. You want to buy a sound system, you go to the electronics store. People think this carries over to "I want to buy the house, so I'll go to the agent who has the listing" (i.e. the real estate "store"), not realizing the pitfalls of such an approach in real estate. The fact is that the first thing you need to find when you decide to buy real estate is a good buyer's agent, who will prevent the vast majority of these problems from biting you. And these problems do happen, a lot more often than most people realize.

Caveat Emptor


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About this Entry

This page contains a single entry by Dan Melson published on March 14, 2020 7:00 AM.

Discovering You've Got A Bad Loan - Don't Panic! was the previous entry in this blog.

Negative Amortization Loans - More Unfortunate Details is the next entry in this blog.

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