Obligated to deliver the house in the same condition as it was when you wrote your offer. For example if the water heater breaks 2 days before close of escrow, they have to fix it. The seller was in violation of local ordinance by doing the work without permit so it really has nothing to do with you and there doesn't appear to be any reason why they could back out of the contract. If they begin to try and cancel the transaction, you need to speak with your agent and their broker and most likely you need a real estate attorney. It seems rather cut and dry that this is a seller performance issue however that is a question for an attorney to answer. Hang in there and good luck!
On a separate note....
The seller may not want to pay for the permits and penalties....so this becomes a negotiating tool between both parties.
Would YOU want to move forward with the purchase, knowing what you know now?
Is the seller doing the required work to comply?
If the seller isn't willing to comply.....will the seller consent to a reduction in price to compensate you for the permits and penalties that you may be assuming? Because at some point in time, you may want to get the work permitted so that when it comes time for you to sell the property, you won't run into the same situation.
If the seller won't consent to price reduction, is it still worth it to you to buy the property, in anticipation of the possibility that market values will outpace the cost to bring the property into compliance, after resolving penalties and permit requirements?
Did you buy â€œas isâ€? Has the seller agreed to any repairs? If not, why would they make the changes that the City is demanding? Someone will have to foot the bill for those repairs. Who is paying for the pest work that is being done? Are you paying for repairs that have to be made as a condition of loan approval? Will your lender fund a loan on a house that has been â€œred taggedâ€? Does your lender know about this problem?
It seems like you may be able to close the purchase but the problem will not go away and will then be your problem. Do you have any idea how much it will take to â€œpay for the permits and penalties and redo any work that wasn't to codeâ€? If not, why would you take on that responsibility?
If the seller could back out off your agreement and try to sell to another buyer, the seller would be obligated to disclose the problem with unpermitted work, City red-tag and the need make repairs/pay fees, etc. That would impact the net that a seller could get from another buyer.
Perhaps the seller is hoping that this issue is not going to cause you to want to cancel.
Good luck! You have a complex situation.
Even though you are in escrow, house still belongs to seller, during this time when city require seller to get permits, penalties and redo any work it is all seller's responsibility. If you are concern that seller try to get out of contract, first consult your own real estate agent to put this situation in writing and extend your closing period, as well as have your agent refer you to a good real estate attorney for advice. So you are well inform on your rights in this case. As for the city red tag on the door, depends on what the complain is about, because normally finishing work on pest report for clearance should not have trigger that.
Good luck and hope it all works out for you!
I work in Oakland and this is unusual but it sounds like it can be resolved if the work done was a reasonable job and any changes not too drastic.
A clear pest report is not that common in Oakland! Even if you have to negotiate a bit as you say prices are going up and it's probably worth figuring out how to stay in contract if you want the house.
Most sellers don't want to start from scratch.