Let's not confuse the "rights of real property ownership" with issues of "freedom." You own a house, meaning that you have a certain bundle of rights to it. You may not even own the mineral rights to the land underneath it. And you are subject to the laws of the community - zoning, health, safety . . .
The best area to find out the exact procedure of "reconverting" or "legalizing" the garage conversion is with the city. Sometimes, there is "grandfathering" and they even tax the property as if the house was built without a garage. Sometimes, you have a certain time period to bring the place "up to code".
Yet, there are times, when you do have to pay fines - normally, when the owner disregards all notices from the city for a very long time. After such a long time, there could be potential liens on the property, put by the city, running at $100/day. Any bills like that could be negotiated down as the city is interested in resolution of the conflicting situation. The lien is not on the owner, it is on the property.
The best course of action is to hire an architect/structural engineer - possibly the one known to the city as a reliable professional. The architect prepares the plans and a licensed contract fixes the issues, and you are good to go.
Cooperation with the city yields good results!
Hope this helps,
Beachfront Realty, Inc.
The city did not charge me a fine, but I had a certain amount of time to return it to a garage, including removing all the illegal, dangerous and completely convoluted electrical work, then applying for a permit to re-install electrical work correctly (I did want a light bulb inside and outside the stand alone garage), removing that interior wall, moving the door away from the property line (it was about two feet from the backyard property line).
I saved some money on the architectural drawing fees by drawing the iterations of our plan myself, but it took a couple tries before we got it to the city's satisfaction. In all, it cost us between $3 - 4,000 --- for an unheated, cement floor single car garage space!!
We also replaced the roof on the entire house, including on the garage, but that is a different issue. The seller had spliced in ceiling joist "pieces" without any sort of support system or connections between the pieces. The roof, with any pressure applied (think really bad storm), could have collapsed! For a really tiny SB bungalow with a one car separate garage, the roof and its inherent repair work was $15k.
If we had not done this, I am sure there would have been a fine and repeated notices that we were in violation with the city codes. Or, the roof might have collapsed and killed one or some of the inhabitants inside. We cannot live comfortably with this kind of negative energy -- especially when it was caused by someone else.
There are an amazing amount of houses in this condition in SB (and elsewhere, to be honest); aka, many who think themselves above the law, and do not give a hoot about how their irresponsibility affects the lives of their tenants.
Hope this information helps.