So many homes have garages that have been converted into living space, and have kitchens and bathrooms put into them illegally. Am I going to have a?

Asked by Joshua, Los Angeles County, CA Wed Jun 30, 2010

problem with the bank when I try to buy such a house? Is the bank going to require the seller to remove the illegal bathrooms and kitchens? I can't get a straight answer from my realtor or loan agent. They both say it depends.

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Jo Lasley, Agent, Santa Rosa, CA
Tue May 28, 2013
If the appraiser notes that the garage has been converted into living space, and notes that it is illegally, and not to code, 2 things might happen: To bring the garage back to original as a garage and/or not give it value as living space. Health and safety issues are a concern from the banks view.
0 votes
Mack McCoy, Agent, Seattle, WA
Sun May 26, 2013
We're a month away from the three-year anniversary of this question . . .
0 votes
Gail Mercedes…, Agent, Beverly Hills, CA
Sun May 26, 2013
Lender should base home features based on home's tax records. Garage should be a garage not bedroom and bath. Check with your lender if agent not giving concrete answers speak to manager as to lender requirements.
Gail Mercedes Cole
EXP Realty
http://yourwestsidehomes.com/
(310)853-9933
0 votes
Luis Renteria, , San Jose, CA
Mon May 7, 2012
We allow for un-permitted additions and garage conversions.
0 votes
Dorene Slavi…, Agent, Torrance, CA
Tue Sep 28, 2010
Dear Josh,
Yes you will have a problem. Not only with the bank but likely with the city as well. Please try to find a property that does not have unpermitted work.
0 votes
Gregorio Den…, , San Diego, CA
Sat Jul 10, 2010
"The issue will not be with the bank , it will be with the city"

Kieth,

It is a problem for the bank. The lender will obviously know of the additional work because the prelim will show something different than the appraisal. Also, a conventional or FHA lender is not going to lend on a SFR with 2 kitchens. The city may be a problem as well but for this borrower trying to get financing the immediate issue will be with the lender. There will be no financing on this property unless additions were permitted, and even if they were, it will most likely run into financing problems because of the 2nd kitchen.

One of the biggest problems I see with this site is unqualified RE agents trying to give financing advice. It's a full time job to keep up with guidelines and regulations and you really should leave it to those that specialize in it.
Web Reference:  http://WeFixRates.Com
0 votes
Keith Manson-…, , Milwaukee, WI
Sat Jul 10, 2010
The issue will not be with the bank , it will be with the city. The bank will depend on the appraiser to make him aware of issues. If the appraiser does not raise their hand indicating there is a issue the bank will loan of it.

However, at a later date the city inspector may come and say it has to be addressed. A good tool to have is a complete inspection report completed indicating everything done. Not sure if there is an occupancy inspection in your area but with both a occupancy inspection and a property inspection is complete outlining the issues it will be in your favor. The other thing is to request proof of work orders approved by the city.


Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro Milwaukee


http://www.milwaukeebailout.com
0 votes
Loan Do, Agent, Oceanside, CA
Sat Jul 10, 2010
The lender won't finance it. Pick a property you like, negotiate with the seller for you or him to get it permit from the city. It can be a very simple process. At that point, you'll know if there's anything needs to be fixed and how much it cost. Use that to negotiate with the seller. You may end up getting a bargain. I did it for my client.
0 votes
Kim & Kristi…, Agent, Santa Monica, CA
Thu Jul 1, 2010
Hi Joshua,

Your agent and loan officer are saying it depends since i'ts a gray area. It depends on the loan because each lender has different requirements. Also, what the appraiser reports play a factor. I would bring this up in terms of your specific loan once a lender has been chosen. Unless, your loan is FHA. This could be a deal breaker.

Best,

Kristine :)
0 votes
Dorene Slavi…, Agent, Torrance, CA
Wed Jun 30, 2010
Hi Joshua,
I am the Queen of straight answers Joshua!
You will likely have problems, not only with the bank..but with the city as well. Some of these structures are unsafe and will have to either be brought up to code, or torn down. The illegal additions should not be included in the listing as square footage. Unless you are a contractor, or your best friend is....I would run from this type of property. There are plenty of homes that are not in such a condition.
Best of Luck to you!
Web Reference:  http://www.doreneslavitz.com
0 votes
Sue Wylie, , Los Angeles County, CA
Wed Jun 30, 2010
The "It depends" answer needs further explanation. Your agent owes you a straight answer, even if it is, "I don't know." And your agent should be willing to find out what the local ordinances require and how they address illegal additions. Realtors have a fiduciary obligation to their clients, which involves finding out as well as telling all the facts regarding a property. If the property has an illegal addition, it may be possible to get it permitted, depending on the quality of the work, and whether or not it will pass a city inspection. It may be that the person who built the addition did it right and simply ignored the permit requirements at the time it was built. It my also be that the addition is not permitted under any circumstance. Ask you agent to find out the details for you. I feel it is best to steer clear of these properties. You can spend money on inspections, appraisals and such only to not be able to get a loan.
0 votes
Jo Lasley, Agent, Santa Rosa, CA
Wed Jun 30, 2010
The appraiser will address this issue and note that it appears non-conforming. Most likely it is illegal. If you are wanting to purchase this home with all of this intact, most likely you would have to get a private money lender to loan on it at a much higher interest rate and a larger down payment.
0 votes
Gregorio Den…, , San Diego, CA
Wed Jun 30, 2010
You won't get conventional or FHA financing on a property with unpermitted additions. The lenders will require that it either be completely removed or brought up to code with proper permits. Unless you are in love with the property and have cash in hand, you should pass on it. And yes, lenders do require that people remove unpermitted structures as a condition of financing. Obviously they don't have to remove it, but the lender does not have to lend on it either.

Gregorio Denny
Tripoint Mortgage Group, Inc.
800-335-6897
DRE #01817727
Web Reference:  http://WeFixRates.Com
0 votes
Rebecca Cham…, , Palos Verdes Estates, CA
Wed Jun 30, 2010
It depends on the type of loan, as Emilia said if it's FHA..they will not approve the purcase on any home with unpermitted rooms.

If it's a standard conventional loan, the appraiser will only "count" the legal square footage/room count. They will usually just ignore the other rooms or can even deduct value if a garage can not be used as a garage.

The bank never requires anyone to remove anything, however if the city finds out about it, they can force the homeower to remove or change back the space to the original use.

Bottom line, is you won't know what will happen until your offer is accepted and the appraiser comes out. At that point however you've paid for the appraisal and will not get that money back should you choose or be unable to go forward.
0 votes
Rebecca Cham…, , Palos Verdes Estates, CA
Wed Jun 30, 2010
It depends on the type of loan, as Emilia said if it's FHA..they will not approve the purcase on any home with unpermitted rooms.

If it's a standard conventional loan, the appraiser will only "count" the legal square footage/room count. They will usually just ignore the other rooms or can even deduct value if a garage can not be used as a garage.

The bank never requires anyone to remove anything, however if the city finds out about it, they can force the homeower to remove or change back the space to the original use.

Bottom line, is you won't know what will happen until your offer is accepted and the appraiser comes out. At that point however you've paid for the appraisal and will not get that money back should you choose or be unable to go forward.
0 votes
John Souerbry, Agent, Fairfield, CA
Wed Jun 30, 2010
Turning non-living spaces into living spaces brings up two issues: 1) lenders will not allow "unpermitted" space to be included in the computation of the size of the property and/or may reject financing solely on that issue, and 2) all remodeling done without a permit is automatically considered non-compliant with building codes (a health, safety - and most importantly in today's economy - a tax issue). As an agent, I recommend 3 options for buyers looking at properties with unpermitted work: 1) walk away, 2) require that the seller obtain the permits within a specified period of time with no risk to the buyer (deposit remains refundable), or 3) buy the property with cash or short term firm/hard money and discount the offering price by the estimated cost of getting the permits and potentially re-working some of the remodeling to meet code. I recommend #3 because there are MANY properties on the market with unpermitted work that sellers are forced to take a huge discount on because they must sell and they know conventional financing is near impossible for a buyer to get. Buyers choosing option 3 should have the property inspected by a licensed contractor so they have a solid idea of the cost of permits and possible re-work before they make an offer. Hope this is helpful.
0 votes
D Van Dyk, , 91342
Wed Jun 30, 2010
If the work has not been permitted, then there is alot of time and research that will be involved. Los Angeles County Dept. of Building and Safety is not the easiest to work with. You may get answered from LADBS from some representatives and days later ask the same question and get a totally different answer. The research process may take a long time and you may or may not get the outcome your looking for. I would suggest that if the seller has time to do the research and money that may be involved, its worth a try. But a lender will definately not allow allow the illegal additions and a buyer would need to have all cash for the purchase. In other words, no financing is available for properties that have had work done that has not been not been permitted.
0 votes
Monique & Joe…, Agent, Beverly Hills, CA
Wed Jun 30, 2010
Hello Joshua,

My experience is that appraisers look at the quality of construction and if it's a common in the neighborhood you are buying in.

Best,

Monique Carrabba
The Carrabba Group
Keller Williams Hollywood Hills
mcarrabba@kw.com
(323) 899-2900
0 votes
Richard Sand…, Other Pro, Portland, OR
Wed Jun 30, 2010
Your question casts a wider net than just the real estate professional and the lender involved. The local building officials (Los Angeles County?) may need to inspect the work and determine whether it meets the required electrical, mechanical, and plumbing codes for the work completed. If it doesn’t meet the code standards it may need to be removed or repaired to bring the property up to code (current safety requirements). You may want to raise this with the local building official's office (they may give you general answers even if you don't disclose the actual location of the property). Some will perform surveys to determine code compliance.
0 votes
Emelia Sanch…, , Ontario, CA
Wed Jun 30, 2010
If you are using FHA forget about buying any of these homes they will not qualify under the guidelines. If you are using another method of financing then it does depend on what conditions will need to be met in order to fund the loan. If it is tear it down then this must happen prior to the close of escrow. As to who does the tear down depending on the seller's financial status will be up for negotiation.
0 votes
wait I do Unpermitted FHA all day long. they are allowed.
Flag Mon May 7, 2012
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