What If Your Home Has Illegal Additions?

A few years ago when home prices went through the roof,  it seemed that everyone was refinancing their homes not just the homes in Santa Maria but every where cashing out on the homes and refinancing their mortgage home loans, to take out money and remodel their homes, since there was so much equity they figured why not?  If you remember, it got to the point where people were cashing out hundreds and thousands of dollars for these changes, additions and upgrades. Nearly all of these upgrades and remodels required some kind of building permits but does not mean that the owners went and got them.

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It seems to happen all the time now that when you try to buy a home, sometimes you come across a home in the Santa Maria real estate market that may be for sale and there may be a new room added on that does not seem to show up in the county records.  There are times when there is a little bit of a discrepancy, that can be over looked but its when there are huge numbers that can pretty much stop your ability to buy the home.  Lets say when county says its a two bedroom and you have 4 on the property is a pretty good example.   I had a transaction that the homeowner actually made his single family home into a triplex, to be honest that was just unreal but like I said it happens.   Here is the reality of trying to buy a home that does not have the legal permits if you plan on getting financing for it.  It will be very difficult even if its a conventional, if its a FHA or other type of govt loan you might be better off on continuing your search.  The only exception to that is if you plan on buying the home with cash then as long as the city has not already cited the property for illegal work done then you can just buy it.  But once the property has been cited for illegal work someone is going to have to fix either the you or the current owner.

During the hey day of all the “easy money” it is even possible that the current owner is or was even unaware of the difference since that is how he bought the house.  And since so many things were over looked during the days of easy money sometimes an illegal addition that was not a problem back then can now become a big problem.

Due to the changes in appraisal guidelines for residential properties that took effect in 2009, appraisers usually don’t give livable square footage credit for work that was done without building permits. Without the extra square footage, the appraised value will be less than it would have been if the work were done legally.  This doesn’t mean that the bank will not grant a loan if its a conventional but you could be getting into some serious issues if soldyou are trying to purchase the home with a government loan. But, lets say you were hoping to refinance your home and now that values have fallen and if your house appraises low and you were expecting a loan amount based on a higher figure, you will be disappointed and perhaps unable to complete the refinance or, if you are a buyer, you may be unable to purchase the home.

 

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So,  lets take a look at a typical example based off of what you may find lets say wanted a loan for 70 percent of a $200,000 value, or $140,000. The appraisal comes in at $150,000, due to fact that some of the construction that would normally increase the value of the home does not get included.  For example you may have a 4 bedroom home but the 4th bedroom is done illegally so it does not count towards the total living space of the home and so it does help in giving you more value as a 4 bedroom would vs. a 3 bedroom.  On the refinance, the lender probably will not lend more than 70 percent of $150,000 or $105,000 which is $45,000 less than what you requested, also consider if you were trying to sell the home and you were hoping for a certain value to come in.  Now what?  Values are determined by the area and the square footage so depending on how large that addition is just means that the square footage does not come into play.

What the owner of the property needs to do, if he was not the one that did the improvements is go to the local planning department and get copies of all permits on the house going back to the original building permit. If you can find a permit for the additional work that was done, give a copy of that to the appraiser. So that way he or she will be able to include the additional square feet and increase the appraised value.

If the work was done without permits, you can attempt to have the work legalized. This can be a pain in the “you know what”, not to mention expensive. You will need to meet code requirements. For example, if a stairway leads to the un-permitted space, it must be 36 inches wide. Replacing an entire staircase can cost a lot of money. Walls might have to be opened to inspect the plumbing and the electrical. If these areas don’t meet code requirements, they will have to be brought up to code. Windows might have to be added or changed. All corrections will have to be made in order to pass inspection and get that appraised value up.

Certain neighborhoods on the homes in Santa Maria have more illegal building than other parts of town which you will find with cities.   If you plan on building get the permits, and if you plan on buying make sure the new additions are legal.  As for the triplex, the city made the home owner correct his additions which was very costly.

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