Expert: Dick Dennis - 4/7/2010

Question
My wife and I have been looking at houses for the past 2 years. We recently made an offer on a house that we really liked that is very close to where we currently live. The offer was accepted. However, the house, and houses around it, are zoned as "Commercial General" (C/G).

The city has provided the seller with a rebuild letter saying that if a something happens to the house, and the damage does not exceed 50% of the house value at the time, then the house can be rebuilt. This means that if there was a fire that burns the house down and it is a total loss, we are stuck with a piece of commercial property that we can not build a house on. This was a sticking point for BofA, so they would not give us a loan. We did find a lender who says that they can get it funded.

I have emailed the city mayor who brought the issue up at the city council meeting today. The director of planning and development suggested that the council vote next month to raise the rebuild value to 75% of the property value. This is a step in the right direction assuming that it passes, but I would obviously like to have it at 100% or have it re-zoned. There has never been a business on the property, so I'm not sure why they wouldn't do that.

My question is, aside from the obvious fact that if the house burns down completely that we can't rebuild it, are there any other factors that we should be worried about in going forward with this deal, such as when we try to sell the house sometime in the future that another buyer will run into the same problem, or getting insurance on the property, etc.

Any help or advice would be appreciated. Sorry to have a long question. I wanted to put in as many details as possible.

Thank you - Bill

Answer
When you buy a property that is zoned higher than plain residential, you are buying a property with a higher value . . . ordinarily. The idea of zoning is to allow properties to be assessed at higher values so they can collect more taxes on it. Most people who step into a commercial property usually have ideas of renting the property out as a business that the commercial zoning would be apropos. I would suggest you consult with an engineer who specializes in land zoning.

That person who advises you what you could do with that property. Trouble is, when you go for a loan the lender decides that you should have a commercial type of property on that land. The reason why B of A turned you down was because you could use that land for commercial use, but they gave you a loan apropos for a residence. A commercial property should have a higher-cost loan on it. I'll bet you that B of A would make that loan all right . . . if you agreed to pay, say, one percent, one and a half percent higher on a loan.

Money is the name of the game, Bill. And you may as well start to plan using (sometime in the future)that land for a commercial use. I do wish you well.

Dick Dennis
dixiedee13@aol.com