Expert: Connie Wildasinn-Broker,GRI,Realtor® - 9/20/2010

Question
Hi!

My parents bought the house back in 1967.  They gave it to me about 10 years ago as “a gift” at the time it was paid in full.  I took out a loan against the house to do a little of upgrades here and there about 5 years ago.  I have now requested a refinance for a lower interest rate and to pay off some credit card debt.

After the process of having an appraiser come out I was approved on the loan – which is great right?  A few days later the loan processor asked for a copy of the building permit for the extension of the house.  What?!  What had happened was that my parents bought the house “as is” by the previous owner back in 1967.  They were not aware of the additions of the house when they walked through and purchased the house.  It wasn’t until I received my appraisal and when the loan officer asked about the permit.  I was shocked!  I called the City and County and they are stating that houses built in the 50’s and 60’s may have not needed any required permits based on the square footage.  It may have been classified as an “indoor patio” which at that time didn’t need to pull a permit.  (They do not have anything on file of a building permit was requested.)

What should I do from here since this has never been an issue?

Thanks for your input!


Answer
Hi Annette,

Welcome to the unpermitted delema of home remodeling.... you don't mention where you are from, but I will take this from a Southern Cal snapshot.

According to most city laws - EVERYTHING needs a permit! Remember - Permit = Tax = Revenue... so going on that theory... even painting your fence requires a permit.

Now many homeowners (especially old timers - not to stereo type) did not like to pull permits because it increased the tax liability by the value of the work scope preformed, say you did a kitchen remodel (yourself as a builder/homeowner permit) they value the work at $40,000 but you can get it done for $15,000 say... guess what you are taxed on the $40,000 value of the job! and that is how the city makes more money...additionally there was not prop 13 back in the day so taxes went all over the place...

Now years ago, and the town I work is very old 1920's ... may people did extended outdoor 'patios' - FYI, you did need a permit even then because anything attached to the existing structure, or large enough to be considered living space (ie: granny flats)needed permits.  So the owner would lay a foundation (the cement patio) then over the years, all of the sudden, walls went up, windows went in, door were installed and low and behold 20 years later you have a family room, complete with a fireplace and your big screen TV.  But no permit and not to code. And if you did it to code back then, well codes have changed - A LOT!

Now typically in todays lending environment, you as the owner or buyer to be, when you are getting an appraisal, there is 'NO Value' for an unpermitted structure.. so if that room could have gotten you say $100,000 in value you get '0' even though your receive benefit of the structure...

Now I don't know who you are doing your loan through... but the value should be off the square footage (permitted and typically on the tax rolls) amenities of the property, ie: beds, baths, pool, condition etc...

If you own free and clear... you should be able to obtain a loan, based on LTV - loan to value, that the lending institute will work with, anywhere from 40-70% of the current value against your debt and income and of course the all mighty FICO... if you can't get a loan with the current company, do not dispair... call another bank or mortgage banker explain why you were turned down (because to get a permit on something built 60 years ago may be impossible due to code issues) move on to a company that will lend on the actual structure you currently have...

Oh and try to get that appraisal, you may be able to do what is called a 'RE-Type' to the new lender if the lender allows... could save a couple bucks at least!

Good luck... if you need references let me know... I may have someone who can do business in your area of the country...

Good luck!