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Old 12-29-2009, 11:08 AM   #1
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Renovation Permit


Hi,

Thank you in advance for answering my questions.

Can a bank deny a mortgage if the seller does not provide the buyer a permit for the complete renovation in 2006 of an existing detached building (cabana)? The new pool cabana is a pretty large space and has now a complete kitchen (cabinets, stove, fridge, island), and a bathroom. Is there any procedure that the seller or the buyer can follow in order for the bank to approve the mortgage without the permit, and which ones? Or is obtaining the permit the only solution? Thanks again for your advice.

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Old 12-29-2009, 11:26 AM   #2
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Hi,

Thank you in advance for answering my questions.

Can a bank deny a mortgage if the seller does not provide the buyer a permit for the complete renovation in 2006 of an existing detached building (cabana)? The new pool cabana is a pretty large space and has now a complete kitchen (cabinets, stove, fridge, island), and a bathroom. Is there any procedure that the seller or the buyer can follow in order for the bank to approve the mortgage without the permit, and which ones? Or is obtaining the permit the only solution? Thanks again for your advice.
The bank can decline to originate a loan based on any underwriting standards it wishes with regard to any condition at a property which potentially affects its market value, and unpermitted work can affect property value, for example a AJH could require the demolition of an unpermitted addition.

If you want to know if the addition was permitted and passed all required inspections you can find out by checking with the AHJ, these are public records.

Keep in mind that in the majority of cases an unpermitted addition is easy for a competent property inspector to identify, and if you purchase such a property and later resell it, you may be on the hook for the cost of correction in order to close the sale.

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Last edited by Michael Thomas; 12-29-2009 at 11:32 AM.
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Old 12-29-2009, 04:27 PM   #3
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Renovation Permit


Many banks would not issue mortgages if all the structures on the property did not have Certificates of Occupancy back in 1992 in NY.
Best to go through the permit process now and pay whatever fines are involved if you want to sell the house . Or have the seller go through the process if he wants a sale.
Mortgage requirements have become much more severe since then.
Ron
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Old 12-30-2009, 01:11 PM   #4
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Renovation Permit


Thank you so much for your prompt answers.

The building, which is now a pool cabana, was there when the actual owner bought the house but it didn't have a full kitchen, bathroom, and closets. The new space could now be used as a studio, and be rented. The owner did not get a permit for the renovation of this space.

According to your answers, I understand that ''many banks will not issue a mortgage'' or '' the bank can decline'' (not ''will definitely decline to issue a mortgage''), which let me to believe that there is always a possibility that some banks (overlooking a mistake, loophole, connections to facilitate the procedure?) will approve the mortgage even without a permit.... Or am I really naive?

Thanks again for your help.

To All, Best Wishes for 2010!
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Old 12-30-2009, 01:44 PM   #5
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Renovation Permit


I don't think anyone can definitely answer your question one way or the other as there are so many differing lender requirements, varations by area, etc. That said, in buying and selling several properties over the years I have never had permits come up when writing a loan. And since it was an existing structure it may not raise any issue one way or the other.

If you are looking to rent the unit, and use the income in support of a load, this may create interest in the details of the unit in regards to permits and suitability as a rental and cause an issue.

However, usually unpermitted areas cannot be counted when stating the size of the property, value, etc. Non permitted areas should be disclosed by the seller. This can lead to a problem with property valuation for the loan.
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Old 12-30-2009, 02:31 PM   #6
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Renovation Permit


Thank you!

This is what I thought. As it is an existing structure, the bank might not ask for a permit for the renovation, even if the actual owner did a complete renovation of the space.

Also, the bank might not send an appraiser on site, and use instead an Automated Valuation Model to appraise the property. Therefore, the bank will be unaware of the work done on this property.

Best wishes for the New Year!
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Old 12-30-2009, 07:47 PM   #7
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Renovation Permit


In most states the seller is required to disclose anything that was done without a permit (if required) to the buyer. The buyer would be very foolish to buy it without the required permits. Unless of course it was sold at a huge price reduction.
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Old 12-30-2009, 11:48 PM   #8
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Renovation Permit


Agreed - I would not pay full price for non permitted space. You will probably need to bear the expence of getting it permitted and brought to code as may be needed sooner or later. I would negotiate on the point - it could be a plus if bought right. I like to buy properties with 'issues' - reduces the competition, you can usually fix it for cheaper than the discount received, delay expenditures to a later date, etc.

Last edited by vsheetz; 12-30-2009 at 11:50 PM.
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Old 12-31-2009, 09:20 AM   #9
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Renovation Permit


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Originally Posted by crazy4films View Post
Thank you!

This is what I thought. As it is an existing structure, the bank might not ask for a permit for the renovation, even if the actual owner did a complete renovation of the space.

Also, the bank might not send an appraiser on site, and use instead an Automated Valuation Model to appraise the property. Therefore, the bank will be unaware of the work done on this property.

Best wishes for the New Year!
With the computer age squarely upon us, it brings with it the ability for banks to access the building records of a property. It is easy for them to compare what's there, to what's supposed to be there.
You might live in a place where banks don't send appraisors out to look at properties, but where it is done, there is C of O confirmation with the local building depts. My experience is with properties in NYC and the surrounding surburbs.
Getting these out of compliance properties inspected and legalized can cost quite a few thousand dollars. One customer had to spend $8500. to get it done. Another customer $7300. Getting a garage legalized ran $1500.
So if you're contemplating this purchase, be fully aware the costs to rectify the issue.
Ron
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Old 12-31-2009, 09:31 AM   #10
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Also, the bank might not send an appraiser on site, and use instead an Automated Valuation Model to appraise the property. Therefore, the bank will be unaware of the work done on this property
The question them then becomes, "When the time comes to sell, will the buyer choose an equally careless lender"?
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Old 12-31-2009, 10:06 AM   #11
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Renovation Permit


Hey I just bought a house with a finished basement just to find out it was not permited.... the bank never knew... the real estate people never knew... the inspector checked everything out as fine (even though I found code violations myself....)... and I got the loan.. so it can happen either way

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