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Mix a building permit with a lawsuit with a missing C.O. and what do you get?

Discussion in 'Urgent - Help Needed' started by Scott R Marshall, Oct 24, 2011.

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  1. Scott R Marshall

    Scott R Marshall Senior Member

    0
    Dec 14, 2006
    Professional Status:
    Certified Residential Appraiser
    State:
    New Mexico
    Okay here is the scenario. Borrower did an addition. The contractor decided to not finish the work. At the present time it appears the work is mostly cosmetic (final color coat on exterior stucco and some texturing/painting on a section of the interior ceiling). Borrower decides to sue the contractor in small claims court. As a result of this lawsuit the borrower has decided to not get the certificate of occupancy until he gets a judgement. This has been ongoing, per the borrower, since June of last year.

    So is the report completed CB4, "subject to" issuance of the certificate of occupancy? While not my problem, I'm not sure how thrilled the owner will be when it is perceived I'm placing this requirement on him. Do I need to find out if the missing color coat and/or missing texture is a required condition for issuance of the C.O.? Is it "as-is" with a cost to cure, making mention of the situation and commit the form atrocity of making an extraordinary assumption that the C.O will be issued?

    Sometimes I hate what the corner which the 1004 form boxes us into. :new_let_it_all_out:
     
  2. Mile High Trout

    Mile High Trout Elite Member

    96
    Feb 13, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    Scott, perhaps you could base that decision on the local market response to such issues.

    If the city county is not making a stir and making people take them down, and the property could be conveyed again with that real property being considered in the future even without a permit - perhaps subject to is fine.

    If the climate is one where without the permit the city guy will come around pushing the homeowner around and providing stop work, forced to finish or demo orders or something like that, it may be better to put it on the homeowner.

    A dispute between the homeowner and contractor has little to do with the appraiser, as I'm sure you're well aware. However, it's got everything to do with the homeowners choice of contractors, so it is on the homeowners shoulders.

    Consult with lender, and have them provide you written guidance for how they want it. Could go either way from an appraisers perspective right?

    I'd say that the job is not done until the homeowner is reported with the city, and the improvements recognized. Quality aside, this issue is about permitting primarily, if I understand it correctly.
     
  3. Scott R Marshall

    Scott R Marshall Senior Member

    0
    Dec 14, 2006
    Professional Status:
    Certified Residential Appraiser
    State:
    New Mexico
    I'm assuming the building permit is in place pending confirmation from the local muni. I guess my real issue has more to do with issuance of a certificate of occupancy and/or finalizing of the building permit for the addition. Per the owner, the building permit is open and the borrower doesn't want to finalize it until his claim is settled. So do I, for all intents and purposes, force the owner to settle and get it finalized by completing the report "subject to" a C.O. or a final on the open permit? Seems the only route I can go as the alternative places the burden of responsibility on my shoulders assuming the final/C.O. will be issued, also forcing me to make a EA on a 1004 form which is not permitted.

    I'm just trying to see if perhaps I'm missing something and it can be completed any other way than CB4 "subject to" finalizing the permit and/or issuance of the C.O.
     
  4. Denis DeSaix

    Denis DeSaix Elite Member

    530
    May 16, 2005
    Professional Status:
    Certified General Appraiser
    State:
    California
    This is a good question.

    Normally, I'd be inclined to complete the value as-is. The added dimension of the potential lawsuit adds a twist. In this case, the borrower has specifically expressed his/her desire not to complete the permitting process until the litigation is done. One would think that if it comes down to a choice between finishing the permit process (and final finish work on the addition) to protect the permit-approval in-place and to ensure the addition does not suffer adverse weathering effects vs. hanging on to make a point in the litigation, one would finish the permit/work. One would think that is the case, but I wouldn't want to bet on it.

    Here is a suggestion: Contact your client and explain to them the situation. Tell them that were it not for the litigation issue, your default position would be to complete it as-is. However, with the litigation issue, the normal motivation to complete the permit work is no longer present, and the decision to finish the work is no longer based on normal market considerations but on a specific lawsuit consideration. As such, the prudent buyer would probably avoid purchasing the subject, as-is, and require that the permit process be finished so as not to become entangled in a lawsuit situation.
    Therefore, the best choice is to appraise the property subject-to issuance of the permit. This does not change the lawsuit dynamic (the borrower can continue sue the contractor) but it removes the permit-process from being held as a negotiating chip in the lawsuit and removes a collateral value risk.

    My guess is that the lender will agree.

    Good luck!:new_smile-l:
     
  5. Howard Klahr

    Howard Klahr Senior Member

    136
    Oct 4, 2004
    Professional Status:
    Certified General Appraiser
    State:
    Florida
    What is the intended use and who are the intended users of the appraisal?

    The answer to these questions will direct you as to how to proceed.

    Either way, you still need to understand what is necessary to obtain the CO.
     
  6. Mike Kennedy

    Mike Kennedy Elite Member

    457
    Sep 28, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    New York
    "This has been ongoing, per the borrower, since June of last year."

    Had the "open" building permit expired as of the Effective Date of appraisal?
     
  7. Scott R Marshall

    Scott R Marshall Senior Member

    0
    Dec 14, 2006
    Professional Status:
    Certified Residential Appraiser
    State:
    New Mexico
    Mike,


    I am in the process of finding it out through the local muni. This one works a bit slower than most and requires me to make the request in writing than wait for typically a minimum of business 3 days, sometimes longer. I'm on day 1 of the waiting period. Based on what the borrower has said, it is still an open permit and the local muni knows of the situation facing the borrower. The borrower has also said that he could get the final/C.O. at any time but has been holding off due to the lawsuit. All hearsay at this point but so far no reason to conclude that the borrower is not telling the truth.
     
  8. Scott R Marshall

    Scott R Marshall Senior Member

    0
    Dec 14, 2006
    Professional Status:
    Certified Residential Appraiser
    State:
    New Mexico
    Okay, got more info. First off the permit was issued in August of 2010, not June. It is still an "open" permit, meaning the final inspection/approval has not yet occured. As originally stated, the work appears done with the exception of what I would say are cosmentic items, but of course this is only based on what I observed and I have no way of knowing whether it would receive final approval from the local muni.

    So at this point I think I'll contact the client, make them aware of the situation, state that in its current situation/condition it could probably only be completed CB4 "subject to" the final approval of the addition by the local muni and see if they want to proceed.

    Any differing opinions before I make the phone call tomorrow morning would be greatly appreciated.
     
  9. Lee in L.A.

    Lee in L.A. Elite Member

    271
    Jan 24, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Time to make the call already. :)
    I might have done it sooner, not that it matters. :shrug:
     
  10. PropertyEconomics

    PropertyEconomics Elite Member

    1
    Jun 19, 2007
    Professional Status:
    Certified General Appraiser
    State:
    New Mexico
    My guess is the owner is of the opinion if the property is inspected it will qualify for a CO which will harm their small claims case. Really its a game of chess that the owner is playing, and most probably with good cause. The unfortunate thing is that the appraiser is in the middle of it .... were the form not the form you could appraise under the hypothetical condition the CO was issued and do a cost to cure for the cosmetic issues present.

    The problem is with the 1004 an appraiser cannot be an appraiser.
     
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