Whistle Blower

[hastalavista]

FYI: CA OREA appraiser clarified by phone that to determine the rebuild status of a non-conforming property is absolutely integral to the typical scope of work of a routine SFR appraisal.

That may be his or her opinion. As with any situation, sometimes the answer is "it depends"- those are extreme cases (extreme in my experience- but I recently consulted on such a case that went into litigation concerning very similar issues).
So, I'm not shy in saying I disagree with your contact's broad and general statement! :new_smile-l:

And, just to be clear here, we are talking about a non-conforming improvement and not a non-conforming use.

But, there is no problem going the extra step and obtaining the rebuild letter... if the appraiser is so inclined to do so.

===============Edit to add===========

I think it would be irresponsible for me to appear to suggest that you, ZZ, or anyone else not listen to how an OREA investigator responded to a specific question- so the correct thing to do if any question lingers is to follow their advice. Its just that I have no lingering question in this regard. :icon_wink:

 

[hastalavista]

Also, I was told earlier today by a colleague (although unconfirmed) that the city of Glendora, CA, mandates a pre-transfer property inspection of all pending sales, with non-permitted areas being gutted prior to the close of escrow.

I think Pasadena has a similar requirement.

 

[Mike Kennedy]

NOTE: Local governments will be required to implement a process for second units (like the process for obtaining a permit for a room addition, for example) in which the applicant is entitled to the permit if he or she complies with local standards

Illegal STILL is as Illegal does - per LOCAL standards.

Do the "as-is" improvements represent a legal, LEGAL-nonconforming, pre-existing, or ILLEGAL use of the Site under LOCAL STANDARDS (i.e. local municipal ordinance)?

Nothing has changed. It's either legally permissible "as-is" or it's illegal.

Appraise accordingly.... either "as-is" or "subject to obtaining municipal C.of O." (in those markets where local zoning & building ordinances / laws exist and are applicable).

 

[Lobo Fan]

We have a pretty good out for city of albuquerque properties. The city will not respond to a rebuild request from anyone but the property owner and it must be in writing. They then send a city inspector out to check for any code or setback violations. Only then will they issue a rebuild letter.

I often call and check building permit status. I looked at one yesterday that has a sunroom added to the back. It was marginal as to whether it was GLA, but there was no record of a permit going back to 1985, so I am not going to include it as GLA.

I did get a little nervous about checking permits on an illegal duplex. I guess the house was near one of the city employee's house and they got a little cranky about the conversion. The loan did not go through because of the illegal use, and I am quite sure a city inspector knocked on the door. It has been a few months and nothing has happended, so I think I am in the clear.

I put rebuild letters in the same category as MH permanent foundations. It is outside my training and scope of work. I am not qualified to make the determination.

Some entities I encounter are not too bad. Bernalillo and Sandoval counties are pretty good. Santa Fe county will give you a different answer every time you call, and the city of Santa Fe will never return a call. I have to to the complaint line to get a call back within 3 weeks. At least the city of Santa Fe has on-line zoning maps.

 

[Randolph Kinney]

Illegal STILL is as Illegal does - per LOCAL standards.

Do the "as-is" improvements represent a legal, LEGAL-nonconforming, pre-existing, or ILLEGAL use of the Site under LOCAL STANDARDS (i.e. local municipal ordinance)?

Nothing has changed. It's either legally permissible "as-is" or it's illegal.

Appraise accordingly.... either "as-is" or "subject to obtaining municipal C.of O." (in those markets where local zoning & building ordinances / laws exist and are applicable).

I believe the section of the fannie form asks the question about zoning compliance as in "use", specifically non-conforming (grandfathered use), for example. The nature of the zoning is single family residential land use. Converting a garage to a granny flat does not change the land use.

Also, see Dictionary of Real Estate Appraisal 4th eddition:

legally nonconforming use - A use that was lawfully established and maintained, but no longer conforms to the use regulations of the current zoning in the zone where it is located. See also special use permit; variance.

 

[Mike Kennedy]

R - as noted above, a confirmed LEGAL, Non-Conforming Residential Use is a LEGALLY Permissible Use which may, or may not, transfer on sale.


re the Fannie forms; (not verbatim)

Does the current use of the Site represent its' Highest and Best Use?

options: yes or no with supporting comments

Does the current Site (and Improvements if any) represent a Legal, LNC, or Illegal Use ( i.e. under Municipal ordinances - if applicable)

Answer: yes or no with supporting comments

 

[Mike Kennedy]

XI, 404.01: Zoning (01/31/06)
The appraiser is responsible for reporting the specific zoning classification for the subject property. The appraiser must include a general statement to describe what the zoning permits—“one-family,” “two-family,” etc.—when he or she indicates a specific zoning such as R-1, R-2, etc.

___________________________________________________________________________________________________
The appraiser also must include a specific statement indicating whether the improvements represent a legal use; a legal, but non-conforming (grandfathered) use; or an illegal use under the zoning regulations; or whether there is no local zoning.
___________________________________________________________________________________________________
We generally will not purchase or securitize a mortgage on a property if the improvements do not constitute a legally permissible use of the land.

We do make certain exceptions to this policy, as long as the property is appraised and underwritten in accordance with the special requirements we impose as a condition to agreeing to make the exception:

•We will purchase or securitize a mortgage that is secured by a one-family to four-family property or a unit in a PUD project if the property represents a legal, but non-conforming, use of the land—

as long as the appraiser’s analysis reflects any adverse effect that the non-conforming use has on the value and marketability of the property.

•We will purchase or securitize a condominium unit mortgage or a cooperative share loan from a project that represents a legal, but non-conforming, use of the land only if the improvements can be rebuilt to current density in the event of their partial or full destruction. (In such cases, the mortgage file must include a copy of the applicable zoning regulations or a letter from the local zoning authority that authorizes reconstruction to current density.)

•We will purchase or securitize a mortgage secured by a one-family or two-family property that includes an illegal additional unit or accessory apartment (which may be referred to as a mother-in-law, mother-daughter, or granny unit)

as long as the illegal use conforms to the subject neighborhood and to the market. The property must be appraised based upon its current use ****

and the borrower must qualify for the mortgage without considering any rental income from the illegal unit.

___________________________________________________________________________________________________
The appraiser must report that the improvements represent an illegal use <<<<<<<<<<

and demonstrate that the improvements are typical for the market through an analysis of at least three comparable properties that have the same illegal use.
________________________________________________________________________________________

The lender also must make sure that the existence of the illegal additional unit will not jeopardize any future hazard insurance claim that might need to be filed for the property.

We will not purchase or securitize a mortgage secured by a three-family to four-family property that includes an illegal accessory apartment.

•We will not purchase or securitize a mortgage secured by a property that is subject to certain land-use regulations (such as coastal tideland or wetland laws) that create setback lines or other provisions that prevent the reconstruction (or maintenance) of the property improvements if they are damaged or destroyed. (The intent of these types of land-use regulations is to remove existing land uses and to stop land development—including the maintenance or construction of seawalls—within specific setback lines.)

 

[hastalavista]

Significant in Mike K's post is the guideline that requires rebuild letters for condo or co-op but not for any other type of improvement (SFR, 2-4).​

Also significant is that the guideline requires a copy of the rebuild letter to be in the loan package file and not the appraisal.​

Again, the lender is free to ask me if they want me to get their letter for their file- it isn't in the original SOW and rarely (not routinely) required by me to conclude a credible valuation. I'll do it... and charge them. No one has has ever agreed to pay the fee (although some have agreed that if I did the work, I would be entitled to the fee).​

In the real-world, here is how it works:
A. Lender waives the condition.
B. Loan agent/broker goes and gets the rebuild letter.
C. Lender or loan agent/broker tells the borrower to get the rebuild letter.​

Of course, A,B or C only occur if the appraiser decides not to comply with the request (or charge for it).​

Lastly, anyone who wants to incorporate such a service into their SOW is free to do so. I'll be the first to admit such a service level far exceeds mine (which I think is fairly good as-is). :new_smile-l:​

 

[Randolph Kinney]

R - as noted above, a confirmed LEGAL, Non-Conforming Residential Use is a LEGALLY Permissible Use which may, or may not, transfer on sale.


re the Fannie forms; (not verbatim)

Does the current use of the Site represent its' Highest and Best Use?

options: yes or no with supporting comments

Does the current Site (and Improvements if any) represent a Legal, LNC, or Illegal Use ( i.e. under Municipal ordinances - if applicable)

Answer: yes or no with supporting comments

Mike,

Taken from Fannie:

We will purchase or securitize a mortgage secured by a one-family or two-family property that includes an illegal additional unit or accessory apartment (which may be referred to as a mother-in-law, mother-daughter, or granny unit) as long as the illegal use conforms to the subject neighborhood and to the market. The property must be appraised based upon its current use and the borrower must qualify for the mortgage without considering any rental income from the illegal unit. The appraiser must report that the improvements represent an illegal use and demonstrate that the improvements are typical for the market through an analysis of at least three comparable properties that have the same illegal use. The lender also must make sure that the existence of the illegal additional unit will not jeopardize any future hazard insurance claim that might need to be filed for the property. We will not purchase or securitize a mortgage secured by a three-family to four-family property that includes an illegal accessory apartment.

As I have showed already, California state law requires local government to allow granny flats. The question here is, does a garage conversion to a granny flat without building permits make the property into an illegal use?

An illegal use would be operating a SFR as a duplex rental where both the main and accessory unit are rented out to the public. Having a granny flat without building permits does not constitute illegal use by itself.

It may be that the building department along with the planning department of the local government would require any kind of addition or conversion without proper permits be removed, regardless of use.

ZZ stated:

... city of Glendora, CA, mandates a pre-transfer property inspection of all pending sales, with non-permitted areas being gutted prior to the close of escrow.

So it is a case of, not illegal use or nonconforming use, but not having the proper permits that the city will cause you remove the offending area.

 

[hastalavista]

An illegal use would be operating a SFR as a duplex rental where both the main and accessory unit are rented out to the public. Having a granny flat without building permits does not constitute illegal use by itself.

(my bold- and I note you say "by itself". True- below I'll give an example of what can be combined to the non-permitted granny flat that turns it into a major-league issue)

It very well may.
Zoning allows for for a second unit up to 1,000 sf; must be permitted with land use conditional permit and building permit.
Homeowner builds a second unit- except in this case second unit is 2,000sf.
Is this just a permit issue?

Fact: It isn't in at least one jurisdiction where I practice. Planner and code enforcement officer verified this at the county planning and building department when I visited to research this issue. This jurisdiction has two enforcement choices: They can require the improvement to be torn-down or they can asses a fine on the property which can be re-assessed annually (in perpetuity) until the illegal use (there term) is converted to legal use.

According to the code enforcement officer, he estimated it would cost $200k+ to mitigate the situation because this second unit was built in an unsound manner.
The hit to the property on its market value was closer far in excess of $200k.