Chicago Basement Units

[Lee Lansford]

So then my Original question still stands what do you do?

Example::: 2 units up , garden unit down. They collect rents on all 3 units. They call the Garden unit an "in-law" unit. City Zoning permits 2 units. They have listed and are selling the property as a 2 unit with "In-Law" unit.

You have 4 choices on the 1025 Form of boxes to check regarding Zoning Compliance... Legal..... Legal Nonconforming (grandfathered Use)...... No Zoning....... Illegal (describe).

My question stills stands What do you do?

( Please keep in mind the City of Chicago does not recognize an "In-law Unit", its either a Dwelling unit or it is not.)

I posted my response earlier.

 

[DTB]

Common as sand in the desert...basement apartments that are not represented as being a legally rentable unit, that is.

So you have 2-units above-grade and such conforms with zoning (whether legal or legal nonconforming), yes? I assume yes. The basement unit is "an-law" as no one represents (based upon what you have shared) that the basement unit is a legally rentable unit.

The market provides you with MANY competing properties where there is an "in-law" or "extended living" or "finished basement with full bath"; some even include the comment "neither owner or broker represent the legality of the basement unit" (or similar words). Am I correct thus far? For the moment, I'll guess that the answer is yes.

The subject has a finished basement and it is an apartment; if it is rented, report this status. The rents are not included in the income approach. The market provides MANY competing (i.e., same or VERY similar zoning status + physically similar to the subject) properties for the appraisal, yes? Again, I assume yes. Thus, you have measured how the market reacts to the presence of these (i.e., not represented as legally rentable) basement apartments.

What else?

The legality issue is a binary question.

There are four choices on the 1025 form regarding Zoning Compliance, so which box do you check considering your example above?

I check the appropriate box based on the bolded in Lee's quote. That is how I've always handled it.

Right? I think so. Wrong?

 

[AlwaysLearning]

I check the appropriate box based on the bolded in Lee's quote. That is how I've always handled it.

Right? I think so. Wrong?

The City of Chicago considers such "in-law" units (rented or not) to be illegal.

1) In your example, I infer you mark the zoning compliance as legal (or legal nonconforming), am I correct?

2) In your H&B Use analysis, does your property as improved pass the legal permissibility test?

3) In your appraisal report, how do you communicate the following Fannie’s requirement - in case of a 2-flat that includes an illegal additional unit, Fannie requires that “The appraiser must report that the improvements represent an illegal use...”.

 

[William K]

As I read the responses why does the phrase "you can't be just a little bit pregnant" keep coming to mind?

I called the city zoning department today and spoke with an inspector who stated "if it has an Illegal unit then it is an Illegal property,period! Zoning applies to the whole property. We don't recognize in-law units as anything other than another dwelling unit."

Enforcement usually occurs based upon complaint or a tip called into department usually from local Alderman's office, police or fire.
Very seldom do they get a request to inspect for compliance by an owner. ("If we inspect we hit it for everything we see").

 

[DTB]

The City of Chicago considers such "in-law" units (rented or not) to be illegal. I believe that is incorrect information, based on my experience in the city, it is the RENTING which makes it an issue.

1) In your example, I infer you mark the zoning compliance as legal (or legal nonconforming), am I correct? You infer correctly.

2) In your H&B Use analysis, does your property as improved pass the legal permissibility test? Yes, just as any H&BU would with any variety of code or possible encroachment issues.

3) In your appraisal report, how do you communicate the following Fannie’s requirement - in case of a 2-flat that includes an illegal additional unit, Fannie requires that “The appraiser must report that the improvements represent an illegal use...”.

The basement apartment, if rented, represents an illegal use and no income from tha unit is considered.

 

[DTB]

As I read the responses why does the phrase "you can't be just a little bit pregnant" keep coming to mind? Can a building not be sound and legal while having some violations or compliance issues? My experience leads me to believe it can.

I called the city zoning department today and spoke with an inspector who stated "if it has an Illegal unit then it is an Illegal property,period! Zoning applies to the whole property. We don't recognize in-law units as anything other than another dwelling unit."

Enforcement usually occurs based upon complaint or a tip called into department usually from local Alderman's office, police or fire.
Very seldom do they get a request to inspect for compliance by an owner. ("If we inspect we hit it for everything we see").

While I believe that is what "an" inspector told you, I also suspect a "different" inspector has a different answer.

If it's that cut and dried from the city's POV, why do we continue to have these questions?

Ever wonder why some "illegal' in-law units can be rented open and others get nothing but grief? It's not because of a difference in the units, just a difference in ownership.

 

[DTB]

I'll wager that the appraiser who will have a problem will be the one who did not describe the subject property as it exists (both the physical nature and zoning status) and/or did not select appropriate comps for analysis.

My experience with similar short/foreclosure has been similar to your scenario. Income from the illegal garden apt. was included in the appraisal and loan qualification. Usually some legit 3 units were used as comps bumping the OMV up. Then....

since they were ethnics, somebody dropped the dime on them at City Hall, they spent money to deconvert, lost the rental income and got the big property tax increase. Recipe for disaster.

 

[AlwaysLearning]

A. The subject is legal as to zoning if it allows 2 units. The basement apartment would not be legal. (This does not mean the entire improvement is illegal)

I like the above

Following such logic, one would consider a property with an illegal addition in rear to be legal because the fact that there is an illegal addition in rear does not mean the entire improvement is illegal.

"you can't be just a little bit pregnant" Says who?

 

[William K]

While I believe that is what "an" inspector told you, I also suspect a "different" inspector has a different answer.

If it's that cut and dried from the city's POV, why do we continue to have these questions?

Ever wonder why some "illegal' in-law units can be rented open and others get nothing but grief? It's not because of a difference in the units, just a difference in ownership.

As I stated prior.....Its an enforcement issue, they don't enforce without a complaint. ( sounds a little like a profession I know).

Of course as long as they don't get caught (a complaint) everyone is fine with it.

Properties such as this tend to fall (value wise) between the legal 3 unit and the legal 2 unit with just a finished basement. The fact the basement is not a legal unit doesn't seem to bother most buyers. They will use it as a rental anyway and just hope the city keeps ignoring them. It becomes the appraiser's problem when the city no longer ignores them or they lose the property to foreclosure. Then everyone is looking for a reason why and the appraisal report marked as anything but "Illegal" becomes the reason for the loss.

Lender- "We never would of done the loan if we knew it was Illegal"
Borrower / Buyer- "I never would of bought the property if I would of known it was Illegal"

 

[William K]

"A. The subject is legal as to zoning if it allows 2 units. The basement apartment would not be legal. (This does not mean the entire improvement is illegal)"


Zoning allows 2 units (not 3 units). The garden Apartment is what makes the property Illegal. Its not that it is a "Garden Apartment", "basement Apartment" per se, its that it has 3 units in a 2 unit zoning district.

There are several 2 unit buildings in the area with a Garden unit and a unit above grade that comply with zoning which permits only up to 2 Units.

If the zoning was for 3 units and the basement apartment was not considered permitted then it could be Legal with an un-permited / Illegal basement unit. But the reason for it being Illegal is because the # of units exceed zoning, not necessarily the location of the unit.