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Possibly Illegal In-law Appartment Question

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Pinkbismuth

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Jul 16, 2019
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General Public
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Pennsylvania
Hello, I’ve recently found a house in an R1 zone that has been previously listed as single family and I suspect is being taxed as such. However this house has an “in-law apartment” attached to the main house that is being advertised as a separate rental unit (with rental history) and as such the entire property is being listed as multi-family. I suspect that despite it’s having all the needed amenities of a separate unit (kitchen, bathroom, exits, and separate utilities etc) that this is not a legal conversion for an R1 in my area despite its past use as such. I know I will need to confirm this with the zoning board in my area but based on the ordinances I’ve read it seems it is not.

My main question is if it’s still zoned as a single family could it be converted in such a way that it could be appraised as a single family unit despite its past as a multi-family rental. I’m wondering if the USDA would approve it as such. As I understand it the USDA treats “In-law” apartments as ineligible due to the potential for producing income as a multi-family unit. However if it were established that such a use would be illegal and/or work was done to make it less independent of the house would the appraiser consider the apartment as part of the overall single family unit perhaps as a non-income producing ADU? Any advise would be greatly appreciated, thank you.
 

A K

Elite Member
Joined
Jul 31, 2013
Professional Status
Certified Residential Appraiser
State
Maryland
I cover four different jurisdictions each with their own zoning regulations and "in-law apartment" or "in-law suite" are not actual things. Those are terms real estate agents use to describe similar areas in a single family home. Zoning regulations usually define single family property, multi-family/unit property, and accessory apartment/unit. In one of my jurisdictions (DC), accessory apartment/unit is now allowed by right in most single family zones. In others, a zoning variance / special exception / or a license is required to create a accessory apartment / unit. Without it, zoning compliance is reported as illegal.

A property that does not comply with zoning regulations due to illegal accessory unit/apartment is eligible for Fannie Mae given that it meets certain conditions. However, it appears that many lenders and other secondary market investors will not loan on a property when zoning compliance is reported as illegal.
 

Pinkbismuth

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Freshman Member
Joined
Jul 16, 2019
Professional Status
General Public
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Pennsylvania
I
I cover four different jurisdictions each with their own zoning regulations and "in-law apartment" or "in-law suite" are not actual things. Those are terms real estate agents use to describe similar areas in a single family home. Zoning regulations usually define single family property, multi-family/unit property, and accessory apartment/unit. In one of my jurisdictions (DC), accessory apartment/unit is now allowed by right in most single family zones. In others, a zoning variance / special exception / or a license is required to create a accessory apartment / unit. Without it, zoning compliance is reported as illegal.

A property that does not comply with zoning regulations due to illegal accessory unit/apartment is eligible for Fannie Mae given that it meets certain conditions. However, it appears that many lenders and other secondary market investors will not loan on a property when zoning compliance is reported as illegal.

In my area in Pa it is (to the best of my knowledge) not legal to convert this accessory dwelling into an apartment without special exception when in an R1 zone, which I believe they did not. R2 apparently has the ability to create such but no such stipulations for an R1 zone. This is what they say about an R2 zone:
“Conversion Apartments. The purpose of conversion apartments is to allow for the conversion of older, larger single-family homes into multiple-family units. To be allowed to convert from a single-family into a multiple-family unit, the following criteria must be met:

(1) All units must have separate kitchen and bathroom facilities as well as living/sleeping spaces.

(2) Each unit shall have a minimum size of 600 square feet exclusive of common spaces.

(3) All required parking shall be accommodated on-lot. No parking in the front yard area shall be permitted.

(4) Conversion shall be limited to four dwelling units or less.

(5) All other city codes must be met.

(6) All area and yard requirements for multiple-family dwellings within the district must be met.”

I believe all but number 2 was complied with but again this is meant for R2 and not R1. Frankly I am wondering if in fact no variance was given if the owner could convert the space back to a legally confirming space by say removing parts of the kitchen, opening a doorway tying the utilities back together etc. Bassically is there a way to make this a compliant single family instead of a non-compliant multi-family and how might that work? Would an appraiser be able to appraise it as single family if converted back? I’m new to all this so my understanding is somewhat limited. Thank you for your input.
 
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andrew81

Senior Member
Gold Supporting Member
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Dec 5, 2008
Professional Status
Certified Residential Appraiser
State
Illinois
Bassically is there a way to make this a compliant single family instead of a non-compliant multi-family and how might that work? Would an appraiser be able to appraise it as single family if converted back? .

short answer
yes and yes

without visiting the property and reading the ordinances myself i wouldnt begin to assume what the long answer is
 

Pinkbismuth

Thread Starter
Freshman Member
Joined
Jul 16, 2019
Professional Status
General Public
State
Pennsylvania
short answer
yes and yes

without visiting the property and reading the ordinances myself i wouldnt begin to assume what the long answer is
Thank you for your input, I know there are many variables and therefore impossible to really pinpoint an answer but this makes me feel hopeful about looking into it with a local appraiser. Much appreciated!
 

Terrel L. Shields

Elite Member
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May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Frankly I am wondering if in fact no variance was given if the owner could convert the space back to a legally confirming space by say...
Your job does not include remodeling someone's property. I don't know where that comes from, but a lot of posters appraise as if such is done, or is to be done as a "subject to" statement. Well...not only is that contrary to what exists, it is most likely contrary to what will exist because most owners are NOT going to do that. It is easier to seek a variance or rezoning. So tell the client and tell them you wish to turn down the assignment. It's much less hassle that way. Let someone else fall on their own sword.
 

Pinkbismuth

Thread Starter
Freshman Member
Joined
Jul 16, 2019
Professional Status
General Public
State
Pennsylvania
Your job does not include remodeling someone's property. I don't know where that comes from, but a lot of posters appraise as if such is done, or is to be done as a "subject to" statement. Well...not only is that contrary to what exists, it is most likely contrary to what will exist because most owners are NOT going to do that. It is easier to seek a variance or rezoning. So tell the client and tell them you wish to turn down the assignment. It's much less hassle that way. Let someone else fall on their own sword.

Oh I believe you have misunderstood me. I am actually a buyer, the owner is willing to do the work prior to an appraisal to convert the home in the event that such work will enable me to buy the home with the loan I am using. However in order for the property to be eligible for my loan type it requires the property to be a single family unit. I am hoping that since it was never properly zoned as a mult-family unit that it can be remodeled in such a way as to be appraised as single family non-income producing home. The seller is willing to accommodate me to a point in this regard. I plan to consult local specialists but was hoping to see if this was terribly unlikely to work out and/or how unconventional such work would be considered.
 

sputnam

Senior Member
Joined
Apr 24, 2012
Professional Status
Certified General Appraiser
State
North Carolina
Hello, I’ve recently found a house in an R1 zone that has been previously listed as single family and I suspect is being taxed as such. However this house has an “in-law apartment” attached to the main house that is being advertised as a separate rental unit (with rental history) and as such the entire property is being listed as multi-family. I suspect that despite it’s having all the needed amenities of a separate unit (kitchen, bathroom, exits, and separate utilities etc) that this is not a legal conversion for an R1 in my area despite its past use as such. I know I will need to confirm this with the zoning board in my area but based on the ordinances I’ve read it seems it is not.

My main question is if it’s still zoned as a single family could it be converted in such a way that it could be appraised as a single family unit despite its past as a multi-family rental. I’m wondering if the USDA would approve it as such. As I understand it the USDA treats “In-law” apartments as ineligible due to the potential for producing income as a multi-family unit. However if it were established that such a use would be illegal and/or work was done to make it less independent of the house would the appraiser consider the apartment as part of the overall single family unit perhaps as a non-income producing ADU? Any advise would be greatly appreciated, thank you.
The short answer is.. probably. Almost anything can be fixed if you have the time and money to do it. The real question is, 'Is there a way to convert it before the appraiser comes to look at the property and before your loan documents are all due?' Beats me. The appraiser will... or should consider the Highest and Best Use of the property and will.. again, should...be clear with the appraisal client (typically the lender about how to proceed. If the appraiser's instructions are to provide a current, as-is market value then that is what they will do. In financing situations it sometimes makes things difficult but, the property is what it is.
 

A K

Elite Member
Joined
Jul 31, 2013
Professional Status
Certified Residential Appraiser
State
Maryland
"My main question is if it’s still zoned as a single family could it be converted in such a way that it could be appraised as a single family unit despite its past as a multi-family rental "

It is a single family property with accessory unit that does not comply with zoning regulations. It is not a two unit multifamily apartment.

Typically the accessory unit/dwelling/apartment is described in zoning regulations as a separate space with provision for cooking (kitchen), cleaning (bathroom), sleeping, and separate entrance. So if one of these provisions are removed then it would not be a accessory unit any more. The easiest to do is to probably remove the stove.

Before anything, probably should ask the bank if they will lend on single family property with accessory unit that does not comply with zoning regulations. Which they may if they sell to Fannie Mae. If they sell to other secondary investors they might not.
 

Denita Neuenhaus

Junior Member
Joined
Jul 21, 2015
Professional Status
Real Estate Agent or Broker
State
Florida
OP, it sounds like you are planning to purchase a property and use the income from the ADU to qualify for your mortgage loan. Is that right or am I reading too much into your post?
If that is an accurate description of your plan, please have a detailed conversation with your loan officer regarding mortgage guidelines for the mortgage you are seeking. Not all income is treated equally. Some income is completely excluded, especially rental income when the borrower is new to a rental income source. Some lenders also have overlays (additional guidelines) that make the loan qualifying criteria more restrictive than Fannie, Freddie or FHA/VA or USDA. You would only know about the overlays if the LO is extremely knowledgeable. Not all LO's know so check your criteria carefully before you start down this road. I am not trying to rain on your parade. Just asking you to be cautious and check the criteria first with one or more good mortgage lenders.
 
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