• Welcome to AppraisersForum.com, the premier online community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

Possibly Illegal In-law Appartment Question

Status
Not open for further replies.
Denita Neuenhaus said:
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.
Click to expand...

Actually I am using a USDA direct loan to attempt to purchase a single family home. They do not allow ADUs of an income producing nature. The options for single family homes in my area is a bit limited at this time, particularly ones that can fit the USDA standards. This property seems, at this time, to fit all criteria of the USDA standards (subject to further inspection) with the exception of this ADU which I would have no intention of ever renting even if it were a legal use in my area. I am simply concerned that as it has a history of being used as a multi-family (despite its zoning) that it will be considered either a multifamily unit (as the seller is advertising it) or that it will be considered to have an income producing ADU and be denied. The seller has expressed a willingness to work with me if there is a way to conform this apartment to the USDA’s standards but I wanted to see if such an endeavor would be likely to succeed before moving forward. I’m trying to be as cautious as possible and intend to discuss this further with the USDA, just want to test the waters and make sure I won’t be wasting anyone’s time attempting to fit a square peg in a round hole.
 
Last edited:
Joe Flacco said:
"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.
Click to expand...

Would the gas hook up need to be entirely removed or simply the appliance. Additionally the door separating the units is a sliding door and does not actually lock and the seller is willing to remove it. Would this have any bearing on it’s being considered a separate space?
 
In cases like this I check the paper trail. Typically there is a certificate of occupancy or some other paperwork that addresses this issue. On some occasions the use of the property may predate zoning and can be assumed legal, though additional paperwork may have to be filed to make it official.

I do not like relying specifically on the zone code for such determinations, unless there is no other option, as others factors can come into play that can allow a use that is not "of right."
 
Fannie Mae does indeed accept properties with a granny unit that results in illegal zoning.

If it is determined that the property contains an accessory unit that does not comply with zoning, the property is eligible under
the following additional conditions:
• The lender confirms that the existence will not jeopardize any future property insurance claim that might need to be
filed for the property.
• The use conforms to the subject neighborhood and to the market.
• The property is appraised based upon its current use.
• The appraisal must report that the improvements represent a use that does not comply with zoning.
• The appraisal report must demonstrate that the improvements are typical for the market through an analysis of at least
three comparable properties that have the same non-compliant zoning use.
 
well this is actually usda, but then theres this


page 4
Accessory Dwelling Unit. The presence of an accessory dwelling unit (ADU) does not automatically render the property ineligible. The appraiser will determine if the ADU represents a second single family housing dwelling unit. The Agency defers to the appraisers professional review of the property and expert opinion of the highest and best use of the subject property as a primary residence. The appraiser will include their evaluation in the site analysis section of the appraisal report if applicable.
Click to expand...
 
i did one for usda that was a true adu that was built for the owners mother. there was a covered patio on the back that was professionally converted to basically an efficiency apartment with access to the main home and separate exterior access.

i provided two sales with adu's. a few weeks go by and i noticed on the MLS it did not close but was listed as withdrawn. interview of the agent revealed that usda declined the loan because of the adu and the seller decided to withdraw the listing and give it to his soon to be exwife.
 
"The Agency defers to the appraisers professional review of the property and expert opinion of the highest and best use of the subject property as a primary residence. "

in addition to having two sales with adu's this was my summary of highest and best use, and according to the listing agent usda declined the loan based on it having an adu

It is located in a residential area with residential zoning regulations. The current use is residential with residential on the surrounding properties. The Highest and Best Use of the subject, both as improved, and unimproved, is for residential purposes. The improvement should be retained as is, with a regular maintenance schedule and routine replacement of short-lived items as needed. Zoning is Single Family Dwelling District which allows for an accessory unit that comprises 15% or less of the lot area and is not used for business purposes. There is no demand for vacant residential sites as this is not a speculative market and there is no new construction activity. There is no demand for vacant commercial or industrial sites making those uses not likely. The property is too small for most industrial applications, and is considered too small for agricultural uses. The Highest and Best Use as vacant is to hold for future development. When market conditions change, this site will be developed as a one-unit residence. The improvements contribute value to the site: the property, as improved, is more valuable than if vacant, ready for development.

From 2003 to 2006 the home was remodeled and a new 34 x 34 two car attached garage was built. In 2015 a portion of the attached garage and a back patio was converted to an Accessory Dwelling Unit for the owner's mother. It has shared utilities and is accessed from the main home's entryway. It is not common in the market to rent out these types of spaces. There is an over supply of 2-4 family conversions, apartment complexes, and duplex units to meet the needs of the rental market. It is my opinion that the most probably buyer would use it as a single-family residence with an accessory unit for a relative or because the main home has 2 bedrooms the accessory unit would be used as a master suite with the small kitchen being used as a recroom or even removed. It is my opinion that the highest and best use is single-family residential.
Click to expand...
 
andrew81 said:
well this is actually usda, but then theres this


page 4
Click to expand...

FROM SAME PDF Pg 12-6

B. Appraisal Report. All appraisals must comply with the reporting requirements of USPAP available at www.appraisalfoundation.org.

All appraisal reports must include a Market Condition Addendum (Form FNMA 1004MC) and meet the Uniform Appraisal Dataset (UAD) requirements set forth by Fannie Mae and Freddie Mac.
To read definitions of condition and quality ratings, refer to the “Fannie Mae and Freddie Mac Uniform Appraisal Dataset Specification Version 1.2” located online at: https://www.fanniemae.com/content/technology_requirements/uad-specificationappendix-d.pdf.

Also see Pg 12-7
 
Last edited:
Tina Turner

What's UAD got to do, got to do with it
What's UAD but a second-hand emotion
What's UAD got to do, got to do with it
 
Status
Not open for further replies.
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at AppraiserSites.com
Back
Top