Zoning Compliance, "Illegal Use", and the 1004

[hastalavista]

The question I pose is in regards to zoning compliance and HBU and the 1004 (and other Fannie/Freddie) appraisal forms.

Here’s the scenario:
A subject is located in a residential zoned area. It was originally a 3br/2ba with a garage, and the zoning pre-dates the subject’s construction. As originally built, the subject conformed to the zoning ordinance.
The zoning (I’ll call it R1) requires that there must be at least one covered parking amenity per residence.
At some point (prior to the current owner’s possession), our subject’s garage was converted to a recreation room such that its garage utility was eliminated. The quality of the finish and condition conforms to the original improvement, and interior alterations to walls/doors were made so that this area flows with the original home’s floor plan.
Although the subject’s use (Residential) conforms to the zoning ordinance, its configuration “as is” does not.

Questions:

• Does the non-conforming and non-compliant configuration constitute an “illegal use” as characterized on the 1004 form?
• If it does constitute an “illegal” use, how does that affect HBU “as improved” in the analysis?

For reference, here is what Fannie says about non-permitted/”illegal” additions (I’ve only posted those parts of their Selling Guide that are applicable to this question):

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 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.

And, here’s the USPAP comment regarding HBU:

Comment: An appraiser must analyze the relevant legal, physical, and economic factors to the extent necessary to support the appraisers highest and best use conclusion(s).

Thanks for your responses!

 

[Terrel L. Shields]

The problem rests with zoning. Zoning is frequently not regulated to the letter, or if it is, it is done so selectively and punitively. Go complain to the Mayor often enough and you get a zoning review. I would suspect that the Zoning Dept. would not give you a clear answer were you to ask them. In this case, I believe I might simply evoke a EA and assume it is legal non-conforming based up the past history that they have not cited the owner for same. THe HBU as is = 'as is". THe HBU as if vacant would be to built a conforming dwelling. Therefore, HBU is "as is" warts and all.

 

[Mike Kennedy]

says it all :


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.


PLUS

USPAP STANDARDS RULE 1-2(e): An appraiser must identify the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal, including:

(i) its location and physical, legal, and economic attributes;

(iv) any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature;

 

[Joyce Potts]

Mike,

You can't tell me to you go to those lengths with every residential property you do.

Whatever happened to 'reasonable assumptions'?

 

[Mike Kennedy]

Joyce - see the other discussion. Obviously.........IF available in the normal course of business......applies with appropriate disclaimers and ordinary assumptions in the event the info is NOT available. In my markets - it is, so the answer to your comment is ....."yes i can". ........and in markets where the data IS readily available - Competency and Ethics Rule applies. NO ???????

further........if such data IS readily available in yours - don't you verify Municipal Compliance? If not.....why?:icon_idea:

ps. >> case on point:icon_idea:

"Land Development Code:
This code covers a broad range of topics, however, the sections on Zoning Districts and Uses are of primary concern to residential property owners. Common violations include illegal, unpermitted additions or conversions to existing homes, and running an unapproved business from a home."


http://www.cityoforlando.net/economic/codeenforcement/CE_code_enforcement.htm

 

[Joyce Potts]

Frankly, I think you open a BIG can of worms and take on way too much responsibilty.

You're telling me you go to this length for every appraisal you do?

 

[Mike Kennedy]

Same Question - same answer. You bet. ps. similar research on comparables as well... don't you?

 

[Joyce Potts]

A title search is always available. Am I going to spend the $ to run a title a search on every appraisal?

No and hell no.

 

[John McDonald]

legal use

In my area this is what we have as far as zoning goes. We have zoning maps on CD. At the bottom of each map there is a statement that says " this map may be out of date. Call the zoning office for clarification. When you call the zoning office you are told that the only way to obtain an exact and current zoning is to send in a written application with $50.00 fee and wait thirty days for the office to inspect the property. I put this information in my appraisals and leave it up to the underwriter. Whats the answer?

 

[Joyce Potts]

In my area this is what we have as far as zoning goes. We have zoning maps on CD. At the bottom of each map there is a statement that says " this map may be out of date. Call the zoning office for clarification. When you call the zoning office you are told that the only way to obtain an exact and current zoning is to send in a written application with $50.00 fee and wait thirty days for the office to inspect the property. I put this information in my appraisals and leave it up to the underwriter. Whats the answer?

Technically you're doing the right thing.

Practicality, is another matter.