Homeowners will sometimes make changes to their property where they have not pulled proper permits from their local jurisdiction. This is referred to in the mortgage industry as “non-permitted additions”. It is never recommended for a homeowner to carry out this type of action. The consequences for a non-permitted addition can in some cases be dire such as the jurisdiction coming in and condemning the addition and require that it be removed. Another problem with non-permitted additions is that if the borrower has a mortgage on the property where the addition is occurring, lenders can enforce a clause within the Deed of Trust document which will result in acceleration of the mortgage debt (Foreclosure).
Even though the homeowner runs this risk, it is rare for the more sever penalties to be enforced by either the local jurisdiction or, if there is a mortgage, the lien holder (lender). Problems, however can occur when that homeowner chooses to sell the property. The appraiser will note the non-permitted addition on the appraisal. Because the risk exists that either the permitting authority or the lender, the appraisal will not give any value for the addition and may actually downgrade the value of the property for the non-permitted addition due to structural and/or functional obsolescence.
From a new lending perspective, the non-permitted addition may be acceptable in certain situations. First the appraiser must note that the non-permitted addition was completed in a “workman-like” manner and that the addition does not represent a health, safety, or security issue for the property. Further the appraiser must appraise the property and note the square footage as if the non-permitted addition does not exist. If these items are done and the property still meets all other requirements including value, the property may still be acceptable to the lender.
However, there are some items that will always result in a reject of the property by the lender. If the non-permitted addition represents a potential danger to the occupants or to the structural integrity of the property, the property will not be acceptable to the lender. An example of this is if the homeowner has run gas lines in the non-permitted addition. This can be a safety issue for borrowers. Another example would be if an addition to the property was not properly engineered and could possibly result in a structural failure of the non-permitted addition or to the original property. Another possibility for non-acceptance is if the non-permitted results in an illegal use of the property or a violation of zoning for the property.
As with many situations in mortgage lending, a non-permitted addition to a property may or may not be acceptable depending on the circumstances. If a potential home buyer is considering a property with a non-permitted addition, it is imperative that the home buyer consult with a qualified mortgage profession who can assist in determining the acceptability of a non-permitted addition. For more information, contact your Googain Loan Officer today.