In many communities, there is a zoning code for what can be built on a property. Typically, from lowest to highest restrictions, the zoning order looks something like this:
- Multi-Family Residential
- 2-4 Unit Residential
- 1 Unit Residential
So, for example, in an area zoned Residential, a commercial use project could not be developed. However, a residential property can sometimes be built in a commercial zoning.
Sometimes, an area that is zoned residential can be changed by the local authorities to a lower zoning such as Commercial or even Industrial. This occurs because the nature of the area has changes. For example, a single-family residence is built on a particular street and then later the street is widened and becomes a commercial thoroughfare The house still exists, but now the property is in a commercial zoning.
When this occurs, the appraiser will note the property is non-compliant with the current zoning. This does not mean that a mortgage is not available, however, more commentary is required from the appraiser. The appraiser must indicate that the zoning is non-compliant, but the property is “grandfathered”. This means that if the residence was destroyed, it could be rebuilt as a residential property. If the property is not grandfathered, it means the property could not be rebuilt if destroyed and therefore the property is not eligible as collateral for a mortgage loan.
One other situation that may occur is “illegal” zoning. This happens when a property is built in an area where the residence is not allowed. Although rare, it does happen. When this occurs, the property is ineligible to be used as collateral for a mortgage loan.
Zoning issues can be frustrating and complex. It is always for the best to consult with one of the qualified professionals at Googain to assist. For more information on zoning and the potential problems that can occur, please contact your Googain Loan Officer for more information.