In February 2020, I bought a 1930s single family home that was converted to a duplex. This duplex was converted before zoning laws took effect in the area, and was grandfathered as a legally non conforming structure, listed as a duplex. However, the zoning for the area is Single Family only. From what I learned, this means it cannot be rebuilt as a duplex if the structure is destroyed such as in a fire, it would need to be rebuilt as a single family.
This is in the Hampton Roads, Virginia Area, specifically Norfolk.
I am now trying to sell this property and have been in contract for the last month, 6 days until closing, and the buyer's underwriter is now red flagging this zoning issue and I fear the loan may no longer go through, and this may present an issue selling to anyone using a VA/FHA/Conventional Loan.
I have been in contact with the city zoning through email, but they are quite unhelpful in trying to find a workaround. I have found a couple "Special Exemptions" where the city have granted permission to rebuild the nonconforming structure again, and the counsel votes were all for accepting the exemptions.
Will this actually halt any banks from giving a buyer a loan for my property? What are my options?
Hey @Shane Welch ,
Sorry you're running into this issue. Did it come up when you originally bought the property? And what method did you use to buy it originally?
I bought with a VA Loan, and this did not come up when I was purchasing it last year, which is why I am quite surprised it is a big issue now.
Hi Shane. Of course I had to go look up what property you are talking about! Hampshire, right? I have a really good blog on my website that talks about the risks of buying something on a non-conforming lot. BP won't let me post a link to it, but I will send it to you in a PM. Lucky for me I have learned about the issues from other investors mistakes and not my own. I haven't heard of it being an issue with underwriting either, but it does make sense to me that some mortgage investors would want to steer clear. Hopefully the buyer is working with a lender who brokers, rather than representing a single lender. Surely the loan can be moved to another product that will accept this condition. In addition to destruction, the property can also be required to be converted to conforming zoning if it "goes out of the non-conforming usage" for at least two years. If there is more than one meter for any utility, the city can track this by utility usage. I've heard of a property having to be converted because it was vacant for more than two years. I also heard of one that had a reverse mortgage on it, which does not allow the mortgagee to rent any portion of the property that secures the mortgage - which essentially makes it a single family usage. In the second example, the investor who bought it was in the middle of rehabbing the duplex without permits when the city shut his rehab down for not permitting. When the investor went to get permits - for a duplex that was half rehabbed - he learned he had to convert it back to single family. Yikes!
If this contract falls through I have a couple of suggestions for your listing. 1) The front profile photo is of the front of the house and you have a car tire on the front porch. 2) I assume at least one of these units is rented, but the listing doesn't mention that all. Both units appear to be occupied based on the photos. Including the lease terms - rent amount and ending dates - is important information to potential buyers.
IMO this property would have the same valuation if it were a single family. You only have 1500 SF and the one bedroom attic unit is under 500 SF. From both a rental and resale stand point, your valuation would be about the same if you had a really nice 1500 SF 3/2 single family. I'm just point this out because I think it gives you some options and hopefully some peace of mind that even if the worst were to happen, in your case it's not so bad. You just have a converted attic that could easily be altered to make it part of the main house. Imagine the same scenario with a duplex that was built that way from initial construction. The cost to convert is prohibitive at that point.
I'll be curious to know how this goes. Keep us updated!