Buying a property with an illegal / unapproved expansion

[Fraser McCurrach]

I'm currently looking at purchasing a property that was originally a 4 unit building. The seller at some point expanded and created a 5th unit in the basement. I don't believe it's to code and was probably never sanctioned or inspected by local review board. Have asked for and have also searched for documentation, but can't find any, nor will the seller provide any. I assume it doesn't exist. Also, the building is still registered as a 4 unit building with the city.

It is however listed as a 5 unit building, and I have looked at getting a small commercial loan to purchase. This poses some small concerns to which the seller advocates just telling the loan company that we'll move the tenant from the 5th unit into a vacant unit, and say it's being used as a 4 unit building.

I'm concerned at what I view as the ethical flexibility displayed by the seller.

Is what he is proposing illegal? Would this not constitute fraud in how the property is represented to the loan company? Is there a legal requirement for the building to pass inspection and be registered accurately with the city before it can be sold in it's current format?

I'm aware that laws and codes vary from city to city and you may not be able to provide fully accurate answers. Just looking for a soundboard to see if I'm over thinking and worrying about this deal.