How often does a seller tell you that they added or enclosed that room without a permit. Or better yet, how often does a seller tell you that their New Year’s resolution was to turn that first floor into a gym. Unfortunately these types of situations can create legal challenges for those sellers. Moreover, if the real estate professional becomes aware of these issues prior to closing, it can create legal challenges for them as well. If an improvement made by a seller was not properly approved, the improvement could be illegal, and thus subject to removal.
While there is no easy way to completely address this predicament, a few helpful tips can drastically mitigate potential liability. First, make sure the seller and agent discuss any repairs, alterations, changes, improvements, or additions that the seller may have made to the property while they owned it. Do not go into a transaction with blinders. Our experience is that if a buyer later discovers an illegal improvement, they will automatically assume that the seller and listing agent knew that fact, and will likely sue everyone. So it is best to do some homework early on, as ignorance is not necessarily bliss in this situation.
Next, attempt to confirm that any such changes were made with proper permits and authorizations. Obviously confirming with the seller is the most practical, although maybe not fool proof. Documenting the seller’s response will be important. If the changes were not made with proper approvals, the time to discover this fact is before a buyer executes a contract for the property, not afterwards.
If it turns out that any such changes were made without proper approvals, do not fret. There are a few options that will likely insulate the seller and the listing agent from future liability. But that will depend on the nature of the illegal improvement and will likely involve the guidance of a real estate lawyer. The first option is to consider getting the proper approvals after the fact. Some illegal improvements can be remedied by after-the-fact permits and the payment of fines. However, some illegal improvements cannot be remedied. In such instance, we strongly recommend full disclosure, preferably pre-contract. Let the buyer decide if they are fine with such improvements. Indeed, many buyers are less sensitive to these issues than others.
Illegal or non-conforming improvements can be handled. However, ignorance of illegal or non-conforming improvements is more difficult and much more risky. In any event, we strongly recommend that any seller of property with an illegal improvement discuss this with an experienced real estate attorney to determine the best course of action, be it remedying the problem or disclosing it adequately. And in doing so, the seller and listing agent significantly decrease the chances of future legal liability. This seems like common sense, but the judicial system is littered with lawsuits involving undisclosed illegal improvements.
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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