Buying a Home with Unpermitted Work in Portland
When you buy a house, the amount of work and due diligence items a buyer should perform can be overwhelming. As a buyer, working with a lender is already a lot of work. On top of that, identifying any issues with a house is critical before you even decide to move forward and put an offer on it. It’s important to work with a real estate agent who will check various pre-offer due diligence items. One of the important things that needs to be checked off that many realtors overlook is whether a house has any unpermitted work done. Although minor unpermitted work can be negligible, some unpermitted work can have a big consequence including a structure that was built without a permit. In Portland, unpermitted bathrooms are very common especially in the basement. Lots of older homes in Portland have a basement and it’s easy for sellers to be tempted to put in a bathroom without properly applying for permits. The good news is that it can be permitted retroactively after the structure has been built already so whether you are a seller or a buyer, it can be permitted without tearing down the bathroom so long as the work was done right. One issue with this is that it is possible that the County will charge homeowners back taxes for the amount in the difference such improvement would have made in the value of the house for the years it was present. Still, the amount may not be too much if it’s just a bathroom.
Once in a while, you may run into more serious problems with unpermitted work. It can be a whole ADU or an addition to the house that was unpermitted. A whole habitable structure requires many different permits including building, electrical and sometimes plumbing permits. Not only this is a big project to retroactively permit the structure, the city may order the structure to be torn down. If the City finds out any unpermitted work on a property, fines can be very hefty. Such fines will create a lien on the property if unpaid.
Look Up Permit History
So how can you make sure if the property has any unpermitted work done? Go to Portland Maps and put in the address of the house you’re inquiring. It will list all the permit history with details of what kind of work was performed. If the website shows there is only 1 bathroom when the house has 2 bathrooms, that means the second bathroom is unpermitted. You can also look up the history to see whether the permit was ever filed and approved. Some permits may have been filed but also denied waiting for final approval. If there is a pending permit item, your real estate agent must check with the seller and your offer must contain a clause requiring the seller to receive the final approval prior to closing. It should not be your responsibility. Even if you’re buying it as-is, you need to have this information before putting an offer.
So bathrooms are easy to tell. How about an addition to a house? Often times, an addition is difficult to even see. If you and your realtor believe that a portion of the house is an addition, then look up to see if the addition was permitted at some point. Portlandmaps.com will only list permits filed after year 2000 so anything prior to that needs to be verified directly with Bureau of Development Services.
If you wonder what kind of work needs to be permitted, read this pamphlet made by the City of Portland to learn more about it.
Can I Get a Mortgage on a House with an Unpermitted Structure?
What about getting a mortgage on a house with an unpermitted structure? If the lender finds out that there is an unpermitted structure, it can definitely be a deal breaker for some lenders. Your best bet is with a conventional loan where many lenders overlook unpermitted work so long as the work was done in a workmanlike manner. If you are getting a FHA loan, you will not get away with this. FHA loans are very strict with the property’s conditions, the seller will likely be required to make lots of repairs and permit filing prior to closing. So if you plan on purchasing on a home that needs some work done, FHA may not be the best lending option if you don’t want the lender to delay or change the deal. If you are a seller of a house that needs some work done, try not to accept an offer with a FHA mortgage preapproval if you have another similar offer with a conventional loan.
If the unpermitted portion of the work is substantial and the work was done somewhat sloppy, there is a good chance that even a conventional lender can deny the loan. Unless you’re a home rehab professional with an access to hard money, I do not recommend buying a house like that to live in. It’s important not to overlook something like this before buying a house