The mechanics of certificates of occupancy, re: lending/town regs

[Paul Clements]

I am looking to make an offer on a property in NJ. I have a lot of experience in renovations and property management for others but this will be my first investment property. It is a mixed-use building with a pre-existing/grandfathered commercial portion that will be converted to residential shortly after move-in. I am concerned that an 'illegal' kitchen in the commercial portion could present an obstacle with the lender and/or the township.

First, is a certificate of occupancy required to close the mortgage? I understand that the bank may do an inspection to ensure there are no obstacles to getting a C.O., but does the bank actually require proof of a C.O. at any point either before or after the loan is disbursed?

Secondly, I understand most towns have regulations on the books that require C.O.s, but do towns in NJ or anywhere usually come looking for C.O.'s  Are towns even aware when a deed changes hand, or just the county?

Thirdly, I've seen insurers cover buildings without requesting a C.O., but could a claim be denied on the basis that there was no C.O. in place? Put another way, has an insurer ever asked you for a C.O. during the claims process?

Lastly, have you ever seen an offer contingency that a C.O. must be issued without making major modifications to property, or is this unworkable since the property must actually change hands before C.O. is issued? Could simple changes like removing an oven and/or disconnecting a sink cause it to no longer be considered a kitchen?