Seller non disclosure of open code violation

[Matthew L.]

Hey there,

First time home buyer and after going into contract, we discovered there were open code violations on the garage conversion to ADU. House is in San Jose, CA. They did disclose that the inside of the ADU was not permitted, however, they did not disclose that it had open code violations. Does this merit being able to pull out of contract and collect our deposit back?

Background on the house:
1. In 2009, current home owner permitted a "shed/workstation" 

2. Post 2009, they turned it into a living space without a permit

3. In 2017, neighbor reported them and they got a code violation

4. In 2018 they attempted to apply for an ADU permit and have it legalized with the existing plan, however, since it's a living space, it did not meet the flood zone requirements. House is built on a flood zone and needed to be higher off the ground then what a "shed/workstation" needs to be

5. Post 2018, nothing has been done.  The existing 2018 permit has expired.

3-5 was not disclosed to us and we're now considering backing out because we dont want to absorb the headache that will come with getting it up to code (likely requires demo + rebuild or turning it back into a garage).  

Do you think getting deposit back will be contested? Seller realtor mentioned she was not aware of these code violations either and is reaching out to the city to find out more. Seller was definitely aware. Luckily found this while in contract and not after we closed..

Appreciate the insight! 

[Dan H.]

I have found a large non-disclosure prior to closing and therefore have some experience in this area.  I will assume that the seller knew about the code violations (which was the case in my case).

It is unclear to me if you are still in your inspection period (typically 17 days in CA).  If you are in the inspection period, you can pull out for any reason.

If you are beyond the inspection period, CA standard form requires a disclosure.  I am assuming this was part of your contract.  You can pull out and I suspect the seller will return you earnest deposit for a substantial non-disclosure (this definitely qualifies).  

If you had found this non-disclosure after the closing, you could have sued the seller for the costs associated with the non-disclosure.

If you have issues getting the earnest deposit back, consult with an attorney.  A letter from an attorney will get your deposit returned.  

The seller is in the wrong for such a non-disclosure.  This substantially affects the value and not disclosing it is an attempt to obtain a value higher than the property is worth.  This seems like a good candidate for an off market property.

Good luck