MFR zoned as SFR - any others have this experience?

[Laura Sulak]

I was set to close next week on two MFRs (same owners, same street), but the appraisal revealed that they're both zoned as SFRs. This is in a historic neighborhood, so the renos were done before a permit was required. The bank will not do a conventional low-interest loan on a property that, in the event of total destruction, could not be rebuilt as a MFR. They will only do a 3/3/ARM, which will cut into my cash flow, big time.

The owners had no idea, but they're working with the city to have the properties rezoned. Here's the problem: It's going to take 2-3 months to go through the re-zoning process, which means these deals cannot close until July. That's a long time for my funding to be tied up just waiting to be used.

Has anyone else had this problem? I'm in Central Texas, north of Austin, and I know zoning laws vary from city to city. I'm curious to know: What issues did it cause for you, and what was the resolution?