Legal non conforming options needed

[Jason Minnich]

Tldr- Looking for advice or expertise on getting a 90/10 loan on legal non conforming owner occupied property. Bonus points if you know solutions in Colorado Springs.

Long story - under contract on a legal non conforming 4 unit in Colorado springs. Built in 1947, main house has 2 basement apartments, and a cottage. We were trying to get it appraised as a SFH with an ADU but the appraiser said they would only do it as a 4 unit. Problem there is zoning doesn't allow for 4 units on this property. The seller had a VA deal fall through last year that I just learned about today where they tried to get a rebuild letter from the city and the city refused. We are (somewhat) confident we could get a rebuild letter for the cottage and the house, because those existed prior to annexation, but there isn't any historical documentation (we've found) showing that this has always been a four unit. The oldest I've got is the assessor's card from 1966 saying it had 4 dwellings but darn if those 14 years don't make a difference.

So I'm in this strange catch-22 where I can't borrow on it as a single family with an ADU because of Fannie Freddie guidelines requiring the appraiser to determine what the highest and best use of the property is (it exists as a 4 unit today, so it's that), but I also can't lend on it as a four unit because it would be legal nonconforming and in the event of a total loss the collateral could not be rebuilt as is.

The listing agent was against VA (I now know why) but thought this would go through as conventional. I've only got 15% down, 20 if I'm really pushing but was trying to do this as an owner occupied 90/10. I'm locked at a killer rate for a SFH, but my bank can't do 90/10 on a 4 unit and doesn't do portfolio. My contract is for 90/10 and there are other issues that buy me time (closing was expected 30 June but likely could slip if needed). The seller is motivated and looking to 1031 this. I'd like to have my cake and eat it too, but I'm not sure if I can make this work.

One Commercial bank I've talked to won't lend on owner occupied and I was using this deal to bring me back to Colorado. I'm talking to some portfolio lenders tomorrow, but no one has committed to anything yet. My debt to income is no problem. I'm open to creative, legal, solutions, but want to minimize risk and cost.

[Jason Minnich]

Agreed, I thought it was creative, but frankly depressing. I'm uncertain how likely these letters are to get but I feel like I've submitted a fairly solid justification. I managed to find documentation going back to 1955 showing 4 families at the property, annexation was in 1952 so I'm getting closer to proving this has always been what it is. Right now I'm happy fighting for the letter, I'll ask for a variance if I get the letter and can close.

Jason