Duplex down into illegal basement unit to combine beds/baths

[Phil Janasac]

My wife and I are in the process of purchasing a multifamily (2-flat) property on the north side of Chicago (with intent to owner occupied/house-hack) . During our second viewing of the property the realtor "gained access" (don't ask!) to a part of the basement that was locked, and lo and behold, we found an extra 2 bedrooms and a full bath, and a kitchen; presumably an illegal apartment. It was quite unexpected, but from what I've read, not unheard of in Chicago. The basement only has 7ft high ceilings (Chicago code says they need to be 7.5ft high), and the property is only zoned RS-3 (SFR or two-flat only), among other things, so we're not going to rent it out separately and risk city violations.

The only entrance to this basement is from the outside, not from inside the first-floor apartment. However, if we duplex down from the first floor unit (which is 2bed 1bath apartment), can we then combine the beds/baths and call it a 4bed 2bath? This is providing we obtain permits to add stairs that conform to code, among other things.

What would be the best way to approach doing this? We would be living in this first floor duplexed-down unit for a few years and then rent it out when we move out. Adding stairs is something we’d like to do regardless because the laundry hook up is in the basement and we don’t want to have to run outside during winter with clothes to do our laundry!

TL;DR – Can I legally duplex down into an illegal basement unit to capture the extra 2 rooms and bathroom in that unit? What sort of headaches should we expect in this process?

Responses and feedback are incredibly appreciated!