Legal Non-Conforming 2 Unit midtown

[Dusty Cady]

Hi All-

Hoping I can get some insight to help us close a deal. We are currently in Escrow on a 2 unit property (Separate structures). During the Appraisal we found out that our lot is zoned R1 (So only one unit) and since there is second unit it is non-conforming. This means that our lender no longer wants to loan on the property. Since it is non-conforming the code states that if the property is damaged by more than 50% we can NOT rebuild two units, it would have to only be one unit. The city hasn't been very helpful in helping us understand if the other unit was legal at one time, if there was some variance or if it was grandfathered in. They also don't have any record of permits for the second unit.  Does anyone have any experience with this?

Some facts

• We plan to occupy one unit
• We are using FHA
• The second unit has its own address, trash cans, electricity bill etc. 

Thanks!!

Best,

Dusty