NEED ADVICE ON DUPLEX ZONING PLEASE!!!

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NEED ADVICE ON DUPLEX ZONING PLEASE!!!

William Donnelly
Investor · Biloxi, MS · Member since 2014 · 55 posts · 12 votes

Greetings BiggerPockets,

I'm currently under contract to purchase a "duplex". This property was a bank owned foreclosure, listed at $230,000, and our offer was accepted for $140,000. I'll spare the rest of the details for a later discussion. We have been under contract for 30 days now. Literally everything was completed and ready to close except the VA appraisal. The initial appraisal was promising, with only a few minor repairs needed.

Upon further inspection, the VA appraiser discovered that this property is in fact NOT a duplex. The properties are zoned individually as two separate condo's, and have been zoned this way since the construction in 2005. The selling bank and listing agents obviously had no idea. After my realtor contacted the states zoning department, they said there's absolutely no way to change the current zoning on this property.

The only suggestion anyone on my team could come up with, is use a VA loan for one side, and an FHA loan for the other, each priced at $70,000. My current lender will not be willing to do two separate loans. Plus, I think the risks outweigh the benefits as far as the general obstacles to overcome for that whole process.

Unless I can come up with a creative way to purchase two separate properties, this deal is dead in the water. Any Ideas?

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    11y

    Wel, it's not a "zoning" issue, it's a titling issue...titled as two separate condos.

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  • Mike Webb
    Real Estate Investor · Hagerstown, MD · Member since 2013 · 276 posts · 107 votes
    11y

    If they're are titled separately and your offer encompasses both, could you not blanket your loan for both properties? I bought one this year where we went under contract for a double duplex (2 units), found out that they were titled separate and my lender just used a blanket loan. I can still get one released if I want to sell them off separate, which I intend to do through a rent-to-own.

    Not sure if that was any help, this is not my forte.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    Yes, a blanket loan may be needed, neither VA or FHA will do that, you could go with one and buy the other under a conventional non-owner occupied or commercial loan, that will be more to the down payment.

    There was a mention of "rent-to-own" pretty hard to do legally now, so hard, I suggest you forget it and the term being used! 

    Thank you for your service! :)

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  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    11y

    An upside if you pull it off, is that the two individual properties are probably worth more than if it was a duplex.  

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  • William Donnelly
    OP
    Investor · Biloxi, MS · Member since 2014 · 55 posts · 12 votes
    11y

    if it is in fact a "title" issue instead of a "zoning" issue, is there any way to get it changed? Who should I contact about this? Title agency?

    It seems like there should be a resolution to this problem, without some crazy loan financing. It's just finding the way to cut through the red tape. 

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  • Emilio Ramirez
    Contractor · Denver, CO · Member since 2009 · 399 posts · 166 votes
    11y

    I don't think there is any way around the "red tape" here.... If it is split into two condos, then there is also an HOA. Is the HOA funded? Does it have any liabilities? I would suspect that the process is fairly straight forward, but this is a jurisdictional issue and what happens in mine may be 180 degrees different than yours. So you will have a time frame to convert it from condos to single family home or duplex. That could be anywhere from 1-9 months depending on how many people need to review and sign off on the change. I would recommend starting with the city planning department and/or a real estate lawyer. Many titling companies are owned by lawyers or have lawyers on staff so that could be a good resource as well. Maybe you can even find out who wrote the condo doc's. They could be a good resource on describing the reversal process to you.

    One option would be to purchase the property with hard money while you do the conversion and then refinance with your conventional loan. Bit of a risk and not my forte so you would need to do your due diligence there. Other option would be to wholesale it to a another buyer. Are you allowed to assign the contract? From what I understand, many banks put in a 90 day clause in their REO sales, but then again, not my forte. From your original post, it is unclear what your ultimate goal for the property is, so a bit harder to comment.

    Nothing against realtors, but I would not rely on most of them to understand and/or resolve titling or zoning issues. 

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    11y

    They are two separate properties, period, Fromm hat you say. Are they definitely "condominiums" in the legal sense(which means there is only one parcel number) or are they I fact two "townhouses/zero lot lime homes" (having two parcel numbers)? If they are indeed legally condos, they won't we financable with FHA as they certainly haven't been through the certification process.

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  • William Donnelly
    OP
    Investor · Biloxi, MS · Member since 2014 · 55 posts · 12 votes
    11y

    According to my realtor, the land was originally a trailer park with multiple trailer lots. A contractor built the duplex on the land without ever getting it "approved" or zoned correctly. The builder/owner then could not sell the individual units, and was forced into foreclosure. It has been bank owned ever since. Somewhere along the way, the fact that it was never zoned correctly, was lost or overlooked. That's how I got to this point now after the bank tried to sell me this as a duplex.

    Since hurricane Katrina, the city has not allowed certain areas to be zoned to multifamily for new construction. I'm not sure how the builder ever got a legal permit to construct this duplex. 

    I'll be contacting the title agency as well as the seller myself. Hopefully they can figure out something else. Otherwise, the bank is never going to be able to sell this property unless they practically give it away as two seperate condos. 

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    11y

    Okay, this is different...it's neither  2 legal condos nor 2 legal townhouses....it's essentially an illegal structure, but with approved building permits?  The solution will lie with the city/county planning and zoning dept. who should be able to tell you the required process to get this resolved.  It likely won't happen within 2-3 months.  This will probably take someone willing to buy cash for a steep discount, who has an idea of what it will take to get this done.

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  • William Donnelly
    OP
    Investor · Biloxi, MS · Member since 2014 · 55 posts · 12 votes
    11y

    After talking to the selling broker who represents the bank owned property, she has told me that the builder bought the land, had it rezoned to single family, and then built a duplex. Perhaps with the intention of only ever selling the units individually. The builder did this before hurricane Katrina. Since then Ofcourse, the city will not allow anything to be zoned to multifamily. 

    Basically, this property was an illegal build, and will NEVER be changed to multifamily. Also, The additional land on this property, can not be used to build more structures.

    Any typical mortgage lender will not allow the purchase of two seperate dwellings at the same time, like the VA loan which is what I'm using. The only hope for this property is for someone to use %100 cash, and then use the huge "yard" as just that, a huge yard. If you're interested let me know!

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  • William Donnelly
    OP
    Investor · Biloxi, MS · Member since 2014 · 55 posts · 12 votes
    11y

    My attorney says the seller has to go to the state commission and file a one time variance. This would excuse the zoning and allow me to buy it. Only the seller can do this though. Does anyone have experience with this?

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