All Forum Posts by: William Donnelly

Thanks for all the replies and thank you if you've offered advice. However, i'm not sure why there is a bitter tone in some of the responses. Perhaps this "small loss" is a common occurrence among investors, in some form or another.

I do understand it is a risk putting money down for something that may or may not close. I also understand that zoning is not "typical for an agent to check". My problem lies with the manner in which this "small loss" was stumbled upon, at the last minute. It should be illegal to "falsely advertise" something for sale unless it is, in fact, %100 the thing that is being advertised. 

At the end of the day, this deal was false to begin with and no one bothered to make sure it was a sound deal. Period

This is a shady way to practice business in general. 

Greetings Bigger Pockets,

If you've read my previous posts, I was 30+ days under contract to buy a duplex (bank owned foreclosure) and was only waiting on the appraisal before closing. The VA appraiser discovered it is not actually a duplex, but it is zoned as single family. Therefore, this contract is null and void. The only options are for me to wait around for months and persuade the seller (the bank) to file a variance with the local zoning commission, and hope that it's approved, or, i'll need to find alternative financing since no conventional mortgage lender will finance this property.

Since the deal was dead, I personally contacted the listing agent to get her side of the story. She has stated that when she was "told" to sell this property, she could only find the first page of the appraisal, so she "didn't see why not" and listed it for sale as a duplex. The listing agent obviously did not do her due diligence before listing this property. After all the time and money spent, the only person to catch this zoning mistake was the VA appraiser. This property should have never even been listed for sale as a duplex.

I will obviously get my insurance deposit back, as well as my earnest money deposit. But as for my $450 home inspection, and 2-$200 plane tickets along with all the other travel expenses and days taken off work, am I just screwed?? Last week, I asked the listing agent to request some reimbursement from the bank. I still have not received word from anyone. Aside from taking this matter to court for about $1000 in compensation, is there anything I can do?

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?

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!

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. 

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. 

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?

Interesting update!

On this foreclosure, the bank postponed their initial counter offer until 5pm the next business day. At that time, they took back their counter offer and actually ACCEPTED my offer of $90k less than the asking price!!!!!

Needless to say, they are not willing to pay out anything else in the form of repairs, closing costs etc. So, I'll be responsible for paying the closing costs and any repairs the appraiser finds before the VA will close on the loan. Personally, with such a great deal and at least $100k instant equity on the property, I see no issues with paying closing costs out of pocket. The lender did mention raising the interest rate in order to establish an interest credit to help offset the closing costs out of pocket. Obviously this would increase my monthly mortgage payment slightly, less than $100. Is this a good idea? Does anyone have any experience with this interest credit?

Still, totally worth it in my opinion!

Also, the appraiser from the VA will be the determining factor on any required repairs. Although i'm not a contractor, the only damage that I noticed was some slight cosmetic water damage in a few small places on the exterior trim boards. Hopefully this doesn't derail this deal. Any thoughts on that?

The only issue is, with my VA loan, my lender wants all repairs done BEFORE closing. So it appears the seller will have to agree to this. Also, do banks normally agree to pay closing costs? I just figured its already a stretch getting them 80k below asking price...

Thanks Mr. Caldwell.

Some really sound advice. My only issue is, my VA mortgage lender requires and exterior water damage to be repaired before closing. Is my only option to have the seller fix it? Does that give the seller more leverage on the price negotiation?

Semper Fi