Pat Hune, Broker, 1st Southwest Realty, December 2018
Mr. Happy was looking for a house with a guesthouse. He had elderly parents and wanted a separate living area for them. He found the perfect house. The guesthouse was a studio with a kitchen and bath attached to a one-car garage. Happy bought the home in March 2017 and proceeded to convert the garage to a bedroom living space. (Note: Luckily this is not a transaction I was involved in.)
A few months after buying the home the Happy decided to rent the main house out on a short-term basis when he was not using it. He advertised the home on short-term rental websites and received immediate interest. What Happy did not realize was the neighbor, Ms. Sunny, was vehemently opposed to short-term rentals. Ms. Sunny complained to the county about the short-term rentals.
When the county investigated they discovered many issues. 1) The guesthouse kitchen was put in illegally before Happy purchased the property. This was probably done without a building permit. 2) The property is zoned to only have one dwelling unit. 3) The county does not recognize the guesthouse as overnight habitable space. 4) The guesthouse structure encroaches 20 feet into the 30-foot setback. Happy said the guesthouse had been there for many years. The neighbors had no problems with the guesthouse until Happy started renting out the main house as a short-term rental.
Happy asked the county to issue a use permit allowing for the second dwelling unit and waiving the setback encroachment. The county declined Happy’s request. Ultimately Happy will need to correct the issue of the setback encroachment. Needless to say Happy is no longer happy with the property.
What recourse does Happy have? The parties involved are the home inspector, title company, seller, seller’s realtor and the buyer’s realtor.
Home Inspector – The home inspector has no obligation to look for building permits or zoning violations. Their job is to look for mechanical defects.
Title – This is not covered by title insurance. The standard language in most title insurance policies states ” . . . you are not insured against loss, costs, attorneys’ fees, and expenses resulting from: 1. Governmental police power, and the existence or violation of any law or government regulation. This includes building and zoning ordinances and also laws and regulations concerning: · land use, improvements on the land, land division . . .”
Seller and Seller’s Realtor – The next question is did the seller disclose these issues to Happy during the course of the purchase? This was a bank owned home. Banks do not provide any disclosure information. Typically the bank has the buyer sign documents that says the bank will not be held liable for any property defects. So what about the listing realtor? Realtors are only required to disclose material facts they know about. Since the seller was a bank it is unlikely the listing realtor received any information about the property. It is not the responsibility of the seller’s realtor to check for these types of issues. Unless the realtor had prior personal knowledge it is unlikely they would be liable.
Buyer’s Realtor – The realtor representing the buyer was not a realtor who regularly practiced in the area. The claim could be made the realtor was working outside their area of expertise. However realtors are not qualified to determine zoning violations and setback encroachments. Our job is to advise the buyer to check on these items before purchasing the property using a form called the Buyer Advisory. Though it is unknown if he or she had the buyer sign a Buyer Advisory it is unlikely the realtor has any liability. (But in the USA anybody can sue anybody for anything at anytime. Once someone is sued they have to mount, and pay for a defense. And anything can happen if it goes to a jury trial. This is why a lot of innocent defendants settle.)
What about the prior two owners? According to a historical MLS listing the house sold in January 2005 and the guesthouse was included in the listing. This buyer, the one that let the house go to foreclosure, probably has no liability since there was no relationship with either of the realtors in the March 2017 transaction. The January 2005 seller was a licensed Arizona realtor and a realtor from the same brokerage represented the buyer. Is there any liability for the 2005 seller thirteen years later when it was sold to a buyer which this seller had no relation or communication? Maybe there would be if the 2005 seller constructed the guesthouse and did not get the appropriate permits. This is a question for an attorney.
Conclusion – It is interesting the neighbors never complained in the 15+ years the guesthouse was in existence until Happy started renting the main house out as a short-term rental. I would agree with Happy the complaint was to stop his short-term rentals. However this does not change the fact Happy now has a guesthouse with issues he needs to spend money to resolve. If he has to remove it completely it will reduce the value of the property.
The moral of the story is when buying a property with additions or buildings make sure they have been permitted and don’t violate zoning. If you want to use the property as a short-term rental check with the neighbors before you buy.