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A zoning issue is blowing up my home purchase. Do I have a remedy?

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Dear Real Estate Adviser,
I found a house and made an offer that was accepted. My mortgage was approved and closing was scheduled. Now the title company has discovered the property is zoned business and my mortgage company has dropped out as a result. I was ready to move. What can I do? Can the sellers back out now?
— J.L.J.

Dear J.L.J.,
As you’ve seen, a so-called non-conforming use can turn a seemingly unbeatable deal into a nightmare, and I’m sorry this is happening to you. But there are some potential remedies, which we’ll get to in a minute.

You’re in the right

First, though, your sellers are in the wrong for not being upfront; there’s almost no chance they didn’t know about this issue. The seller’s broker and your broker, assuming you each had representation, should have researched this. You ask if the sellers can back out. Sure they can. But they will likely run into the same problem with the next buyer unless they can find a cash buyer.

There have been numerous successful lawsuits based on sellers advertising the wrong asset type with misleading intent, causing expense, wasted time and anguish. That is your trump card. Tell the sellers you want to work with them to get this resolved, then write up a new contract based on your strategy. Don’t mention “lawsuit” unless necessary.

Available remedies

What you can do: While large banks are nervous about such loans, small banks and credit unions are less so, so try them. But realize a commercially zoned property may still demand a higher-cost loan — perhaps 1% to 2% more. Realize, too, that a big sticking point for lenders about backing such a business-zoned property is fire. They don’t want to get stuck with a piece of property where a house can’t be rebuilt. So you or the seller (or both of you) may have to request a “rebuild letter” from the city saying a home can be rebuilt there if a fire destroys the current one.

Alternatively, you can go to the city and request a zoning variance, though the process can take 2 months or longer and cost $250 and up. Confer with an official on your local planning/zoning board about the situation. There may just be a little-known zoning stipulation or nuance that actually places the property in conformance.

The rezoning route

If there isn’t a zoning variance but you are given a reasonable assurance a zoning change will be granted, speak with the sellers about doing a “contract for deed,” where you would buy with a down payment, then refinance at a later date, giving you the time to apply for rezoning.

Cities like to keep properties zoned commercially because they typically bring in more tax revenue. But hopefully logic will prevail here and there’ll be a happy ending for you.

Good luck.

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