Bought a House w/ Unlawful 2nd Kitchenette, Who is Responsible?

[BranDocMan]

Hi there, my fiance and I are first-time homeowners in Washington, DC, and purchased a home advertised on the MLS real estate listing as having a basement that has its own bedroom, bathroom, kitchenette, and entry followed by the words that it is perfect as a "rental unit." While we bought it with the hopes of one day renting it out to help cover the mortgage, we also found out that the kitchen was not in the building plans, no permits were applied for or approved, and the home is missing measures such as a subpanel and fireproofing to meet building code for an accessory dwelling unit, even though it is permitted by zoning codes.

This was not disclosed to us by anyone, including both realtors involved. Since we do not want to ever get penalized for this, who is responsible for this mishap and rectifying it?

Additionally, we signed a No Escrow Repair Agreement with the sellers before closing. When their contractor did not finish the punch list and did some work, like windows and electric without a city permit, and against code by grounding previously ungrounded outlets to the neutral wire (potentially dangerous; they were not licensed electricians), we brought in our own contractors to finish the missing items and make corrections. The sellers have yet to reimburse us for the thousands we spent on these repairs and it has been months. Recently, however, their payoff lender, realtor, and contractor have offered to reimburse us for this in exchange for signing a hold harmless agreement that does not include the sellers. This was not required per the repair agreement, though. Some of my relatives believe that they are offering this to not be liable for the kitchenette/rental unit issue and thus I have not signed it.

So, what would you do?

Thanks in advance and sorry for the lengthiness!

 

[Just Blue]

Hi there, my fiance and I are first-time homeowners in Washington, DC, and purchased a home advertised on the MLS real estate listing as having a basement that has its own bedroom, bathroom, kitchenette, and entry followed by the words that it is perfect as a "rental unit." While we bought it with the hopes of one day renting it out to help cover the mortgage, we also found out that the kitchen was not in the building plans, no permits were applied for or approved, and the home is missing measures such as a subpanel and fireproofing to meet building code for an accessory dwelling unit, even though it is permitted by zoning codes.

This was not disclosed to us by anyone, including both realtors involved. Since we do not want to ever get penalized for this, who is responsible for this mishap and rectifying it?

Additionally, we signed a No Escrow Repair Agreement with the sellers before closing. When their contractor did not finish the punch list and did some work, like windows and electric without a city permit, and against code by grounding previously ungrounded outlets to the neutral wire (potentially dangerous; they were not licensed electricians), we brought in our own contractors to finish the missing items and make corrections. The sellers have yet to reimburse us for the thousands we spent on these repairs and it has been months. Recently, however, their payoff lender, realtor, and contractor have offered to reimburse us for this in exchange for signing a hold harmless agreement that does not include the sellers. This was not required per the repair agreement, though. Some of my relatives believe that they are offering this to not be liable for the kitchenette/rental unit issue and thus I have not signed it.

So, what would you do?

Thanks in advance and sorry for the lengthiness!

Did you hire an independent inspector to inspector the home before purchase?

 

[BranDocMan]

Did you hire an independent inspector to inspector the home before purchase?

Yes, we did. He gave us the items for our repair agreement. I was under the impression that a home inspector checks for defects more so than whether a 2nd kitchen/accessory dwelling unit is within code or even permitted.

 

[Zigner]

Yes, we did. He gave us the items for our repair agreement. I was under the impression that a home inspector checks for defects more so than whether a 2nd kitchen/accessory dwelling unit is within code or even permitted.

That would generally be correct (read your contract with the inspector). It also behooves you to check for permits on any additions, etc.

 

[adjusterjack]

This was not disclosed to us by anyone, including both realtors involved. Since we do not want to ever get penalized for this, who is responsible for this mishap and rectifying it?

Probably you. Whatever you found out about the basement after the purchase could have been found out during your due diligence period.

Read the D.C. disclosure law:

https://code.dccouncil.us/dc/council/code/titles/42/chapters/13/

You'll see what's required and you'll also see the exceptions. You would be wise to consult an attorney if you don't understand any of this stuff.

I was under the impression that a home inspector checks for defects more so than whether a 2nd kitchen/accessory dwelling unit is within code or even permitted.

Correct.

Recently, however, their payoff lender, realtor, and contractor have offered to reimburse us for this in exchange for signing a hold harmless agreement that does not include the sellers. This was not required per the repair agreement, though. Some of my relatives believe that they are offering this to not be liable for the kitchenette/rental unit issue and thus I have not signed it.

Maybe, maybe not. The disclosure law does not hold the realtors liable for the omission from the disclosure unless the realtors colluded with the seller to commit fraud. Fraud is very hard to prove.

How much money are we talking about for the repair reimbursement?

 

[BranDocMan]

Maybe, maybe not. The disclosure law does not hold the realtors liable for the omission from the disclosure unless the realtors colluded with the seller to commit fraud. Fraud is very hard to prove.

How much money are we talking about for the repair reimbursement?

A little over $8,300. That makes sense, we thought that since the payoff lender, seller's realtor broker, and contractor did not sign the actual no escrow repair agreement, that we could only legally pursue the two sellers whose signatures were on the repair agreement agreement. As such, it was strange for them to reach out to us months after closing asking us to sign a hold harmless agreement (that doesn't include the 2 sellers) in exchange for immediate reimbursement.

 

[LdiJ]

Hi there, my fiance and I are first-time homeowners in Washington, DC, and purchased a home advertised on the MLS real estate listing as having a basement that has its own bedroom, bathroom, kitchenette, and entry followed by the words that it is perfect as a "rental unit." While we bought it with the hopes of one day renting it out to help cover the mortgage, we also found out that the kitchen was not in the building plans, no permits were applied for or approved, and the home is missing measures such as a subpanel and fireproofing to meet building code for an accessory dwelling unit, even though it is permitted by zoning codes.

This was not disclosed to us by anyone, including both realtors involved. Since we do not want to ever get penalized for this, who is responsible for this mishap and rectifying it?

Additionally, we signed a No Escrow Repair Agreement with the sellers before closing. When their contractor did not finish the punch list and did some work, like windows and electric without a city permit, and against code by grounding previously ungrounded outlets to the neutral wire (potentially dangerous; they were not licensed electricians), we brought in our own contractors to finish the missing items and make corrections. The sellers have yet to reimburse us for the thousands we spent on these repairs and it has been months. Recently, however, their payoff lender, realtor, and contractor have offered to reimburse us for this in exchange for signing a hold harmless agreement that does not include the sellers. This was not required per the repair agreement, though. Some of my relatives believe that they are offering this to not be liable for the kitchenette/rental unit issue and thus I have not signed it.

So, what would you do?

Thanks in advance and sorry for the lengthiness!

The payoff lender and the contractor would have no liability regarding the kitchenette/rental issue. I do not believe that their realtor would either since it was not disclosed to the realtor. Only the seller would have any liability there in my opinion. No, they are offering to settle with you but don't want the seller to benefit from their doing so. If I were in your shoes I would take the money. However, it would likely be best if you ran the whole thing by a local real estate attorney. I am not suggesting that you hire one at this time, just pay for 30 minutes to an hour of their time to review the overall situation.

 

[FlyingRon]

You're likely not getting anywhere for the failure to disclose as it would be hard-pressed to argue the seller knew and you accepted the correction in your contract. The issue comes now with the substandard work done by the contractor. It's hard to go after them, but you should try. It's illegal for them to do electrical work without being electricians. Grounding to the neutral is VERY bad.

 

[LdiJ]

You're likely not getting anywhere for the failure to disclose as it would be hard-pressed to argue the seller knew and you accepted the correction in your contract. The issue comes now with the substandard work done by the contractor. It's hard to go after them, but you should try. It's illegal for them to do electrical work without being electricians. Grounding to the neutral is VERY bad.

That is probably why the contractor has offered to pay, (along with the payoff lender and the realtor). It sounds like they are offering to reimburse in full, so I wouldn't spend the money to sue them if I were in the OP's shoes.

 

[BranDocMan]

The payoff lender and the contractor would have no liability regarding the kitchenette/rental issue. I do not believe that their realtor would either since it was not disclosed to the realtor. Only the seller would have any liability there in my opinion. No, they are offering to settle with you but don't want the seller to benefit from their doing so. If I were in your shoes I would take the money. However, it would likely be best if you ran the whole thing by a local real estate attorney. I am not suggesting that you hire one at this time, just pay for 30 minutes to an hour of their time to review the overall situation.

Interesting, when we initially spoke and brought the whole issue up, the payoff lender said that as far as he knows, the sellers put in the kitchenette without telling anyone else. This was hard for us to believe since it is mentioned in the listing and obvious in the photos. Now, he's called me twice asking me to sign. A few months ago, they were considering giving us additional money to address the kitchenette/ADU issue in exchange for a hold harmless but the sellers refused to go over the repair reimbursement. A hold harmless agreement was never a part of the discussion/repair agreement, however, so we are hesitant to sign one when the money is owed to us regardless of a hold harmless agreement. Thank you for the advice!

 

[BranDocMan]

You're likely not getting anywhere for the failure to disclose as it would be hard-pressed to argue the seller knew and you accepted the correction in your contract. The issue comes now with the substandard work done by the contractor. It's hard to go after them, but you should try. It's illegal for them to do electrical work without being electricians. Grounding to the neutral is VERY bad.

Thank you for shedding light on that, too. A few electricians told me how concerning their work was and recommended looking into legal action. What do you mean by us accepting the correction in the contract?

Also, from my understanding of conversations with DCRA (DC's authority that handles permits and inspections), the previous owners would be the ones to get fined for illegal work, like anything done without a permit.

 

[zddoodah]

While we bought it with the hopes of one day renting it out to help cover the mortgage, we also found out that the kitchen was not in the building plans, no permits were applied for or approved, and the home is missing measures such as a subpanel and fireproofing to meet building code for an accessory dwelling unit, even though it is permitted by zoning codes.

Found out when? This is something you should have discovered via the inspection that should have been performed before you closed.

This was not disclosed to us by anyone, including both realtors involved.

Are you supposing that either or both realtors knew about the lack of permits, etc.? If so, why do you think they knew? For that matter, do you know that the sellers knew? Was the basement work done while your sellers owned the home? You mentioned something about some employee of the lender telling you something "as far as he knows," but I can't think of any reason why a lender would know about that.

Additionally, we signed a No Escrow Repair Agreement with the sellers before closing.

That's a nice label, but without some description of the terms of this agreement, it's a bit meaningless.

The sellers have yet to reimburse us for the thousands we spent on these repairs and it has been months.

Did the sellers ever tell you that they would reimburse you?

Recently, however, their payoff lender, realtor, and contractor have offered to reimburse us

Why would any of them do that?

what would you do?

I would take the relevant documentation to the best local real estate attorney I could afford and ask for a review and advice based on that review.

Yes, we did [hire an independent inspector to inspector the home before purchase]. I was under the impression that a home inspector checks for defects more so than whether a 2nd kitchen/accessory dwelling unit is within code or even permitted.

Any decent inspector should at least raise the issue so that you could then check to see if it was permitted.

 

[adjusterjack]

A hold harmless agreement was never a part of the discussion/repair agreement, however, so we are hesitant to sign one when the money is owed to us regardless of a hold harmless agreement.

That money is owed doesn't mean that money gets paid. If you don't sign and they don't pay, then what? You can go to small claims court in D.C. The limit is $10,000.

https://www.dccourts.gov/services/civil-matters/requesting-10k-or-less

You don't need a lawyer but I believe lawyers are permitted so if the defendants have lawyers they'll probably run rings around you.

 

[BranDocMan]

Found out when? This is something you should have discovered via the inspection that should have been performed before you closed.

We found out after closing while the seller's contractor was still working on the punch list of the repair agreement.

Are you supposing that either or both realtors knew about the lack of permits, etc.? If so, why do you think they knew? For that matter, do you know that the sellers knew? Was the basement work done while your sellers owned the home? You mentioned something about some employee of the lender telling you something "as far as he knows," but I can't think of any reason why a lender would know about that.

I am unsure of what they knew or what I could prove but I understand that there is a fiduciary responsibility they have to uphold. The home is a glip so yes, the kitchen was put in by the sellers who flipped it. I think the payoff lender was involved in the financing of the flip and maybe chose the contractor for the punch list.

That's a nice label, but without some description of the terms of this agreement, it's a bit meaningless.

The contract includes: "INDEMNIFICATION: The parties hereto will indemnify each other and hold each other harmless from
any loss or damage either suffers by virtue of the other party not fulfilling their obligations pursuant to
the terms of this agreement, said indemnification to include, but not to be limited to reasonable
attorney's fees."

Did the sellers ever tell you that they would reimburse you?

Not in those words but they signed to the above clause knowing they would be responsible.

Why would any of them do that?

I am not sure, but I imagine that it would be because there is still a chance that they could be liable for something and want to eliminate that risk.

I would take the relevant documentation to the best local real estate attorney I could afford and ask for a review and advice based on that review.

Thank you, I will be looking into attorneys!

Any decent inspector should at least raise the issue so that you could then check to see if it was permitted.

Agreed, ideally, he would have but his expertise was more for construction defects and such and not zoning/ADU code.

Sorry, I don't know how to quote each part separately yet so I replied directly in the quote above.

 

[BranDocMan]

That money is owed doesn't mean that money gets paid. If you don't sign and they don't pay, then what? You can go to small claims court in D.C. The limit is $10,000.

https://www.dccourts.gov/services/civil-matters/requesting-10k-or-less

You don't need a lawyer but I believe lawyers are permitted so if the defendants have lawyers they'll probably run rings around you.

If we don't sign, I think sueing would be the only way to get the money without the Hold Harmless for the repairs. Apparently the sellers claimed they lost money on the house so who knows if they will get a lawyer. I think that makes the illegal kitchenette/ADU and illegal electrical work separate issues.