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I'm in escrow for a condo property in Santa Monica, CA, and the appraiser brought up an issue that the lender (Wells Fargo) is now balking at.
The issue is:
- The condo building has 21 units on 15000 sf (density of 1 unit / 710 sf).
- After this was built, zoning codes in Santa Monica changed such that the majority of the city can only have a density of 1 unit / 2000 sf. So this building is legal, non-conforming.
- The Santa Monica zoning laws say that in the event a non-conforming building is destroyed or damaged to more than 50% of replacement cost, then the building must be rebuilt to conform with current zoning rules. It does not anywhere in the code give exception for density.
This means that if a fire or earthquake or whatever destroys or damages the building, the building can only be rebuilt to 7 units instead of the current 21.
I have no idea what happens to the other 14 families, but this just doesn't pass the funny look test to me. It seems like this zoning law can easily result in people losing their homes. I'm pretty sure the majority of the residential buildings in Santa Monica do not meet the current density requirements, and the fact that it is earthquake country means damage/rebuild is a very real possibility.
Does anyone have any experience with this? Like I said, the lender is balking because of this.
I have no experience with this issue, but couldn't the building be rebuilt taller than it currently is to meet the new density standard and preserve the same number of units?
ETA: Doesn't that work out pretty well for the owners of the damaged condos? You'd get a bigger place, wouldn't you?
I have no experience with this issue, but couldn't the building be rebuilt taller than it currently is to meet the new density standard and preserve the same number of units?
ETA: Doesn't that work out pretty well for the owners of the damaged condos? You'd get a bigger place, wouldn't you?
No because the density is defined as number of units / lot size. The lot size is the footprint of the lot, which is the same no matter how tall you build the buldings on it.
Yeah the 7 owners that get to stay will get a bigger place, but the 14 owners that no longer have a home would be pretty pissed.
Does no one else think this is ridiculous and wrong?
It is the same here and lenders balk at it here too.
If the home is damaged beyond 50% those people aren't going to have homes anyway. They'd have to move. That is some significant damage to the property.
It is the same here and lenders balk at it here too.
If the home is damaged beyond 50% those people aren't going to have homes anyway. They'd have to move. That is some significant damage to the property.
Not everyone is going to just abandon their home and default on their mortgage because the physical property is destroyed; that's why they have hazard insurance. Plus in many places the land is worth way more than the improvements on it.
I'm amazed that this is the same law where you live too...just seems so unconstitutional.
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The homeowners insurance should be enough to cover the balance due on the mortgage. If the unit is unable to be replaced due to the zoning restriction, you should have enough to move to another place or be one of the lucky 7.
I'm surprised (Oh wait, no I'm not) that the lender wouldn't figure out that they wouldn't be harmed by making the loan. I'm not exactly sure what title insurance companies would do in the situation, but I might ask to see if they would cover the situation as your title might be wiped out in the scenario you describe.
Homeowner's control of this situation???
Zilch = no control.
7 vs 14...
majority have zilch control unless one lucked out as that 7 even "if" they want to stay (say like they bought for a good price but due to the incident, have to rent... but rent has skyrocketed that even with any money back from insurance is not going to "cut it" eg. mortgage payment = $1000 & rent is min. like $2500)... & majority being 66%.
Scary!
Loss of freedom is the price we pay for (or NOT!)....
Codes, regulations, zonings etc. etc. etc.
Not everyone is going to just abandon their home and default on their mortgage because the physical property is destroyed; that's why they have hazard insurance. Plus in many places the land is worth way more than the improvements on it.
I'm amazed that this is the same law where you live too...just seems so unconstitutional.
But it is a condo so you don't own the land. Only what is inside the interior walls. You would get your insurance money for the unit. If the building is 50% damaged that's a bulldoze and start over job. Everyone would be living somewhere else. I would expect the HOA to fold and I'm not sure how insurance monies get divided up, but then it would likely be sold to a developer who would rebuild it to current zoning laws.
I also don't get this idea of a lucky 7. Its not like if the place burns down 7 lucky people will get the land and the rest get screwed. The condo will own the land and will sell 7 plots. The proceeds of those sales will go to the 21 current owners.
So basically the 7 people who will want it the most will end up with it. Or actually it could go to anyone who wants to pay for it even if they don't live there. So you should get 1/21 of the land value plus whatever your condo was worth.
If there is something for the bank to worry about, I guess its that the land will be worth much less with the density restrictions in place. Though I do not know that is true.
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