Be wary of homes with unpermitted additions

Purchasing a house that has been expanded without the approval of local building authorities is a risky proposition.

Q. We found a nice home that we want to buy, but there is a problem. The advertising flyer that the seller’s agent prepared states that the extra bedroom and bathroom that were added to the back of the house were built without a permit from the local building department. If we make an offer on the property, is the seller required to ensure that the addition is OK and up to code? If we buy the house and the building department later finds out that the bedroom and bath were not permitted, can we sue the seller?

A. The seller and his agent have informed you that the additions were made without the approval of local authorities, so there’s no legal obligation to guarantee that the new bedroom and bath meet government-set building standards — or even if they’re allowed at all.

Sooner or later, the building department likely will find out about the unlicensed additions. At best, you’d then have to get costly “post permits” for the work. At worst, you’ll be ordered to spend thousands of dollars to bring the add-ons up to local codes or might even be ordered to tear them down.

I would seriously consider looking for a different property. But if you’re intent on going through with the purchase, contact two or three local contractors and ask them to inspect the unpermitted work. Also ask them to estimate how much it would cost to make any changes that might be needed to bring the additions up to local construction standards.

You could then ask the seller to make any needed repairs, or lower your offering price to offset the cost of the permits and work that might be needed after you move in.

Q. I am buying a house with my two brothers. Can we “take title” to the house as joint tenants, even though there are three of us instead of two and we are (obviously) not married?

A. Yes, the three of you can take title to the home as joint tenants. None of the 50 states put limits on the number of people who can own an interest in an individual property.

If you and your two brothers take title as joint tenants, each of you will own a one-third share of the house. When the first joint-tenant dies, the other two will own a 50-percent share each. And when the second dies, the sole survivor will own the entire property.

That said, taking title to the house as “tenants in common” instead might be a better idea. Doing so would allow you and your brothers to sell or will the one-third interest to someone else. Such flexibility may be important if, say, you have a spouse or grown children and you want them — instead of your brothers — to inherit your interest in the property after you die.

Taking title as tenants-in-common also would allow you or your brothers to easily sell the one-third share if a dispute eventually rises, whether it’s triggered by a nasty divorce or a disagreement about whether the house should be sold. Talk to your realty agent, title-insurance representative, and the closing attorney or escrow agent who is handling the transaction for more information.

Q. Earlier this month, we refinanced our 6 percent, 30-year loan for $140,000 with a new mortgage at 4.5 percent. This lowered our monthly payment for principal and interest to $709 from $839. But if we continue paying $839, which we are used to, how much sooner would we pay the new loan off? How much would we save in long-term interest charges?

A. First, let me congratulate you for thinking ahead. Many homeowners are adopting the same strategy by refinancing at today’s lower interest rates but keeping their previous monthly payment amount. It allows those owners to pay their new loan off years ahead of schedule and save tens of thousands in future mortgage-interest charges.

If you keep the $709-per-month repayment schedule that the bank gave you, you would pay $115,369 in finance charges over the life of the new 30-year mortgage. But if you instead continue paying $839, that extra $130 that goes directly to the loan’s principal would allow you retire the debt in about 21 years, 11 months and reduce your overall finance charges to $80,235.

In other words, sticking to your old payment schedule — which you have obviously budgeted for in the past — would allow you to painlessly trim eight years and one month off your loan term and save a staggering $35,134 in future finance charges.

REAL ESTATE TRIVIA: The average age of a real estate agent is 57, the National Association of Realtors says, compared with 41 for workers in other industries.

Ÿ For the booklets “Straight Talk About Living Trusts” and “Free and Clear: Getting the Mortgage Monkey off Your Back,” send $4 for each and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405.

© 2013, Cowles Syndicate Inc.