Zoning regulations limit the usage allowed on any given parcel of property. Building codes restrict the way improvements are made. Local zoning laws and building codes change regularly, especially in larger cities and developing areas. What was once acceptable may now be non-conforming. Loan underwriters and processors must ensure that properties meet legal requirements.

Part of the appraiser's task is to determine the zoning designation for the subject property. He or she will also offer comments on major elements in the property that are against code.

Most residential mortgage lenders will not close an approved loan if the property does not meet zoning regulations or obtain a variance. For example, if the appraisal indicates that the subject property is zoned commercial, the borrower must obtain a variance.

Another example is that coach houses (apartment units in former garages) are no longer allowed in the city of Chicago. In order to close a purchase or refinance on a property that includes a coach house, the borrower must obtain a letter from the building department that allows the borrower to rebuild the structure if it is ever destroyed by fire.

The problem with building codes only arises with a handful of purchases. Many homeowners, for example make major improvements without obtaining building permits. When it comes time to sell, those additions and improvements pose a problem. Some cities will prohibit the purchase by refusing to issue transfer stamps; they may even require major improvements or a tear-down, as well as a fine.

For more information, see the "Zoning and BuildingCodes" article.

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