Zoning Inaccuracy Causes Commercial Property Problem

Q: We purchased a building in March, 1999. During that process, the property was appraised, and the appraisal came back indicating that the building was zoned commercial.
 

We refinanced this past July, and the new appraisal that was done showed that the property was in fact zoned residential TFC-2. We called the first appraiser and he told us he had gotten his information from a data company out of California. The second appraiser had gotten their information from the County zoning department.

I called the data company, and they told me they get their information from the zoning department. They also told me that their records showed the property is zoned residential TFC-2.

We have spoken with a few attorneys. One told us it was our fault for not checking the first appraisal which was ordered through the bank. The other attorneys weren’t sure they could do anything for us.

The zoning department told us we would have to pay a minimum of $2,500 to get the building rezoned. While they have had buildings rezoned since 1999, it could actually take 6 months to a year for the change to occur, and the cost could skyrocket.

We have title insurance. The title officer tells me they are not responsible for incorrect zoning classification. My question is, who exactly who is responsible for this? Do we have any recourse?

A: The short answer is, caveat emptor: Buyer beware. You are responsible for checking out the property before you buy it, and that includes determining what the zoning is for the building before you bought it.

If I were buying your building, I would have gone down to city hall and checked it out in person with a representative from the local planning department.

Since you live in California, I can only assume that you bought the property without the assistance of a qualified real estate attorney. If you had had an attorney representing you at your closing, we wouldn't be having this exchange, because a decent real estate attorney would have raised the zoning issue early on and perhaps even checked it out as part of his or her regular due diligence on the property. There would have been no surprises, such as finding out your "commercial" property is in fact zoned residential.

Now you have to decide whether it's worth it to spend $2,500 (or more) to rezone the property. Will the property be worth more zoned commercial? How much more? If there is a significant difference between the values then you should probably shell out the cash and change the zoning.

Please consult with an attorney who has plenty of experience rezoning property to find out what the true costs are. Also, you'll want someone with plenty of close ties to the local zoning board. Those relationships can help smooth out a difficult situation.

A final thought: It’s possible that the first appraiser made a mistake, and thought the building was zoned commercial when in fact it was residential. Or, the data company could have had a mistake in its records, which has since been corrected. Proving fault here could be difficult.

In the end, however, it was up to you, the buyer, to check it out and make sure you were getting everything you paid for.

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