Unpermitted in-law - will it haunt us?

We are interested in buying a house with a “bonus” cottage in back in the Richmond/el sobrante Area . The former owner was a contractor and we are pretty sure the cottage is unpermitted. The home inspector says the place looks great and is very well built. We would be interested in trying to make it legal but worry that it is too close to the main house to qualify. If we buy this house will we be forever haunted by its unpermitted status? What if the roof needs replacing or we need anything else done to the house, will those items require permits and get us in trouble for the cottage? We would consider tearing it down but worry the cost would be prohibitive and what a waste, we both have out of state parents who would love a place to stay while visiting the grandkids. I guess I’m just wondering a few things. Has anyone successfully made their illegal inlaw legal even if it was too close to the main house or property line? Has anyone been able to have quality work done on their home without having other unpermitted work or structures dinged? Has anyone had to tear down a backyard cottage- if so, how much did it cost? 

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I doubt that it will be a problem. Seems like most homes have unpermitted work. The rules are so convoluted, people just give up and make the changes they want. If you are caught in the middle of building, you have to pay a fine. But once it is done, it seems like there is no penalty. And if you pull a permit to replace the roof or whatever, they just seem to be glad to getting the money for that permit. I did hear about an instance in which the neighbor complained and someone had to remove the stove and tub from a cottage. Stay on good terms with your neighbors! Don't let your dog bark and don't burn frequently! Then you will probably be fine. But no guarantees. There are never guarantees. 

One thing to keep in mind is that it won't be able to be insured on your homeowner's insurance if it is unpermitted. Our neighbor recently had a fire and their backyard cottage was destroyed and now their insurance won't pay to rebuild. They'd been counting on it for rental income..... sounds like you won't be in that position, so maybe that's not a concern.

We're in the middle of trying to get a mortgage on a property that has a mother in law unit.  The property is zoned single family and there is a permit for the apartment.  The lender we were trying to use has said that even with the permit, the zoning needs to be multi-family in order for them to provide a mortgage.  So if you're thinking about mortgaging might want to check with your lender beforehand - it's caused us a real headache. 

Yes, it can haunt you, though many people have similar additions to their home and never have any problems.  Any future repairs or remodeling that require a permit may very well trigger a requirement to get the property into compliance, meaning you'll have to apply and pay for the permits that should have been obtained when the cottage was built (and your property tax assessment will go up, too).  There's really no telling for sure whether or when that would happen; it's more likely if you're applying for a new addition than if you're just repairing the roof, but it depends on the particulars of the work and the politics of the moment in the city jurisdiction you're in.  If in fact the cottage was well built and meets current zoning requirements (isn't too close to the property line and so on), then getting "retroactive" permits will cost you time and money but you wouldn't have to tear it down.  However, if the cottage is *not* up to current code and zoning, it's much more difficult to keep it. If its within the setback (too close to the property line), you almost certainly would have to tear it down - and keep in mind that the setback rules exist for good reasons; having a cottage on your property line could make a fatal difference to your family in a fire, for example.  

Also, as other responders mentioned, an unpermitted living unit can make it hard to get a loan and create complications with property (and liability) insurance.  And when or if you sell the house, unpermitted improvements can turn away prospective buyers and/or lower the price, because even if you decide to take the risk now, many future prospective buyers may decide not to.

In any event, the first thing I would do in your place is to go down to the city (or county, if the house is in unincorporated area) building department and find out for sure whether there are any permits for the cottage or not, and whether the applicable zoning codes allow for in-law units.  There's no risk in getting the records and you can't properly evaluate this situation without knowing for certain what they show.