How do code violations, fire insurance, and your mortgage all connect?
Since the large wildfires in California spanning from 2017-2020, many homeowners and prospective homeowners have found that the realm of fire insurance has drastically changed. Lenders in California require fire insurance to maintain a mortgage and this has become a bleak subject, because it is hard to find now, and far more expensive when it is granted. In areas directly affected by the wildfires homeowners have an even harder time finding fire insurance. Something that is becoming more and more common is fire insurance, and mortgages by extension, being threatened or even canceled by code violations and un-permitted work on properties.
In speaking with a seasoned local real estate agent she illuminated some of these code enforcement issues that commonly interfere with insurance in Sonoma County. She explained that it's not uncommon to see a property owner getting blind sided and being under insured or losing their fire insurance and then their mortgage due to unknown un-permitted house work done on their new homes.
For example, if a homeowner is getting insurance for their new property and on that property there is a barn or shed that was converted into an ADU without permits, insurance companies will only insure what is legal and on paper. In this example they can only insure it at the value of a barn or shed (or nothing if the whole structure was never permitted). Not only will this structure not have the proper fire insurance for a dwelling unit, but if the insurer writes a plan and the lender says that it is not enough insurance to cover the amount loaned, then they may drop the homeowner all together and there goes their mortgage.
Building without permits and not legalizing previous unpermitted projects not only leaves homeowners underinsured and it can also jeopardize the status of the mortgage. It has always been important, and especially now in the new landscape of California fire insurance, to have all of your property correctly insured. Insuring a property also helps fortify agreements with mortgage lenders and maintain financial backing. We understand that many people begin building projects unaware of the permitting required, or acquire a property not fully in the know about how much is un-permitted/the ramifications of having unpermitted structures and work. Part of our expertise here at Paladin Permit Services is being able to navigate and translate what permitting is needed and how to achieve that goal.
