Zoning, title insurance and nasty possibilities

Real estate developers have been known to grant zoning laws all the respect that dogs give fire hydrants. I can recall instances where a Park Ridge developer built one more 16-unit garden apartment building than his project’s zoning allowed and another where a city developer’s high-rise exceeded its zoning allotment by two stories. “Contractor error” was the latter developer’s explanation.

It’s been common practice in Chicago for small-project condo developers to build 4-flats where only 3-flats are allowed, and for homes in single-family zoned areas to be illegally converted to 2- and 3-flats.

Whether Chicago’s Zoning Ordinance allows for a property’s current use is a question that isn’t always asked by home buyers, but one that ought to be. It’s almost never exercised, but the City has the power to order that a nonconforming unit be vacated or removed – not a pleasant prospect if it’s your unit, or a unit in a condo building you own in.

A Certificate of Zoning Compliance “is required whenever residential property containing five or fewer dwelling units is transferred or sold in the City of Chicago. The requirement does not apply to the transfer or sale of condominiums or cooperative buildings.” The certificate specifies “the number of residential dwelling units at the property that are legal under the Chicago Zoning Ordinance.”

If you spend any amount of time scanning listings you’ll encounter a disclaimer to the effect that the seller and the agent do not warrant the legality of one or more units in a building. You’ll also frequently encounter listings that are in violation of Chicago’s Zoning Ordinance but do not contain that disclaimer. And you’ll almost never see the disclaimer in the context of a condo building, where it’s often the most needed.

Does title insurance protect a condo buyer who has acquired a unit in a building built in violation of the zoning ordinance? Not typically.

The standard ALTA title insurance policy does not protect a buyer against zoning violations. Policy endorsements that provide that protection are available at additional cost, and should be contractually required by buyers in any questionable situation. If you’re buying a condo in a building that may contain more units than zoning allows you should also thoroughly discuss the potential ramifications, and the extent to which title insurance mitigates them, with a knowledgeable attorney. It’s worth noting that the term “knowledgeable attorney” doesn’t describe many of the attorneys who typically handle real estate closings.

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