The REO bank told contractor not to bother with getting permits

Real Estate Agent with Alain Pinel BRE 01367196

Our offer on a bank-owned property in our fabulous island city of Alameda CA was accepted. 

In the course of our buyer investigation period, we discovered that there was extensive work done, but the only permit pulled was for the roof.

So what was done and by whom?

We were surprised at how much work was actually done. Worse, it appears there was serious mold issues. The contractor selected by the REO bank, was also a mold inspector and remediator and he supposedly took care of this.

When asked where are the permits to the extensive work they did, the contractor's representative carefully explained that the bank told them "not to worry about getting permits for the other work because when the city gets involved, a $50K job could turn into $100K."

House not for sale

They removed and replaced walls. Installed new windows. Wired new electric. Replaced the bath tub, sink and commode.  Installed replacement appliances. Installed new furnace. All without permits! 

My client, who is a construction inspector decided to back out. As good as the deal seemed to be, it just didn't feel right that several of the major work was done without permits, licensed contractor or not. As far as we were concerned, the contractor should have known better.


Why should one get a permit?

In Alameda, not having permits is almost akin to putting a sign that says the house is not for sale. 

Here's an article by Alameda's building official on  why one should get a permit. He says: 

"Not only does a permit ensure the work is done correctly and to code, you will also avoid the pitfalls of failing to obtain a permit.

Among the downsides of failure to obtain a permit prior to starting work are increased fees (four times the normal permit fees), the possibility the work is unsafe and hazardous, the possibility that the work does not meet code and will have to be repaired or removed, and the requirement that you disclose illegal construction when you go to sell your home.

Obtaining a permit is the law, and it is also a good idea."


Re-Blogged 1 time:

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  1. Kathleen Daniels 06/07/2013 09:03 AM
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Julie A. Black
KAUAI DREAMS REALTY Kauai Real Property Specialist - Kapaa, HI
CLHMS, CRS, GRI, Realtor, Broker

I'm not so sure if the bank told the contractor that. It could be the contractor was the one saying no permits were needed.

Jun 07, 2013 05:50 AM #37
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Since the bank is the owner, they are still responsible, no???  Could you write in the offer that the bank will pull permits prior to escrow closing? 

Jun 07, 2013 05:57 AM #38
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Julie -- I saw copies of the emails between the bank rep and the contractor. When bids are submitted, anyone in this business would know what work will require permits. If the bank rep is managing the process, that's one of the things that she should have been looking at on the bids. Regardless, both are culpable.

Carla -- the listing agent said the bank would rather not worry about permits, and probably want to deal with buyers who won't care and will take the property AS IS. We did take it as is, but didn't know at the time there were no permits. As such, if the property is turned in to the city, the owner would be responsible for compliance. My client doesn't want to assume that risk.


Jun 07, 2013 06:21 AM #39
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Pacita -- unless I misunderstood part of what the building official is saying -- they are further out of compliance by not listing the lack of permits in their disclosures.

Jun 07, 2013 07:43 AM #40
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Steven -  the listing agent didn't disclose there are no permits. He merely said the bank handled the repairs directly with the contractor. So he was washing his hands off that piece.

Jun 07, 2013 07:52 AM #41
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

All I want to know is what idiot at a Bank told them this .. and WHY or WHY did bells, whistles, and sirens not go off in their head???  Good Lord, Pacita ... this story gives me chills!!


Jun 07, 2013 08:26 AM #42
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Gene --- I have the names of the contractor, his rep and the bank rep including copies of some of their email communications.  So if the City should go down on their heads, there are three they can interrogate.

Jun 07, 2013 08:45 AM #43
James Dray
Fathom Realty - Bentonville, AR
Exceptional Agents, Outstanding Results

There are contractors and then there are contractors.  Good of your client to pull out of the contract.  Is anyone going to alert the authorities? 

Jun 07, 2013 09:18 AM #44
Tom Arstingstall, General Contractor, Dry Rot, Water Damage Sacramento, El Dorado County - (916) 765-5366
Dry Rot and Water Damage Mobile - 916-765-5366 - Placerville, CA
General Contractor, Dry Rot and Water Damage

Pacita - Permits get such a bad rap. The permit doesn't excalate the cost, doing the job right takes more time and effort. The permit helps to insure the proper work is done. The cost of getting a permit is minimal.

Great post!

Jun 07, 2013 09:19 AM #45
Lisa Von Domek
Lisa Von Domek Team - Dallas, TX
....Experience Isn't Expensive.... It's Priceless!

Hello Pacita,

One would like to think that the Bank was out of the area and unfamiliar with the laws pertinent to that location...but, doubtful. 

Jun 07, 2013 09:51 AM #46
Ronald DiLalla
Century 21 Discovery DRE 01813824 - Anaheim, CA
No. Orange Cty Real Estate

WoW,  I can't believe that a bank would do that...lot's of luck selling that home

Jun 07, 2013 11:31 AM #47
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

I couldn't agree with you and your Buyer more.  I have to say I am surprised the bank made this statement.  Bottom line, when a seller in a non reo situation has not obtained a permit, the buyer requests in the offer that the seller pay for and obtain after-the fact permits.

Jun 07, 2013 12:23 PM #48
John J. Woods
Big Dog Press, LLC - Winder, GA
Going where no man has gone before - wouldn't you?


   We've heard this kind of thing so many times, both directly (as a general contractor) and indirectly - haven't you?  Banks have no ethics whatsoever as they've proven time and again over the last five-six years.  If someone on the other end of a bank's phone told you to run out in front of a truck, would you?

   Contractors, agents, mortgage brokers, etc., and YOU all know the rules they're supposed to play by.  Anyone who blindly follows verbal instructions from ANYONE purporting to represent a banks decision-maker(s) is an idiot.  Get it in writing or don't do it because, even if you get it in writing, the bank is pretty much indemnified for your criminal acts.

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Jun 07, 2013 12:35 PM #49
Jane Chaulklin-Schott
TEAMCONNECT REALTY - (407) 394-9766 - Orlando, FL
TeamConnect Luxury Homes - Orlando, Florida, 32836

WOW! Unbelievable. You would think both the bank and the contractor would be concerned about the consequences and repercussions of their actions. Thank you, Pacita.

Jun 07, 2013 04:47 PM #50
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

James --- the city will surely find out....soon...

Tom --- what's that adage about being penny wise but pound foolish?

Lisa --- out of area or not, the bank reps should at least be knowledgeable that major work will require permits. And if they don't know, the contractors they hire should

Ronald --- in this hot market, it will sell...but if the city slaps fines, etc for code enforcement, it may be a while

Joan --- the listing agent said since this is an as is purchase, the bank would rather not deal with permits, and will prefer buyers who won't insist on getting the permits

John --- we all would have been saved a lot of angst, and in my buyer's case, money for inspection and appraisal, if the bank and their contractor have done the right thing

Jane --- the bank and the contractor created another huge problem for potential buyers



Jun 07, 2013 05:03 PM #51
Curtis Van Carter
Better Homes & Gardens Wine Country Group - Yountville, CA
Your Napa Valley Broker Extraordinaire


Wanted to let you know I found this flabbergasting read from Kathleen Daniels repost, cheers cvc

Jun 08, 2013 01:35 AM #52
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Curtis --- thanks for stopping by. I am just as flabbergasted. I am wondering what the City's Code Enforcement team will do. If the work was one according to code, they will likely just get the bank or contractor to pull permits, and perhaps pay a certain fine.

Jun 09, 2013 04:58 AM #53
Antonio & Alexia Cardenas
Alameda County - San Leandro, CA. - San Leandro, CA
"The Realtors In Motion"

What kind of Professional contractor will follow that kind of advise? this should land him in very hot water in Alameda, and his business license could be in jeopardy... Yikes!



Jun 10, 2013 09:37 AM #54
Jim Patton
Aspire Home Real Estate 209-404-0816 - Modesto, CA
Realtor - Stanislaus ,Merced, San Joaquin Counties

Pacita - unfortunately it does not surprise me that an REO bank would do this.  Your buyer did the right thing by moving on to another property.

Jun 11, 2013 09:16 AM #55
Kathy Sheehan
Bay Equity, LLC 770-634-4021 - Atlanta, GA
Senior Loan Officer

This is nothing more than a horror story that is going to continue on...sad, very sad.

Jun 20, 2013 10:41 PM #56
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