Story

A 1978 covenant that never says ADU but kills it anyway

I read the CC&Rs on a lot before my partner made an offer, which is apparently unusual. Recorded 1978, subdivision of about 90 homes, and there's a clause prohibiting any structure "used or designed for use as a separate dwelling" other than the main residence. Written 45 years before the state allowed ADUs on lots like this one.

So now you've got a state statute that permits the unit and a private covenant that forbids it. Whether the statute overrides the recorded covenant depends on the state and on the exact wording of both, and that's a question for a real estate attorney licensed there, which is what we did. Ours read the file and gave us an opinion with a lot of hedging in it, which is the correct amount of hedging.

The practical part was funnier. I tried to find the HOA. No website, no management company, no filings for years. County had a registered agent from 1994 who'd died. I finally reached a man in his eighties who said he'd been the entire board since 2006 and that dues stopped being collected around then. He told me two houses on the street already have basement apartments and he'd been in one for a card game.

An unenforced covenant is still a recorded covenant. It shows up on the title commitment and a future buyer's lender will read it. We bought anyway with the attorney letter in the file, but I keep thinking about the day some new owner with energy decides to revive that board.

10 replies

monica_tran3SF4CPRO6

The dead registered agent from 1994 is perfect. Half the HOAs in my service area are one retiree and a shoebox of receipts.

dpatel_reCS4A

The underwriting question I'd want answered is what a future appraiser does with it, not what the board does. If the covenant clouds the second unit's income, your exit value is a different number than your build assumed.

nataliehsuSO1BPRO7

@sextant does an appraiser even read CC&Rs? I assumed they look at comps and square footage.

wendy_park48CapitalPRO7

@plumb they don't usually read them, the title company surfaces them and then a lender's underwriter decides whether to care. Warrant, the phrase "designed for use as" is the one I'd have lost sleep over, it reaches further than "used as." Did your attorney break out those two separately?

sonia_alvarez Get yoursPRO6

From a loan file's point of view the ugly scenario isn't the board suing you, it's a title exception a future buyer's lender won't insure around. That's a slow problem that shows up on the day you want to sell.

tashaford30PB2APRO7

I'm planning my first purchase and this thread just added a step to my list. Where do you even get CC&Rs before you're under contract?

tonyv88SO4CPRO6

@quill county recorder in most places, sometimes online, sometimes a clerk pulls the book and page for you. Recording practice and what's actually available online varies by state. Managing units in HOA subdivisions is its own sport, half my violation letters are about things the board itself stopped enforcing a decade ago.

hannah_west29 Get yours

So what did the attorney letter cost, and did you make the seller pay for any of it? That's the number I'd want in the file next to the opinion.

priya_n21PO1C

I wanted the boring income version of this business and every thread teaches me there's a document behind the document. Not complaining, just recalibrating.

derekj19SB1B

The card game detail. The board president has personally sat inside the thing his own covenant forbids.