This Chicago family is ‘stuck in limbo’ after their dream home turned into a nightmare before they’d even moved in — how 1 seller’s code violations unleashed a can of worms

Transfer stamps hit a snag

At that point, the Hoveys learned that their dream home didn’t have the real estate transfer stamps needed for the transaction to be made official. These stamps are issued by the local municipality when the transfer tax on the property is paid.

The calculation method for the tax — often a flat rate or a percentage of the property’s value — varies by location. Issuance of these transfer stamps usually requires that other conditions — which also vary by location — must be met.

For example, there can be no liens or fines associated with the property. And it must be inspected by a professional — any building code violations could delay the issuance of transfer stamps until the issues are remedied.

In the Hoveys’ case, both the seller and the family’s lawyer assured the family that sometimes the stamps aren’t issued and “it’s not a big deal.” Turns out, it was a big deal — a building inspector found multiple building code violations with wiring and vents, and noted that fixing these violations could require the removal of drywall.

Most concerning, however, was that a load-bearing wall may have been removed, which could potentially make the house unsafe. “The inspector told my husband verbally not to move in, so we don’t feel comfortable moving in,” said Hovey.

Unfortunately, the violations were discovered after the Hoveys had already wired $200,000 to the seller to close the transaction — and none of the involved parties were helping to resolve the situation. The Hoveys retained a litigation lawyer and asked the title insurance company to unwind the transaction and return their money.

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Code violations can be costly

Typically, the seller must remedy building code violations unless they’re selling the house “as is.” A house sold “as is” will usually sell at a discount since the buyer will be responsible for fixing the violations.

“As is” houses are typically bought by professional investors and real estate flippers. If you’re considering selling a house “as is,” you’ll need to weigh the costs of remedying the violations versus the lower proceeds of the sale.

Sellers who don’t plan to sell “as is” will need to remedy major code violations before the transaction can close, and this can be costly. Not only does the seller have to pay for repairs, but it also extends the time that the seller is paying expenses such as the mortgage, insurance, property taxes and basic upkeep.

For repairs that could potentially take months, this can substantially reduce the equity the seller is able to take out of the sale.

For all involved, it’s best for the seller to identify any issues and make the required repairs before listing the property. This allows the seller to know the cost of repairs prior to pricing the home for sale.

Just as some municipalities won’t allow the sale to close with code violations, some lenders won’t release funds to buyers until the violations are remedied. If you’re depending on an FHA-insured loan, be aware that the property must meet certain standards to qualify for financing.

As for the Hoveys, no progress had been made on fixing the issues after a month and a half, so out of frustration they called CBS News Chicago. After the Hoveys’ story gained media coverage, the seller’s attorney said the seller is now making the house compliant — which was confirmed by the municipality.

The title company has acknowledged that “some elements of the claim fall within the scope of the title insurance coverage” and says it’s working with all parties to resolve the situation.

Meanwhile, costs are adding up for the Hoveys who are paying rent and legal fees, as well as the mortgage on the new property.