Selling a house without final approval: what the law says and what happens with the bank

Quick answer: you can sell. No rule prohibits the sale of a property without final municipal approval, and the Conservador de Bienes Raíces (the Chilean property registry) registers it all the same. What is prohibited is something else, which almost nobody mentions: article 145 of the General Urban Planning and Construction Act provides that no building may be occupied or put to any use before its final approval, and it allows the building to be shut down and even the occupants evicted with police assistance. The real problem, then, is not the contract: it is the use, the financing and the price.

The scene repeats itself: a buyer turns up, the price is agreed, and then the bank's valuation reveals that the house has 40 more square metres than the Municipal Building Department has on record. That is where the difficult conversation begins.

The legal question: yes, you can sell

It is worth clearing this up first, because it causes a lot of needless anxiety. There is no rule prohibiting the sale of a property whose construction lacks final municipal approval. The sale is valid, the deed is executed and the Conservador registers it, because what is transferred is ownership of the property, not a municipal certificate.

What happens is that whatever has not received approval does not exist for legal or registration purposes. You are selling land with whatever construction has been declared, and any extensions that have not been declared are not part of what the title describes. The buyer takes possession of them in fact, not in law.

The prohibition that does exist, and it is not on selling

Article 145, first paragraph. "No building may be occupied or put to any use before its final approval, whether partial or total, or before the sworn declaration referred to in article 144 bis has been filed." The prohibition does not fall on the sale: it falls on occupying and using the building.

The same article, in its final paragraph, adds the consequences. Besides the fines under article 20, the infringement can be punished by shutting the building down until final approval is obtained, and by evicting the occupants, with police assistance, an order the Mayor issues at the request of the Municipal Building Department's director.

In practice, that eviction is almost never applied to a family living in its own home, and the point here is not to scare anyone with it. But it is the rule that explains why the bank, the insurer and an informed buyer become demanding: strictly speaking, what is being bought cannot be put to any use at all.

The fines, and who can report a breach

Article 20 sets the penalty framework, and it has two scales depending on whether the building has a budget or not.

These cases are heard by the Local Police Court, and here is the detail worth keeping in mind: the complaint can be filed by the municipality, the regional secretariat of Housing and Urban Planning, or anyone at all. In other words, one annoyed neighbour is enough. How much that fine can cost and what defences exist is covered in fines from the Municipal Building Department for building without a permit.

Why the bank blocks the deal

If the buyer is paying cash, the lack of final approval is a question of price and risk. If the buyer needs a mortgage, it becomes a wall.

The bank does not value the house you see: it values the house that is officially recognised. The valuer compares what was built with what the Municipal Building Department has on record, and the square metres that were never approved simply do not enter the valuation. A 120 square metre house with 70 approved is valued as a 70 square metre house.

From there, three consequences follow in a chain:

• The approved amount drops, because the loan is calculated on the valuation, not on the agreed price.
• A shortfall appears that the buyer has to cover in cash, and often does not have. That is where the sale falls through.
• The collateral is worse for the bank, because in a future foreclosure it would be enforcing against a property with part of its construction in an irregular state.

On top of that comes the insurance: the policy tied to the loan covers what has been declared, and an unapproved extension is left in a grey area exactly when it is most needed, which is when there is a claim.

The price penalty, spelled out

Yes, you can sell, but the market charges for the irregularity. This is what an informed buyer discounts.

Added together, the discount usually comfortably exceeds what it would have cost to regularise before putting the house on the market. That is the central point: regularising is not an expense, it is the difference between two prices.

The three ways out, and which suits each case

The sworn declaration under article 144 bis

It is worth knowing about, so as not to confuse it with a solution to the problem of unpermitted extensions, because it is not one.

Article 144 bis allows the owner, once the works are finished, to file with the Municipal Building Department a sworn declaration of completion signed by the project architect, together with the list of the professionals responsible. Filing that declaration is treated as final approval of the building for liability purposes, and it does not generate municipal fees.

It is an alternative way to close out a building that did have a permit and was built according to the approved project. It cannot be used to legalise what was built without a permit: that remains a matter of regularisation, either under the ley del mono or through the general route.

What needs to be in writing if you sell this way

If the decision is to sell without regularising, the contract is what protects the seller.

• Declare the situation precisely. What has final approval and what does not, with the square metres. A vague description is no defence.
• Record that the price takes the situation into account. This is what stops a later claim for a lower value based on a defect the buyer already knew about.
• Set out who takes on the regularisation and within what deadline, if that is agreed.
• Hand over the documents the buyer is going to need: the date of construction, plans if they exist, and the valuation certificate. If the construction predates 2016, that file is worth money.

Frequently asked questions

Will the notary or the Conservador refuse the sale?

Not because of a lack of final municipal approval. The sale is executed and registered. What can hold up the registration are problems with the title, not with the construction, and that is a matter for a title study.

Can I be evicted from my own house?

Article 145 provides for shutting the building down and for evicting the occupants, an order the Mayor issues at the request of the Municipal Building Department's director. In practice this is reserved for serious situations, and it is not what happens with a family extension, but the rule exists, and it is the underlying reason why the financial system treats the matter seriously.

My buyer is paying cash. Is it still a problem?

It is considerably less of a problem, which is why cash buyers are the natural market for these properties. But the discount still applies, because whoever buys inherits the cost of regularising and the risk that it cannot be done.

Is it worth regularising before listing the sale?

Almost always yes, and for a negotiating reason more than a legal one. With the property regularised, you are selling square metres that can be valued and financed, and the pool of buyers multiplies. With the sale already listed and a buyer waiting, regularisation is done against the clock, and any observation from the Municipal Building Department puts the deal at risk.

Can I hide the extension and let the buyer find out later?

It is a bad idea on every level. The valuer is going to see it, and even if they do not, the buyer has remedies for defects in the thing sold and for information that was hidden. Declaring it and adjusting the price leaves the deal solid; staying quiet leaves it exposed to being undone.

The extension dates from 2019. What options do I have left?

The general route: a building permit and final municipal approval. The ley del mono requires the construction to predate 4 February 2016, so it does not apply here. It takes longer and costs more, but it ends up in the same place.

What if the house is on a rural property?

There is an extra layer: on top of the regularisation, you have to look at what rural land allows you to build, which is restrictive. That is covered in how many houses can be built on a 5,000 square metre rural lot.

How we resolve it

The first step is a short review that settles everything: what floor area actually has approval according to the Municipal Building Department, what was built afterwards, when, and whether it qualifies for the simplified procedure. With the valuation certificate and the municipal file, one pass is enough to know whether the route is the ley del mono or the general procedure.

Then comes the file: surveying what was actually built, the plans, and the professional's report. The survey and the plans are done by our own surveying and architecture team, so observations are corrected and resubmitted without having to coordinate different offices. For a sense of scale, there is a regularisation cost calculator.

If the sale is already under way and there is no time, we draft the clause that declares the situation and allocates responsibility, so the deal stays solid. And if the problem turns out to be in the title rather than the construction, we resolve it through regularisation of title or through the posesión efectiva, depending on where it comes from.

Send us the property's roll number and tell us what was extended and in what year. With that, we can tell you whether there is time to regularise before selling and how much value you are leaving on the table if you do not.