How does insurance play into non-permitted remodels?

Dear Sue,
I read your article on buying a house that was remodeled without going through the building permit process. You didn’t mention anything about how the insurance company would handle a loss on an non-permitted home. If an insurance claim was made, wouldn’t coverage be denied on the non-permitted portion? Couldn’t an insurance company deny a claim due to lack of disclosure?
— Curious Cal
Dear Cal,
I received several e-mails from readers asking the same question. I asked the insurance experts.
One insurance representative was not positive, but thought that if one paid insurance to cover a loss that it should be covered. She also pointed out that many of the older historic homes in Auburn’s downtown area didn’t even have permits.
 The homes were built before permits were required.
A second insurance representative was certain that the insured property would be covered. She suggested that the insured read their policy very carefully just to make sure that there are no exclusions pertaining to permits.
Dear Sue,
I currently have my home in escrow. I purchased it more than 10 years ago. It was advertised at 2,300 square feet. It appraised and I completed the purchase. The seller didn’t disclose that a room conversion was non-permitted.
My new buyer did a permit check with the building department. The converted space was originally permitted for storage not living space. My agent stepped in and advised me to go to the building department and ask them what I needed to do to get it permitted.
I had licensed contractors inspect and certify the converted space. Some modifications needed to be made to the tune of $2,000. I paid approximately $300 for the permit and around $1,800 for the school fees. It cost me less than 1 percent of my sale price. I now have a permit and my sale is due to close in two weeks!
— Happy Hank
Dear Hank,
An non-permitted remodel is also not necessarily an issue of nondisclosure as in your case.
Lack of a permit can be due to a homeowner’s ignorance or the fact that a permit was not required at the time of the construction.
Some homeowners don’t think that permits are required for certain changes or alterations while others knowingly neglect to disclose that they made changes without permits.
A subsequent buyer wouldn’t know one way or the other unless the alterations were obvious, i.e. low ceilings or exposed wiring. One can’t disclose what one doesn’t know.
A prudent buyer will do independent investigations prior to completing a home purchase including doing a permit search at the local building department.
If there are permit issues, check with the building department and make the corrections if necessary.
It is a matter of good Home $$$s and Sense.
Sue Thompson is owner and sales manager of HomeTown Realtors. She can be reached at seesue@seehometown.com, or on the Web at www.homedollarsandsense.com.