Have lending institutions usurped good planning?

How many of my fellow planners have seen/heard of the following scenario in recent years?

  • A rezoning is sought because a potential homeowner cannot obtain or refinance a home loan because the residence is zoned something other than residential.

My educated guess is that many of you have.

Source: remaxwest.com

Source: remaxwest.com

While one can certainly sympathize with the buyer/refinancer, one also has to wonder if this trend will make a mockery of good land use planning. Basic planning tells us that nonconforming uses should eventually be brought into conformity by being converted to land uses allowed in their zoning classification. But, if this gradual morphing into conforming land uses is stalled or halted by a lender’s unwillingness to assume a greater risk, doesn’t that effectively negate the community’s intent? In my lowly opinion, it most certainly does.

Source: dornerlaw.com

Source: dornerlaw.com

The other tricky part of this scenario is that the rationale for the requested rezoning is often largely based on the inability to get a loan – a financial reason – a basic no-no of sound planning, especially if there are no other sound reasons.

Short of complete capitulation, what’s a planner to do given the likelihood that public opinion will tend to side with the buyer/refinancer? Here are a few ideas:

  • Solely base the staff’s recommendation (for or against) on non-financial reasons and strongly remind your decision-making body of the importance of not falling into the monetary rationale trap.
  • Educate your decision-makers, the media, area lenders, realtors, and the general public on a regular basis, not just when something like this is a hot-button issue. This can be done through training sessions, published or distributed literature, interviews, internet, public service announcements, etc. It may not reach everyone, but doing nothing is sure to reach no one.
  • Clearly articulate why monetary reasons are off-limits in rezoning decisions.
  • Meet with area lenders and realtors to answer their questions and hopefully head-off any problems down the road.
  • Keep this issue in mind when updating the community master plan, zoning ordinance, and zoning map.

There is no magic bullet for resolving this issue. One side-effect of the recent financial crisis is lenders are more cautious than ever. As a result, non-conforming land uses will be harder and harder to sell and/or refinance.

I would be interested in hearing other thoughts, ideas, and opinions on this topic. Perhaps there are solutions out there in plannerlandia that more of us can utilize to abate this growing problem.

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7 Responses to Have lending institutions usurped good planning?

  1. Sarah says:

    I’m a student, so my question may seem off-base:
    How does this type of re-zoning impact affordable housing stock? Why might the potential purchaser choose a residence in an area that must be mixed use? Could it be that affordable housing options are limited?


    • Rick Brown says:

      Thanks, Sarah. I am not sure why a potential buyer might do that, but refinancing and existing home is rather common.While the lender may not have cared in 1990, 1995, 2000, or 2005 that it was not zoned correctly, they sure do now.


  2. basil berchekas jr says:

    Would agree…


  3. I’m trying to visualize this scenario. There’s a residence. Yet the lot it’s on is zoned non-residential. There is a potential homeowner – who doesn’t own the home in question. I can understand the meaning of he can’t get a loan because of the zoning. But if he’s just a potential homeowner, how can refinancing be in the picture? Next, if the zoning is now non-residential, what is the zoning authority trying to do to bring the use into conformity with the zoning? And why is the potential homeowner even looking at this property, with its zoning/use non-conformity? Could this be a situation where the zoning authority should allow the existing non-conforming use until … I don’t know what? I’m asking real questions, not rhetorical ones.


    • Rick Brown says:

      I was referring to two different situations – sometimes a buyer and sometimes and existing homeowner who is refinancing. The zoning authority does allow the continued use of the nonconforming use, but lenders will not issue a loan or refinance.


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