Legal Question in Real Estate Law in California

Many, many, MANY houses have work that was done "without the benefit of permits." In some cases you can get the permit issued and signed off after the fact just by paying a fee and having the work inspected and maybe making some slight modifications if there is something not quite to code. If you want to sell the house and are at risk of losing it, get it back on the market, and concurrently contact your local permitting agency about what it would take to get permitted after the fact. The contractor should pay your costs of doing this; which would probably be a small claims action if it came to that. You can also file a complaint with the Contractor's State License Board about this and make a claim against the contractor's bond, though the amount of the bond is only a few thousand dollars.

If it looks like it will not be possible to get the permits, then the house is still marketable (assuming any issues with the permits don't affect health and safety of the house). You just have to disclose and will probably have to accept some discount off what the value would be if the work was permitted. If you have to go that route, you will have the right to sue the contractor for that difference.

I completely agree with the previous answer, and would only add a couple of thoughts to it. You did not say whether the contractor was licensed or not; that would affect whether and how the CSLB would handle the matter and whether there is going to be a bonding company and bond. The other matter that wasn't mentioned is whether there is a contract calling for the contractor to obtain permits.........one of the reasons there is so much un-permitted work done is that homeowners and their contractors often are in a wink-wink conspiracy to save money and prevent additional property-tax assessments by avoiding the permit process. It may be hard to sue your contractor for not pulling permits if the facts will show there was an understanding that "we aren't gonna do this work with permits."