In our town setbacks for a garage are the same as for any accessory structure over 100 square feet. The main thing they worry about is adding kitchens and bathrooms and heat so that it can become an apartment. If it was built illegally you would have (in our town) a decent chance of getting it torn down. At the very least the neighbors would have to retroactively apply for a legalization and try to get a variance. It adds several thousand dollars to the normal cost of a building permit. And if if the structure is allowed they may force them to add extra drainage or screening which might make it palatable for you. (I’ve worked both sides of the aisle on these things! )
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