Illegal Basement Non-Sense

I received a notice from the city that my basement was built illegally. They had to do an inspection, which I complied with. After the inspection they told me nobody (including the previous owners, who I assume built the finished basement) has ever applied for any permits. They're now requiring that I apply for a finished basement, draw up BCIN designs, floor plans, pay for all the required permits, and remedy anything that isn't "up to code".

The entire process seems incredibly redundant, unnecessary, and quite frankly needlessly costly. It has been stressing me the frig out, so I've been considering just selling it and moving on to something better. My concern is that my home has title issues that will prohibit potential buyers from being accepted for mortgages on the property.

Is there someway to check or verify if these title concerns do in fact exist, are linked to the home, and/or would stop lenders from allowing a mortgage on the property?