The first thing I'd like to answer:
Why would the contractor build without a permit?
No where in that story did it state that they requested one......the absence of such a statement makes me believe that they more than likely TOLD the contractor to not get a permit to avoid certain hassles.
Sure, if they hired Mike Holmes he would have just torn down the entire house and rebuilt it. But seeing as how on Holmes' show, the homeowners don't pay for anything, not many contractors can do that.
I have gone and quoted on jobs and when it is cut and dried that a permit is needed, I say so and more often than not, the homeowner says "no" because any improvement might increase their property taxes. For eg: if you build a garage where none existed before, your taxes WILL go up because the curbside value of your home went up.
From the story: their reasoning that other houses have variances for a staircase, well a staircase is a HELL of a lot different than a 2 story addition.
I also bet that these city inspectors they've had, wanted to remove ALL the drywall to inspect the framing, the electrical, the plumbing etc and they said no way.
As to why they are being pursued so enthusiastically? I bet all along they scoffed at the city officials and that my friends is NOT something you want to do. As shown, these people have the power to ruin your life. Treat em nice and they're great to work with. Shit on them and they WILL shit on you.
Oh, and their excuse that it is smaller than the thing it replaced? Who said the thing they replaced was legal to begin with? That old saying comes to mind: two wrongs don't make a right.
And finally, wtf were they thinking going out of the country while this was going on? They may be harvard educated but they IMO ain't that smart.
Oh, and to inspect it to make sure it is safe and sound? That'd cost probably, oh, $30,000.00.....but what kills me is I bet the addition didn't cost them $200,000.00. They could have torn the thing down and started again legally......