If we continue to build, what happens? Is there legal action and if so what?
We cannot give legal advice. We can only give you reasonable solutions. So, Permit Place answered:
We cannot answer any questions, unless we know the jurisdiction you are talking about. This means which city and state did the violation occur in.
Generally you will find that most jurisdictions will work with you to right the wrong. They try to help you get through the requirements that you overlooked, or tried to get around.
The question you need to answer for yourself is, did you try to avoid the permit process because you thought you could get away with it or did you really not know a permit was required?
Depending on the jurisdiction in which you live, there could be civil penalties amounting to several thousands of dollars for willingly trying to avoid the process. Some jurisdictions have very strong penalites for this type of offense.
Your best bet is to contact the building department that wrote the citation and convince them you want to do whatever is necessary to correct the problem.