Warning TIC–Proceed with Caution

For those who have never heard of a TIC (sometimes called “tick”) it stands for “Tenancy in Common”. It is a type of real estate ownership that was quite popular a few years ago. It is used to buy a property consisting of 2 to 4 units (and even more in rare cases). The cost of each TIC unit is usually less than compatible to condominium units. Those who own such buildings have figured out that the combined value of the TIC is greater than the cost of a regular 2-4 unit rental property.

Until one person with a strong Character starts setting his own rules.

The lending for these properties has evolved through the years. A few years ago, there were three portfolio lenders who could offer TIC loans. (Now there is only one left.) The potential advantage for an owner of a TIC is to convert the building into condominiums, which would increase the value of each unit. Some real estate agents have refused to deal with TIC’s because of the complications involved and I have personally never liked to arrange loans for them. The reasons were very simple. In our times when so few people stay married to just one person, getting into a TIC is similar to getting married to many different people (as many units in the building)–often to complete strangers. The building maintenance has to be shared, without any real arrangements, like HOA dues in a condo building. But the worst situation is when one of the partners wants to get out. The unit can only be sold as a TIC, with very limited finance options. And who needs another stranger as a partner?

Some couples simply don’t agree with each other.

The real nightmare actually starts when the building wins the lottery and can be converted into a condominium. Conversions require certain changes in the building which costs money. And when everything is done, each owner would like to have their own low interest mortgage (TIC loans have higher interest rates).

I was recently asked to help a client who lives in a 4 unit TIC, which was recently converted into four condominiums. (One of the conditions is that all of the refinance transactions have to close simultaneously to pay off the existing loans.) She is a self-employed borrower and has a relatively small mortgage. She applied with a number of lenders and was turned down before coming to me. I found out that I could help her, but it had to be done in conjunction with the other TIC partners. In the second unit, the owners received a loan approval from a lender. Because other units are not ready, the loan commitment expired, and they have to start all over again. The third unit is for sale. The sale financing on this unit depends on what is happening with the other three units. On top of all this, the owner of the fourth unit does not want to communicate with anyone in the building. At the end, everything will work out, but who needs all of this hassle? If you know someone who needs help with their TIC, I might be the right person.

P.S.

Before getting married, couples are advised to get a prenuptial agreement. It can be a good idea to have similar arrangements for a TIC or any situation where two (or more) parties are involved. Vivian Holley, who is a very experienced attorney, can help in any of these cases. She can be reached at 415-474-1011 / vivian@vivianholley.com