Camino Commons
Tenancy in
Common (TIC)
Q &
A
What is the difference between a Tenancy in Common
(TIC) and a condominium?
In a condominium, property has
been legally divided into physical parts, which can be separately
owned. Each condo owner owns a particular area of the property
that is delineated on a map, recorded in the public records, and
has a deed that identifies the area that is individually owned. By
contrast, TIC owners’ own percentages in an undivided property
rather than particular units and their deeds show only their
ownership percentages. The right of a particular TIC owner to live in or rent a
particular dwelling comes from a legal written contract signed by
all co-owners (often called a “Tenancy In Common Agreement”).
Either way you are living in or renting your selected unit.
Does a TIC provide the same tax benefits as other
real estate?
Yes, as provided by the IRS tax code.
Owner-occupants may deduct their mortgage interest and property
taxes, and often may avoid capital gains tax on resale, as do
other homeowners do. Owner-investors declare their income and
expenses, including depreciation, and may undertake a tax-deferred
exchange.
Can
any co-owner physically take possession or use my residence?
No, each co-owner contracted for exclusive use of
a specific residence, parking and storage space. That exclusive
use is provided for and memorialized in Camino Commons TIC
agreement. No co-owner can infringe upon the exclusivity of
another.
What is a TIC agreement and what does the Camino
Commons TIC agreement cover?
A TIC agreement includes a
written contact signed by all co-owners stating the rights of a
particular TIC owner to live in or rent a particular dwelling. The
Camino Commons TIC agreement covers:
•
Division of the property into "individual" spheres with regard to
usage rights and maintenance responsibilities • Description of the owners' financial
obligations • Formulas for determining each owner’s monthly
payment in advance • Rules
governing
usage of the property • Meeting and decision making procedures, •
Sale of interests, • Dispute resolution.
How are TIC ownership percentages determined at
Camino Commons?
TIC ownership percentages at Camino Commons are
determined by the square footage of the assigned areas of the
property.
How are Camino Commons TIC ownership interests
financed? How do these individual TIC loans work?
Individual loans for each TIC owner are secured
only by that owner’s percentage share of the TIC, meaning that one
co-owner’s mortgage default does not imperil the other co-owners.
Individual TIC financing involves separate loans for each TIC
owner. Each loan involves a note signed only by the owner of a
particular TIC interest, secured by a deed of trust covering only
that owner’s TIC share. If a particular owner defaults on his/her
loan, the lender can foreclose on only that owner’s share. The
foreclosed share is then sold, and the buyer acquires the
defaulting owner’s interest. Unlike with group financing, none of
the other TIC owners are affected by the default or foreclosure.
How will decisions be made at Camino Commons? How
will it be managed?
It is impractical to convene an owner meeting
each time a decision needs to be made, so routine operational
matters are handled by the elected board or management committees.
Major decisions require a majority vote of all owners depending on
the nature and gravity of the issue.
How are expenses paid at Camino Commons?
Building expenses are divided into "individual
expenses" and "group expenses". Individual expenses include
maintenance and improvements to unit interiors, personal property
insurance and separately metered utilities; they are paid directly
by the individual owners. Group expenses include property taxes,
insurance, maintenance and improvements to common areas, and
shared utilities; they are paid through a group bank account as
part of your monthly HOA assessment. Under this system, each owner
makes a single monthly payment to the group account. The monthly
payment is based upon the total of the owner's share of each of
the anticipated group expenses. To add predictability and protect
against default, even semi-annual and annual expenses, like
property taxes and insurance, will be included in the owners'
monthly payments.
How will property taxes be allocated and paid at
Camino Commons?
Because property owned as a TIC is not legally
divided; it has a single assessed value and Camino Commons will
receive a single property tax bill (rather than separate bills for
each co-owner). The property tax will be allocated among the
owners based upon the amount that each co-owner paid for his/her
interest. Each owner will make an estimated monthly payment into a
group bank account as part of their HOA assessment. When the
property tax is increased as the result of the resale of a tenancy
in common interest, the new buyer will pay the entirety of the
increase caused by the sale.
How will insurance costs be allocated and paid at
Camino Commons?
Camino Commons will receive a single insurance
bill (rather than separate bills for each co-owner). The insurance
bill will be allocated among the owners based upon the amount that
each co-owner paid for his/her interest. Each owner will make an
estimated monthly payment into a group bank account as part of
their HOA assessment.
What
happens if someone gets hurt on the property?
Property and liability insurance coverage will be
maintained.
What
if another TIC owner defaults on their loan, or fails to pay their
share of group expenses?
If a co-owner defaults on his/her loan, the
lender can foreclose on only that owner’s share. The foreclosed
share is then sold, and the buyer acquires the defaulting owner’s
interest. Unlike with group financing, none of the other TIC
owners are affected by the default or foreclosure.
In the event of a co-owner failing to pay group
expenses, funds will be taken from the default account in
accordance with the TIC agreement and foreclosure proceeding will
be instituted by the co-owners and/or lender against only the
defaulting co-owner’s interest, as provided in the TIC agreement.
The foreclosed share is then sold, and the buyer acquires the
defaulting owner’s interest. None of the other TIC owners are
affected by the default or foreclosure.
Can
I modify and/or remodel my residence?
Modifications may be done as permitted by the
City of Burlingame. Cosmetic improvements are permitted. Common
walls however, may not be altered and hardwood floors are not
permitted unless you are on the first floor.
Can
I refinance my TIC interest? How long must I wait after my
original purchase? Do I need approval from the other TIC owners?
Each TIC owner can refinance his/her interest at any time subject
to any restrictions in their existing loan. No wait is necessary,
nor do they need approval from the other TIC owners. It will be
necessary to locate a lender who offers TIC loans.
Can
I sell my TIC interest? How long must I wait after my original
purchase? Do I need approval from the other TIC owners? Who
determines the resale price of my interest?
Each TIC owner can sell his/her tenancy in common interest at any
time. No wait is necessary, nor do they need approval from the
other TIC owners. Market value will determine the resale price of
your interest. A qualified agent can assist you with this pricing
decision. Contrary to what many people unfamiliar with tenancies
in common assume, TIC interests have been readily re-saleable for
at least the past 10 years.
What
happens if there are no TIC loans available when I am ready to
refinance or sell? How many lenders make TIC loans?
Your existing TIC loan will be assumable, so a qualified buyer
could assume your loan with the appropriate down payment, or
secure secondary financing should the required down payment be
higher than they wish to make. Should the buyer wish to secure a
new loan, it is unlikely to be a problem, as there are currently
seven (7) lenders offering TIC loans. This represents are increase
of four (4) lenders compared to a year ago and lender interest in
this type of loan is rising as three (3) of the largest banks are
currently reviewing TIC loan products.
How
risky are
TIC’s?
All co-ownership forms (cooperatives, partnerships, condominiums,
TICs etc.) involve greater risk than owning individually. Most TIC
buyers are interested in comparing the risks of TIC ownership to
the risks of condominium ownership. In making this comparison, it
is important to note that condominium ownership involves many of
the same risks as TIC ownership, including those created by shared
obligations such as common area maintenance and insurance, those
created by the need for joint management and decision making. The
only significant additional risks associated with TIC ownership
are (i) shared property tax obligations, (ii) reliance on a
co-ownership agreement, rather than a recorded deed and (iii)
financing considerations.
These few added risks need to be evaluated and weighed against the
TIC benefit of lower acquisition cost. After making this
evaluation, TIC ownership has proven to be a popular and highly
successful choice for a large number of San Franciscans and other
Californians over the last decade where it has been available.
Should you or your advisors have additional questions, or wish to
go into more detail please contact one of us:
Richard
Sanchez John Schneider
KMS
Investments Prudential California
Realty
650-548-0353 (office)
650-358-7281 (office)
650-787-2996
(cell) 650-868-4835 (cell
