Channel 7 News: Bay Area Housing Report
Understanding TIC's: Tenants In Common

By Michael Finney

Apr. 16 2005 (ABC7) — TIC's have been around for a little over a decade in San Francisco , giving many first time homeowners a chance to get into the housing market.

Dan Doyle: "I've always wanted to live in San Francisco since I was a little kid and I've never dreamed that I would be able to participate in living here at some point."

TIC stands for Tenants in Common. It's a way for two or more individuals to own property together with each owner having distinct shares in the property. An agreement is written outlining each TIC owner's rights and duties.

Sound too good to be true? Well there are risks involved.

Kier L ane , TIC owner: "So you can't 100% cover yourself with TIC. That's the scary part of it. But you can put things into place to help you mitigate some of your risk and what we did, we put together a formal legal document, a TIC agreement. But in that document we also specify different types of funds that would be put in place like reserves for rent, for instance mortgage reserves, so if in fact one of us came into a financial hardship and couldn't afford to live here anymore, there would be reserves put into place while we sold our interest in TIC. But that's kind of a worst case scenario."

Gannon Tidwell , President & CEO, The TIC Group: "The TIC agreement looks and feels like a traditional partnership agreement. You could even call it a pre-nup if you would, but what it does is it spells out all the things that could go wrong. And the best TIC agreement thinks of everything that could possibly go wrong and addresses everything from how to fix common areas to what happens if someone defaults on the mortgage to what if someone wants to get out of the group, wants to refinance... and there are really good legal experts in the fields that are putting together iron clad, very well thought out TIC agreements that are really protecting people's interests."

Another complication owners face is financing, which is one of the biggest concerns surrounding TIC.

Randy Brasche, President, SF TIC Coalition: "The disadvantages are that you share the financial risk together in the building. Sometimes that's a worry for people. But a lot of times when you go through the loan process you share your credit history together and you kind of get an indicator if they're a responsible person. But a lot of times homeowners are responsible people. They know what they are getting themselves into."

TIC's have everyone on the same loan together. So if there is a four unit building with four entities on the loan, partners share all the rights and responsibilities to the building, which causes some concern to home buyers. However, there are banks and lenders who specialize in TIC loans.

Gannon Tidwell , President & CEO, The TIC Group: "With the shared mortgage, the perception is that you are going to be held liable if your partner defaults. And the reality is you would be held liable, however, the market place has set up a special mortgage fund where all the TIC buyers will contribute to mortgage fund to protect the group in the event that someone does default the TIC agreement. The TIC agreement, which is in essence a partnership agreement, also speaks to how you remedy the situation and how you can buy your partner out and move forward."

One reason TIC's are so attractive to first time home buyers, aside from affordability, is the capability of converting their spaces into condos after a period of owner-occupancy.

Kier L ane , TIC owner: "The real opportunity here is to turn it into a condo and go through that process and we'll own our own piece of real estate in SF."

Toby Doyle: "We are planning to convert the space into a condo. You have to go through a lottery process and the first year, the building, well you have a certain waiting period before you can convert. And once that waiting period is up, you get one ticket into this lottery. We've been told we have like a 6% chance the first year of getting it converted into a condo. But we're optimistic that it will become a condo. Basically our main reason for buying as tenants in common is because it's the most affordable way for us to build equity. There's no way with me being a public school teacher that we will be able to afford a stand-alone home with our income. It's just not possible."

Organizations like the San Francisco TIC Coalition are trying to get the city to expedite the process and simplify the condo conversion rules. A big disadvantage is the length of time it takes for first time homeowners to convert their property into condos. Randy Brasche, President, SF TIC Coalition: "With that process, you're going to have to go through a lottery for 3-6 unit TIC. You have to go through a lottery through the City Hall, and a 2-unit building can automatically converge after a 1 year residency requirement, and that process can sometimes take 7,8,9 years to kind of go through."

With that said, there's also concern regarding renters currently living in buildings that will be TIC's. In some communities, rent control laws do restrict the ability of TIC owners to evict tenants in order to occupy their new homes. In San Francisco , only one owner move-in eviction per building is allowed and this type of eviction is limited to situations where the tenant is not a protected elderly, disabled or terminally ill person. There's also controversy over who's really behind TIC ownership.

Randy Brasche, President, SF TIC Coalition: "I think it's just sort of stopping the discrimination, from elitist to wealthy, people who are predators who are throwing people out of their homes…and one of the things is what we are trying to do is put a human face to TIC's that we are families, we are nurses, we are school teachers we are the working class and this in the only way to get into home ownership our very first time." There are a growing number of resources out there to help educate and bring support to TIC owners.

Radhi Ahern, realtor, The TIC Group: "Truthfully, when I first meet TIC buyers, I really have to investigate why their TIC ownership is for them. There is a lot to take in. You have to be a compromising, flexible person to be in partnership with others. So really finding out if they are suitable for this type of transaction is the first step. Then it's really a process of getting them educated, talking to them about TIC agreements, talking to them about financing and then getting them out there to look at open houses and see properties and discovering what they fall in love with."

And what if you're interested in TIC but you don't know anyone in the city? Well some organizations like the TIC group are bringing people together. Radhi Ahern , realtor, The TIC Group: "Visit our website and check out the matchmaking profile that we've created. We have a lengthy questionnaire that asks you do you smoke? Do you have pets? Do you party late at night? Are you a quiet person? Do you have a family? We've kind of build up a profile similar to match.com type of scenario that helps people understand what type of living environment they want to be in."

Toby Doyle: "I think if you're going to go on to a TIC, you need to get as much information as possible. At first, when we first heard about it, it seemed almost unrealistic to think that we can own a property and we would meet people that we would get a long with and own a building with them. And we weren't really sure about all the legalities that were involved, but we've had a lot of help along the way."

Kier L ane, TIC owner: "Yeah, it's just a great place, ideally I'm still in a TIC partnership so ultimately I'd rather be on my own and own my own house ... it's a great situation, we got a fantastic place, we've got a good partner, so I'm really excited about the opportunity."