You are viewing category: Explaining types of ownership
This case also involved alleged defamation, conflicts of interest and a petition to recall the board.
Balcony Maintenance. The association’s newly elected board hired a new manager and new legal counsel. The board asked for a legal opinion about maintenance and repair of balconies and shingle siding. The attorney determined that the association was responsible, not individual owners. This was inconsistent with the HOA’s prior practice and benefited board members with balconies.
Conflict of Interest. Homeowner Susan Ivie objected to the new interpretation because not all units had balconies, the HOA had no reserves to pay these new expenses, and board members had a conflict of interest because they benefited from the legal opinion. Ivie circulated a petition to recall the new board and was sued. The court granted Ivie’s anti-SLAPP motion dismissing the case. The board appealed. The Court of Appeal found that Ms. Ivie’s conduct in criticizing the board’s actions was protected. Country Side Villa HOA v. Ivie.
Adrian J. Adams, Esq.
ADAMS & KESSLER LLP
A reader asks: I am trying to understand TIC’s better – If I want to buy into a TIC now, and think I may sell in a few years how does it effect the mortgage (not for individual loans), say for example if the rates go up? Does the new buyer buy into the existing mortgage or does it bump up the rate of the existing mortgage?
Our reply: First of all it depends on the terms of the underlying loan but generally speaking, TIC units get a loan that is assumable. So when you sell to a new person they assume the underlying terms of the existing note. So it does not bump up the rate of the existing loan.
- Janis Stone
Renters are a huge voting block in San Francisco. As a result, they have a lot of power to influence City politics. They continually lean on the government to change laws in their favor; limiting condominium conversions is just one of the examples. Because so many owners of small, multiple unit buildings were converting to condominiums to avoid the oppressive rent control laws, the City stepped up and passed laws to make it harder to do this.
However, the market always finds a solution. Today, the easiest way for multiple parties to own property is as Tenants in Common. In the past the biggest challenges to this type of ownership has been the financing, not necessarily in the beginning when everyone gets together to buy the building, though that can be troublesome when buyers come in and then drop out. But it can be challenging later on when one or more of the parties wants to sell while the others want to stay.
For example, onc of biggest problems has been, if someone wanted to sell his “share” at a time when mortgage rates were higher than when the group originally purchased, the whole package would have to be refinanced when the new buyer comes in. How to compensate the people who are staying so that their financial positions are not changed from their original position was one of the hardest obstacles to overcome.
However, with the introduction of new financing options where individual interests are separately financed, this form of ownership has opened up and become more attractive to buyers. Where condominium conversions are costly and burdened with bureaucratic red tape, Tenancy in Common becomes a very attractive alternative.
The proof of this is the latest in continuing education for Realtors. On September 20, 2007, Andrew Sirkin in cooperation with Old Republic Title Company are holding a Tenancy in Common, Condominium Conversion and Fractional Ownership workshop at Fort Mason Cnter, Building A in San Francisco. The seminar is open to licensed professionals and goes from 12:30-3:30 PM. Space can be reserved by calling Bonnie Mannion at 415-552-5192 or e-mailing her at email@example.com.
- Mick Orton
What is the difference between a condo and a loft condo? Is there a difference from a mortgage perspective?
In the past, a loft condo had a live/work designation, and you had to have a business license in order to live there. Most lenders would treat them the same way as they treat a primary residence. The only issue would be the success of the business you would be running out of your loft.
Today loft condos are described as a condo in which the bedroom is a loft but you do not necessarily have to have a business license to own them. Both types of units are treated exactly the same for lenders.
- Janis Stone
While the city of San Francisco lowers the boom on condo conversions, capitalism and the free market still find a way to beat the system.
Condominium conversions are a way to turn multi-unit buildings into separate residences to be bought and sold at will, however, San Francisco keeps passing laws to make it harder and harder to do this. The solution? Tenancy in common.
In the past, this form of ownership was terribly complicated. However new financing options are making TICs more attractive. So much so that financial institutions and title companies are beginning to give seminars on them.
Goldstein, Gellman, Melbostad, Gibson and Harris, LLP are sponsoring a FREE workshop on Thursday, June 7, 2007 from 6:30 – 8:30 PM at the Fort Mason Center, Building A in the Golden Gate Conference Room. Topics include:
- TIC agreements
- Mortgage assumptions
- Seller carry-back loans
- Refinancing upon partial resale (one of the biggest issues when one of the owners wants out)
- NEW fractional TIC mortgages
- Approving prospective TIC parties
- New and future legislation updates
- Condominium conversion issues
- Landlord-tenant issues
- Title and escrow issues in TIC resales
- Unlimited Q&A
Reservations are required, so contact Jeannie Q Gant of Financial Title Company at 1388 Sutter St., #1220. She can be reached by e-mail at firstname.lastname@example.org or by phone at 415-215-7146. Tell her Janis Stone or Christine Serventi invited you.
- Janis Stone
Recently Princeton Capital announced that they were now offering expanded fractional TIC financing, thus enabling individuals buy and sell at their leisure. Not so in the past, since previously it was required that all owners participate in the new mortgage when others wanted to buy in our get out of the property.
Another feature is that up to 90% financing is available with no mortgage insurance with loan sizes up to $2 million. There are other features that make this program attractive to TIC owners or potential TIC buyers. You should call Eric Wood of Princeton Capital to get more information.
Stacey C. Fleece, CFA
Senior Loan Consultant
(415) 229-1241 (office)
Stay tuned for more information on Tenancies in Common (TIC). Tomorrow we post TIC Frequently Asked Questions.
- Mick Orton
A reader asks: Why are co-op dues generally more expensive than condos?
Our reply: Often co-op dues are more than condos because there are more services and more employees. In the past co-ops used to have more services as in a doorman or management services. There are also extra costs due to management services and the additional bookkeeping since the corporation owns the building and the stockholders have a lease to occupy the units.
- Janis Stone
We always say, “buy” if you can afford it, but then we are bullish on real estate as a wealth builder. The latest MoneyPit newsletter discussed the pros and cons of renting and buying property.
Pros for renting are, “As a renter, you’re freed from the responsibility of tasks beyond maintaining the cleanliness and general order of your unit. When an appliance breaks down, carpeting wears out or a light fixture is literally on the blink, all you have to do is call the super and things are righted, usually at no cost to you.”
The downside is, “…you’re relying on someone else to get the work done…”
It goes on to talk about the things you need to think about when buying like, “Hidden costs: Along with property taxes, insurance and purchase fees, home care costs should be part of your buying budget. If you stumble upon your dream home, resist falling in love and opening your pockets until you’ve engaged the services of a professional home inspector. After his or her inside-and-out assessment, you’ll know what potential problems and projects lurk beneath the sparkling exterior, and can address them in both your purchase agreement and long-term budget.”
Read the rest of the article here and go to the “On the Wire” section.
- Mick Orton
A reader asks: I have seen the term fractional real estate used in newspaper articles, etc but do not quite understand it. Can you please explain what fractional real estate is?
Our reply: Fractional ownerships have been around awhile, particularly in vacation areas. Similar to time shares, developers have recently begun to offer these to San Francisco residents. The Ritz Carlton was one of the first to offer fractional ownerships to capitalize on the condominium market and owners who wanted to own something in the City, but didn’t want the burden of owning a second home.
Carol Lloyd, of the San Francisco Chronicle, addressed the nuances of this type of ownership in her quirky January 26th column. She likens this new real estate twist to a ordering a Starbuck’s beverage:
Lately, developers have been innovating on the condo concept like it’s a Starbucks beverage. Grande? Foam or no foam? Soy, 2 percent, caramel, peppermint, raspberry? Most of the new products — like the fractional condominiums of the Ritz Carlton and the ultra-luxury condos planned for Rincon Hill — capitalize on the abundant resources of the richest of the rich.
By introducing San Francisco to its first fractional condominiums, the Ritz Carlton Club and Residences (on sale now and slated to be finished in November) have discovered what one might consider an unlikely niche.
Sometimes referred to as high-end time shares, fractional condos allow people to buy a percentage of the property — say, 1/12 — which gives them access to the property one month out of the year.
Unlike many of the negative articles that the San Francisco Chronicle publishes about the real estate market, this one does a good job of explaining the offering and is quite informative. There is also a site called San Francisco New Developments which lists many of the current building projects going up in the City, some of them offering fractional ownerships.
- Mick Orton
A reader asks:
I have heard of a TIC Trap. What is this and how can I avoid it?
One form of a TIC trap would be the inability to get out of a property when you need to sell. Unless you are able to provide financing it is very difficult to take advantage of any appreciation that might have occurred during your ownership.
Take an example where there is one master loan on the property and interest rates have gone up. This may make it too expensive to refinance in order to accommodate the new buyer. Most TIC agreements provide that you, the seller who needs to do the refinance, must pay for all of the costs of that refinance. At the same time you must also ensure that the monthly payments of the other TIC owners will not go up.
If interest rates are higher than they were at the time the original loan was made, it may not be financially feaseable to refinance. In that case you are stuck with a lower loan to value ratio and needs to find a buyer with more cash. Another option might be to carry the financing, however, in this case you would not be able to get your money out of the property.
Another trap is to depend on your ability to convert to condominiums in a reasonable amount of time. In today’s market it takes 10+ years to qualify and be selected for the condo lottery (as an average) in San Francisco. Unless you are exceedingly lucky and are selected in the first few years, it takes 3 years of owner occupancy, then getting into the lottery where it takes 5+ years to be guaranteed selection, then another year to go through the conversion process.
I think these are going to be major problems with TIC’s as the financial markets change.
- Janis Stone