TIC owners will want to pay particular attention. First as a reminder, ticket sales for the 2012 Condo Conversion Lottery end this Friday, January 18th @ 4:45pm. The ticket cost is now $275 per application. First time applicants are now projected to have to remain qualified for 18 years in order to “guarantee” their ticket being selected among the most senior class. The appropriate application and additional information can be obtained at the DPW’s website or be clicking here. The scheduled 2012 Lottery Drawing will be held at City Hall on Wednesday, February 6, 2012 at 9AM.

The second and more important announcement is that a critical vote is coming up at the Board of Supervisors regarding the Condo Lottery Bypass Legislation. As you know Plan C has led the fight for first-time homeownership and condo conversion reform in San Francisco for over 10 years and it is our belief that this legislation represents the best chance ever to achieve real reform – if you can  help! The time to get involved is NOW. Please continue reading for additional details and critical actions that each and every TIC owner must take.

As a reminder, the legislation introduced last June by Supervisors Mark Farrell and Scott Weiner will provide a one-time opportunity for owners of tenancies in common (TICs) to convert to condominiums, provided that they pay a specified fee to the City. Any tenants in these buildings will be protected from eviction, and will continue to enjoy rent-control protections, but TIC owners in the building will have a guaranteed chance to convert to condo status. The fee to participate in this program ranges from $4,000 to $20,000, depending on the number of years a building has entered and lost in the “condo lottery” (buildings that have failed more times will pay lower fees). For more info on the legislation, go to www.plancsf.org.

This truely is “win win” legislation – TIC owners finally get a chance to convert to condos; tenants get rock-solid protections, and the fees generated will go into a fund to promote affordable housing in the city.

Here are the two things TIC owners urgently need to do: Contact Supervisors and arrange your calender to allow you to show up at the Land Use Committee hearing scheduled on January 28th at 1pm.

Again, the most important things that you can do is contact your supervisor right now, as well as, the supervisors who we believe are key votes. We also need you to attend and if you are willing to speak at the Land Use Committee Hearing at City Hall scheduled for 1pm on Monday January 28th.

You can find your supervisor’s contact info here.
Key supervisors to contact are Supervisors (click on this link now to email the three of them):
-Malia Cohen in District 10 – Malia.Cohen@sfgov.org – phone: 415-554-7670
-London Breed in District 5 – London.Breed@sfgov.org – phone: 415-554-7630
-Norman Yee in District 7 – Norman.Yee.Bos@sfgov.org – phone: 415-554-6516

What you can say: Tell them if you live in their district (give an address) and that you vote, ask them to support the “condo bypass” legislation. Call their offices (a volunteer will likely answer the phone) and email them. Explain that passing this legislation is important to you, that it will help many first-time homeowners, while protecting tenants and providing needed funds for the city’s affordable housing programs. Tell them your story.

Other things that you can do to make a difference:

1. Tell others in your building, other TIC owners, or anyone who supports this legislation – to contact their supervisor and the key Supervisors listed above.
2. Get as many other TIC owners, friends, family and supporters to attend the hearing scheduled on January 28th at 1pm.
3. If you’re on Facebook or Twitter, post on your Facebook page and Tweet about this issue. Like us on Facebook to keep up with developments on this important issue and “share” our updates with others. Make sure you  follow us on Twitter and “Retweet” us. You’ll find us and our action alerts: @plancsf
4. Sign our petition and spread it to others! Click here to sign the petition.
5. Distribute fliers to friends/contacts. Click here for an easy-to-print flier.
6. Complete our form (click here to do so yourself) or email us at Plan C to let us know that you support this legislation – we can be reached at info@plancsf.org. It’s critical that we be able to contact and mobilize a large number of TIC owners who are suffering under the current lottery system.Email and call your supervisor (personal calls or emails to your supervisor are hugely important).   Click here for a list of supervisor names and contact info.  Calling a supervisor is easy – a volunteer will answer the phone and take down your position/views.
7. Again- Email, call and visit the Supervisors.   Key supervisors to contact are Supervisors
   -Malia Cohen in District 10- Malia.Cohen@sfgov.org – phone: 415-554-7670
   -London Breed in District 5- London.Breed@sfgov.org – phone: 415-554-7630
   -Norman Yee in District 7- Norman.Yee.Bos@sfgov.org – phone: 415-554-6516

   Key points to make in any call, email or visit to the supervisors:
   · Please support the “condo bypass” legislation
   · If you are a voter in the supervisor’s district, mention that
   · The condo bypass is personally very important to you (and explain why)
   · No one will be hurt – tenants are protected by “lifetime leases”, and buildings that have been cleared by evictions cannot participate
   · The condo bypass will raise $20-25 million for affordable housing

   Sample email:
   Dear Supervisor [Name]:

I am writing to urge you to support the “condo bypass” legislation recently introduced by Supervisors Mark Farrell and Scott Wiener. This legislation will help many hundreds of first-time homeowners in San Francisco, while protecting tenants and raising an estimated $20 to $25 million in funds for affordable housing. Please let me know if you will support this important legislation.

A reader asks:

I have heard of a TIC Trap. What is this and how can I avoid it?

Our reply:

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

A reader asks:

I am looking into buying a TIC unit in San Francisco. The unit is tenant occupied and the tenants are month to month. I would like the unit to be vacant if I purchase the property. What are my options? Can I write an offer requesting the unit to be delivered vacant?

Answer:

Your options in San Francisco are very limited since we have rent control. First of all if you are in contract to buy a property in San Francisco that is tenant occupied you should contact an attorney who specializes in the rent control law in San Francisco. The rent control law changes often and new rulings make old assumptions false!! And it is a very complicated law. That is the only advice you should rely upon.

But generally speaking you cannot ask an owner to deliver the unit vacant if the tenant in the unit is in good standing– pays rent on time, etc.

There are very few ways to evict a tenant. So if you want a unit to be vacant when you purchase it you should find a unit that is already vacant to buy. But if you want to buy a unit that is tenant occupied and the tenant does not have “protected” status then you have the right to give 30 day notice to vacate if you intend upon occupying the unit as your primary residence and there is no other unit in the building that has had an OMI (owner move in) eviction. But you should use an attorney for this process so that it is done properly.

Please check our blog for past articles on tenancy in common and rent control.

- Janis Stone

A reader asks:

When a TIC is purchased with individual loans are buyers able to close on a unit separately or does it have to be at the same time as the other buyers?

Our reply:

Initially when considering selling a whole property as separate TIC interests the building will usually have only one loan secured by the property with the original owner. So when the first TIC is sold, and if the goal is to have individual financing, then each TIC owner must get a new loan on their unit’s interest. After that when one parties’ interest is sold that unit’s loan is the only one that needs to be refianced.

- Janis Stone

A reader asks:

I heard that resale financing is the largest risk when purchasing a TIC. Can you explain why this is true?

Our reply:

Until recently any TIC building was secured by one loan on the entire property. When one person wanted to sell their interest, the whole property would have to either be refinanced in order to liquidate any equity that might have built up, or the person selling would have to carry the secondary financing or a personal note in order to make up the difference between the existing financing, the down payment and the purchase price.

For example: Let’s assume a 3 unit building was purchased 5 years ago for $900,000 (that’s $300,000 per unit) and an 80% loan was obtained – $720,000 ($240,000 per unit). If the property appreciated 5% per year the current value would be approximately $1,150,000 (($383,000 each). So if a unit’s owner wanted to sell their interest for $383,000 and there is only a loan value of $240,000 (would actually be less if principle had been paid off in the 5 years!).

In this case the new buyer would either have to come up with $143,000 as a down payment (the difference between the new value of $383,000 and the loan value of $240,000) or the whole building would need to refianced for a higher loan amount. The latter is a costly proposition for everyone involved, especially if interest rates are higher than they were on the original loan. Additionlly there would be appraisal fees, points, title insurance fees, etc. adding to the cost of selling an individual interest. There could also be problems with assumability of the first loan.

The alternative is to have the seller agree to carry secondary financing, however, the buyer may not want to do this because they cannot easily refinance to pay off a balloon payment. So as you can see there are problems with selling a TIC interest.

Recently some banks have been willing to do individual financing on TIC’s interests, but those loans are more expensive– higher interest rates and higher loan to value ratios. Regardless, these should help make TICs more saleable in the future.

- Janis Stone