|
Tenancy-in-Common - There are risks that go along with any benefits arising from co-owning real property and relying on the co-owners to fulfill their obligations. Tenancy-in-common (TIC) is a form of real property ownership where two or more persons are owners of undivided interests in the property. Typically, TICs are formed when two or more persons purchase a multi-unit residential rental building for the purpose of individually occupying each unit as a primary residence. Unlike condominiums, residential real property owned as a TIC generally is not subdivided. For that reason, there is no ownership of a particular unit as is the case with a condominium. Instead, with TIC ownership there usually is an unrecorded written agreement signed by all of the co-owners that assigns the exclusive use and occupancy of a particular part of the property, commonly known by a unit number or address, to a particular owner. If there is no such agreement in place, each co-owner can occupy any area in the real property. All forms of co-ownership involve the risks of sharing the use of a property with others and relying on them to fulfill their obligations to each other. Owners of TIC interests share major obligations such as mortgages, property taxes, and building maintenance and management. If an owner of a TIC interest fails to make a monthly payment due to unemployment, divorce or other reason and a mortgage default results, the lender Rev. could foreclose on the entire property. This could lead to all of the other owners losing their residences and possibly their equity. Judgment liens and bankruptcies of a TIC owner also can lead to the lender´s declaring a default on the loan secured by the entire property. Careful attention should be given to reserve accounts and other measures designed to address such matters. The best way to minimize these risks is by a well-drafted TIC agreement. Loans for the sale and refinancing of residential real property owned as a TIC can be more costly and difficult than for condominiums, which can affect the value and desirability of a TIC interest. This is due, among other things, to the risk to the lender that one TIC owner may default and the other TIC owners may not be able to satisfy the shared debt. It is strongly recommended that tenants-in-common have a clear, comprehensive and updated written TIC agreement signed by each of the co-owners setting forth the rights and liabilities of the parties, including, but not limited to, the following: financial obligations of the co-owners, use of the property, management of the property, repairs, decision-making procedures, the action to be taken in the event of a co-owner´s default, death, divorce, bankruptcy or incapacity, sale of a concurrent owner´s interest, and dispute resolution. Buyers should be wary of older TICs that may be operating under agreements that do not address all important issues and thus should be amended, revised or replaced. Before entering into TIC ownership, buyers are urged to consult with a qualified real estate attorney knowledgeable regarding not limited to, all existing or proposed agreements, the background and qualifications of potential and actual co-owners, the management of the TIC property, the existence of any reserve accounts, whether the individual interests of co-owners can later be sold and, if so, whether there are any rights of first refusal or other requirements, the existence and extent of any rights to inspect the condition of the property, the type of financing available, whether the real property is capable of being converted to condominiums, the potential cost of conversion and whether the property as a whole can be sold. Buyers should be aware that because TICs represent undivided interests in real property, they may be harder to sell and finance than other properties and their value may be adversely affected. (Please see Ordinance Regulating Formation of Tenancies-in-Common on page 37.) |