Background on TIC Formation

  • First attempt for TIC’s in the mid-1980s by Andy Sirkin. TIC agreements were created by His law firm modeled after condominium CC&’s.

  • Difference between California recognizing recorded in on recorded documents.

  • Efforts within San Francisco tried to limit TIC formation but restrictive local laws were either rejected by voters or overruled (thrown-out) in state courts.

  • Law to make Exclusive Occupancy illegal & unforeseeable ruled unconstitutional by California Court of Appeal in 2004.

  • Fractional TIC loans first appeared in 2005

  • 2013 Condominium Lottery is disbanded in San Francisco. Concept of 'permanent TIC's - buildings with no condominium conversion potential - increased.

  • TIC ownership has become progressively established a part of San Francisco real estate ever since.

Tenancy-in-Common Ownership & TIC Agreements

  • Co-ownership where each owner is free to choose who will inherit his/her interest.

  • Undivided Interest in whole APN building - Exclusive Occupancy %'s.

  • SCAO - or 'Space Assignment Co-ownership - No recording of property Deed.

TIC Agreements

  • Modeled after Condominium governing documents.

  • Establish exclusive Occupancy rights and % of ownership & rules of governance

  • Maintenance obligations & assignment of exclusive use areas in common areas

  • Condominium Conversions / Enforcement for non-compliance establishing Budgets.

  • Must be signed to be Building / Resale of TIC Inserts sign and Amendment / Assumption

  • Are not recorded - only the Memorandum of Agreement is recorded - announcing the existence of Tenancy in Common ownership arrangement - makes clear that the property is not to be sub-divided.

TIC Conversion Process

1-4 unit Buildings:

Do not require BRE Approval - just need a TIC Agreement written for Fractional Financing for and Relative Value % of each unit to be established.

5+ Unit Buildings:

  • BRE requires government approval for sale of Tenancy in Common units if at least 1 unit is to be sold as Residential and if units will be marked as TIC’s.

  • TIC Public report cost about $15,000-$20,000 and takes 5 to 7 months to obtain.

  • Seller must need at least a Pink Report to begin to advertise / market or put into contract.

  • If less than 80% of all units are to be sold at the same time, then Seller must provide to escrow cash or a bond in the amount of equivalent of 6 monthly HOA assessments.

  • Virtually 100% a building going through the process has been approved by the BRE

Fractional TIC Financing

  • Fractional TIC financing is secured to the Exclusive right to occupy that the subject unit represents.

  • The individual Exclusive Occupancy % is reflected on the Grant Deed. One Grant Deed for all Co-owners (Co-tenants) - but individual Deed of Trust. Fractional TIC loans are all 1st lien mortgages - Can not co-exist with a group loan or other units in building.

  • Under Fractional financing, no financing is tied to other units, all financing is independent. No risk of being impacted by default/foreclosure by any other unit.

What does this all mean? It allows Buyers to purchase properties in neighborhoods where they may have been priced out of. It allows Sellers of multi-unit properties a larger return on their investment.

To learn more call 213-440-1286 or email SJ at SJ LA real estate.com

Source: Sterling Bank