Why do most banks not loan for a TIC (tenancy in common) mortgage?

I’m considering a tenancy-in-common property. After telling me that most banks will not finance this kind of loan, the estate agent recommended the only two or three Bay Area banks that will underwrite this kind of mortgage. I checked two other banks with which I do some business and, sure enough, neither does TIC mortgages. At this point I’m just curious: does anyone know why banks don’t like TICs? Should their caution be a warning sign to steer clear myself?

TIC ownership is an undivided ownership of the entire real estate. TIC does not split the real estate into specific parts among the various owners. Real Estate is owned as a whole. This create problems for the banks because they cannot tell which part of real estate separately belongs an individual for the mortgage and financing purpose. I think if all the owners of a TIC cosign, banks will be able to lend

1 Like

I believe TIC is like buying shares in a company, right? Ownership structure is kinda wacky. On the other hand there should be some discount to be had compared to say a condo.

1 Like

Unlike a share of a company, I am not sure one can sell ownership of TIC, at least in the USA.
I think some countries like UAE allow undivided ownership to be bought and sold. TIC is not like TimeShares.

1 Like

Thanks for the responses, erth and manch. Ownership does look wacky, so perhaps I won’t pursue this one. Back to the drawing board.

Last time I checked, and this was a while ago, fractional TIC loans didn’t carry a huge premium. There’s nothing inherently wrong with TIC, you just have to be good at contracts.

I suspect that banks don’t like them because foreclosing is more complicated and then selling it on the market is also more complicated (it’s really not that different in concept from a co-op or a condo, but it doesn’t have the magic blessing from the government)

1 Like

I have had TIC loans. Depends on the property, number of owners and their credit worthiness

1 Like

Thanks, User4. That’s actually encouraging because you’re suggesting that, though there might be a downside for the banks, there’s not much downside for the buyer.

Elt1: If it’s allowed and you care to, can you let me know here or in a pm what banks you used? Thank you.

my friend bought a TIC in SF several years ago no issues, I can ask what bank he used for the loan

1 Like

The downside for the buyer is similar… you gotta get everybody on board for title stuff. So as elt says if you have 33 units (this exists as a $100 million TIC… and that was 2013! Behold, S.F.'s Most Expensive TIC Ever ... At $100 Million: SFist ) it’s going to be a pain to refinance. People have lives, may be contractually obligated to participate but drag their feet, maybe there’s a bit of a feud between owners, etc. Harder to enforce and agreements aren’t on record so title is less clear.

You usually get a discount for your trouble. I definitely considered it, but of course you will also be giving the same discount when you sell. On the other hand, if you can somehow get a condo conversion through (unlikely in sf) you would be printing tons of money.

Tons of two-unit TICs in the city (like old 2-story house that’s split into two one-floor units). I knew a guy who owned one of those and was grandfathered into the condo conversion restrictions but the other owner didn’t want to do the conversion! Maybe there were tax implications but that screwed my buddy out of some nice condo cash

1 Like

I bought a TIC in SF 2 years ago and got my loan through Bank of Marin and at the time I got a pretty competitive rate compared to regular condo loans. TICs are not considered as liquid as a condo as it may have trouble selling in a bad market - which is why not all banks do it. I did not personally experience any issues when doing title stuff. I decided to go through with buying a TIC despite initial apprehensions so I could buy in a nicer neighborhood for the price. Benefits of TICs: they actually appreciate at the same rate as condos and the rental value of a TIC is the same as condo… so the ROI is higher if you intend to eventually use it as a rental property. You have to be OK with the risk of TICs being harder to sell, especially in a buyers market. In a sellers market, you will still be ok. You also have to understand the rent control laws that are applicable to TICs and be ok with that. Overall, I think a TIC is not for everyone, so you have to assess your own situation and see if it’s worth it!

3 Likes

Thank you all for the feedback. Specifically:
Thanks, britt522, I really would appreciate the bank name.
And thank you, User4, for the bit of history and the additional advice. The property I’m looking at is indeed part of a 2-owner unit, so I won’t have the tensions and hassles of a large building. If there’s any feuding, I’ll have to be one party, and I tend to be pretty low key.
Finally, thanks n2020, for that succinct balancing of downside and upside. And you’re right; after a bunch of good advice, I definitely have to figure out whether it’s right for me. I keep vacillating, so I suspect that, in the end, I probably won’t go for it.

1 Like

I’m not sure you’d regret a two unit. Possibility to buy the other unit one day. Condos have their own issues (HOA). A two unit TIC can carry very little reserves (might be double edged sword if the other owner is irresponsible). In a two unit it seems like you’d want to research the other party since you are basically entering a two person Joint venture with them

My TICs were large syndicates. I was not involved in the management. The managing partner arranged the financing. A two unit TIC requires both owners to have good credit. It is like a partnership