1. With respect to foreclosure, if the you obtain true fractional financing, either from a bank or the seller, a foreclosure of another TIC owner's interest will not affect your interest. That is one of the primary purposes of the fractional loan and why you generally pay a premium for it.

2. With respect to risks of a seller carry back, it would depend upon whether it was carried back as a fractional loan or not. If not, their is a risk as other units are sold with a shared loan. You run the risk of having a defaulting TIC partner. If the seller carry back is fractional, I don't see any additional risk they you would have if he had sold all the units and outside fractional financing was done.

3. Predicting SF laws is a risky business. As someone else said, the issue of primary home tax benefits is not a local law issue. It is mostly a federal tax issue. However, it safe to say that TICs are treated the same as any other residential property ownership with respect to tax benefits if you claim it has your primary residence.

4. No. Each TIC owner has an undivided interest in the property which is spelled out in the grant deed. It is for that reason you get your tax deduction, etc.

5. As with most answers, it depends. In this case, it will depend on the interest rates for fractional vs. group loan, whether the building has the right to condo convert eventually, and the number of units. For instance, if its a two unit building with fast track condo rights, I would not think it was worth it. For your four unit building with its condo rights, it might be because it may take 10 years or more the convert. Since most first time home buyers only keep their first house for an average of 5 years, it seems to me greater ability to sell the units with fractional financing down the road is quite valuable.

Jeffery P. Woo, Esq.
Sedgwick, Detert, Moran & Arnold, LLP
Complex Rental Property Group
415-627-3607
jeff.woo@sdma.com

Having sold and developed many TIC properties, I thought I would share some info that I learned along the way in response to your questions.

1. Foreclosure is possible on any TIC, but most TIC agreements have provisions written into them that forces a sale if someone defaults on their TIC loan payment obligation. I don't know of any local law that addresses this.

2. Seller carry is a nice option if the terms are good. Risk is that the seller may be the one on the existing loan, if any, and negotiating a new loan when you go to refinance down the road may be more difficult with the seller involved.

3. Good question for an accountant. I have an excellent one to recommend who will give you a free one hour consultation.

4. Depends on what you mean by "home owner". If it is being used as your primary residence and you are making mortgage payments, I believe you are entitled to a mortgage deductions, but again check with an accountant.

5. It may be. I believe fractional financing adds value to the home because it is easier to resell the home in the future. Do the math over the length you expect to own the home and talk to a realtor about what added value you get from a fractionally financed TIC versus a group loan TIC.

Good luck!
Shaban Shakoori
TRI Coldwell Banker, SF's #1 Office

Dear Home Buyer,

I would contact David Gellman @ Gellman, Goldstein et all. http://www.g3mh.com for questions about the TIC agreement if his office did not prepare it. If they did, I would call Andy Sirkin's office for a second opinion (and vice versa.) They can advise you about tax benefits, but if you have a CPA, I would call him/her first.

Sterling Bank is providing fractional loans and they are about it at the moment. I would speak to a lender there about their rates and what would happen if someone in your TIC group defaulted. There are serious consequences about a bank foreclosing on a fractional loan and they can involve every unit in the complex.

I also would wait a bit. Rates are going to come down for a period of time. How long that low rate will last is the question because inflation could raise its ugly head and then rates would automatically go up.

Natasha was right to encourage you to get someone to represent your interests in this transaction. Frankly, you are better off not going for a TIC..... but if you understand the good and the bad associated with a TIC, then you can make a knowledgeable decision.

Cheers,

Sally

First piece of advice, don't buy now, it's just starting to get interesting. Second go to Andy Sirkin's website (see web reference) and absorb as much information as you can from there. Now for the questions (disclaimers: I am not a lawyer or Relitter. I have been a participant in a TIC and condo conversion, but not in San Francisco. Not Investment Advice):
1. Foreclosure is possible. It is usually in the banks best interest to foreclose on an individual TIC owner (if the loan is fractionalized) and resell that unit. However, the bank can do partition sale as a last resort and force the sale of the entire building. Something like this unlikely, but then again, who is to say that Ess Eff will avoid that same fate as say, Antioch.
2. If the seller is offering good rates on the financing and does not have a balloon payment in the terms of the loan; then I'd say there's not a ton of downside. Of course, once again, beware the partition sale (see your TIC agreement). A balloon payment would force you and the other TIC owners to find "agreeable" financing together, or separately with a bank that offers fractionalized loans. Not something I'd want to be doing if the economy continues to take a turn for the worse.
3. SF laws have nothing to do with writing off mortgage interest. Keep an eye on Obama and Congress for this one.
4. You legally own a portion of an undivided interest in the building with a right to exclusively occupy a specific unit. If you don't know what that means, do not buy a TIC.
5. Yes.

It sounds like you are dealing directly with the seller or his agent. I would suggest that you get yourself a real estate agent who will represent your interests, not the seller's.

Both Lance and Jed, who have provided answers below, are active on this board and have excellent reputations in the real estate community. Why don't you call one of them and get some free help -- yes, hiring a buyer's agent doesn't cost you a dime -- instead of trying to do this yourself? Yes Jed would refer you to an attorney, but that's where you need to start any serious investigation of a TIC.

I can answer question 5) since I am a mortgage professional. The answer is "no", it's not worth paying the higher rate at the present time. Fractional loans are essentially commercial loans and that market has been very hard hit by the mortgage meltdown, thus high rates. I would steer clear for now. Payment history on group loans in San Francisco has been excellent historically; I see them as pretty low-risk if you take proper precautions.

SF Home buyer,

Many of your questions need to be asked of legal and tax professionals. If you have an agent have them refer you to an attorney that handles TICs like Andy Sirkin's office, Jeff Woo or Boyd McSparrin at Goldstein, Gellman, Melbostad, Gibson & Harris (google g3mh.com).

I can give you my opinions and if you were my client I'd do that and have you speak to an attorney also.

In fact Jeff Woo is on Trulia Voices. If you search him he might be able to answer some of your general questions.

SF Home Buyer,

You asked a lot of intelligent questions, but too complicated to answer in this forum. We have a lot of experience with TICs and would be happy to answer questions with no strings.

Best Regards,

Lance King/Managing Broker
415.722.5549
lance@fixedrateproperties.com