thecitysf.com

1. A TIC is an ownership interest in a building as a whole, with the right to occupy a certain unit. You are purchasing an undivided percentage of the total building.
2. Fractional financing is an individual loan as opposed to the more common group loan typically found in TIC’s. Individual loans are sometimes offered on TICs of 5 or 6 units, the interest is typically 1% higher than what the group would qualify for with a group loan (all owners being listed on one loan document). A Sirkin or Gellman TIC agreement (the most popular and well-known real estate law firms dealing with TIC’s) offers legal protection that can be put into effect in the event an owner fails to pay his or her part of the mortgage. Typically, the agreement will include a few months of PITI (principal, interest, taxes and insurance) in a secure interest-bearing account, which the group can pull from in the event of non-payment by an individual owner. Also, lenders often requite a minimum of 20% down payment. For this reason, historically group loans have seen the lowest rate of default of all residential loans.
3. A TIC is a group effort. You are committing to participating in the legal process of subdividing one parcel of property into several. You are committing to both the time and the expenses involved in the condo conversion process - which include legal fees, city application fees, survey fees, and many meetings in which the group must come to a consensus on the decisions to be made concerning the allocation of resources.
4. Not all TIC’s can convert to condos. Only 2-6 unit residential buildings are eligible for condo conversion in San Francisco.
5. Condo conversion can take a long time. Before a building is eligible to enter the SF condo lottery, they must meet certain residency requirements. In a 2 unit building, both units must be owner occupied for one year. In a 3-4 unit buildings, one unit must be owner occupied for 3 years. In 5-6 unit building, 3 or more units must be owner occupied for 3 years. A TIC building with 7 or more units can not condo convert.
6. What is the “condo lottery”? Due to SF law, only 200 units are eligible for conversion annually, after residency requirements have been met. You will be drawn from a pool of all the TICs in the city who enter. Every year as the number of TICs increase, the chance of winning decreases. Though, there is some weight given to previously entered candidates.
7. What are the costs involved in a conversion? The City charges an inspection fee ranging from $480 for two units to $800 for six units, an application fee of $8,790(2-4 unit) or $8,897(5-6 unit), a $250 lottery fee, and a recording fee of about $20. The State application is required only for 5-6 units, and the fee is currently about $1,700. The State also requires a formal budget which is best prepared by a professional budget preparer at a cost of about $2,500. The survey starts at about $7,000 and increase with building size. The typical attorney service includes preparation of the City Application, monitoring/troubleshooting, advice on space assignment, CC&Rs, and assistance in lender signing and recordation. Building permit fees and repair costs depend on the extent of needed work. Most title companies will provide required title reports free of charge if the owner promises to use the same company for a post-conversion sale or refinance of the property. Most lenders charge $200-350 to sign the survey.

Red Flags for ALL TICs
OMI (owner move-in eviction). Makes one unit forever the “owner’s unit”, so if you needed to do another eviction to move back into a unit, it can only be done in that “owner’s unit”. If you want to move into another unit, you’ll have to negotiate a tenant buyout.
Ellis Act Eviction. “Ellis” or “Ellised” means that an owner took the building out of the rental market. This can limit your ability to rent and/or condo convert the units, depending on the circumstances surrounding the evictions.
Evictions for All Reasons. If the eviction happened after May 1, 2005, and involved multiple evictions (Ellis) or a single eviction of a senior or disabled person the building is ineligible for condo conversion.
Ownership percentage of less than 25%
You must have at least a 25% ownership interest to do an owner move-in. If there is already a designated “owner’s unit” resulting from a previous OMI eviction, you can not OMI your unit.
TICs, Ranked Best to Worst:
BEST
A 2 unit building, fully owner occupied, which have had NO OMIs and NO Ellis Act evictions. After one year of owner occupancy, you may apply to the city for subdivision into condos. No lottery is required.
BETTER
3-4 unit buildings, preferably never Ellised. These are the most plentiful. They are relatively manageable transactions to put together, and can be structured with a group loan to keep interest rates reasonable. Only one unit must remain occupied by the same owner for 3 years to enter the condo lottery. If the building has already been in the lottery and the qualifying owner will remain, it adds value to the unit.
GOOD
5-6 unit buildings. Can be a good choice if this is the only type of ownership your budget will allow. Loans will be at higher rates, as lenders consider 5+ units a commercial building. If you must purchase in a 5 unit building, individual financing is recommended. Residency is harder to establish for condo conversion. 5-6 unit buildings require 3 units to be owner-occupied for 3 years to enter the lottery. It can be difficult to keep owners in place for long enough to remain eligible. If the qualifying owners move, you must re-establish residency with the next-longest-residing owners, possibly over and over. Even if you’ve already entered the lottery, if you have not won, you must re-establish residency if owners leave. 5-6 unit buildings also require a public report ($15-20K) from the DRE (Department of Real Estate), and approval by the SF Board of Supervisors.
BAD
More than 6 units, buildings are not eligible for condo conversion.

An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. Most foreclosure auctions do not even result in bids.

Foreclosure Sales
A foreclosure sale begins with a minimum bid that includes the loan balance, accrued interest, plus attorney’s fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier’s check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in “as is” condition, which may include someone still living in the property. There may also be other liens against the property.

Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property “reverts” to the bank. It becomes an REO, or “real estate owned” property.

REO Sales
The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property.

How Banks Sell REO’s
Each bank/lender wants to get the best price possible and they have no interest in “dumping” real estate cheaply. Generally, banks have an entire department set up to manage their REO inventory.

Once you make an offer to purchase, banks generally present a “counter-offer.” It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer.

Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days.”

Property Condition
Banks always want to sell a property in “as is” condition. They will allow you to get all the inspections you want (at your expense), but they may not agree to do any repairs.

Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct.

Even though you agreed to “as is,” always give the bank another opportunity to make repairs or give you a credit after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of putting the property back on the market.

Banks do not want to see a lot of proprietary disclosures; they are exempt from the California Seller’s Transfer Disclosure Statement (TDS-14). If there are real estate agents involved, either representing you or the bank, those agents are required to provide you their disclosure statements.

Making an Offer
Make sure that the price you pay (if you’re successful) is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them.

Before making an offer, you should know the answer to the following:
Are there any inspection reports?
Is there a special “as is” form?
How long does it take the bank to accept an offer?
How does your agent deliver the offer?
There is no formal presentation.

Since there is no face-to-face presentation to the bank, provide the listing agent with a pre-qualification or better yet, a pre-approval letter and buyer biography. Make your offer easy to accept.

You see the skyline of San Francisco changing every day. New high rise condominium complexes whose shiny glass exteriors reflect the fog back at you. Beautiful buildings with stunning views, European style kitchens, radiant heat, Cat 5 wiring, ipod docking stations with integrated speakers, pools, concierges, spas, wine cellars, restaurants, dog walkers, and amenities you never realized you needed so badly; until now. Seems easy enough to purchase your new home – walk into the sales office and you’ll be introduced to a charming sales representative, she’ll show you your options, have you sign a contract (or a reservation) and then you hand over a deposit of $3,000-5000 to hold your jewel-box condo. There are thousands of them all over the city, why bring a buyer’s real estate agent? You think you can negotiate a better deal with out a Realtor representing you, right? Well…

First, the contract you sign was created by the developer’s attorneys to protect the builder’s best interests, not yours. All new construction contracts are reviewed and approved by the state but they don’t mean they are fair nor have the built-in safeguards that might be found in our SFAR Contract. You need to have a Realtor accompany to you the development the first time you decide to visit it. You’ll both register and then the realtor can represent you going forward if you decide to purchase.

So, what are we looking for and how are we protecting your interests? Number one, we’ll take the contract with us, review it and discuss it with our brokers if there is any unusual language. We’ll point out to you possible problems and suggest solutions. For instance, all of the following could give you a headache or cause you to spend thousands in litigation, depending on the circumstance.

1) Is the contract written with a “hard earnest money” deposit? That means after a certain date your deposit is non-refundable, regardless of the situation.
2) Does the contract allow for a “punch list” inspection prior to the close of escrow?
3) Does your inspection contingency allow you to release yourself from any financial obligation to purchase the property and will your earnest deposit be fully refunded?
4) Are there passive contingencies concerning automatic approval, unless you object by a certain date?
5) Does the contract assume the buyer is going to pay the transfer tax (in Northern California typically the seller pays the transfer tax)?
6) What about that much coveted parking spot – is it leased, exclusive use, or deeded? And do you truly know the difference?
7) What are your rights to your – pets, storage, common space?
If it is a “mixed use” development does the contract specifically address how conflicts should be resolved? Are you truly wondering, “What conflicts could I have with the Three Star restaurant eight floors beneath me?” Noise, crowds, smells, deliveries at 4am, and the list goes on…
9) Most new contracts require that you acknowledge receipt of a list of documents (CC&R’s, Certificate of Final Completion, Title report, budget, etc) even though they are not completed and not in the disclosure package yet. Your agent will advise you not to sign for documents you haven’t received.
10) Is there a caveat for price decreases? For example, if the developer lowers the price on all the units by 10%, but you already signed a contract at a higher price, can you get the new reduced price?
11) Do you know about Senate Bill 800 and how that protects your interests in new construction?
12) Is there a final walkthrough provision in the contract?
13) Lastly, has the “white paper” been approved by the DRE? You can’t close without it, so it’s good to know when your building is “yellow”, “pink” or “white”.

These are just a few of the reasons why you need and want proper representation. An experienced Zephyr Soma Realtor can define much of the above real estate jargon and walk you through the process; so your silk purse doesn’t turn into a sow’s ear.

Okay, so you’ve read about “green”, seen “LEED” signs on the sides on new developments, and think it’s a no-brainer – Go Green! But before you lead the crusade for San Francisco to be the FIRST green city – we are too late! Boulder, Colorado, another terminally cool city, has beaten us to the punch and has become the first U.S. city to enact a “carbon tax” on electricity. This tax helps to support that city’s directive to improve energy efficiency, promote renewable energy, and reduce vehicle use. So, how far behind the curve are we? San Francisco currently has proposed legislation that all new private construction projects over 20,000 sq ft would be required to meet the “gold” LEED standard.

And, what does all of that mean? A “Carbon Tax” is a tax on energy sources which emit carbon dioxide into the atmosphere. LEED: Leadership in Energy and Environmental Design is certified by the USGBC (a non-profit organization comprised of over 12,000 building organizations). And the “ Platinum, Gold and Silver Standard” is a numerical benchmark developed by LEED to measure the performance in six categories:
1) sustainable sites
2) water efficiency
3) energy & atmosphere: CFC reduction, renewable and/or reduced energy use
4) material & resources: local and/ or recyclable
5) indoor quality: natural light, voc-free paint
6) innovation & design process

So, where is the argument? Estimates say that “gold standard” buildings save about 40% on energy costs and 18% on water usage – great, right? Well, the Office of Economic Analysis for the City & County of San Francisco argues that the increased construction cost of 1.8% to 5%, will have a negative impact on our city’s economic growth and will not pay for itself over the next 20 years. The OEA assumes developers will not build due to the higher costs and thus there will actually be a negative impact on our environment. They also argue that a phased-in market-based tax on carbon-producing activities will have a more immediate impact on CO2 reductions.

I say why not both? The goal is to reduce both usage and consumption, why not get to our goal of having a safer, healthier, “greener” city by building cleaner buildings and taxing CO2 producing activities? The truth is, as also brought up in a recent lunchtime SPUR discussion, San Francisco’s 47 square miles are not going to have any significant CO2 impact on the world. We are too small and we spew out an insignificant amount of CO2 on a global level. We don’t matter! Except as an example, as Ghandhi said, “You must be the change you wish to see in the world”

Condominiums
A building or complex in which units of property, such as apartments, are owned by individuals and common parts of the property, such as the grounds and building structure, are owned jointly by the unit owners.

A form of real estate ownership in which individual residents hold a deed and title to their apartments and pay a maintenance fee to a management company for the upkeep of common property such as grounds, lobbies, and elevators as well as for other amenities. Condominium owners pay real estate taxes on their units and can sublet or sell as they wish.
1. exclusive use areas and deeded areas
2. independent ability to buy and sell
3. restrictions
a. Covenants, Conditions, and Restrictions (CC&R)
b. exterior of building – architectural regulations
4. shared expenses
a. HOA fees – typically insurance, water, and garbage
b. special assessments if there is not a reserve fund
5. Banks typically require 75% owner occupancy
6. Banks may not loan when a unit is less than 500 sq ft

Cooperatives
Form of multiple ownership real estate in which property units are owned by a nonprofit corporation or business trust, which grants occupancy rights to individual tenants. Also called a co-op. Property owners buy shares in the corporation representing their ownership of an apartment or office, and pay the corporation a share of real estate taxes, building maintenance, and other overhead expenses. Loan interest and property taxes paid by the corporation are tax deductible by individual tenants. Property transfers from the old owner to a new owner are subject to approval by a tenant board.

A type of corporate ownership of real property whereby stockholders of the corporation are entitled to use a certain dwelling unit or other units of space. Special income tax laws allow the tenant stockholders to deduct interest and property taxes paid by the corporation..
Example: Apartment buildings in New York City are occasionally converted to cooperatives. In simple terms, this requires forming a Corporation to own the building and selling shares to those who wish to live in the building.

Tenants-In-Common (TIC)
Two or more persons are owners of an undivided interest in the title to real property. The interest may be any percentage. There must be a unity of possession. Any tenant in common is free to sell, convey, or mortgage that tenant’s interest. Ownership of property by two or more persons who do not have rights of survivorship. The share of a deceased tenant passes to that person’s heirs and not to the other tenants.
2 Units:
No presale TIC agreement is necessary.
By pass condo lottery
3-4 Units:
Must have a TIC agreement
5-6 Units:
Must have a DRE “public report”
Must have a DRE contract
Must have a TIC agreement
Sirkin www.andysirkin.com
Gellman www.G3MH.com

Financial issues:
Group loans – if one person defaults, what is the procedure?
Fractional Financing – typically a commercial loan, ~1 pt higher than a residential loan and higher closing costs
Partners agree to $ _______ money in escrow for tenant vacancy, or non-payment of PITI

Rent control in this article applies to all dwellings built before June 1979 in San Francisco.
Exemptions include:
Single family homes
Condominiums built after 1996

Ellis Act:
Remove all of the tenants and remove the property from the rental market
Between 2-5 yrs the maximum rent that can be charged to a tenant is the amount paid by the evicted tenant.
Between 2-10 yrs the unit must be offered to the previous tenant, before renting it to anyone else.
In years 6-10 the rent can be set at market rate, but the unit must still be offered to the evicted tenant first.

OMI (Owner Move-In Eviction):
Only one owner-occupancy (owner move-in) eviction per building
A Relative Move-In Eviction may occur where the owners are related to each other as parent/child, grandparent/grandchild, or siblings.
Owners must intend to occupy the dwelling as their principal residence within three months and then for a period of at least 36 continuous months after an OMI.

Moving Expenses:
An evicted person is entitled to moving expenses as follows:
$4500 per person, $3000 for children/disabled/elderly, but not to exceed $13,000 in total
A protected tenant has 1 year to move. A protected tenant is typically, but not always, a senior (60 or older), disabled, or a catastrophically ill tenant.

Lastly, there are constant changes to rent control laws and I am not a real estate attorney. Please use this for informational purposes only and consult with an attorney before you take any actions.

Converting your TIC into a condominium is an attractive proposition. Why? Because after the conversion one should be able to: obtain better financing, typically the property values increase, and it eliminates some risks of co-ownership.

However, in San Francisco only 2-6 units may convert to condos and they must:
1. Meet the occupancy requirements
2. win/bypass the conversion lottery
3. Satisfy tenants’ rights rules

Exclusions/ Ineligibility for Condo Conversion (if after May 1, 2005):
1. Eviction of an elderly person (over 60) in occupancy for more than 10 yrs
2. Eviction of a disabled person in occupancy for more than 10 yrs
3. Eviction of a terminally ill person in occupancy over 5 yrs
4. Eviction of 2+ persons after 5/1/05, only after 10 yrs of owner

In order to bypass the condo lottery, you must own a legal two unit residential building, which has been:
1. Occupied for 1 yr by separate individuals who each own at least 25% interest in the property.
2. File the condominium paperwork and pass the city building inspections.
3. You cannot bypass the lottery if an elderly or disabled person was evicted.

Condo Lottery Process:
1. Purchase a $150 ticket
2. Only 200 units are chosen a year
3. Upon selection you must submit a conversion application.
4. 2-4 units:
1 unit must be owner occupied for 3 yrs
5. 5-6 units:
3 units must be owner occupied for 3 yrs
6. City requires a building inspection, but may not need to meet current codes.
7. Fees: ~$24,000+ (all fees are approximate)
Inspection: $515-855
Application: $8300-8500
Recording: $110
Surveyor: $5000
Attorney: $10,000

State fees are required for 5-6 units only and include:
Budget ~$2500
Application ~$1700

Property taxes are set at 1.163% of the purchase price of the home for 2008-2009. This value increases not more than 2% per year until the property is sold or any new construction is completed, at which time it must be reassessed.

However, Proposition 60 allows replacement of a primary residence, with a new home of equal or lesser value within the same county, if either spouse is over age 55 (when the old home is sold). Transfer of the Prop 13 assessed valuation from the old home to the new property is allowed once in your lifetime, and a spouse who has done it before ‘taints’ both spouses.
Proposition 90 allows counties to elect to accept transfers of Prop 13 values, for moves from other counties, when a primary residence is replaced with a less expensive home. If you are over 55 and move into a county which accepts Prop 90, you may take your old, lower Prop 13 value, regardless of from which county you move.
Using Prop 90, you can sell your $400,000 San Francisco home [assessed value $80,000] and move to a new $300,000 home in San Mateo; the new San Mateo assessed value will be $80,000!

SEVEN COUNTIES WHICH ACCEPT PROP 90 (as of 6/1/2005)
Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura.
Props 60 and 90 apply if you “trade down” (i.e. the new home costs less than the sales price of the old home).
- If you buy New Home 1st; then sell the Old Home, you must go down in price.
- If you sell the Old Home 1st; then buy the New Home:
- In 1st 365 days after the sale of Old Home, you may go up 5% in the purchase price of New Home.
- If you buy New Home more than 1 year from the sale of Old Home, but less than 2 years, you may go up 10%.

Some buyers can pay the commission outside of escrow to lower to sales price.

Welcome to my blog! Virginia