TIC/Condo Frequently Asked Questions and Resources
CONDO BYPASS FREQUENTLY ASKED QUESTIONS
What is the Condo Bypass Legislation?
The Condo Bypass legislation will allow TIC buildings that participated or could have participated in the 2012 lottery, to bypass the lottery by paying a fee of up to $20,000 per unit (depending on the number of years the building has been in the lottery). The fees will be dedicated to the city’s affordable housing program. (link to the legislation)
What is a Tenancy In Common (TIC)?
In a TIC, a building is owned by the TIC group in percentage shares, including the rights to occupy a particular unit. In San Francisco only TIC buildings with 6 or fewer units are allowed to convert to condominiums.
How is a TIC different from a Condominium?
There are fewer financing options and higher interest rates on TICs. Also, TIC owners are not eligible for the loan modification programs available to most Americans after the housing crash.
What is the Condominium Conversion Lottery?
Each year San Francisco allows just 200 units to be converted from owner occupied TICs to condominiums. The lottery has strict eligibility rules and limits participants to owner occupied TIC buildings that have been established for at least 3 years, and that do not have a history of evictions. Approximately 2,500 units are eligible for the lottery and first time participants can now expect to wait 15 or more years before a successful condo lottery conversion.
Why do TICs exist in San Francisco?
TICs exist due to the demand from entry-level buyers to own their own home in San Francisco. Over the past 20 years, TICs, a riskier form of holding ownership, gradually became one of the few options for working families and middle-income residents who wanted to own in The City.
Who are TIC Owners?
TIC owners are primarily first-time homeowners. We are a diverse group including young families, yoga instructors, small business owners, government workers, downtown employees, retirees and teachers.
We pay property taxes and maintain our properties to high standards We participate in our communities. We’re so committed, that we took a riskier form of homeownership to make San Francisco our permanent home.
I heard TIC Owners were just a bunch of rich developers?
That could not be further from the truth. Many TICs were created with renters and other interested owner/occupant buyers creating a group to purchase a small apartment building. Where developers were involved, most never lived in the units and the current owners are entry-level buyers in San Francisco.
Why do TIC owners want to convert to condominiums?
The combination of higher loan costs, questionable liquidity and uncertainty puts San Francisco TIC owners in a worse situation than both residents of rent-controlled apartments and conventional homeowners.
Why can’t TICs go through a standard loan modification process if they are underwater?
TIC owners do not qualify for federal and state programs available to other homeowners that allow them to modify their loans; their loans are not federally backed. Instead local banks and “non-standard” products hold these mortgages.
Didn’t TIC owners sign up for this?
Yes, and no. Most TIC purchasers knew they would have to wait 3 years before entering the lottery, but the path to condominium conversion has lengthened considerably over time as more units have become eligible and the 200 unit annual limit has remained fixed.
Won’t this reward people who evicted renters or lead to more “Ellis Act” evictions?
It will not. The Board of Supervisors passed legislation to deny condominium conversion to any building that completed an Ellis Act eviction from 2006 on. In addition, buildings that have a history of a single eviction of a “protected” tenant are disqualified.
Won’t this harm existing renters?
It will not. The requirements for the bypass include that a majority of the units be owner-occupied. Rental units remain covered by San Francisco rent control while under the ownership of the existing TIC owners. And most importantly, any unit that converts via the bypass will be required to extend a life-time lease (meaning full protections of rent and eviction control) to current tenants.
Will this legislation cause rental stock to be taken off of the market?
The majority of TIC units that will convert are already owned by their occupants. In addition, the legislation gives lifetime rent control to any existing tenants. It will also lead to the creation of additional affordable housing units.
How much would the bypass fee be?
The condo conversion fee is $20,000 per unit, but is reduced for buildings that have participated 2 years or more in condo conversion lottery:
2 years of participation, 20% fee reduction per unit ($16,000)
3 years of participation, 40% fee reduction per unit ($12,000)
4 years of participation, 60% fee reduction per unit($8,000)
5 or more years of participation, 80% fee reduction per unit ($4,000).
Don’t TIC owners already pay a hefty fee to the city to convert? Why do they want to pay more?
They do pay about $10,000 in fees per building now. They are willing to pay the additional fee because of the uncertainty and variability of TIC mortgages, especially in the current economy. TIC owners should be able to recover some of the costs through the longer-term, lower interest rate mortgages on their units once they are converted and refinanced.
How much money could the bypass raise?
The Condo Bypass fees could raise up to $20 million for the city. Both Mayor Lee and and Supervisor Farrell have discussed allocating those resources to affordable housing.
Why affordable housing?
The State closed its Redevelopment Association, a major source of financing for the City’s affordable housing program. Projects for thousands of housing units are left scrambling for funds. The fees from the Bypass legislation will create and renovate thousands of housing units and provide numerous construction jobs.
I heard the bypass will harm the local economy because large condominium developers will stop new construction because of the increased competition from TICs.
TICs are in older buildings that do not compete with new construction. They won’t complete with new construction as condominiums any more than they did as TICs. In fact, the economy will benefit from jobs created by the estimated $20 million in fees to go to affordable housing, the $6 million in processing fees to the city’s planning department and the $2 million in repairs and upgrades TICs will undergo to comply with the conversion requirements.
1) San Francisco TIC owners can take advantage of the stability, flexibility and improved rates provided by a conventional mortgage. 2) The City retains more middle class residents and families as they have greater financial stability. 3) The affordable housing community replaces funds lost when the state closed the Redevelopment Agencies. 4) Construction workers gain jobs created with the affordable housing funding.
Banks with TIC loans may earn a lower rate of interest or lose their TIC customers to more competitive lenders.
Why would the city subsidize TIC owners?
It will not. San Francisco subsidizes many, but not TIC owners. In fact, TIC owners are penalized by paying higher loan costs, yet pay the same taxes and fees as every other property owner in the city. The Condo Bypass will allow our mortgage savings to replace the funding recently taken from affordable housing programs.
This would be a “bailout” for TIC owners.
FALSE! A bailout for TIC owners would imply a cost to the tax payers. However, TIC owners are the ones paying a fee. How can we afford it? We take the savings from our lower interest rate and give that to affordable housing in San Francisco at a time when funding has been cut. Taking from the banks and giving to affordable housing — seems like something all of San Francisco should support.
Won’t this will encourage more TIC units?
There will always be interest in entry-level housing in San Francisco. TIC units and will remain a viable option for first-time homeowners regardless of this bypass legislation.
What can I do to help?
Make your voice heard! 1) Contact your Supervisor. 2) Participate in social media. 3) Talk to your neighbors. 4) Get other owners involved. 4) Join Plan C. This will not pass unless you get involved to make it happen!