Re: Retrofit TIC cohousing, legal/banking issues
From: ken (
Date: Mon, 17 Jul 2006 03:15:26 -0700 (PDT)
Patri Friedman wrote:
Greetings, all.

I am part of a 15-person group who have been working for 8 months to
form a cohousing community in the SF Bay Area (Mountain View).
Because we don't want to go through the time and expense of building,
we settled on the plan of buying a small apartment complex, and
converting some of the units to common space.

We hired a real estate lawyer to look into the legal issues, and it
looks like a Tenancy In Common is the only workable form of ownership.
 In our local cities, the condo/coop conversion ordinances are very
strict, and would require lots of expensive retrofitting to any
property we purchased, approval from the DRE, and even then might be

Why couldn't the members form a corporation (like an S-corp or C-corp), buy the building, and then rent it out to themselves?


Besides the fact that it is a TIC, another lending issue is what
happens when someone wants to sell their share.  Lenders don't like
having the pool of creditors change during the life of the loan.
Furthermore, the debt to equity ratio must change, unless the new
buyer puts up a huge down payment.  eg if my TIC share was worth
$100K, $30K down and $70K loaned, and now 10 years later it is worth
$150K, $90K equity and $60K loan, and I sell it to you, you either
need to put up $90K (a 60% down payment), or if you put up $45K (30%
down), you would need a loan for the other 45K.

Either you misspoke above or I'm missing something: $45k + "the other $45k" = only $90k; I think "the other" should be $105k, right? Anyway...

I would think that in the "Ten Years After" scenario (cohousing, not the band), the new owner could pay the current owner $60k with which the current owner could pay off the remainder of the current loan to the lender. At that point the current owner will no longer have a relationship to the bank-- because the current loan has been paid off. (The current owner's loan agreement would have to stipulate that there will be no penalty for early payment.) The current owner would then sell the property to the new owner for $90k, the amount which the new owner would need to borrow. (But perhaps for the new owner making a lender happy would entail putting down an additional 10 or 20% of the $90k, making the total down payment for the new owner $69k or $78k respectively.)

The above would, of course, be assembled by your lawyer into what would amount to one single transaction. The lawyer should also include language to allow all parties to avoid excessive capital gains penalties.

If anyone has suggestions about the loan situation, or any other
advice, it would be greatly appreciated.

yours in community,


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