What It Means to be 'Tenants in Common'

Q: I'm looking at a "condo-like" unit that is being marketed as having "TIC" ownership in a new four-unit building in California. All four units are for sale. Is this a good way to hold title, and are there pitfalls in this type of ownership? -- Glenn R.

A: DEAR GLENN: While what you're describing may look "condo-like," it's quite different.

With a condo, each owner has title to his or her unit and jointly owns common space, such as the entryway and grounds, with others. But when owners hold property as tenants in common (TIC), each owner has an undivided interest in the whole property.

For example, in a four-unit building, you will own a portion -- perhaps one-fourth -- of the entire property, not a specific unit. Unlike with other forms of joint ownership, tenants in common don't have to own equal shares, so you could just as easily own one-tenth. The portion you own usually relates to the size and quality of the unit you live in. (It's best to have this value set by a professional appraiser.) TIC owners can sell their interests whenever they want, without the consent of the other owners.

There are drawbacks to a tenancy in common. You'll be buying property with people you don't know. Because you all own the entire building, you will have to agree on how to handle things like improvements and repairs in any of the units.

You can limit the impact of some of these drawbacks by drafting an agreement to deal with these issues. You can make the agreement "condo-like" by setting up a maintenance fund to repair common spaces and allocating responsibility to each owner for the repair and improvement of the unit he or she lives in. You may also agree that if any of you want to sell your share, you must first give the other owners the right of first refusal.

In cities where real estate is expensive, TICs give many buyers an affordable opportunity to enter the real estate market. In fact, that may be your only option in this situation, unless you can afford to buy the whole building. To avoid some of the hassles of TIC ownership, you and the other owners may want to consider converting the building to condos later.

My sister is trying to sell her home. Her listing agent brought her two purchase contracts at the same time. One bid was for an amount close to her asking price but was contingent on the sale of the buyers' home. The second was significantly lower than her asking price, but the potential buyers were preapproved and were prepared to close that month. Her agent recommended the lower offer.

My sister accepted the lower offer, and her listing agent obtained a deposit. Two months have passed, and the buyers have been denied a loan, so the house is back on the market and the deposit back to the buyers. Does my sister have any recourse against the buyers, against the bank that gave them the preapproval letter for funding or against the listing agent for not verifying the validity of the preapproval? -- Jean D.

DEAR JEAN: Your sister isn't the first home seller to learn the hard way that many preapproval letters aren't worth the paper they're printed on. In fact, a nationwide survey of real estate agents in 2005 pointed to faulty or bogus preapproval letters as a major factor in the breakdown of home sales before closing.

In the worst cases, the lender hands over a preapproval without even running a credit check or asking for proof of the buyer's income and assets. Such cases are becoming rarer since the collapse of the subprime mortgage market. But even responsible lenders normally add qualifiers to the preapproval letter, such as "subject to a full appraisal, formal underwriting and receipt of an acceptable contract." They also specify what evidence they evaluated before issuing the letter.

Where does that leave your sister? Not with any recourse against the bank, because no seller has a right to rely on a preapproval letter. Nor against the buyers, who were probably as disappointed as your sister. They had every right to get their deposit back, assuming that the purchase contract contained a financing contingency allowing them to pull out of the deal if their financing fell through.