Monday, April 20, 2009

Mortgage Relief and TICs

With interest rates for single family residences and condos going through the floor some TIC owners are wondering whether they might qualify for "mortgage relief." TIC owners are paying over 7% for their loans so it is painful to think of how much lower the monthly payment would be if that rate was 2% less.

I am not the final word on the mortgage relief subject but here is my opinion. A fractional loan is a local aberration invented by a handful of Bay area banks. This does not change the nature of how the property is titled. A TIC building is still a single, multi-unit property owned in varying percentages by a group of unrelated people. This type of ownership structure is considered more complex and risky by lending institutions, because you have multiple individuals on title.

The economic meltdown has not changed the financing options for TICs. Your group must choose either a shared loan which everyone signs or individual fractional loans which require that everyone in the TIC finance with the same institution. There are advantages and disadvantages for the group loan versus the fractional loan. In either case, rates are high and TIC owners are not able to reap any of the benefits of lower interest rates that qualified single property owners may be able to get through refinancing.

On another front, there is a federal assistance program called Hope for Homeowners. However, I would not be too hopeful that this assistance will be forthcoming for TIC homeowners. The program offers owners who meet certain qualifications an opportunity to refinance to a less expensive loan. Any mortgage lender is going to want a lien against the property as collateral. My guess is the federal program is not designed to accommodate multi-unit buildings with multiple owners on title, but rather individuals who hold title cleanly on a single property. TICs are just too "out-of-the-box." And in this world of more constrained lending that's not a good thing. There are several HUD-approved Housing Counselors listed here for those who want to get more qualified advice.

If you are are a TIC owner (or group) looking for "mortgage relief" I would consider contacting your current lender. You don't have much leverage, because if you default the bank gets your property plus all the money you've spent on mortgage payments to date. In the San Francisco market most banks would probably be fine with foreclosing rather than cutting you a break. I don't know of any cases where a TIC owner has gone back to a bank and successfully ended up with more favorable terms. (If anything, banks seem even more tight fisted right now. I have one friend who wanted to pay off her entire mortgage. She asked Sterling bank to waive a year 3 - 1% pre-pay penalty so she could eliminate her mortgage sans penalty and they refused.) Still, it never hurts to have a conversation about what is possible. If you are persistent and practical you might be able to make your case.

Finally, another option to consider would be selling your TIC and purchasing a condo. Depending on the property you currently own and where you are looking to live, that may be a way to make a lateral move into a more or less equivalent space with a lower monthly overhead. There are some TICs that will sell in this market and there are a lot of new condo buildings looking to cut deals. This is not a flip suggestion - you will need to consider your individual situation and all the potential merits and hardships associated with selling and buying a new place.


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