San Francisco Condo Bypass Proposed
Every year in February a segment of the San Francisco population fills with hope about the outcome of the San Francisco Condo Lottery hoping that their building will be picked allowing them to turn their TIC (Tenancy-in-Common) interest (unit) into a condominium with all the rights associated with this including the ability to qualify for an individual mortgage.
This year a legislation has been proposed that would allow the TIC owners who entered the San Francisco condo lottery last year and the years before last to bypass the condo lottery for a fee.
An organization called Plan C, headed by Michael Sullivan, is working hard to organize San Franciscans to fight for the passing of this legislation. TIC ownership is a method by which several people, sometimes strangers, can own a building with several units. The problem is these groupings of people are required to share financing, which at first may not seem like a big deal, but can create some very strange circumstances.
There are many ways this can go wrong, but as an example, let’s say a group of three families has owned a three unit building for four years. They have a group mortgage through Bank of America with an interest rate of 6.25% which is fixed for five years. Interest rates are very low right now, and all of the members of the group would like to refinance the loan into a lower rate. The problem is each member of the TIC partnership must qualify for the refinance, and let’s say one of the members lost their job 6 months ago. Because of this there is a likelihood the group won’t qualify for the refinance. Unless the unemployed member sells their interest (unit) in the building, or finds employment quickly in the same industry they were in before, no one will be able to refinance or sell their interest; only a cash buyer could purchase a member’s interest (unit) since no lender will finance a loan, and that would only happen at a deep discount. In any case it is easy to see how risky TIC ownership can be, and that is why TIC owners want to convert their units to condominiums.
TIC ownership is not all doom and gloom though, I have been a TIC owner for 7 years. I have had a great experience with partners I didn’t know very well before. We have gone through difficult periods, but at each obstacle we have tried to consider the other person’s needs and wishes and found an amicable way through the chaos, and our partnership is as strong as ever.
Still it is time for there to be a less risky method for middle class San Franciscans to become owners of property. Here are the basic facts about the Condo Conversion Bypass Legislation taken directly from the Plan C website:
Basic facts about the condo bypass legislation
- What: Eligible buildings can pay a fee to bypass the condo conversion lottery and begin the condo-conversion process.
- Eligibility: Any building that participated – or could have participated – in the 2012 condo conversion lottery is eligible to participate. Fees and deadlines are part of this process.
- Fee: 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)
- Protections for Tenants: Tenants in any building that converts through this legislation will receive leases that will give them the protections of rent control (protections against evictions, and limitations on rent increases).
- Process: The legislation was introduced on June 12, and was assigned to the Land Use Committee of the Board of Supervisors (Eric Mar is the chair of this committee; Scott Wiener and Malia Cohen are members). The Land Use Committee of the Board of Supervisors will consider the legislation at a hearing later in the summer (possibly late July or August). The Committee will vote on whether or not to approve the legislation and send it to the full Board. If the Committee votes it down, the legislation dies; if the Committee votes favorably, the legislation goes to the full Board of Supervisors. At that point, we will need 6 votes (out of the 11 supervisors) to win. If we succeed at the Board of Supervisors, we will be asking you to contact Mayor Lee to encourage him to sign the legislation.
Are you a TIC owner, would like to eventually own a TIC interest, or simply think the current situation in untenable? Get involved by calling your supervisor! Tell them the condo bypass is the right choice for San Francisco. It’s easy, only takes a minute, and makes a huge difference. Here is a link to the Plan C site with all the important numbers for Contacting San Francisco City Hall.