Tenants in Common

[satoridt]

My roommate and I are planning on buying a house. First though, we have been told we should get a TIC. I looked it up and it seems like a good idea. Do any of you in dopeland know what it would usually cost? I’ve searched but I cant find any information about price. (I’m in Minneapolis if it matters)

EDIT: I have called a few lawyers, but have yet to hear back from them. I just wanted to get the straight dope first

[Giles]

My guess is that tenancy in common would cost much the same as any other kind of house ownership. It just describes the rights that the owners of the real property have with respect to each other when to comes to such things as selling the property to others or bequeathing it to others when they die. So the wording on the contract will be different from other kinds of tenancy, but you’ll pay about the same amount of money to the lawyer, or whoever draws up the contract, and the same to the seller of the property and the real estate agents.

(The first house that I owned was as a tenant in common with two other friends, in New South Wales, Australia, so the details of the law will vary in other jurisdictions).

[Markxxx]

The biggest problem you’ll face is if one of you dies, while you jointly own it. Too often I’ve seen things like this and one person doesn’t want the property 'cause he inherited it and demands to sell it.

So the other person has to buy it or the heir can go to court and get an order to sell and divide the assets. This often results in less profit ('cause the sale is rushed) and it leaves the orignal partner up a creek with no place to live, so he’s back to renting.)

[satoridt]

@Giles

My guess is that tenancy in common would cost much the same as any other kind of house ownership. It just describes the rights that the owners of the real property have with respect to each other when to comes to such things as selling the property to others or bequeathing it to others when they die. So the wording on the contract will be different from other kinds of tenancy, but you’ll pay about the same amount of money to the lawyer, or whoever draws up the contract, and the same to the seller of the property and the real estate agents.

(The first house that I owned was as a tenant in common with two other friends, in New South Wales, Australia, so the details of the law will vary in other jurisdictions).

Thanks for the reply. I might be missing something, but I was planning on meeting a lawyer with my roommate and hashing out an agreement. What I want to know is what this service will cost me. Are you saying it will be part of the normal closing costs?

[Kimmy_Gibbler]

Tenancy in common is just a form of joint ownership; in fact, it is the default form, and it will be created when there is a conveyance to multiple grantees without specification and qualifying for the other forms of joint ownership. (The two others are (1) joint tenancies with right of survivorship (JTWROS), and (2) tenancy by the entireties, which is limited to married couples. To create it, the deed will simply convey the property (let’s call it, say, “Blackacre”) to the joint owners.

Grantor hereby conveys Blackacre to Satoridt and Roommate

This deed would convey an undivided one-half interest to you and Roommate. If you put up 75% of the purchase price, and wanted that reflected in the ownership division, the deed would go:

Grantor hereby conveys an undivided three-quarters interest in Blackacre to Satoridt and an undivided one-quarter interest in Blackacre to Roommate

Now, this will establish a tenancy in common. But! You may want an agreement in place that regulates the use of the property and what to do if one of you wants out of the arrangement. It seems there are some people on the internets (not lawyers) who use the term TIC to refer to these usage and partition/buy-out agreements. The nomenclature is sloppy, but it is definitely an idea worth considering.

Note: I am not your lawyer and this message is for general information purposes only. Nothing in this message is to be considered as either creating an attorney-client relationship or as rendering of legal advice for any specific matter. You are responsible for obtaining such advice from your own legal counsel. No reader should act or refrain from acting on the basis of any information contained in this message without seeking appropriate legal or other professional advice on the particular facts and circumstances at issue.

[Giles]

@satoridt

Thanks for the reply. I might be missing something, but I was planning on meeting a lawyer with my roommate and hashing out an agreement. What I want to know is what this service will cost me. Are you saying it will be part of the normal closing costs?

You need to have a written contract drawn up, but the clauses in the contract all ought to be pretty standard, so I don’t see why it should cost much more to have different boiler-plate wording put in. You should only be paying something extra if there’s an unusual complication. But that’s really a question that only your lawyer can answer definitively.

[satoridt]

@Kimmy_Gibbler

:

Now, this will establish a tenancy in common. But! You may want an agreement in place that regulates the use of the property and what to do if one of you wants out of the arrangement. It seems there are some people on the internets (not lawyers) who use the term TIC to refer to these usage and partition/buy-out agreements. The nomenclature is sloppy, but it is definitely an idea worth considering.

Thanks, maybe I do have the nomenclature wrong. I am looking for what is described here

http://realestate.msn.com/article.aspx?cp-documentid=13107770&page=2

Creating an agreement
Once you’ve decided to buy a home with someone, how’s the whole thing going to work?

Luckily, you’re not the first to try this. The kind of arrangement that’s most favored for the situation in which friends own a home together is called “tenants in common.” The big difference from, say, that of a married couple is that if one owner dies in a tenants-in-common situation, there’s no “right of survivorship,” says attorney Panaro — that is, the home doesn’t go to the remaining owner. Instead, the share of deceased owner passes to his or her family.

The devil is in the details. Create a written agreement that codifies your relationship with your buddy and the home. This is your tenants-in-common agreement, or TIC.
What’s your home worth?

“The single most critical aspect of an unrelated couple buying a house is having agreements dealing with contingencies, and that deal with their exit from the ownership,” Schkeeper says. TheTIC should lay out the relationship in as much detail as possible to eliminate future problems.

Here are some things to address in your agreement:

* Ownership and payments. Unless there's a contract that states otherwise, the law views owners who are in a tenants-in-common relationship as equal owners in a property. So if you contribute more to the mortgage and to the down payment and to repairs but haven't put it in writing with your housemate, you might lose that money if the relationship goes south and things have to be settled in court, says Craig Blackmon, a Seattle attorney who focuses on residential real estate and who has crafted TICs for clients.
* Who gets the benefits? "Who gets the tax deduction? Unrelated people cannot file a joint tax return," Schkeeper says. "Only one party is going to be able to claim that — so what is going to be the offsetting compensation to the other party?"
* Expenses. A home has expenses, from Windex to the phone bill. How will the expenses be split? If one person pays the bigger expenses, when does the other settle up?

  In the case of homeowner Tackitt, the friends had no written arrangement but had talked at length about how to share financial responsibilities. "She paid the down payment, and I paid for anything that we needed as we went along," says Tackitt, who made more money at his job. "So every time that I paid for anything that was a household repair, the receipt went into a file. We kept very good records and we kept a tally" that would go against the amount she had put up for the down payment.

  Marefat and her friend and co-owner, on the other hand, agreed in writing to split everything down the middle — from the down payment to regular expenses.
* Habits and daily life. How will the home be split up for daily use? Who gets to throw parties when? What's the policy on smoking? Pets? Overnight guests?
* Who makes the decisions? This is huge. "You need a decision-making process for when disputes come about," Eldred says. And don't think they won't. That's naïve. Say there's a hole in the roof and one owner wants to patch it for $500. But another wants to have the whole roof replaced for $8,000. How do you decide? Before such disputes arise, it's better to have an agreed-upon process on paper.

  Marefat and her friend decided that when a dispute arises about whether to undertake a repair, the decision that prevails is the one that benefits the home in the long term.

  What would other decision-making mechanisms look like? If there are three owners, it could be a simple vote with a majority rule. It could be a prior agreement that you submit to mediation or arbitration if you just can't reach a conclusion, Panaro says. "If there's only two people, they can be tied. But maybe they can have a 'Dutch Uncle' — a third party that's trusted by both sides who can mediate … and help them decide," Schkeeper says.
* No “encumbering" the property. Let's say Party A needs to borrow $30,000 and doesn't have any collateral except his interest in the property, Blackmon says. He could secure a loan based on his interest in the property. But if Party A didn't pay off the loan, a lien could be placed on the home. And though Party B didn't even consent to using that property as security for the loan, that lien could now complicate his ability to use the property. To avoid these problems Blackmon advises that neither side be allowed to "encumber" the property in such a way without the consent of the other owners.

  Another way to avoid such problems is to take title of the home in the form of an entity that you create — a limited-liability corporation, or LLC — in which all parties own an interest, attorney Panaro says. If the LLC owns the property, it's not so easy for one owner to take actions that would gum up the property for another owner or owners, she says.
* Deal with the end at the start. All good things come to an end. And so will this joint house — someone wants to move, someone gets engaged. So make sure you plan for the end. How will you agree upon a sale price – perhaps hire two appraisers and average their findings? If one owner wants to sell, does the other get right of first refusal? How about right of first offer (that is, an agreement to negotiate)?

  Blackmon had one situation where two couples bought a duplex together. They owned it for about two years, until one couple had another baby and needed more room. They were able to look to the agreement they'd drawn up for a way to determine the purchase price; in this case, the first step was to see if they could agree on an appraiser, which they did. The second couple bought out the first couple that was leaving. "It's just important that you anticipate conflict and have a contract in place," he says.
* Toss in a put-call provision. "It's a forced sale," Panaro says. This is a ripcord: It allows one owner to tell the other he wants to sell at any time, or if the other owner doesn't want to sell, it allows the first owner the first chance to buy out the other.  

See an attorney — so you don’t need one later
After reading all this, you probably agree it’s a good idea to spend a few bucks on a lawyer. Attorney Blackmon says it might cost several hundred dollars to have one help you draft a good TIC, if you find a smaller firm that focuses on residential real estate.

Marefat, the San Francisco nurse, says she and her friend went to an attorney who had dealt with TICs previously, who helped them draft their agreement and think through what to include. The final document was 25 pages long and included everything from the above issues to what to do about guests who stay three weeks or more (answer: a mandatory discussion about where this was headed) and what to do if a boyfriend moves in (answer: he pays rent, but has no voice in house decisions).

“We were laughing about it at the time,” Marefat says of some of the issues the attorney made them address. “Because we were such good friends, we said, ‘We’d figure this out.’” But the lawyer insisted on the importance of putting it to paper to avoid problems. Marefat says now that she’s glad they did address them.

[Kimmy_Gibbler]

Hashing out this sort of ancillary agreement is typically not included in the battery of fees associated with real estate purchases. The cost depends on what rôle your attorney will play (and whether you will have one attorney for both of you or each of you has your own attorney). You could have a very elaborate and expensive, but probably airtight, contract where each of you negotiated the arrangement while retaining your own counsel and had them draw up the document. On the other hand, you could with very little expense work out an agreement between the two of you and document it yourselves. The pitfalls with this method would be your relative ignorance as to property law, which remains a little esoteric to this day. Of course, between these two poles, there’s any number of positions where you can make the expense-expertise tradeoff.

[UncleFred]

Just a note - be very careful that you are using the terms exactly as defined in your state.

In Massachusetts there is “Tenants in Common” but there is then a different term “Tennants in Common with Right of Survivorship”, having different meanings in the case of a death. Meanwhile In New York those two terms are apparently equivalent.

I really wish I had not had to learn that.

(IANAL and the above writing is my approximate interpreation. The point remains that minor differences in wording can have a major effect on results.)

[gbmarc]

Another way to avoid such problems is to take title of the home in the form of an entity that you create — a limited-liability corporation, or LLC — in which all parties own an interest, attorney Panaro says. If the LLC owns the property, it’s not so easy for one owner to take actions that would gum up the property for another owner or owners, she says.

• Deal with the end at the start. All good things come to an end. And so will this joint house — someone wants to move, someone gets engaged. So make sure you plan for the end. How will you agree upon a sale price – perhaps hire two appraisers and average their findings? If one owner wants to sell, does the other get right of first refusal? How about right of first offer (that is, an agreement to negotiate)?

F.Y.I -
LLC memberships, limited partnership interests or corporate shares are not considered to own real estate (unless the entity qualifies as a stock cooperative), and therefore cannot claim the tax benefits of real estate owner-occupants such as the ability to deduct mortgage interest and property tax, and the ability to claim the $250,000/500,000 tax-free gain on resale. If the LLC, limited partnership or corporation can be deemed a stock cooperative, it is likely to encounter regulatory barriers as discussed above.

[Tastes_of_Chocolate]

I’d expect there to be little or no extra fee for a tenants in common ownership.
My SO and I are not married. Every time we have bought a house (just bought number 4) we have been asked if we want TIC or a joint ownership with right of survivorship. It was mostly a matter of using form A or form B. Our last 2 purchases have also been in Minnesota, so the same laws apply.
Talk to the people handling your closing, if that’s a lawyer or a real estate agency. They will have all the info.