Condo conversion on multi-family that is joint mortgage financed?

Question

Hello!This is a follow up to the thread I posted here: https://www.biggerpockets.com/forums/311/topics/59...It appears that multiple buyers can get a joint residential mortgage together, so that is solved.My question now is around condo conversions. From what I've read, after a condo conversion the parties on the deed will now each own X% of each unit rather than each own a unit themselves.How can the units be individually owned, and what happens to the mortgage? Can the individual parties re-fi and get their own loans for their new individual unit?This is in Southern California, Los Angeles County.Your sage advice is greatly appreciated!

Janet Voss · Answer

I actually did a condo conversion in San Francisco.  We bought a two unit building as a TIC (tenancy in common), and had a shared mortgage.  We had some work to do on the building before we filed for condo conversion, and that took a couple of years to finish (as we had the money), so we stayed a TIC while that happened.  Once we had finished all of the remediation, we filed for the condo conversion and had the building inspection.  After we had changed the building to condos, we each refinanced out of the shared mortgage into individual mortgages.  We had legal agreements both as a TIC, and later, as a condo association (with association dues).

Janet Voss · Answer

TICs are fairly common in San Francisco, or at least they were in 2003, when we bought.  There was a law firm that specialized in drawing up TIC agreements.  A TIC is a unique structure for holding property in that while we technically had our own units (our building was built as a over under duplex with a soft first story (garage and storage areas and services (furnaces) underneath the 2nd floor living unit with 3rd floor living unit on top.  I was in the 2nd story unit.  My partner in the building was on the top (3rd) level), we owned the whole building together.  In the eyes of the law, there is no distinction between her unit and mine.  Once we converted to condos, that informal distinction between her unit and mine became real in the eyes of the law.  As a TIC, there were clauses in our agreement about gaining approval for buyers in the event you have to sell.  Once we converted to condos, I no longer had to get her approval on any sale. At the time we bought, there were no such thing as fractional mortgages, so we had to apply for a shared mortgage.  My partner in the building and I were a very good match on paper.  She came with a hefty down payment, while mine was small,  however, I had more income and more ability to pay a higher mortgage payment.  Our percentages of ownership in the property and our percentages of paying the mortgage were not aligned.  Her unit was larger than mine, and we had equal shares of the common space, but because she came in with a bigger down payment, she paid less of the mortgage.  To the bank it was all one payment, but internally, between myself and my partner, we kept accounting records of who paid what.  Once we converted to condos, we had our own mortgages based on the condo we owned.  We did form a condo association and maintained a joint checking account (we had a joint account from the time we bought the building.  While we had a shared mortgage, we deposited our shares into that account, and paid the mortgage from that account.  Once we converted to condos, we used that account to hold the fees paid the condo association, from which we maintained the common areas.)

Peedy R. · Answer

Thanks for the great reply, Janet!

Do you have any more details you can share on the process? Was there any special steps with regards to the original mortgage and the refi process? Did you use any boilerplate when building the legal agreements or have a recommended service?

This sounds like good news since you're in California as well.