What happens when a TIC co-owner wants to sell their share?

Overview

When people own a home together as tenants in common, each person holds a direct ownership interest in the property. The agreement refers to that interest as a Co-Ownership Share.

A TIC co-owner may eventually want to sell because they are moving, buying another home or simply changing plans. The co-ownership agreement establishes how that can happen while protecting the departing owner, the remaining co-owners and any mortgage lender.

Generally:

A co-owner may look for a buyer for all or part of their Co-Ownership Share.
The existing co-owners generally get the first opportunity to purchase it.
If no co-owner purchases the share, the seller may be able to proceed with an outside buyer.
A proposed transfer must satisfy the eligibility, documentation and approval requirements established for the property.
A new owner must accept the existing co-ownership agreement before receiving occupancy, voting or other ownership rights.
A transfer may require the mortgage lender’s approval.
Permanently moving out may begin a separate buyout process.
If the owner makes a sustained effort to sell their complete share without success, there may eventually be a path toward selling the entire property.

These procedures do not guarantee that a buyer will be found, another co-owner will complete a buyout, financing will be available or an owner will receive funds within a particular period. The signed co-ownership agreement, loan documents and applicable law will determine what happens in each situation.

Can a TIC co-owner sell their share?

A TIC co-owner may transfer all or part of their Co-Ownership Share, subject to the co-ownership agreement, loan documents, applicable law and any required third-party approvals.

When a co-owner finds a buyer and wants to accept the offer, the other co-owners generally receive the first opportunity to purchase the share at the offered price.

The selling co-owner provides Joynt with the required sale notice and a copy of the offer. Joynt posts the information to its online portal, and the other co-owners have 30 calendar days to indicate that they want to purchase the share.

If only one co-owner responds on time, that person may proceed as the purchaser on the terms included in the sale notice.

What if more than one co-owner wants to buy the share?

If multiple co-owners respond during the 30-day period, they receive an additional 15 calendar days to agree on a purchase plan.

The plan must:

result in the purchase of the entire interest being offered;
provide the selling co-owner with the full price stated in the offer; and
be accepted by every co-owner participating in the purchase.

If the interested co-owners cannot agree on a plan within that period, the selling co-owner may select one purchaser from among those who responded on time.

Once the purchaser or purchasers are identified, the agreement provides 90 calendar days from the original posting of the sale notice to complete the purchase. The parties should obtain legal and lending guidance before committing to the transaction.

What if none of the other co-owners wants to buy?

If no co-owner responds within the required 30-day period, the selling co-owner may generally move forward with the outside buyer.

However, if the negotiated price is later reduced by 5% or more, the selling co-owner must provide a new sale notice. The existing co-owners then receive another opportunity to purchase the share at the reduced price.

This prevents the first-purchase process from being bypassed by presenting one price to the existing co-owners and then substantially lowering it for someone else.

Does the new owner have to accept the existing co-ownership agreement?

Yes.

A new owner must sign an Assumption of Obligations agreeing to be bound by the existing co-ownership agreement.

Until those requirements are satisfied, the incoming owner is not entitled to:

occupy or use the property;
allow someone else to use the property;
vote on matters involving the home; or
receive the other benefits connected with ownership.

The new owner enters the ownership structure already governing the property. They do not begin with a new set of rules.

What happens to unpaid amounts connected with the share?

Selling a Co-Ownership Share does not necessarily make unpaid obligations disappear.

Under the co-ownership agreement, an incoming owner may assume responsibility for certain unpaid amounts associated with the share. The incoming owner is also responsible for transfer taxes and fees, although the buyer and seller may agree between themselves that the seller will pay some or all of those costs.

The agreement between the buyer and seller does not necessarily determine the rights of a mortgage lender, taxing authority or other third-party creditor.

Before completing the purchase, the buyer should understand any outstanding assessments, reimbursements or other obligations connected with the share.

What if there is a mortgage on the property?

A change in ownership may require the mortgage lender’s prior consent and may affect the existing loan.

The co-ownership agreement does not alter the lender’s rights or release any borrower from the mortgage. Selling a Co-Ownership Share does not, by itself, remove the departing co-owner from responsibility for the loan.

Before agreeing to a sale or transfer, the co-owners should review the loan documents and confirm the lender’s requirements with the lender and qualified legal counsel.

Depending on the loan, a transfer may require lender approval, updated underwriting, refinancing or another lender-approved arrangement.

Can a TIC co-owner sell only part of their share?

A partial transfer may be possible, but it cannot be handled as an informal side arrangement.

Selling part of a Co-Ownership Share may add the buyer to the group that holds the existing share or require the creation of one or more new Co-Ownership Shares.

The ownership structure must be formally updated. Percentage Interests and Shared Debt Percentages must also be adjusted so they reconcile with the original Co-Ownership Share.

Because the co-owners hold title to the property directly, a partial transfer may require:

lender approval;
updated ownership documents;
a deed or other recorded document;
title or escrow services;
updated insurance; and
legal and tax guidance.

The incoming owner must also accept the existing co-ownership agreement.

What happens if a resident co-owner moves out permanently?

Moving out and selling a Co-Ownership Share are related, but they are not the same thing.

If a Resident Co-Owner voluntarily and permanently stops using the property as their principal residence, they must notify the Management Coordinator and the other co-owners. This may happen because of a relocation, divorce, change in household or another change in living arrangements.

The remaining co-owners may then have the right, but not necessarily the obligation, to purchase the exiting resident’s Co-Ownership Share.

The potential Buyout Price is based on what the exiting resident would have received if the entire property had been sold using the valuation and distribution processes established in the agreement. Expected selling costs, amounts owed to creditors and other required adjustments are taken into account.

Moving out does not automatically remove the departing person from the title, mortgage or other financial obligations. Those obligations may continue until the purchase, transfer and any lender requirements have been completed.

Does moving out mean the entire property must be sold?

Not necessarily.

At least one co-owner must continue to use the property as their principal residence. If another co-owner will remain in the home, the remaining owners may have an opportunity to purchase the exiting resident’s share.

If no co-owner will continue using the property as their principal residence, a co-owner may be able to begin the process for selling the entire property.

What if a co-owner cannot find a buyer?

The agreement provides a longer-term exit process, but it does not guarantee an immediate sale or buyout.

A co-owner may be able to begin the process for selling the entire property after making a diligent and sustained effort to sell their complete Co-Ownership Share for at least one continuous year.

During that period, the asking price cannot be greater than the co-owner’s Percentage Interest of the property value determined under the agreement’s valuation process.

This provides a potential path forward when a share genuinely cannot be sold while protecting the rest of the group from an immediate whole-property sale.

Are there other ways the entire property can be sold?

Yes. The approval required to sell the entire property changes over time.

A whole-property sale may be triggered:

during the first five years after the property is acquired with Unanimous Approval;
beginning five years after acquisition and continuing through year ten with Supermajority Approval; and
beginning ten years after acquisition with Majority Approval.

When there are only two Co-Ownership Shares, either co-owner may individually begin the sale process starting five years after the property was acquired.

A co-owner may also be able to trigger a sale following sudden and unexpected damage when the uninsured repair cost exceeds 20% of the property’s value immediately before the damage.

The signed agreement controls, and its requirements may vary depending on the property and ownership group.

If a whole-property sale is triggered, does the home have to be sold?

Not necessarily.

The co-owners who want to keep the property may be able to prevent the sale by purchasing the Co-Ownership Shares of everyone who wants to leave.

The property’s value is determined using the process established in the agreement. The agreement refers to the result as Fair Market Value, but that amount may differ from an appraisal, tax valuation or the price the property would ultimately receive on the open market.

The potential Buyout Price is designed to approximate what each departing co-owner would receive from a sale after accounting for expected selling costs, the mortgage, creditor obligations and amounts owed among the co-owners.

Completing a buyout may depend on available financing, lender approval and the ability of the remaining co-owners to pay the required amount within the applicable deadline.

What happens if the remaining co-owners cannot complete the buyout?

If the required buyouts do not occur, the property may be listed for sale using the process in the agreement.

The property is initially listed at the value determined through the agreement’s valuation process. The initial listing period may be 60 or 90 days.

If the property does not go under contract during that period, it may be relisted with the asking price reduced by 5%. That process may continue until the property is sold.

How are the proceeds divided after the property is sold?

The costs and obligations connected with the property are accounted for before the remaining proceeds are distributed.

The proceeds are provisionally allocated according to each co-owner’s Percentage Interest. Each person’s Shared Debt Percentage is then used to account for their portion of the mortgage. Amounts an individual co-owner owes to another co-owner may also be withheld from that person’s distribution.

Because Percentage Interest and Shared Debt Percentage may be different, the final amount received by each co-owner will not necessarily equal their ownership percentage of the gross sale price.

A sale, partial transfer or buyout may also have income-tax, property-tax, transfer-tax and reporting consequences. Each owner should consult a qualified tax professional about their individual circumstances.

What professional help may be needed?

Selling or transferring a TIC ownership share may require more than an agreement among the co-owners.

Depending on the property, loan and state, the process may involve:

a real estate attorney,
the mortgage lender,
a tax professional,
a title or escrow company,
a real estate agent,
an insurance professional, and
county or state recording offices.

A transfer may require deeds, settlement services, title work, recording, updated insurance and other state-specific documents. Joynt’s process does not replace the professionals or formalities required to complete a real estate transfer.

The bottom line

A TIC co-owner who wants to leave does not automatically force everyone to sell the home.

The process generally works like this:

The departing co-owner looks for a buyer.
The existing co-owners receive an opportunity to purchase the share.
The incoming owner accepts the existing co-ownership agreement.
Mortgage, title and legal requirements are addressed.
A Resident Co-Owner who moves out may begin a separate buyout process.
If a share genuinely cannot be sold after a sustained effort, there may be a path toward selling the entire property.
Before the property is sold, the co-owners who want to remain may have an opportunity to buy out those who want to leave.

The exact outcome depends on the signed co-ownership agreement, loan documents, applicable law, available financing and the circumstances of the ownership group.

Important disclaimer

This information is provided for general educational purposes and summarizes selected provisions of the co-ownership agreement used for a Joynt primary home owned as tenants in common. The signed agreement governing a particular property, the loan documents and applicable law will control.

Joynt is not a law firm, accounting practice, lender, title company or real estate brokerage and does not provide legal, tax, lending or title advice.

Consult qualified legal, tax, lending and real estate professionals before completing an ownership transfer or making decisions based on this information.