TICs and Bankruptcy
During the real estate boom, many investors sunk money into TICs or what’s commonly known as tenant-in-common real estate investment structures. These investment entities allowed investors to own shares in properties which they could not individually afford. But when the real estate industry collapsed in 2008, many of these TICs went down with it. And because co-owners of TICs are personally and collectively liable for any mortgage defaults on TIC property, many investors are facing fallout from foreclosures. Fortunately, investors can unload these TICs in bankruptcy. This is what the bankruptcy code has to say about TICs:
The bankruptcy code provides one method, 11 U.S.C. Section 363(h) (2011), for co-owners to liquidate their interest by forcing a sale of the entire property. Specifically, Section 363(h) allows a co-owner of a TIC property to force a sale upon the co-owner’s filing for bankruptcy in instances where: (i) partition of the various TIC ownership interests is impractical; (ii) a sale of the bankrupt co-owner’s interest would yield a much smaller return for the bankruptcy estate than a sale of the entire property; (iii) the benefit of a sale of the entire TIC property outweighs any related detriment to the nonbankrupt co-owners, and (iv) the property at issue is not being used in the production, transmission or distribution of energy.
Debtors filing bankruptcy with other debts and assets may be successful in unloading TICs; but if they are a single entity where the TIC is their only asset, they may face fierce challenges. First off, because other co-owners may not want to lose their interest in the property, they will definitely challenge the sale and the bankruptcy itself. On the other hand, the mortgagers of the TICs will most likely move to dismiss the bankruptcy or at least receive relief from the automatic stay.