Understanding Tenants in Common in Maryland: A Guide for Real Estate Investors and Homebuyers

 

When it comes to real estate investment or purchasing a home, the type of ownership you choose is a critical decision. In Maryland, as in many other states, the Tenants in Common (TIC) structure is one of several ways you can co-own property with others. But what exactly is a TIC, and how does it work within the context of Maryland’s real estate laws? In this detailed guide, we’ll explore Tenants in Common and how it can be a beneficial ownership structure for various individuals in the Maryland real estate market.

Understanding Tenants in Common Ownership

Tenancy in Common is a form of concurrent ownership. It allows multiple individuals to hold an undivided interest in a property. Each co-owner has the right to use the entire property, not just a particular section of it. Unlike joint tenancy with rights of survivorship, the portion owned can be sold, conveyed, or encumbered without the consent of the other owners. Each owner can even leave their share of the property to any beneficiary upon their death.

The Basics of Tenants in Common

In Maryland, a bill of sale or deed to a TIC typically needs to state explicitly that the parties involved are buying the property as tenants in common. This allows each owner to share ownership of the property without the right of survivorship that automatically comes with joint tenancy deeds.

Each TIC can have a different ratio of ownership, such as one-third, one-half, or any other proportion. It’s critical to establish these ownership percentages clearly at the time of purchase or when a new owner enters the TIC arrangement.

Key Features of TIC in Maryland

Here are some key aspects of TIC ownership in Maryland that you should consider:

Flexibility in Ownership Shares

TIC arrangements allow for unequal ownership percentages, meaning each owner can invest capital in proportion to their desired share in the property.

Transfer of Ownership Interest

Unlike joint tenancy, a tenant in common can transfer their interest in the property to anyone without notifying or obtaining consent from the other owners.

Right to Occupy

Each TIC has the right to possess and use the entire property, subject to the rights of the other co-owners and any restrictions in the TIC agreement.

No Survivorship Rights

In the event of an owner’s death, their interest passes to their heirs as opposed to the other TICs, unless a part of the owner’s estate planning documents, like a Will, directs otherwise.

 

Advantages of Tenancy in Common in Maryland

For many investors and homeowners, the TIC structure offers significant benefits. Some of the key advantages include:

Capital Investment Flexibility

TIC agreements allow each party to invest capital according to the share of the property they want to own. This is especially valuable when buyers come into the agreement with different financial circumstances.

Flexibility on Who Inherits the Property

TIC also allows each owner to leave their share of the property to a chosen beneficiary. This can be particularly beneficial when estate planning goals need to consider children from different marriages or other complex family structures.

Potential Tax Advantages

There may be favorable tax implications associated with Tenants in Common arrangements, especially when it comes to property tax assessments. This will vary depending on the specifics of the property involved and the agreement made.

Investment Diversification

By holding a portion of real estate as a TIC, investors can diversify their real estate portfolio. This diversification can spread the risk and potentially provide a hedge against market volatility.

 

Challenges to Consider with Tenants in Common

While there are clear benefits, TIC ownership also presents some significant challenges that should not be overlooked:

Decision-Making and Co-Owner Relationships

Because all TIC owners have a say in the management and use of the property, decision-making can become complex. It’s essential to have a strong, well-structured TIC agreement in place to manage potential conflicts effectively.

Disposing of a Share and Exit Strategies

TIC owners who wish to sell their share must find a willing buyer, which can sometimes be challenging. Developing a clear exit strategy is important.

Financing Arrangements

Securing financing for a TIC property can be more complicated than traditional mortgages. Some lenders are hesitant to finance TIC properties, which may limit the options of potential buyers.

Liabilities of Co-Owners

In a TIC arrangement, each owner is individually responsible for their share of the property’s expenses. However, in the case of a co-owner’s inability to meet financial obligations, other owners may have to compensate, which is why due diligence in choosing co-owners is paramount.

 

Establishing Tenants in Common in Maryland

To establish a TIC arrangement in Maryland, it is crucial to create a clear and legally sound TIC agreement. This document should outline the parties involved, the percentage of ownership for each co-owner, and the use of the property.

Crafting a TIC Agreement

When crafting a TIC agreement, consider the following:

• The basics, such as name, address, and percentage of ownership of each TIC
• Rules for sharing expenses and income from the property
• Procedures for selling or transferring shares
• Protocols for entering or exiting the TIC agreement
• Dispute resolution processes

It is highly advised to work with a real estate attorney who is knowledgeable about Maryland real estate law to create this document. This will help avoid ambiguity and ensure that the TIC agreement is legally binding.

Notifying Local Authorities and Recording the TIC Agreement

The TIC agreement should be recorded in the land records of the Maryland county where the property is located. This public record will notify local authorities and any future potential creditors or purchasers of the TIC arrangement.

 

Final Thoughts on Tenants in Common in Maryland

While Tenants in Common may not be the right choice for every co-owner, it can be an advantageous structure for those who understand the implications and benefits it provides. For real estate investors and home buyers in Maryland, TIC offers a way to create a co-ownership structure that is flexible and aligns with various financial and personal objectives.

It is essential to do thorough due diligence, work with experienced professionals, and create a comprehensive TIC agreement to protect the interests of all involved parties. If you are considering Tenants in Common in Maryland, take the time to review the state’s laws and regulations, and consider seeking legal advice to ensure you make the best decisions for your real estate ventures.