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What Do You Own When You Own an Own-Your-Own?

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Both real estate licensees and members of the general public are liable to think of all forms of common interest subdivisions as being condominiums. For the most part, this is a common and harmless mistake. On occasion, though, it may turn out that the differences among these types of ownership is quite important.

California law, at Civil Code §4100, recognizes four different types of common interest development: (i) a planned development, often called a planned unit development or “PUD”; (ii) a stock cooperative; (iii) a condominium development; and (iv) a community apartment project, often referred to as “own-your-own”. According to the Department of Real Estate,

In a planned development, the homeowner owns 1) a home on a separate lot and 20 “common area” property or facilities by virtue of the homeowner’s membership in an association that owns the common area.

In a stock cooperative, the homeowner owns 1) shares in a corporation that owns residential property, and 2) an exclusive right to occupy a unit or portion of the property.

In a condominium, the homeowner owns 1) a separate condominium unit (a three-dimensional space filled with air, earth, and/or water, 2) “common area” (as a co-owner), and 3) common area property or facilities by virtue of the homeowner’s membership in an association that owns the common area.

In a community apartment project, the homeowner owns 1) the entire apartment project (as a co-owner) and 2) an exclusive right to occupy an apartment in the building.

Condominiums are certainly the most frequently encountered form of common interest development, and that would explain why, to many people, condominiums are the only kind. As a matter of fact, though, condominium ownership is a late-comer to the field. Consider these comments taken from the July-August issue of a Department of Real Estate publication in the year 1962. The article was titled, “Something about Condominiums”.

The 1962 edition of the Subdivision Manual (Division of Real Estate) deals with the subject as follows:

“So far as this State is concerned, the use of the term to describe a community apartment project originated primarily in connection with the ‘high-rise’ type of apartment construction in the San Francisco Bay Area.” At the present time no such word appears in the statutes of California. [my emphasis]

It goes on to say,

As a matter of record, the Division of Real Estate has no knowledge of any statutory or judicial precedent in California for the method of conveyance used [i.e. condominium ownership] in this type of community apartment subdivision.

The 1962 article goes on to point out a variety of difficulties that have been noted with regard to condominium ownership, but acknowledges that builders, developers, and other professional groups are designing legislation to overcome these problems. It advises licensees to pursue the subject matter further.

These days, when an agent or buyer comes across an own-your-own — a community apartment project – they are liable to think of it as some kind of twist on condominium ownership. Historically, though, it is the other way around. Community apartment projects were in vogue before condominium ownership was fully legislated. They still exist, and are most often found in urban areas where apartment buildings had been converted from rental units to “own-your-own.” Moreover, there are also instances of community apartment project ownership having been applied to developments of single-story, free-standing buildings.

There is nothing suspect or untoward about own-your-own, although it can be difficult to find financing for them. Conventional lenders, for the most part, don’t want to, or can’t, make loans on them, because the borrower owns a portion of everyone’s personal unit. In such a position, he has potentially greater liability than if he or she only had common area ownership through an association. Moreover, how would a lender go about foreclosing on a single owner?

This is not to say that no conventional loans are ever made on an own-your-own. I have seen a number of them. However, in most of the cases I have seen it, the lender had misclassified the property as a condominium.