Required Disclosures

TITLE 38: FINANCIAL INSTITUTIONS CHAPTER II: DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION PART 1050 RESIDENTIAL MORTGAGE LICENSE ACT OF 1987 SECTION 1050.2310 REQUIRED DISCLOSURES Section 1050.2310  Required Disclosures a)         Financing Agreements and Commitments 1)         In addition to providing any other disclosures required by the Uniform Commercial Code [810 ILCS 5] or the Consumer Installment Loan Act [205 ILCS 670], a lender receiving an application for a shared appreciation agreement shall, regardless of lien position, provide the applicant with a financing agreement. 2)         The lender shall satisfy the requirement to provide a financing agreement for a mortgage loan made under a shared appreciation agreement in the following manner: A)        By providing an estimate disclosure on the form prescribed in Appendix C of this Part, or a substantially similar form, within 3 business days after the date an application for a shared appreciation agreement is received by the lender; and B)        By calculating the annualized cost based on the term in each scenario within the form in Appendix C of this Part using the method prescribed in 12 CFR Part 1026 Appendix J for calculating an annual percentage rate. 3)         If the terms of an estimate disclosure provided to an applicant under subsection (a)(2)(A) of this Section materially change or become materially inaccurate, including with respect to the Starting Home Value, transaction amount, share percentage, cost cap, origination fee, agreement expiration date, closing costs, or expenses, the lender shall provide a revised estimate disclosure with all changed terms to the applicant. The applicant shall receive the revised estimate disclosure within three business days after the lender receives information sufficient to establish that it is required under this subsection (a)(3), and at least four business days prior to consummation of the transaction. A lender shall not provide a revised estimate disclosure required under this subsection (a)(3) on or after the date on which the lender provides the closing disclosure required under subsection (a)(5)(A). 4)         If the terms of the disclosure provided by the lender under subsection (a)(2) are subject to change, a lender offering a shared appreciation agreement, regardless of lien position, shall provide the applicant with a commitment. 5)         The lender shall satisfy the requirement to provide a commitment for a mortgage loan made under a shared appreciation agreement in the following manner: A)        By providing a closing disclosure on the form prescribed in Appendix C of this Part, or a substantially similar form, with a statement that the terms therein are not subject to change, at least 72 hours before the consummation of the transaction; and B)        By calculating the annualized cost based on the term in each scenario within the form in Appendix C of this Part using the method prescribed in 12 CFR Part 1026 Appendix J for calculating an annual percentage rate. b)         Compliance with Disclosures in Appendix C of this Part 1)         A form will be considered substantially similar to the one in Appendix C of this Part if it includes all information required in this Section and included in Appendix C. 2)         A lender shall disclose the following information regarding the estimated fair market value of the property: A)        The methods used to calculate the estimated fair market value; B)        The estimated fair market value of the property; and C)        When funds from the agreement are utilized for approved home improvement projects, including details of eligible improvements and the terms of how they will be deducted from the Ending Home Value. c)         Disclosure Obligations for Lenders Offering Shared Appreciation Agreements 1)         Lenders must issue a notice to a prospective borrower with the following statement, which shall be clear and conspicuous on the first page of the disclosures required by this Section:  "You are not required to complete a shared appreciation agreement transaction just because you have received these disclosures or have signed a loan application.  If you proceed with this transaction, the shared appreciation agreement provider will have a lien on your home and you would agree to pay the provider a portion of your home's value or the future increase in your home's value at the end of the agreement. If you complete the transaction and do not meet your obligations under the agreement, you could lose your home, and any money you have put into it.  The information in this disclosure is based on the shared appreciation agreement for which you have applied and provides examples of the amounts you may be required to pay at the end of the agreement. If the agreement ends in connection with the sale of your home, your obligation to the provider may include some or all of the sale proceeds. The terms of a shared appreciation agreement are different from those of a traditional mortgage loan. Please carefully read this disclosure, the shared appreciation agreement transaction documents, and all other materials from the provider. You are required to complete a counseling session from an independent, HUD-certified housing counselor before completing a shared appreciation agreement and you may wish to speak with a financial professional or an attorney before proceeding. A shared appreciation agreement may also affect your taxes, so you may also wish to speak with a qualified tax advisor." 2)         Borrowers must seek independent counseling from a HUD-certified counselor. d)         Foreclosure and Usage Restrictions:  Lenders must disclose any restrictions on property use or conditions that could lead to foreclosure. e)         Cap on Repayment Amount:  The total repayment amount must be capped at a rate not exceeding the rate cap provided in Section 15-5-5 of the Predatory Loan Prevention Act [815 ILCS 123/15-5-5].  Contracts lacking a cap or exceeding this statutory limit shall be deemed null and void. f)         Settlement Examples and Cost Scenario Tables:  Lenders must explain how the Final Settlement Payment Amount under a shared appreciation agreement will be calculated and, if example calculations are provided, at least one example must be based on a decrease in home value. The lender shall also provide cost scenario tables with illustrative examples detailing repayment scenarios for 5-year, 10-year, and maximum agreement durations.  For each duration, the lender shall provide the Ending Home Value, the Final Settlement Payment Amount, whether the Final Settlement Payment Amount is share-based or capped, and the annualized cost for each of the following changes from the Starting Home Value: 1)         Average Annual Change in Value as described in Section 1050.2330(a); 2)         5.5% annual appreciation; 3)         3.5% annual appreciation; 4)         no change in value; and 5)         10% total depreciation. g)         Short Summary of Terms:  Lenders must provide a concise summary of key terms and conditions for the borrower's understanding, ensuring clarity and transparency. h)         The borrower has a right to be represented by an independent attorney of the borrower's choice at closing. i)          A borrower may be responsible for any fees or costs of counseling required under Section 5-12.5(a) of the Act [205 ILCS 635/5-12.5(a)] only if the borrower elects to close, and does not rescind, the transaction. If a borrower receives counseling and elects not to close or timely rescinds the transaction, the shared appreciation agreement provider shall be responsible for any fees or costs of the counseling.