C Form of Shared Appreciation Agreement Disclosure

TITLE 38: FINANCIAL INSTITUTIONS CHAPTER II: DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION PART 1050 RESIDENTIAL MORTGAGE LICENSE ACT OF 1987 SECTION 1050.APPENDIX C FORM OF SHARED APPRECIATION AGREEMENT DISCLOSURE Section 1050.APPENDIX C   Form of Shared Appreciation Agreement Disclosure _______________________________________ Provider Name __________________________________________________________________________ Provider Address Illinois Shared Appreciation Agreement (Estimate/Closing) Disclosure Closing Information Transaction Parties Investment Information DATE ISSUED APPLICANTS OCCUPANCY XX/XX/XXXX (Homeowner Name) (Occupancy type) CLOSING DATE AGREEMENT # XX/XX/XXXX (Address) XXXX SETTLEMENT AGENT ORIGINATOR PREPAYMENT PENALTY (Name) (Provider Name) □ No □ Yes FILE # (Describe) XXXX PROPERTY (Address) (Address) Agreement Type: (e.g., "Shares Home Value", "Shares Change In Home Value", or other including description) IMPORTANT You are not required to complete a shared appreciation agreement transaction just because you have received this disclosure or completed an 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 shared appreciation 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 is terminated or settled in connection with the sale of your home, your obligation to your 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 read this disclosure, the shared appreciation agreement transaction documents, and all other materials from your provider carefully. You are required to complete a counseling session from an independent, HUD-certified housing counselor before completing a shared appreciation agreement and may wish to speak with a financial professional or an attorney before proceeding. Your agreement may affect your taxes, so you may also wish to speak with a qualified tax advisor. Investment Terms Explanation Starting Home Value [dollar amount] Current estimated fair market value of your home.  Determined by: □   Appraisal or □   Average of two distinct non-appraisal valuation methods: (□  AVM      □  BPO      □  Other (describe ______________) See "Appraisal Considerations" on Page X for more information Transaction Amount [dollar amount] The gross amount invested in your home up front by your provider. Transaction Percentage [XX.XX%] Transaction Amount expressed as a % of Starting Home Value. Multiplier [X.XX] A multiplier used to price your shared appreciation agreement. Share Percentage [XX.XX%] Percentage of the Ending Home Value that your provider will receive when the agreement ends.  (Transaction Percentage of XX.XX% x Multiplier of X.XX = XX.XX%). Share Percentage Modifier Description [XXX] If the Share Percentage can change during the term of the shared appreciation agreement, provide details here. Cost Cap [XX.XX%] Maximum cost of your shared appreciation agreement per year from start to end, expressed as a percentage. Limits the amount of your Settlement Payment if your home's value rises more significantly or the agreement ends in the early years. If the law sets a more restrictive limit, including the limit in Section 15-5-5 of the Predatory Loan Prevention Act [815 ILCS 123/15-5-5], that limit will apply. Origination Fee [dollar amount] This fee, equal to X.XX% of your Transaction Amount, will be paid to your provider at closing by deducting it from the Transaction Amount. Expiration Date, Term and Settlement [XX/XX/XXXX] You will be required to settle your shared appreciation agreement on or before the Expiration Date. The Expiration Date of your agreement is exactly XX years from the Effective Date. You can settle your agreement by selling your home or buying your provider out, at a time of your choosing, subject to the maximum XX year term. Net Closing Proceeds Closing Costs, Expenses And Credits [dollar amount] $X,XXX.XX Origination Fee + $X,XXX.XX in Third Party Transaction Expenses + $X,XXX.XX in Other Expenses - $X,XXX.XX in Credits. Net Cash To You At Closing [dollar amount] Transaction Amount of $XX,XXX.XX - $X,XXX.XX in Closing Costs, Expenses And Credits - $X,XXX.XX in Payoffs to Third Parties. See the Net Closing Proceeds calculation on Page X. Settlement Information Settlement A shared appreciation agreement works differently from a traditional mortgage loan. With a mortgage loan, you make monthly payments that gradually reduce your loan balance until it's paid off. With a shared appreciation agreement, there are no monthly payments, and your total cost is not known up front. Instead, the total cost of a shared appreciation agreement depends on your home's future value at the end of the agreement. A shared appreciation agreement typically will end when you sell your home, or at your option, you choose to end the agreement without a home sale by buying out the agreement prior to or at the agreement's maximum term. At settlement, you will make a lump sum Settlement Payment, either from the proceeds of the sale of your home or separately if no home sale occurs. The payment amount is based on the value of your home at the end of the agreement and at the time of settlement. The cost of a shared appreciation agreement typically grows over time, so at the end of the agreement you will likely need to make a single payment that will be much larger than the Transaction Amount and the Net Cash To You at closing of the agreement. Settlement details are provided in the agreement. Ending Home Value The Ending Home Value is the value of your home at the time your shared appreciation agreement ends. If your agreement ends in connection with a sale of your home, the Ending Home Value will typically equal the sale price. If your agreement ends without a sale of your home, the Ending Home Value will be determined by a professional third-party valuation method that is consistent with generally accepted property valuation standards in use at that time, which may include one or more of the following: appraisal, AVM, BPO, or another method that has been approved by the Illinois Department of Financial and Professional Regulation. Final Settlement Payment Equals the lesser of the following two amounts: 1.   Ending Home Value multiplied by the Share Percentage (this is the uncapped amount). 2.   Cost Cap applied to the Transaction Amount over the term length (the exact number of days that have elapsed from the Effective Date to the Settlement Date), compounded annually (this is the capped amount). If the law sets a more restrictive limit, including the limit in Section 15-5-5 of the Predatory Loan Prevention Act [815 ILCS 123/15-5-5], that limit will apply. If you owe your provider other amounts for things like unreimbursed protective advances or unpaid administrative fees, those amounts will be added to the Final Settlement Payment at termination. You will also pay typical transaction expenses for things like appraisal, reconveyance, and/or recording fees. Because the Share Percentage is greater than the Transaction Percentage, your Final Settlement Payment can exceed your Transaction Amount even if the Ending Home Value is less than the Starting Home Value. Your Final Settlement Payment will exceed the Transaction Amount if the Ending Home Value exceeds $[X,XXX,XXX.XX]. Annualized Cost The cost of a shared appreciation agreement expressed as an investment percentage return from start to end. It is calculated exclusive of the Origination Fee and all transaction expenses. Although a shared appreciation agreement has no interest rate, Annualized Cost can provide a useful way to compare the cost of a shared appreciation agreement to the interest rate on a traditional mortgage loan. Calculating Annualized Cost also provides the means by which the Cost Cap is applied. Cost Is Unknown Up Front The Ending Home Value and the date that a shared appreciation agreement ends at settlement are unknown up front. Therefore, the Final Settlement Payment and the Annualized Cost of your shared appreciation agreement cannot be determined up front. Because the total cost of a shared appreciation agreement cannot be known up front, and because there is no interest rate, cost cannot be disclosed as a single percentage number, as is customary with an APR disclosure for a traditional mortgage loan. Instead, a scenario-based approach is used to disclose cost under various scenarios for future home value and time to settlement. Settlement Examples Settlement Example 1 This example provides full details of the calculations needed to determine the Final Settlement Payment and Annualized Cost. There are five simple steps. The example demonstrates a scenario where the home value increases and the term is longer, resulting in a share-based Final Settlement Payment. Step 1 :    Determine ending assumptions: Agreement outstanding for 10 Years Ending Home Value: $X,XXX,XXX (approximately 4% annual price appreciation) Step 2 :    Calculate the share-based settlement payment Ending Home Value X Share Percentage = share-based settlement payment $X,XXX,XXX X XX.XX% = $XXX,XXX Step 3 :    Calculate the capped settlement payment* Transaction Amount X (1 + Cost Cap) ^ (Term Days / 365) = capped settlement payment $XXX,XXX X (1 + XX.XX%) ^ (3,650 / 365) = $XXX,XXX Step 4 :     Final Settlement Payment = lower of the calculations in Step 2 and Step 3, above = $XXX,XXX In this example, the Final Settlement Payment is: □ Share-Based □ Capped Step 5 :    Calculate Annualized Cost* (Settlement Payment / Transaction Amount) ^ (365 / Term Days) - 1 = Annualized Cost ($XXX,XXX / $XXX,XXX) ^ (365 / 3,650) - 1 = XX.X% *Term Days = exact number of days that passed between the Effective Date of your agreement and Settlement Date. This is a 10-year example. Assuming 365 days per year results in 3,650 Term Days. Settlement Example 2 This example demonstrates a scenario where the home value increases and the term is shorter. It results in a capped outcome. Step 1 :    Determine ending assumptions: Agreement outstanding for 2 Years Ending Home Value: $X,XXX,XXX (approximately 4% annual price appreciation) Step 2 .    Share-based settlement payment = $X,XXX,XXX X XX.XX% = $XXX,XXX Step 3 .    Capped settlement payment = $XXX,XXX (see example 1 for calculation method) Step 4 .     Final Settlement Payment = $XXX,XXX Settlement Payment is: □ Share-Based □ Capped Step 5 .    Annualized Cost = XX.X% (see example 1 for calculation method) Settlement Example 3 This example demonstrates a scenario where the home value decreases. Step 1 :    Determine ending assumptions: Agreement outstanding for 2 Years Ending Home Value: $X,XXX,XXX (approximately 25% annual price decline) Step 2 .    Share-based settlement payment = $X,XXX,XXX X XX.XX% = $XXX,XXX Step 3 .    Capped settlement payment = $XXX,XXX (see example 1 for calculation method) Step 4 .     Final Settlement Payment = $XXX,XXX Settlement Payment is: □ Share-Based □ Capped Step 5 .    Annualized Cost = XX.X% (see example 1 for calculation method) IMPORTANT Because the Share Percentage is greater than the Transaction Percentage, your Settlement Payment can exceed your Transaction Amount even if the Ending Home Value is less than the Starting Home Value. Your Settlement Payment will exceed the Transaction Amount if the Ending Home Value exceeds $X,XXX,XXX.XX. Settlement Examples Cost Scenario Tables The tables below contain examples of Final Settlement Payment Amounts that may be required to satisfy your obligation at the end of a shared appreciation agreement based on a range of Ending Home Values for scenarios where the agreement ends after 1 year, 5 years, 10 years, and at the Expiration Date of the agreement. Ending Home Values are shown based on hypothetical changes in the change in your home's value of X.X% (the actual average annual change in value in Illinois over the prior 5 years based on the All-Transactions House Price Index as Published by the Federal Reserve Bank of St. Louis, available at: https://fred.stlouisfred.org/series/ILSTHPI), as well as for 5.5% annual appreciation, 3.5% annual appreciation, no change in value, and 10% total depreciation. THESE ARE EXAMPLES ONLY. THE ACTUAL FINAL SETTLEMENT PAYMENT AMOUNTS COULD BE HIGHER OR LOWER THAN SHOWN HERE. ACTUAL HOME PRICES COULD RISE MORE THAN SHOWN, WHICH WOULD RESULT IN LARGER SETTLEMENT PAYMENTS AND HIGHER ANNUALIZED COSTS. The tables help you see how cost changes with longer or shorter terms and with varying home price increases or decreases. Dark shaded cells indicate where the Cost Cap applies. The Cost Cap usually applies in the early years or when home prices rise sharply. 5-Year End Date Table Change in Home Value Ending Home Value Final Settlement Payment Amount Share-Based or Capped Annualized Cost (For Comparison to an APR) X.X% 5-Year Average Annual Illinois Change in Value 5.5% Annual Appreciation 3.5% Annual Appreciation No Change in Value 10% Total Depreciation 10-Year End Date Table Change in Home Value Ending Home Value Final Settlement Payment Amount Share-Based or Capped Annualized Cost (For Comparison to an APR) X.X% 5-Year Average Annual Illinois Change in Value 5.5% Annual Appreciation 3.5% Annual Appreciation No Change in Value 10% Total Depreciation X-Year End Date (Expiration Date) Table Change in Home Value Ending Home Value Final Settlement Payment Amount Share-Based or Capped Annualized Cost (For Comparison to an APR) X.X% 5-Year Average Annual Illinois Change in Value 5.5% Annual Appreciation 3.5% Annual Appreciation No Change in Value 10% Total Depreciation Closing Statement Details Investment Costs Homeowner Paid At Closing      Before Closing Paid by Others A.  Origination Charges 01 02 03 04 05 06 07 08 B.  Third Party Transaction Expenses 01 to 02 to 03 to 04 to 05 to 06 to 07 to 08 to C.  TOTAL INVESTMENT COSTS (Homeowner Paid Investment Costs Subtotals (A + B) Other Expenses D.  Taxes and Other Government Fees 01 to 02 to 03 to 04 to E.  Other 01 02 03 04 F.  TOTAL OTHER EXPENSES (Homeowner Paid) Other Expenses Subtotals (D + E) G.  CREDITS H.  TOTAL COSTS, EXPENSES AND CREDITS (C + F + G) Payoffs TO AMOUNT 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 TOTAL PAYOFFS (l) Net Closing Proceeds Use this table to see what has changed from your Investment Estimate Investment Estimate Final Did this change? Transaction Amount Costs, Expenses And Credits (H) Closing Costs Paid Before Closing Total Payoffs (I) Net Closing Proceeds Other Important Terms Provisions Related To Future Borrowing Against Your Home Your shared appreciation agreement may contain provisions that limit your ability to borrow more money against your home as long as the agreement remains outstanding. This restriction may apply to "cash out" or "rate/term" refinance loans, home equity lines of credits or loans, or new loans. You should review the shared appreciation agreement transaction documents to make sure you fully understand the impact of these provisions. It is also possible that a lender will not lend on a property that is subject to a lien from a shared appreciation agreement to the same extent or on the same terms as they would for a property that is not subject to such a lien. Therefore, even in a situation in which a shared appreciation agreement provider does not restrict a certain future loan, it is possible that you will need to end a shared appreciation agreement in order to complete another loan. Appraisal Considerations Appraisals, AVMs (Automated Valuation Models) and BPOs (Broker Price Opinions) are professional third-party estimates of value but may not represent the actual value that your home would sell for. Unlike a traditional mortgage loan, Starting Home Value and Ending Home Value are directly used to determine the final cost of your shared appreciation agreement. As a result, the Final Settlement Payment Amount that you would owe at the end of the agreement may be affected if a professional estimate of your home's value differs from actual value. Information About Default And Foreclosure In the case of a material and uncured breach of the terms of a shared appreciation agreement, the provider may have the right to take action to protect its investment, including by initiating a foreclosure proceeding on your home in accordance with applicable law. IF YOU DO NOT CURE THE DEFAULT WITHIN THE TIME PERIODS PROVIDED UNDER APPLICABLE LAW YOU COULD LOSE YOUR HOME. Events of default include the following: Falling behind on mortgage payments, property taxes, property insurance or other home-related obligations. Allowing the condition of your home to deteriorate significantly or failing to restore your home to its previous condition after damage occurs. Taking on additional debt in violation of the provisions of your shared appreciation agreement. Violating home usage laws. Becoming insolvent or declaring bankruptcy. Misrepresenting or omitting material facts when communicating with your shared appreciation agreement provider. Attempting to sell or transfer your property except as permitted under your shared appreciation agreement. Failing to settle your shared appreciation agreement at the end of its term. Special Calculation Provisions [If the agreement contains any special calculation provisions, such as floors or lockout periods, describe here.] Other Important Terms Important Term 1 Description Important Term 2 Description Important Term 3 Description Important Term 4 Description Important Term 5 Description Important Term 6 Description Contact Information Shared Appreciation Agreement Provider Shared Appreciation Agreement Broker Real Estate Broker (Buyer) Real Estate Broker (Seller) Settlement Agent [Other Interest Party] Name Address NMLS ID ______________ License ID Contact Contact NMLS ID Contact License ID _______ Email Phone Acceptance of Terms By signing, you are confirming that: 1    You have received and thoroughly reviewed this shared appreciation agreement [Estimate/Closing] Disclosure, and you intend to proceed with the closing of this transaction under the terms presented herein. 2.   Before your transaction can close, you MUST complete a mandatory counseling session with an authorized independent HUD-certified housing counselor who will provide you with counseling on the proposed transaction. You will be responsible for the cost of such counseling only if you elect to close, and not rescind, this transaction. 3.   You have been advised to review your shared appreciation agreement with your family and professional advisors, including your tax, legal and financial advisors and estate planner, and that your provider was available to speak with any of them and did so upon your request. 4.   Additional Acknowledgement 5.   Additional Acknowledgement 6.   Additional Acknowledgement 7.   Additional Acknowledgement This Shared Appreciation Agreement [Estimate/Closing] Disclosure is non-binding. Applicant Signature Date Co-Applicant Signature Date