(a) Each lender offering shared appreciation loans shall furnish to a prospective borrower, on the earlier of the date on which the lender first provides written information concerning shared appreciation loans from such lender or provides a loan application form to the prospective borrower, a written disclosure as provided in this section. (b) The disclosure shall be entitled âINFORMATION ABOUT THE (Name of Lender) SHARED APPRECIATION LOAN,â and shall describe the operation and effect of the shared appreciation loan including a brief summary of its terms and conditions, together with a statement consisting of substantially the following language, to the extent applicable to such loan: INFORMATION ABOUT THE [Name of Lender] SHARED APPRECIATION LOAN (Name of Lender) is pleased to offer you the opportunity to finance your home through a shared appreciation loan. Because the shared appreciation loan differs from the usual mortgage loan, the law requires that you should read and understand before you sign the loan documents. The loan will bear a stated rate of interest which will be one-third below the prevailing market interest rate. In exchange for a stated interest rate which is below the prevailing rate, you will be obligated to pay us additional interest later. This additional interest is called âcontingent deferred interest.â Contingent Deferred Interest This loan provides that you, as borrower, must pay to us, as lender, as contingent deferred interest, one-third of the net appreciated value of the real property which secures the loan. This contingent interest is due and payable when the property is sold or transferred, when the loan is paid in full, upon any acceleration of the loan upon default, or at the end of the term of the loan, whichever first occurs. The dollar amount of contingent interest which you will be required to pay cannot be determined at this time. If the property does not appreciate, you will owe us nothing. Your obligation to pay contingent interest will reduce the amount of the appreciation, if any, that you will realize on the property. This appreciation will not produce a real gain in your equity in the property, unless the appreciation rate exceeds the general inflation rate, but you will be required to pay a portion of the appreciation as contingent interest without regard to whether the appreciation has resulted in a real gain. When you sell or refinance your home, you normally will receive enough cash to pay the shared appreciation loan balance, accrued interest, prepayment penalty (if applicable), the contingent interest, and expenses of sale. However, if you sell with only a small downpayment, you may possibly not receive enough cash to pay the contingent interest, and, in that event, it will be necessary for you to provide cash from other funds. If you do not sell the property before the end of the term of this loan, you will need to refinance this loan at that time. The term of this loan is (duration) years. We will offer to refinance the outstanding obligation, including any contingent interest, at that time. If you refinance this loan, your monthly payments may increase substantially if the property appreciates significantly or if the interest rate on the refinancing loan is much higher than todayâs prevailing rates. In general, the more your property appreciated, the larger will be the amount of the contingent interest that you will have an obligation to pay or refinance. The contingent interest will not become due if title to the property is transferred on your death to a spouse, or where a transfer results from a decree of dissolution of a marriage and a spouse becomes the sole owner. Calculating the Contingent Interest Contingent interest will be calculated as follows: FAIR MARKET VALUE OF THE PROPERTY (Sale price or amount of value determined by appraisal.) â (less) BORROWERâS COST OF THE PROPERTY (This amount includes certain costs paid by you incident to the purchase.)
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