2009 California Civil Code - Section 1917.070-1917.075 :: Article 7. Notices And Disclosures

CIVIL CODE
SECTION 1917.070-1917.075

1917.070.  (a) The disclosures made pursuant to this chapter, as
required, shall be the only disclosures required to be made pursuant
to state law for shared appreciation loans, notwithstanding any
contrary provisions applicable to loans not made under this chapter,
except those, if any, that may be required by reason of the
application of Division 1 (commencing with Section 25000) of the
Corporations Code, or Chapter 1 (commencing with Section 11000) of
Part 2 of Division 4 of the Business and Professions Code. A lender
may, but shall not be required to, supplement the disclosures
required by this article with additional disclosures that are not
inconsistent with the disclosures required by this article.
   (b) When very specific language is prescribed by this chapter,
substantially the same language shall be utilized if possible, but
reasonably equivalent language may be used to the extent necessary or
appropriate to achieve a clearer or more accurate disclosure.

1917.071.  (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 "INFORMATION ABOUT THE (Name
of Lender) SHARED APPRECIATION LOAN," 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 "contingent deferred interest."

                            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 today's
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.
- (less) BORROWER'S COST OF THE PROPERTY (This amount
includes certain costs paid by you incident to
the purchase.
- (less) COST OF CAPITAL IMPROVEMENTS MADE BY YOU IN ANY
12-MONTH PERIOD (Must exceed $2,500 in value.
The actual amount may be the lesser of actual
cost or appraised value.
________________________________________________
= (equals) NET APPRECIATED VALUE
x (times) ONE-THIRD PERCENTAGE OWED TO LENDER
= (equals) TOTAL CONTINGENT INTEREST

                         Determining Net Appreciated Value

   We are entitled to receive one-third of the net appreciated value
of the property as contingent interest. As explained above, net
appreciated value equals (1) the fair market value of the property at
the time of the sale or appraisal, less (2) your cost of the
property, less (3) the value of any capital improvements for which
you are entitled to credit.

                           Determining Fair Market Value

   Fair market value is the sale price of the property in the case of
a bona fide sale of the property made before the maturity of the
shared appreciation loan, excluding certain foreclosure related
sales. In all other cases, fair market value is determined by our
most recent annual appraisal of the property. If you desire to
contest the amount of our annual appraisal, you may obtain another
appraisal by a qualified independent appraiser within 30 days after
the anniversary date of the loan and send a copy of the appraisal to
us by first-class mail within that 30-day period. If your appraiser's
appraisal is lower than our appraisal, the annual appraisal shall
equal one-half the sum of the two appraisals.

                     Determining Value of Capital Improvements

   The cost or value of certain capital improvements (but no
maintenance or repair costs) may be added to your cost of the
property for the purpose of determining the net appreciated value,
but only if the procedures set forth in the shared appreciation loan
documents are followed. It is important to note that capital
improvements completed and for which a credit is claimed in any
12-month period must cost or be appraised at more than two thousand
five hundred dollars ($2,500). The lesser of the cost or appraised
value will control. However, if you have performed at least half the
value of the labor or other work involved, then the appraised value
of the improvements will control. The appraised value of the
improvements shall be considered to be the increase in the value of
the property resulting from the improvements. You will receive no
credit for improvements that are not appraised at more than two
thousand five hundred dollars ($2,500).

                                 Cost of Appraisals

   The terms of this loan call for annual appraisals of the property,
and for additional appraisals to value improvements or in the event
of a dispute regarding the value of the property or improvements. The
cost of the appraisals will be paid as follows:

                         Your Right to Refinance This Loan

   If the property is not sold or transferred prior to the maturity
of the loan, we will offer to refinance the outstanding obligation on
the loan, including any contingent interest. We will offer
refinancing at the then prevailing interest rate either directly or
through another mortgage lender.
   The terms of the refinancing loan will be like home loans offered
at that time by banks or savings and loan associations, but you are
assured that at least one of the options will be a fully amortizing
30-year loan. The interest rate on the refinancing loan may be either
fixed or adjustable, as provided in your shared appreciation loan.
   We will not be permitted to look to the forecast of your income in
offering to refinance. The interest rate and monthly payment upon
refinancing cannot be determined at this time. They may be either
more or less burdensome to you than the currently prevailing rates
and terms.

                                  Tax Consequences

   Use of the shared appreciation loan will have income tax or estate
planning consequences which will depend upon your own financial and
tax situation. FOR FURTHER INFORMATION, YOU ARE URGED TO CONSULT YOUR
OWN ACCOUNTANT, ATTORNEY OR OTHER FINANCIAL ADVISER. THE QUESTIONS
YOU SHOULD DISCUSS INCLUDE THE TAX DEDUCTIBILITY OF THE CONTINGENT
INTEREST PAYMENT, YOUR RIGHT TO UTILIZE THAT DEDUCTION IN YEARS OTHER
THAN THE YEAR IT IS PAID, AND THE EFFECT OF THE LOSS OF TAX BENEFITS
BEFORE THAT TIME.

                            Other Important Information

   (Here insert additional description, if necessary, of the
operation and effect of the shared appreciation loan.
   The foregoing describes our shared appreciation loan, includes a
summary of all of its important provisions, and informs you of some
of the risks of a shared appreciation loan.
   If your loan application is accepted by us, we will provide you
with more information about your particular shared appreciation loan,
which will include a comparison with conventional mortgages, an
illustration of the possible increase in your monthly payments upon
refinancing, and other important information.
   Before you enter into a shared appreciation loan with us, we
recommend that you and your attorney or tax accountant review the
loan documents for the full text of all of the terms and conditions
which will govern the loan.

1917.072.  (a) Each lender making a shared appreciation loan shall
also furnish to the prospective borrower, prior to the consummation
of the loan, the disclosures required by Subpart C of Federal Reserve
Board Regulation Z (12 CFR Part 226), including 12 CFR Section
226.18(f), to the extent applicable to the transaction.
   (b) The disclosure made pursuant to paragraph (a) and Regulation Z
shall be based on the fixed interest rate of the shared appreciation
loan, and shall include a description of the shared appreciation
feature, including (1) the conditions for its imposition, the time at
which it would be collected, and the limitations on the lender's
share, as required by the Federal Reserve Board in the information
published by the Board at 46 Federal Register 20877 and 20878 (April
7, 1981), and (2) the lender's share of the net appreciated value and
the prevailing interest rate as defined in Section 1917.120(h).
   (c) The disclosure made pursuant to paragraph (a) and Regulation Z
shall be accompanied by (1) one or more transaction-specific
examples of the operation and effect the shared appreciation loan,
and (2) the following charts, comparing the shared appreciation loan
and a conventional loan made at the prevailing interest rate, and
illustrating the possible increase in the monthly payments, and the
possible annual percentage rate of finance charge, on the assumptions
therein stated:
Chart 1
_____________________________________________________
' CONVENTIONAL MORTGAGE AT __% '
'_____________________________________________________'
' If the same loan balance were financed under a '
' conventional, 30-year, fixed-rate, level-payment '
' mortgage, your monthly payments would be: '
'_____________________________________________________'
' Years 1-30 '
'_____________________________________________________'
' $______/mo. '
'_____________________________________________________'

Chart 2
_______________________________________________________
' IF YOU REFINANCE THIS TRANSACTION AT __% '
'_______________________________________________________'
' If your property appreciates at 10% per year, and if '
' your loan balance (including contingent deferred '
' interest due) at the end of __ years is refinanced '
' at __% (the prevailing market interest rate now), your'
' monthly payments will be: '
'_______________________________________________________'
' Years 1-__ Refinancing loan '
'_______________________________________________________'
' $____/mo. $____/mo.* '
'_______________________________________________________'
* Refinancing loan, assuming a conventional, 30-year,
fixed-rate, level-payment mortgage. Other mortgage
instruments, e.g., graduated-payment or shared
appreciation, if available, may result in lower
payments.

Chart 3
________________________________________________________
' APR IF PROPERTY APPRECIATES AT 10% '
'________________________________________________________'
' '
' If your property appreciates at 10% per year, the '
' total finance charge on your shared appreciation '
' loan (including contingent interest) will equal '
' $____, and the annual percentage rate of the total '
' finance charge (including contingent interest) will '
' equal ____%. '
'________________________________________________________'

   (d) The disclosures required by paragraph (c) shall be separated
from the disclosures required by Regulation Z, and may be presented
in the document containing the disclosures required by Regulation Z
or in one or more separate documents.
   (e) Except to the extent that this section requires disclosure of
additional information not required by Regulation Z, compliance with
the applicable credit disclosure requirements of Regulation Z shall
constitute compliance with the requirements of this section.
   (f) The disclosures prescribed in Section 1917.171 shall be
physically attached to the disclosures required by this section and
Regulation Z at the time such disclosures are furnished to the
borrower.
   (g) In the event federal law is amended so that this section is
inconsistent therewith, the federal law shall prevail as to the
disclosures required by this section.

1917.073.  Each lender making a shared appreciation loan shall
additionally furnish to the prospective borrower, prior to the
consummation of the loan, a statement containing the following
information:

             IMPORTANT INFORMATION ABOUT YOUR SHARED APPRECIATION
LOAN

   You are being offered a shared appreciation loan. Before you
decide to accept this loan read this statement, which is designed to
provide important information that you should consider.
   1. Prevailing interest rate: __%.
   2. Fixed interest rate on this loan: __%.
   3. Lender's share of net appreciated value: one-third.
   4. Amount of this loan: $__.
   5. Amount of the monthly payments: $__.
   6. Term of this loan: __ years.
   7. Amortization period on which payments are calculated: 30 years.
   8. Prepayment penalty (if any) __.

1917.074.  Each deed of trust and evidence of debt executed in
connection with a shared appreciation loan shall contain a statement,
printed or written in a size equal to at least 12-point bold type,
consisting of substantially the following language: "THIS IS A
[DURATION] SHARED APPRECIATION LOAN. THE LENDER'S INTEREST INCLUDES
ONE-THIRD OF THE NET APPRECIATED VALUE OF THE PROPERTY. FOR FURTHER
INFORMATION, READ THE FLYER " INFORMATION ABOUT THE [NAME OF LENDER]
SHARED APPRECIATION LOAN."' The notice required by this section shall
be completed to state the term of the shared appreciation loan.

1917.075.  Where, pursuant to any provision of law, the lender is
required to disclose the amount of interest due or to be due under a
shared appreciation loan and the amount of contingent deferred
interest due or to be due is not known, the lender may disclose that
fact and specify in the disclosure the method for calculating
contingent deferred interest.


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