2009 California Civil Code - Section 1917.710-1917.714 :: Article 6. Notices And Disclosures

CIVIL CODE
SECTION 1917.710-1917.714

1917.710.  (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 for seniors,
notwithstanding any contrary provision 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. However, a lender shall not be precluded from
supplementing the disclosures required by this chapter with
additional disclosures that are not inconsistent with the disclosures
required by this chapter.
   (b) Whenever 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.

1917.711.  (a) Each lender offering shared appreciation loans for
seniors shall furnish to a prospective borrower, on the earlier of
the dates on which the lender first provides written information
concerning shared appreciation loans for seniors by the lender or
provides a loan application form to the prospective borrower, a
written disclosure as provided in this section, in type of not less
than 10 point.
   (b) The disclosure shall be entitled "INFORMATION ABOUT THE (Name
of Lender) SHARED APPRECIATION LOAN FOR SENIORS," and shall describe
the operation and effect of the shared appreciation loan for seniors,
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 SHARED APPRECIATION LOANS FOR
SENIORS

   Your lender is pleased to offer you the opportunity to borrow
against the equity in your home through a Shared Appreciation Loan
for Seniors.
   Because the Shared Appreciation Loan for Seniors differs from the
usual mortgage loan, the law requires that you have a detailed
explanation of the special features of the loan before you apply.
Before you sign your particular Shared Appreciation Loan for Seniors
documents, you will receive more information about your particular
Shared Appreciation Loan for Seniors, which you should read and
understand before you sign the loan documents.
   Receipt of shared appreciation loan proceeds could be considered
income, thereby reducing payments received under government benefit
programs, such as Supplemental Security Income (SSI). If this income
is accumulated, the payments will be considered a resource, and could
terminate your eligibility for SSI or Medi-Cal. See your legal
adviser for more information.

                                         I
                                GENERAL TERMS

   A Shared Appreciation Loan for Seniors will provide you with funds
to pay off any existing indebtedness on your home and to pay the
closing costs for the loan, and will then advance funds to you each
month (monthly annuity) (1) for so long as you or your spouse who is
a coborrower live; or (2) until you sell the house; or (3) until you
decide to refinance the property and pay off your Shared Appreciation
Loan for Seniors; or (4) until you cease to occupy the property as
your residence, meaning either that the property has been rented out
for exclusive use by a nonborrower, or the abandonment by all
coborrowers of the property as their residence. Any of these four
events are considered "maturity events," and will constitute the end
of the obligation to advance funds to you. The maturity events are
described more fully in the promissory note. Your monthly annuity is
calculated according to the method described in Section II, below.
You will also be required to fulfill any customary terms or
conditions included in the deed of trust encumbering your property.
   Each advance of funds you receive, including both initial advances
(net original loan) and each monthly annuity, will be considered
outstanding principal on your loan and will bear a stated interest
rate which will be not more than 80 percent of the prevailing rate of
interest in the locality in which you live. No payments on your
total loan obligation need be made by you until the occurrence of one
of the four maturity events described above.
   In exchange for a stated interest rate which is below the
prevailing rate, you will be obligated to pay us additional interest
later, in the form of a share of the appreciation of your home
between the time you execute the promissory note and the occurrence
of a maturity event. This additional interest is called "actual
contingent interest" and is described more fully below at Section
III. Once a maturity event has occurred, interest at the prevailing
rate compounded not more often than monthly shall accrue on the
entire outstanding loan balance, including the actual contingent
interest, until repayment in full of the loan.
   Balloon Payment of Principal. If you do not sell the property
before the occurrence of a maturity event, you or your successors
will need to refinance or pay this loan at that time. The term of
this loan is until occurrence of a maturity event. However, if the
maturity event is cessation of occupancy or death of the borrowers,
the term shall be extended until the earlier of the sale or
refinancing of the property, or 12 months after occurrence of the
maturity event. We will not refinance either the unpaid balance of
the loan or the contingent interest at that time; you or your
successors alone will be responsible for obtaining refinancing. If
you refinance this loan, your monthly payments may increase
substantially if the property has appreciated significantly or if the
interest rate on the refinancing loan is much higher than today's
prevailing rates. In general, the more your property appreciates, the
larger will be the amount of the actual contingent interest that you
will have an obligation to pay or refinance.
   Tax and Estate Consequences. USE OF THE SHARED APPRECIATION LOAN
FOR SENIORS 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. BECAUSE YOU WILL BE BORROWING A
SIGNIFICANT AMOUNT OF THE EQUITY IN YOUR HOME, WHEN A MATURITY EVENT
OCCURS AND YOUR LOAN IS REPAID, LITTLE OR NO EQUITY MAY REMAIN FOR
YOU OR YOUR HEIRS.
   Determining Fair Market Value. If you sell your property, the
gross sale price will be the fair market value of the property,
unless appraisals are requested by us and the appraisals average more
than the gross sale price. However, at your request, we also will
tell you what we consider to be the fair market value of the
property. If you sell for cash for a gross sale price that equals or
exceeds that amount, the gross sale price will control and appraisals
will not be needed.
   Fair market value is determined by appraisals in the event of
sales involving a consideration other than cash, prepayment of the
loan in full, or any other maturity event.
   When appraisals are required, fair market value is determined by
averaging two independent appraisals of the property. You may select
one of the two appraisers from a list approved by the Federal
National Mortgage Association. If appraisals are requested by us, we
will provide you with full information on how to select an appraiser.
   In lieu of appraisals, we may establish fair market value at an
agreed amount if an agreement can be reached between you and us.
   Determining Value of Capital Improvements. Capital improvements
with a value exceeding one thousand dollars ($1,000) (but no
maintenance or repair costs) may be added to the value 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 claimed in any 12-month period must add
more than one thousand dollars ($1,000) in value to the property and
must generally also cost more than one thousand dollars ($1,000).
However, if you have performed at least one-half the value of the
labor or other work involved, then the cost of the improvements will
not be considered. The appraised value of the improvements will be
the increase in the value of the property resulting from the
improvements. You will receive no credit for minor or major repairs
or for improvements that are not appraised at more than one thousand
dollars ($1,000), but the lender will acquire a share of any
resulting appreciation in the value of the property.

                                        II
                       CALCULATION OF MONTHLY ANNUITY

   Your Shared Appreciation Loan for Seniors consists of two
components: first, an initial advance to cover the cost of paying off
any existing liens which you wish to pay off, and to cover closing
costs; and second, a monthly annuity.
   Your Shared Appreciation Loan for Seniors is designed to provide a
monthly stream of funds for the remainder of the lives of the
borrowers, with no payments on the loan due at any time during the
lives of the borrowers unless the property is sold or the loan is
refinanced or repaid in full or until you cease to occupy the
property. In determining the amount that it is able to lend, the
lender estimates what at least 75 percent of the value of the
borrower's home is likely to be at the end of the borrower's life
expectancy, based on a reasonable projected appreciation rate per
year. Borrowers' estimated life spans are predicted on the basis of
"actuarial tables" prepared by the government and the insurance
industry; and are based only upon estimated female life span, plus up
to five years, to avoid any discriminatory effect between the sexes
in determining loan amounts and for conservative lending practices.
Once the maximum amount which may be loaned has been determined, the
amount necessary to pay off existing liens and for closing costs,
plus interest at the stated interest rate on that amount for the
borrower's life expectancy, is subtracted. The "projected contingent
interest" that is predicted to have been earned at the end of the
estimated life span is also subtracted. A monthly annuity is then
calculated on the remaining amount, based on the stated interest and
the borrower's life expectancy.
   This complex calculation is illustrated by the following example:
   Mr. and Mrs. Smith, who are 73 and 71 years of age, respectively,
live in a home with a current value of one hundred fifty thousand
dollars ($150,000), and apply for a Shared Appreciation Loan for
Seniors. According to acceptable actuarial tables, Mrs. Smith, the
younger of the two, has a remaining actuarial life span of 18 years.
At the end of the 18 years, at a 4 percent per year projected
appreciation rate, the house would be worth three hundred thousand
dollars ($300,000), 80 percent of which equals two hundred forty
thousand dollars ($240,000) (the lender could have based the
calculation on as little as 75 percent of the three hundred thousand
dollar ($300,000) projected value). The house currently has a fifteen
thousand dollar ($15,000) first mortgage, and closing costs will be
approximately two thousand dollars ($2,000), and the Smiths' wish to
receive an initial advance to pay off the mortgage and to cover
closing costs.
   At the time the Smiths apply, the average of the 30-year fixed
interest rate for home mortgages of the Federal Home Loan Mortgage
Corporation is 13 percent, which is the "prevailing rate." The
"stated interest rate" on the Smiths' loan will be 75 percent of the
"prevailing rate," or 9 3/4 percent (the lender could have charged up
to 80 percent of the prevailing rate).
   The Smiths' payments will be calculated so that at the end of the
projected loan term of 18 years, the total of all payments owed to
the lender will be two hundred forty thousand dollars ($240,000), 80
percent of the estimated value of the Smiths' home after 18 years.
   Two items must be subtracted from the two hundred forty thousand
dollar ($240,000) future value before the Smiths' payment can be
calculated:
   (a) Since the Smiths' are requesting an advance of seventeen
thousand dollars ($17,000) to pay off their existing mortgage and for
closing costs, seventeen thousand dollars ($17,000), plus interest
on seventeen thousand dollars ($17,000) at 9 3/4 percent for 18
years, for a total of ninety-six thousand fifty-seven dollars
($96,057), must be subtracted from the two hundred forty thousand
dollars ($240,000) available for lending. This leaves one hundred
forty-three thousand nine hundred forty-three dollars ($143,943).
   (b) The lender's share of appreciation of the value of the home is
also subtracted before calculating the monthly payment. Since the
home is projected to increase in value by one hundred fifty thousand
dollars ($150,000), the lender's share, 25 percent, equals
thirty-seven thousand five hundred dollars ($37,500). When subtracted
from one hundred forty-three thousand nine hundred forty-three
dollars ($143,943), this leaves one hundred six thousand four hundred
forty-three dollars ($106,443) for monthly payments.
   The monthly payment is calculated on the basis of one hundred six
thousand four hundred forty-three dollars ($106,443), over an 18-year
term with interest at 9 3/4 percent. This equals one hundred
eighty-four dollars ($184) per month. The Smiths' will receive one
hundred eighty-four dollars ($184) per month until a maturity event
occurs.
   At the time of occurrence of a maturity event, the Smiths, or
their successors, if they are both deceased, will owe the seventeen
thousand dollars ($17,000) advanced initially, plus the sum of all
the monthly payments of one hundred eighty-four dollars ($184)
received by them until the occurrence of the maturity event, plus
interest at 9 3/4 percent on all of the above from the time the funds
were advanced until occurrence of the maturity event, plus actual
contingent interest calculated as described in Section III below.
Interest, compounded no more often than monthly, on all of the above
shall accrue at the prevailing rate from the date of any maturity
event until the loan is paid in full.
   Because interest accumulates rapidly, when a large initial advance
is received, or the projected loan term is relatively long, the
monthly payment is significantly lower. For instance, if the Smiths'
were 80 years old, and received no lump-sum advance, their monthly
payment would be seven hundred forty-nine dollars ($749) per month.
   The longer the loan has been in effect, of course, the greater the
amount that will be owed, as monthly payments and interest
accumulate, and as the home appreciates in value. Unless the
borrowers choose to sell the home or refinance the loan, monthly
payments will continue until both are deceased, no matter how long
they live so long as they continue to occupy the property. Thus, the
total loan obligation is not limited to the projected life span of
the borrowers, nor to any set dollar amount, regardless of the
projected maximum. Regardless of how much principal has been advanced
by Shared Appreciation Loans for Seniors, and regardless of how much
stated interest and actual contingent interest have accumulated or
been earned, payments will continue. If the borrower lives
substantially longer than the actuarial prediction, it is possible
that the total of principal and acquired stated interest plus actual
contingent interest, may exceed the value of the home. IN NO EVENT,
HOWEVER, WILL A BORROWER OR A BORROWER'S ESTATE BE LIABLE ON THE
SHARED APPRECIATION LOAN FOR SENIORS IN AN AMOUNT GREATER THAN THE
VALUE OF THE HOME.
   The Smith example can be illustrated as follows:

  A. $150,000 _  Value of home at time of loan.
                 Estimated value of home at end of
  B. $300,000 _  lifeexpectancy (18 years, 4%
                 annual appreciation).
  C. $240,000 _  Loan (80% of B).
  D. $150,000 _  Total appreciation (B less A).
  E. $ 37,500 _  Lender's share of appreciation
                 (25% X D).
  F. $ 96,057 _  Payoff of preexisting mortgage,
                 plusinterest.
  G. $106,443 _  Amount from which monthly payment
                 is calculated (C less E less F).
                 Monthly payment (based on G) to
                 theSmiths.
                 At death or other maturity event,
                 the sum of
                 all monthly payments,plus
  H. $   184     interest, plus the
  _
                 lender's share of appreciation,
                 plus the amount
                 owingfrom payoff of the old
                 mortgage, must be
                 paid to the lender.

                                        III
                         ACTUAL CONTINGENT INTEREST

   This Shared Appreciation Loan for Seniors provides that you, as
borrower, must pay to the lender, as actual contingent interest, a
share of up to 25 percent of the net appreciated value of the real
property which secures the loan. This actual contingent interest is
due and payable whenever a maturity event occurs. The dollar amount
of actual contingent interest, if any, which you will be required to
pay cannot be determined at this time. If the property does not
appreciate, you will owe us nothing as actual contingent interest,
and will only have to repay principal and stated interest. Actual
contingent interest will not become due if title to the property is
transferred on your death to a spouse who is a coborrower, or where a
transfer results from a decree of dissolution of a marriage and a
spouse who is a coborrower becomes the sole owner.
   Your obligation to pay actual contingent interest and stated
interest will reduce the amount of the appreciation, if any, that you
will realize on the property over and above its value today.
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 actual contingent interest without regard to whether the
appreciation has resulted in a real gain.
   When your home is sold or refinanced, you normally will receive
enough cash to pay the total loan obligation. However, if you sell
and provide financing to the buyer, you may possibly not receive
enough cash to pay the actual contingent interest, and, in that
event, it will be necessary for you to provide cash from other funds.
In no event, however, will your total loan obligation exceed the
value of your home at the time of occurrence of a maturity event,
unless you have willfully caused damage to the property.
   Calculating the actual contingent interest. Actual contingent
interest will be calculated as follows:

                    FAIR MARKET VALUE OF THE
                    PROPERTY
                    ON DATE OF MATURITY EVENT
                    (Sale Price or Appraised Value)
  -- (less)         CURRENT VALUE OF THE PROPERTY
                    VALUE OF CAPITAL IMPROVEMENTS
  -- (less)
                    MADE BY YOU
                    (Must exceed $1,000 in cost.)
                    LENDER'S APPRECIATION SHARE
  X (times)         (up to
                    25%)
  = (equals)        ACTUAL CONTINGENT INTEREST

   Below are answers to two frequently asked questions about the
Shared Appreciation Loans for Seniors program. If you have any
further questions, feel free to call the lender at ____, or write to
the lender at ____.
   Question. What if I marry, or my spouse is not a coborrower
   Answer. Your Shared Appreciation Loan for Seniors will be due upon
the death of the last surviving coborrower. Your lender will be
happy to include a new or present spouse as a coborrower, provided
the new spouse is over age __ at the time he or she becomes a
coborrower. Because the monthly payment annuity is based upon the
projected life span of the youngest coborrower, the annuity will be
readjusted if a new, younger coborrower is added. The annuity will be
adjusted to reflect the annuity that would have existed had the new
coborrower been a coborrower from the beginning of the loan period.
Since the monthly annuity is based on a fixed "lendable amount"
derived from projected appreciation of the home (see Section II,
above), a longer projected loan period, because of the younger age of
the new coborrower, will result in a decrease in the size of the
monthly annuity.
   Question. Can I obtain an additional advance for home improvements
   Answer. Yes, provided your lender approves of the improvement.
Your lender will act reasonably in reviewing your request. At the
time the advance is made, your lender will calculate the amount of
interest at the stated interest rate that will accrue through the
projected life of the loan, as it was determined at the time the loan
was made. This amount will be deducted from the original lendable
amount, and a new annuity calculated, based upon the calculations
described in Section II. The effect is the same as if the advance had
been made at the outset of the loan, except, of course, you will not
be responsible for any interest until the funds are actually
advanced. Your annuity will, however, be smaller.

1917.712.  (a) Each lender making a shared appreciation loan for
seniors 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 C.F.R. Part 226), including 12
C.F.R. Section 226.18(f), to the extent applicable to the
transaction.
   (b) The disclosure made pursuant to subdivision (a) and Regulation
Z shall be based on the fixed interest rate of the shared
appreciation loan for seniors, 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 in 46 Federal
Register 20877-78 (April 7, 1981), and (2) the lender's share of the
appreciated value and the prevailing interest rate as defined in
Section 1917.320.
   (c) The disclosure made pursuant to subdivision (a) and Regulation
Z shall be accompanied by (1) several transaction-specific examples
of the operation and effect of 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 total loan obligation (including actual contingent '
' 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 for seniors (including actual contingent '
' interest) will equal $____, and the annual percentage '
' rate of the total finance charge (including actual '
' contingent interest) will equal ____%. '
'________________________________________________________'

   (d) The disclosures required by subdivision (c) shall be separate
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 disclosure prescribed in Section 1917.711 shall be
physically attached to the disclosures required by this section and
Regulation Z at the time the Regulation Z 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.

1917.713.  Each lender making a shared appreciation loan for seniors
shall additionally furnish to the prospective borrower, prior to
consummation of the loan, a statement containing the following
information:

       IMPORTANT INFORMATION ABOUT YOUR SHARED APPRECIATION LOAN FOR
SENIORS

   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 you should consider.
   1. Prevailing interest rate: __%.
   2. Stated interest rate on this loan: __%.
   3. Projected contingent interest: __%.
   4. Initial amount of this loan: $__.
   5. Amount of the monthly annuity payments you will receive: $__.
   6. Projected term of this loan: __ years.
   7. Projected total loan obligation you will have to pay, assuming
the loan continues to the end of the "borrower's" life expectancy:
$__.

1917.714.  Each deed of trust and evidence of debt executed in
connection with a shared appreciation loan for seniors 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 FOR SENIORS. THE LENDER'S
INTEREST INCLUDES [PERCENT] OF THE NET APPRECIATED VALUE OF THE
PROPERTY. A BALLOON PAYMENT OF PRINCIPAL WILL BE REQUIRED. FOR
FURTHER INFORMATION, READ THE FLYER ENTITLED " INFORMATION ABOUT THE
[NAME OF LENDER] SHARED APPRECIATION LOAN FOR SENIORS."' The notice
required by this section shall be completed to state the terms of the
shared appreciation loan and the lender's share of the net
appreciated value.


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