Illinois Proposes Regulations Governing Shared Appreciation Agreements
Illinois continues to move forward in regulating “shared appreciation agreements.” On August 15, 2025, the Illinois Department of Financial and Professional Regulation proposed regulations implementing the Residential Mortgage License Act of 1987 (“RMLA”) to govern “shared appreciation agreements” (the “Proposed Regulations”).1The term “shared appreciation agreements” is generally interpreted to include products commonly known as home equity contracts,” “home equity investments,” or “home equity agreements. The Proposed Regulations provide originators of these products with a roadmap for compliance with the RMLA. Below is a summary of certain key provisions in the Proposed Regulations.
Background
Effective January 1, 2025, the RMLA was amended to add the term “shared appreciation agreement” to the law and to specify that the terms “mortgage loan,” “residential mortgage loan,” and “home mortgage loan” under the RMLA include “shared appreciation agreements.”2 A “shared appreciation agreement” is defined as “a writing evidencing a transaction or any option, future, or any other derivative between a person and a consumer where the consumer receives money or any other item of value in exchange for an interest or future interest in a dwelling or residential real estate or a future obligation to repay a sum on the occurrence of an event, such as: (1) the transfer of ownership; (2) a repayment maturity date; (3) the death of the consumer; or (4) any other event contemplated by the writing.”3 Under the RMLA, a person must be licensed and comply with certain requirements to engage in the business of brokering, funding, originating, servicing or purchasing residential mortgage loans.4 Accordingly, under the amended RMLA, a person engaged in the business of brokering, funding, originating, servicing or purchasing shared appreciation agreements must be licensed and comply with the requirements under the RMLA.
These changes to the RMLA follow similar amendments made to the mortgage licensing laws in Connecticut and Maryland. Maryland finalized regulations governing “shared appreciation agreements” that became effective on November 25, 2024, and Connecticut recently enacted legislation on July 1, 2025 governing disclosure and other substantive requirements for “shared appreciation agreements,” which will become effective October 1, 2025.5 The Illinois Proposed Regulations, if finalized as written, would impose requirements similar to those in Maryland and Connecticut for shared appreciation agreements.
Illinois Proposed Regulations Governing “Shared Appreciation Agreements”
In addition to defining terms applicable to shared appreciation agreements, the Proposed Regulations implementing the RMLA provide detailed requirements applicable to shared appreciation agreements, as well as clarify how originators of shared appreciation agreements would comply with existing requirements under the RMLA. Below are certain of the provisions addressed by the Proposed Regulations:
- Financing Agreement: As the RMLA requires a person receiving an application to provide a consumer with a financing agreement, the Proposed Regulations outline how an originator of a shared appreciation agreement would satisfy this state disclosure requirement by:
- Providing the disclosure form found in Appendix C of the Proposed Regulations, or a substantially similar form, within three business days after the date an application for a shared appreciation agreement is completed; and
- Calculating the annualized cost based on the term in each scenario within the form in Appendix C using the method prescribed in Appendix J of federal Regulation Z for calculating an annual percentage rate.
If the terms of the disclosure are subject to change, an originator offering a shared appreciation agreement would be required to provide a consumer with a commitment at least 72 hours before the settlement time of the agreement using the same disclosure as the financing agreement and informing the consumer that the terms therein are not subject to change.
Appendix C of the Proposed Regulations is a model disclosure form titled “Important Information Regarding Your Shared Appreciation Agreement.” It includes a summary of key terms regarding the shared appreciation agreement, as well as examples of a consumer’s final payment amount depending on the length of time before termination of the option.
Illinois’s proposed disclosure requirements for shared appreciation agreements are similar to Maryland’s disclosure requirements, which also require licensees to provide a financing agreement that substantially follows a model form.6 Connecticut’s newly enacted law will require licensees to disclose similar information regarding shared appreciation agreements, but Connecticut does not provide a model form that licensees can use.
- Other Disclosure Requirements: Providing the model disclosure form in the proposed format in Appendix C would allow an originator to satisfy many of the disclosure requirements that would be separately imposed under Section 1050.2310 of the Proposed Regulations for shared appreciation agreements, including disclosures related to foreclosure and usage restrictions, illustrative examples detailing repayment scenarios, and a summary of key terms and conditions. However, as proposed, an originator would have separate disclosure requirements not addressed in the model disclosure form found in Appendix C, including the disclosure of refinancing options, savings plans, and other available alternatives; the option to obtain a market-rate mortgage loan at the end of the shared appreciation agreement if the consumer cannot satisfy the shared appreciation agreement without selling the property; and the consumer’s right to be represented by an independent attorney of the consumer’s choice and at the expense of the originator at closing.
- Disclosing and Calculation of Property Value: Under the Proposed Regulations, an originator of a shared appreciation agreement must disclose the following information regarding the estimated fair market value of the property:
- The methods used to calculate the estimated fair market value;
- The amount, if any, by which the originator is discounting the estimated fair market value in establishing the property’s initial value;
- The estimated fair market value of the property and any discount applied to that value in determining the starting value;
- The potential impact of that discount on their repayment amount; and
- A disclosure of any incentives offered by the originator when funds from the agreement are utilized for approved home improvement projects, including details of eligible improvements and the terms of such incentives.
The estimated fair market value of the property would be required to determine the starting value of a property and the final value of a property, except when the agreement terminates with the sale of the property. If a shared appreciation agreement were to terminate with the sale of the property, the Proposed Regulations provide that “Final Value” may not exceed the sale price if: i) the sale was an arms-length sale; ii) the property was not sold as part of a foreclosure; and iii) the consumer did not retain an interest in the property, including an interest as a life [e]state. An appraisal, AVM, or BPO used to determine fair market value would be required to be obtained from an unaffiliated third party, and the final fair market value would be required to be calculated as the average of at least two distinct valuation methods.
- Calculating Appreciation and Final Payment Amounts: Under the Proposed Regulations, actual change in value would be required to be calculated using the All Transactions House Price Index, as published by the Federal Reserve Bank of St. Louis. If this index becomes unavailable, the Illinois Commissioner may designate an alternate index. In addition, the final payment amount, as proposed, must be the originator’s share of appreciation or equity, plus any other amounts payable by the consumer at termination, minus any amount over any repayment limit to which the originator and the consumer have agreed. These formulas match the calculations required under Maryland’s regulations. Connecticut’s recently enacted legislation does not address how originators should calculate appreciation or the final payment amount.
- Ability to Repay: Under the RMLA, a person is prohibited from failing to give reasonable consideration to a consumer’s ability to repay a debt.7 Under the Proposed Regulations, a licensee offering a shared appreciation agreement would be deemed to have given due regard to a consumer’s ability to repay if (i) the lender licensee provides required disclosures to the consumer, (ii) the shared agreement does not require periodic payments prior to termination of the agreement, and (iii) the term of the shared agreement is no less than five years. This matches the ability to repay standard included in Maryland’s regulations. Connecticut’s legislation does not impose any ability to repay requirements.
- Counseling Requirement: The RMLA requires consumers to be provided counseling prior to entering into a shared appreciation agreement.8 The Proposed Regulations implementing the RMLA would require licensees to advise consumers to seek independent counseling from a licensed attorney, HUD-approved mortgage counselor, or tax advisor. The Proposed Regulations also provide detailed requirements regarding counselor qualifications, the content of counseling sessions, including content to ensure that consumers understand the differences between shared appreciation agreements, “traditional mortgages,” and “reverse mortgages”; methods of providing counseling sessions; and related recordkeeping policies and procedures.
- Servicing Requirements: The Proposed Regulations would amend existing regulations to clarify that payment instructions otherwise required under the RMLA would not be required in connection with shared appreciation agreements, as such agreements do not require monthly payments.
- Borrower Information Document: Licensees under the RMLA are required by regulation to provide a consumer with a Borrower Information Document before the consumer signs a completed application or provides any consideration to a licensee, whichever comes first. The Proposed Regulations would clarify that certain components of the Borrower Information Document are not required for shared appreciation agreements, including provision of “Your Home Loan Toolkit” and estimates of closing costs as long as the originator has otherwise complied with disclosures required for shared appreciation agreements. Other components of the Borrower Information Document would appear to be applicable to shared appreciation agreements, including a specific regulatory disclosure statement, information on the types of situations that could impact processing of an application, and types of documents a licensee would be required to provide the consumer upon request (e.g., a general description of underwriting standards).
- Broker/Origination and Servicer Logs: Existing regulations under the RMLA require licensees to maintain logs for origination, servicing, reverse mortgage, High Risk Home Loans, and secondary market activity. Under the Proposed Regulations, a licensee engaged in licensable acts with respect to shared appreciation agreements would be required to maintain a Broker/Origination Log and/or a Servicer Log that contains certain information regarding the shared appreciation agreements, including the application date, consumer names, appraiser names, starting value, share based repayment amounts, and counseling session dates.
- Balloon Payments: The Proposed Regulations appear to effectively propose a minimum five-year term for shared appreciation agreements, as the Proposed Regulations would prohibit a balloon payment unless it would become due and payable at least five years after the origination of a shared appreciation agreement.
1 49 Ill. Reg. 10315 (Aug. 15, 2025).
2 205 Ill. Comp. Stat. Ann. 635/1-4(f).
5 See Md. Code Regs. 09.03.15.01; see also S.B. No. 1257 (Conn. 2025).
