Illinois Adopts Regulations Governing Shared Appreciation Agreements

On June 12, 2026, the Illinois Register published the regulations adopted by the Illinois Department of Financial and Professional Regulation (the “Department”) implementing 2025 amendments to the Residential Mortgage License Act of 1987 (“RMLA”) to govern “shared appreciation agreements” (the “Final Regulations”). The Final Regulations became effective June 1, 2026 and are substantially similar to the proposed regulations, which we previously discussed in a prior Legal Update.

The term “shared appreciation agreements” is generally interpreted to include products commonly known as “home equity contracts,” “home equity investments,” or “home equity agreements.” The Final Regulations provide originators of these products with a roadmap for compliance with the RMLA. Below is a summary of certain key provisions in the Final 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.” 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.” 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. 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 and the Final Regulations.

Content of Final Regulations

In addition to defining terms applicable to shared appreciation agreements, the Final Regulations implementing the RMLA provide detailed requirements applicable to shared appreciation agreements, as well as clarify how originators and servicers of shared appreciation agreements comply with existing requirements under the RMLA. Below are certain of the requirements for RMLA licensees addressed by the Final Regulations.

• Financing Agreement and Commitment: As the RMLA requires a person receiving an application to provide a consumer with a financing agreement, the Final Regulations outline how an originator of a shared appreciation agreement satisfies this state disclosure requirement. Notably, an originator of a shared appreciation agreement is deemed to comply with the financing agreement requirement as long as it:
  • Provides an estimate disclosure on the form prescribed in Appendix C of the Final Regulations, or a substantially similar form, within three business days after the date an application for a shared appreciation agreement is received by the originator; and
  • Calculates the annualized cost reflected in the disclosure based on the term in each scenario within the form in Appendix C and using the method prescribed in Appendix J of federal Regulation Z for calculating an annual percentage rate.

If the terms of the estimate disclosure materially change or become materially inaccurate, the originator must provide a revised estimate disclosure with all changed terms to the applicant. The applicant must receive the revised estimate disclosure within three business days after the originator receives information sufficient to establish that it is required and at least four business days prior to consummation of the transaction. If the terms of the disclosure are subject to change prior to consummation, an originator satisfies the RMLA’s requirement for a commitment by providing a consumer, at least 72 hours before the consummation of a transaction, with another copy of the same disclosure form informing the consumer that the terms therein are not subject to change.

Appendix C of the Final Regulations is a model disclosure form, the “Illinois Shared Appreciation Agreement (Estimate/Closing) Disclosure.” 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 and home appreciation rate (or depreciation). While an originator is not required to use the exact form in Appendix C, any disclosure used must be substantially similar. A form will be considered substantially similar if it includes all information required in the regulation text and reflected in Appendix C.

• Other Disclosure Requirements/Borrower Information Document: Originators must explain how the final settlement payment amount under a shared appreciation agreement will be calculated and, if example calculations are provided, at least one example must be based on a decrease in home value. Originators must also provide cost scenario tables with illustrative examples detailing repayment scenarios for five-year, 10-year, and maximum agreement durations. For each duration, the originator must provide the ending home value, the final settlement payment amount, whether the final settlement payment amount is share-based or capped, and the annualized cost for each of the following changes from the starting home value: (1) Average Annual Change in Value (discussed below); (2) 5.5% annual appreciation; (3) 3.5% annual appreciation; (4) no change in value; and (5) 10% total depreciation. These disclosures are made as part of the estimate and closing disclosure modeled in Appendix C.

Providing the model disclosure form in the format in Appendix C also allows an originator to satisfy many of the disclosure requirements that are separately imposed under Section 1050.2310 of the Final Regulations for shared appreciation agreements, including disclosures related to foreclosure and usage restrictions, a summary of key terms and conditions, and certain information otherwise required as part of a Borrower Information Document, which is a pre-application disclosure. However, separate disclosure requirements remain, including a disclosure regarding any events of default not described in the model form, disclosure regarding escrowed funds (if applicable), and other components of the Borrower Information Document 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).

• Disclosing and Calculation of Property Value: Under the Final 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 estimated fair market value of the property; 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 is required to determine the starting value of a property, and an originator must use the same method for calculating the starting and ending value of a property. The starting value and ending value must be calculated using either an appraisal or the average of at least two distinct non-appraisal valuation methods, which may include an automated valuation model, a broker price opinion, or another method approved by the Department. However, when a shared appreciation agreement terminates with the sale of the property, the ending value is limited to the sales price if: (i) the sale was an arm’s-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 estate.

• Calculating Appreciation and Final Payment Amounts: Under the Final Regulations, Average Annual Change in Value, which is used to demonstrate potential appreciation scenarios in Appendix C, is the average annual change in Illinois over the prior five years based on the All Transactions House Price Index, as published by the Federal Reserve Bank of St. Louis. In addition, the final payment amount 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.
• 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. Under the Final Regulations, a licensee offering a shared appreciation agreement is deemed to have given due regard to a consumer’s ability to repay if: (i) the originator 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 requirement effectively imposes a minimum term of five years for shared appreciation agreements in Illinois.
• Counseling Requirement: The RMLA requires consumers to be provided counseling prior to entering into a shared appreciation agreement. The Final Regulations specify that consumers must seek independent counseling from a HUD-certified counselor. The Final Regulations also provide detailed requirements regarding the qualifications of counselors and 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. If a borrower elects to close (and does not rescind) the transaction, the borrower may be responsible for counseling costs; otherwise, the originator is required to cover such counseling costs. This counseling must be provided either (i) in person, or (ii) by remote electronic or telephonic means, so long as all consumers have given permission, the session can be conducted in privacy, the counselor is able to identify the each borrower, and the counseling is documented by the counselor. For remote counseling sessions, the counselor must provide the Department with access to any remote, real-time online video counseling upon request.
• Servicing Requirements: The Final Regulations amend existing regulations to clarify that payment instructions otherwise required under the RMLA are not required in connection with shared appreciation agreements, as such agreements do not require monthly payments.
• 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 Final Regulations, a licensee engaged in licensable acts with respect to shared appreciation agreements is 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. This list of required information is specifically tailored for shared appreciation agreements.
• Payoff Statements: The Final Regulations require licensees to furnish an initial estimate of the total amount required for a borrower to pay at the termination or settlement of the shared appreciation agreement within five business days after receipt of a written request. The licensee must furnish a final written notice of the total amount required for the borrower to pay at the termination or settlement of the shared appreciation agreement within three business days after the licensee receives the valuations on which the ending home value and final settlement payment amount are based. The final written notice must be provided to the borrower no more than 30 days after the licensee receives the request.
• Repayment Cap: The Final Regulations impose a rate cap on the total repayment amount under a shared appreciation agreement at 36% annual percentage rate, the ceiling under the Illinois Predatory Loan Prevention Act. Contracts lacking a cap or exceeding this limit will be deemed null and void.

The Final Regulations represent a significant milestone in establishing a comprehensive regulatory framework for shared appreciation agreements in Illinois. We understand that the Department promulgated the Final Regulations with meaningful input from the Home Equity Investment industry, reflecting a collaborative effort to develop a regulatory structure that can be practically implemented by market participants. As originators begin operating under the Final Regulations, we will continue to monitor developments in this space, including any additional guidance issued by the Department.