Illinois New Shared Appreciation Rules Aim to Transform Real Estate Deals

Illinois’ New Proposed Regulations: A Bold Step in Shared Appreciation Agreements

In recent months, Illinois has taken a significant step by proposing regulations that touch on the tricky parts of shared appreciation agreements, a practice also known as home equity contracts or home equity investments. This proposed regulatory framework, introduced by the Illinois Department of Financial and Professional Regulation on August 15, 2025, aims to provide a clear roadmap for originators of these agreements, ensuring compliance with the Residential Mortgage License Act of 1987 (RMLA). In this opinion editorial, we take a closer look at the proposed changes, discuss their implications, and compare them with similar steps taken in Maryland and Connecticut. Our analysis covers key areas from disclosure requirements through to methods for calculating property value–all laid out to help consumers and businesses alike find their path through these complicated pieces of financial law.

Overview of the Proposed Regulations for Shared Appreciation Agreements

The proposed regulations redefine and broaden the scope of what constitutes a “shared appreciation agreement.” In essence, these agreements allow a consumer to receive cash or other valuable considerations in exchange for a future share in the appreciation of a property’s value. The new rules mandate that anyone involved in brokering, funding, originating, servicing, or purchasing these agreements must be properly licensed under the RMLA. This move aligns Illinois with recent amendments in mortgage licensing laws in states such as Maryland and Connecticut, which have also been busy sorting out their own tangled issues related to these contracts.

Key Objectives and Consumer Protection Measures

The state’s regulatory efforts are built on two primary pillars: protection for consumers and a level playing field for market participants. Given the nerve-racking and sometimes overwhelming nature of financial contracts, the regulations ensure that originators of shared appreciation agreements provide clear, timely, and accurate disclosures. This comprehensive disclosure is aimed at empowering consumers, so they can fully understand the scope and hidden complexities of these agreements before committing financially.

Defining Shared Appreciation Agreements: Expanding the Mortgage Landscape

Under the proposed rules, a “shared appreciation agreement” is defined as any written document that evidences a transaction where the consumer receives money or another item of value in exchange for either an interest in a dwelling or the promise of future repayment tied to specific events such as the transfer of ownership or the consumer’s death. The changes tidy up the language in the RMLA by ensuring that terms such as “mortgage loan” now explicitly include these agreements, thereby eliminating any ambiguous or confusing bits of language.

Why This Matters to Both Consumers and Lenders

For many consumers, understanding the fine points of a home equity investment can be intimidating, especially when possible outcomes vary based on the length of the agreement or property appreciation factors. By broadening the definition, the state aims to reduce the risk of consumers being caught off guard by unexpected obligations. Simultaneously, lenders and brokers are given clearer guidance on the records, disclosures, and licensing requirements necessary for compliance, ensuring that all parties can find their way through this intricate financial labyrinth.

Consumer Disclosure: Clarity in an Otherwise Tense Process

One of the central elements of the proposed regulations involves detailed disclosure requirements, a move that many view as essential for consumer empowerment. Originators of shared appreciation agreements are required to provide consumers with a financing agreement, complete with a model disclosure form (found in Appendix C of the proposed rules) within three business days after a consumer submits their application.

What the Disclosure Form Must Include

The model disclosure, titled “Important Information Regarding Your Shared Appreciation Agreement,” is designed to bring transparency to the often over-complicated pricing and valuation mechanics behind these contracts. The form covers:

A detailed summary of the key terms in the agreement
Examples that illustrate how repayment amounts might vary based on the time until the option is exercised
Information on how the annualized cost is calculated using the method outlined in Appendix J of federal Regulation Z

Additional Disclosure Requirements

Beyond the model form, originators must also outline the following:

Refinancing options available to the consumer
Detailed savings plans and other alternatives that may be available
The consumer’s right to independent legal or mortgage counseling, provided at the originator’s expense at closing

The aim here is to ensure that no fine detail is overlooked, giving consumers all the necessary information to truly understand the future implications of their decision. By making these disclosures mandatory and transparent, Illinois is helping all stakeholders manage their way through what might otherwise be a nerve-racking decision-making process.

Calculating Property Value and Appreciation: Breaking Down the Methodology

One of the trickiest parts of shared appreciation agreements is how to correctly compute the property’s value and the eventual repayment owed by the consumer. The proposed regulations require originators to disclose both the estimated fair market value and any discounts applied to that value. The calculations for appreciation and final amounts are tied to a standard index – the All Transactions House Price Index, as published by the Federal Reserve Bank of St. Louis. Should that index ever become unavailable, the Illinois Commissioner holds the authority to designate an alternate.

Step-by-Step Calculation Process

To simplify this tangled procedure, consider the following breakdown:

Initial Valuation: An unaffiliated third-party appraisal, Automated Valuation Model (AVM), or Broker Price Opinion (BPO) is used. The final fair market value is determined as an average of at least two distinct valuation methods.
Discount Application: Any discount applied to the initial valuation should be clearly disclosed, along with its impact on the repayment amount.
Using an Index: The actual change in the property value over the term of the agreement is calculated using the designated house price index.
Final Payment Amount: This is computed as the originator’s share of appreciation (or equity) plus any additional amounts due upon termination, minus any repayment limits previously agreed upon.

Implications for the Real Estate and Financial Markets

The clear articulation of these calculation methods is intended to prevent any tangled issues later in the life of the agreement. For consumers, knowing exactly how their financial obligation will evolve is a key advantage, while for lenders, it helps establish a uniform process that mitigates disputes and ensures fairness in final settlements.

Consumer Protection: Ability to Repay and Counseling Requirements

The proposed regulations include important safeguards designed to protect consumers from entering into agreements that they cannot reasonably manage. Under current RMLA provisions, a consumer’s ability to repay must be carefully considered. The new rules maintain that originators will be deemed to have fulfilled this requirement if they adhere to a set of clear benchmarks:

Provision of the necessary disclosures as laid out in the financing agreement
The absence of any mandatory periodic payments prior to the agreement’s termination
A contract term that is a minimum of five years

This approach mirrors the ability-to-repay criteria found in Maryland’s regulations and ensures that shared appreciation agreements do not become an overwhelming, off-putting financial burden.

The Role of Independent Counseling

Recognizing that the small distinctions between shared appreciation agreements, traditional mortgages, and reverse mortgages can be confusing bits for laypersons, the new rules also mandate that consumers receive independent counseling. Licensees must advise consumers to seek advice from a licensed attorney, a HUD-approved mortgage counselor, or a tax advisor. The counseling sessions are set to cover:

The differences between traditional mortgage products and shared appreciation agreements
The specific rights and obligations contained within the new shared appreciation agreement
Any potential alternatives available to consumers that may better fit their financial goals

By pushing for informed decision-making, Illinois hopes to steer through the often overwhelming maze of financial commitments, cutting through the hidden complexities that can lead to disputes later on.

Borrower Information and Recordkeeping: Setting Standards for Transparency

In an effort to standardize the process further, the proposed regulations refine the requirements surrounding the Borrower Information Document (BID) and recordkeeping practices. While a typical BID includes a variety of components—such as a home loan toolkit and cost estimates—the rules clarify that certain aspects, like the toolkit, are not necessary for shared appreciation agreements, provided that all other disclosures are met.

Recordkeeping Requirements: What Must Be Logged?

In addition to the BID, originators must maintain detailed Broker/Origination Logs and Servicer Logs. These records will track essential data points, including:

The application date and consumer names
Details on the property’s starting value and estimated fair market value
Information on counseling sessions and repayment calculations

Maintaining such carefully organized logs is designed to protect both consumers and lenders by ensuring that every process is transparent and the fine shades of calculation and consumer interaction are fully documented.

Impact on Stakeholders – From Small Businesses to Large Lenders

While these regulations might seem like mere regulatory fine print, their impact stretches across different sectors of the economy. For small businesses, particularly those involved in real estate and home equity investments, the new levels of clarity and standardized disclosure protocols represent a move towards a more level playing field. By ensuring clear, consistent rules, the regulations help small lenders and brokers avoid unexpected legal twists and turns that could jeopardize their operations.

Small Business Considerations

For entrepreneurs and small financial institutions that offer home equity investments, these rules are both a challenge and an opportunity. On one hand, the burden of navigating the additional recordkeeping and disclosure requirements may seem overwhelming. On the other hand, fostering consumer confidence through transparent practices offers a competitive edge in an industry that is often seen as intimidating or off-putting.

Industrial Manufacturing and the Broader Economy

Interestingly, while the primary impact of the proposed regulations is on the mortgage lending sector, the ripple effects extend to other areas of the economy. For instance, industrial manufacturers involved in producing technology for valuation analysis or data management systems may find a boost in business as financial institutions look for reliable systems that can handle the detailed calculations and recordkeeping now mandated by law. In this respect, the regulations not only aim to protect consumers but also stimulate demand for specialized technological solutions that support compliance.

Comparisons with Maryland and Connecticut: Learning from Neighbors

Illinois is not alone in the quest to impose stricter and clearer rules for shared appreciation agreements. Both Maryland and Connecticut have recently introduced their own measures in this space, and comparing these efforts yields valuable insights.

Maryland’s Approach

Maryland’s regulations, which became effective on November 25, 2024, take a similar route by requiring detailed disclosures through a standardized model form that nearly mirrors the one proposed by Illinois. Maryland’s approach emphasizes ensuring that every consumer is clearly informed about how their final payment will be calculated. The calculated formulas for the originator’s share of appreciation in Maryland have set a kind of industry benchmark, which Illinois seems poised to follow.

Connecticut’s Legislative Steps

On the other side, Connecticut’s recently enacted law, effective October 1, 2025, regulates shared appreciation agreements with an eye toward robust consumer disclosure, though it stops short of providing a model form. Instead, Connecticut leaves more room for interpretation, requiring licensees to offer full disclosure on refinancing options and alternatives. While this approach gives businesses some flexibility, it may also lead to varied practices that could confuse consumers. Illinois’ thorough model could therefore serve to streamline the process, providing a more consistent consumer experience over time.

Key Similarities and Differences

Aspect	Illinois Proposed Regulations	Maryland Regulations	Connecticut Legislation
Disclosure Requirements	Model form included; detailed breakdown of terms	Standardized disclosure with similar model form	Robust disclosure, but no prescribed model form
Calculation of Appreciation	Must use the All Transactions House Price Index or alternate indexes	Uses similar formulas as Illinois	Does not specify detailed calculation methods
Ability-to-Repay Standards	Set minimum five-year term with no periodic payments	Similar requirement as Illinois	Does not impose specific ability-to-repay changes
Counseling Requirements	Mandatory independent counseling advice with detailed session standards	Includes counseling requirements	Limited counseling requirements

This side-by-side look helps to illustrate not only the shared commitment to consumer protection but also the varying methods by which these states aim to manage the fine shades of risk inherent in shared appreciation agreements. By keeping the calculations transparent and the disclosure requirements consistent, Illinois is setting a benchmark that may well influence practices nationwide.

Challenges Ahead: The Road to Compliance and Market Adaptation

Of course, every regulatory overhaul carries its own set of tricky parts that both consumers and lenders will need to digest. Integrating these regulations into existing systems, especially for small business operators with limited resources, presents a series of nerve-racking implementation challenges. The following bullet list highlights some of the potential issues and strategies to address them:

Updating Systems: Financial institutions must update their software and recordkeeping systems to accurately track all the required disclosures and valuation data.
Training Staff: Employees involved in mortgage origination and servicing will need thorough training on the new disclosure protocols to prevent any misinterpretation of the fine details.
Consumer Education: There will be a crucial need for efforts geared toward educating consumers about what a shared appreciation agreement truly entails, helping them get into the nitty-gritty without feeling overwhelmed.
Alignment with Other Jurisdictions: As neighboring states like Maryland and Connecticut have also updated their frameworks, there will be an ongoing task of aligning practices across state lines to ensure fairness and consistency.

To ease the path toward implementation, it may be beneficial for regulators and industry groups to organize workshops and develop comprehensive guides. These initiatives would figure a path for smaller entities to find their way through what might otherwise be a maze of regulatory requirements, while also ensuring that consumers remain informed every step of the way.

Critical Analysis: Is the New Approach Balanced?

From a policy perspective, the proposed Illinois regulations represent a thoughtful balancing act. They aim to protect consumers by mandating rigorous disclosure and counseling standards while also ensuring that the financial industry is not burdened by overly intrusive or infeasible recordkeeping demands. The decision to enforce a minimum five-year term and prohibit balloon payments before that period is a super important measure. It provides a buffer that prevents consumers from facing sudden, overwhelming financial demands before they have had a chance to reap the benefits of their investment or receive counseling on long-term impacts.

The Positive Outcomes

There are several key benefits likely to emerge as the new rules are implemented:

Enhanced Transparency: Detailed model disclosures and clear guidelines on valuation methods remove much of the mystery that typically shrouds shared appreciation agreements.
Improved Consumer Confidence: Mandatory counseling and the right to independent legal advice empower consumers to make informed choices, ultimately building trust in the home equity investment market.
Standardization Across States: By adopting a consistent framework that aligns with practices in Maryland and partly in Connecticut, Illinois is contributing to a more uniform regulatory landscape, simplifying cross-border transactions.
Market Stability: Clear guidelines on property valuation and appreciation calculations reduce the chance of unexpected spikes in repayment demands, promoting financial stability for homeowners and lenders alike.

Potential Drawbacks and Concerns

Despite these advantages, there are also some areas where the new regulations might create challenges:

Implementation Complexity: The detailed requirements could be intimidating for smaller institutions lacking the requisite technological and legal resources.
Cost Implications: Upgrading IT systems and training personnel to comply with the new rules may impose additional costs on small businesses.
Legal Uncertainties: As with any regulatory innovation, there may be unforeseen legal disputes regarding the fine points of valuation and the calculation of the final payment amount.

These challenges, while significant, are not insurmountable. With the right support from regulators and industry associations, even smaller players can adapt. In time, the benefits of enhanced consumer protection and market clarity are likely to outweigh the initial hurdles.

Looking Ahead: What Does the Future Hold for Shared Appreciation Agreements?

The introduction of these proposed regulations signals a pivotal moment in the evolution of shared appreciation agreements. As more states update their legal frameworks, the market for these contracts is bound to evolve. Here are some forward-looking thoughts on what the future might bring:

Growth in Consumer Awareness and Regulation

With increased regulatory scrutiny and the push for enhanced disclosure, consumers can expect to see a shift toward greater financial literacy in the shared appreciation agreement space. Education initiatives, coupled with mandatory counseling sessions, will enable individuals to get into the nitty-gritty of their options with greater clarity. Over time, this will likely lead to more competitive and fair market practices, making home equity investments a more attractive option for a broader audience.

Technological Innovations in Financial Solutions

The detailed recordkeeping and valuation requirements outlined in the regulations are expected to spur innovation in financial technology. For example, systems designed to calculate property appreciation and final payment amounts will likely become more sophisticated. Providers of valuation services, such as automated valuation models (AVMs) and broker price opinions (BPOs), may need to enhance their methodologies to conform to state guidelines, promising a future where technology and compliance work hand in hand.

Collaborative Efforts Among States

As states like Illinois, Maryland, and Connecticut continue to shape their regulatory frameworks, there is a promising opportunity for cross-state collaboration. A standardized approach—albeit with room for regional adjustments—could eventually emerge, reducing the overall administrative burden on lenders and creating an environment where consumers enjoy consistent protections regardless of the state in which they reside.

Final Thoughts: A Balanced Approach for a Complex Market

Illinois’ bold proposal to regulate shared appreciation agreements epitomizes a forward-thinking approach to tackling some of the more tangled issues in modern home equity financing. By instituting detailed disclosure requirements, setting straightforward calculation procedures, and mandating consumer counseling, the proposed regulations attempt to clear up many of the confusing bits that have previously plagued this area of finance.

Why the New Regulations Matter

For consumers, these rules mean that entering into a shared appreciation agreement will come with greater transparency and more support. For businesses, while the path to full compliance may be filled with tricky parts and a few nerve-racking challenges, the long-term benefits of building a more trusted and stable market are undeniable. The emphasis on accurate property valuation, clear definitions, and mandatory counseling shows that both sides of the transaction are being considered carefully.

Balancing Growth with Protection

The proposed changes not only bring greater consumer protection but also have the potential to stabilize the market for all stakeholders. By setting a clear legal framework, Illinois is paving the way for a more standardized approach that balances innovation with oversight. This is particularly important in today’s economic climate, where rapid technological advances and shifts in consumer expectations continue to challenge traditional financial models.

The Need for Ongoing Dialogue

It is essential that both regulators and industry participants remain engaged in ongoing dialogue as these regulations are implemented. Regular feedback and adjustments will be key to ironing out any further twists and turns that may emerge as the rules take effect. Workshops, industry forums, and state-led initiatives can all play a role in ensuring that the new framework meets the needs of both consumers and lenders over time.

Conclusion: Charting a Course Through Financial Complexity

In conclusion, the Illinois proposed regulations on shared appreciation agreements represent a significant reworking of traditional mortgage practices, aimed at demystifying the complicated pieces of these financial instruments. With clear guidelines on property valuation, consumer disclosures, and mandatory counseling, the state is making it easier for both consumers and lenders to find their way through what has long been a tense and often off-putting area of finance.

Despite the inevitable challenges in implementation, the new regulations are a promising step towards creating a more transparent and stable market for home equity investments. Consumers can look forward to feeling more secure about their choices, while small businesses and larger financial institutions alike will eventually reap the rewards of having a consistent and fair set of rules. The combined efforts of all stakeholders will be critical in managing your way through the hidden complexities of this market and ensuring that the shared appreciation agreement model can flourish in a modern, consumer-friendly environment.

The coming years will show the true impact of these regulations. As states learn from one another and refine their approaches, it is our hope that this balanced regulatory framework will not only protect consumers but also foster a healthy, innovative, and competitive financial market. For anyone involved in the realm of home equity investments—be it a first-time homeowner, a small business owner in the financial sector, or a technology provider working along the lines of advanced property valuation—the state’s approach offers both a challenge and an opportunity to build a more secure and predictable future.

In our increasingly interconnected economic landscape, clear and fair financial regulations are more than just legal formalities; they are essential building blocks that empower consumers and bolster market confidence. By addressing the fine points of shared appreciation agreements head-on, Illinois is setting a precedent that may well influence the broader national conversation on financial innovation and consumer protection.

Ultimately, the success of these regulations will depend on the collaboration between regulators, industry experts, and consumers. As this new legal chapter unfolds, ongoing scrutiny and adaptive management will be key to finding the optimal balance between protecting consumers and promoting economic growth. Only time will tell if these well-intentioned rules will live up to their promise, but for now, they represent a promising move toward a more transparent and equitable home equity investment landscape.

Originally Post From https://www.mayerbrown.com/en/insights/publications/2025/08/illinois-proposes-regulations-governing-shared-appreciation-agreements