Proposal Offers Option to Avoid Foreclosures

, New York Law Journal


New York bank regulators have proposed rules that would authorize "shared appreciation" mortgages, a property financing option state officials said would allow some homeowners to escape foreclosure. The Department of Financial Services said the proposed rule, §82-A of the commissioner's regulations, would make sense to homeowners who owe more than their properties are worth according to their assessed values.

The regulations would allow lenders to offer reduced interest charges—and, consequently, to offer lower monthly payments—on mortgages. In return, consumers sign over to lenders a stake in the value of their mortgaged properties that lenders would "cash in" when the properties are sold and the mortgages terminated. For example, a lender agreeing to reduce monthly payments would receive a percentage of the appreciation increase in the value of the property. If a property purchased for $250,000 is sold for $500,000, the lender would receive a negotiated percentage of the increase.

The proposed regulation limits the amount of appreciation in market value lenders can receive to 50 percent, or the amount of reduction received by consumers, plus interest, whichever is lower. The regulations also spell out the warnings that must be given to consumers before they agree to shared appreciation mortgages.

Both Gov. Andrew Cuomo and Attorney General Eric Schneiderman praised the financial services agency for advancing the regulations. "First and foremost it will help keep more families in their homes and out of foreclosure, while at the same time reducing potential losses for investors," Cuomo said in a statement.

Consumers who qualify for federal or private foreclosure prevention programs are not eligible for shared appreciation mortgages under the proposal.

A 45-day public comment period on the proposed regulation will begin following its scheduled publication in next week's state Register. Comments should be sent to Harry Goberdhan, assistant counsel, Department of Financial Services, One State St., New York, N.Y., 10004, or by email to

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