Summary of Bill S 833: An Act to Protect Equity in Real Estate Transactions

Overview

Bill S 833, introduced by Senator Bruce E. Tarr on February 27, 2025, aims to enhance protections for individuals involved in real estate transactions, specifically concerning shared appreciation mortgages. This legislation seeks to ensure that borrowers are adequately informed and supported when entering into these financial agreements.

Purpose and Intent

The primary intent of Bill S 833 is to protect equity for homeowners and prospective buyers by regulating the use of shared appreciation mortgages. These mortgages allow lenders to receive a percentage of the appreciation in property value, which can be beneficial for borrowers facing financial difficulties. However, the bill emphasizes the need for transparency and informed consent in these transactions.

Key Provisions

The bill proposes several significant changes to existing laws regarding shared appreciation mortgages:

1. Disclosure Requirements:

   • Entities offering shared appreciation mortgages must provide clear, written disclosures to borrowers before closing. This includes details about the terms and conditions of the mortgage and the implications of entering into such an agreement.

2. Mandatory Counseling:

   • Borrowers must obtain third-party counseling from a HUD-certified agency before entering into a shared appreciation mortgage. The costs for this counseling will be covered by the entity offering the mortgage.

3. Liability for Violations:

   • The originating entity will be held liable for any violations of applicable federal and state laws related to the shared appreciation mortgage.

4. Conditions for Offering Mortgages:

   • Shared appreciation mortgages can only be offered if the borrower has received prior notice and completed the required counseling. Additionally, these mortgages are only valid if there is a reduction in the prior delinquent mortgage loan principal.

5. No Immediate Payments:

   • Borrowers will not be required to make payments on the shared appreciation mortgage during the mortgage term. Payments will be due upon refinancing or selling the property.

Affected Parties

This bill primarily affects:
- Homeowners and Prospective Buyers: Individuals acquiring or re-acquiring residential properties who may consider shared appreciation mortgages.
- Lending Entities: Financial institutions and entities that offer shared appreciation mortgages will need to comply with the new regulations.
- Housing Counselors: HUD-certified counselors will play a crucial role in providing necessary guidance to borrowers.

Procedural Aspects

• Hearing Schedule: A hearing for Bill S 833 has been rescheduled to November 18, 2025, from 10:30 AM to 1:00 PM in Room A-2, with a virtual option available.
• Legislative Journey: The bill was referred to the Financial Services Committee on the same day it was introduced and has since garnered attention for its potential impact on real estate transactions in Massachusetts.

Conclusion

Bill S 833 represents a significant step towards protecting equity in real estate transactions by ensuring that borrowers are well-informed and supported when entering into shared appreciation mortgages. By mandating disclosures and counseling, the bill aims to create a more equitable and transparent real estate market in Massachusetts.