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“Shared equity” agreements that offer homeowners cash in return for a percentage of their home’s equity can lead to unexpected consequences. If the home’s value grows, it’s the finance company that benefits, and the owner who later attempts to sell can’t do so without buying their way out of the contract.
For example, if your home is worth $100,000 and you enter into a shared equity agreement for a one-time payment of $10,000, and a few years later your house is worth $150,000, you don’t owe the company $10,000, you owe it $60,000 – the money they gave you plus the appreciation of your home. They get paid first.
Last week in the House, my colleagues and I passed legislation that would regulate these agreements like mortgages or home equity loans, imposing disclosure requirements and other safeguards so consumers know what they’re getting into.
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