House Bill 5100, Section 269 Explained

Legislators have changed the law to allow one very specific nonprofit to exempt itself from all consumer protection laws in the state by adding the following section to the General Laws.

(1) But first, we have to know what a shared appreciation mortgage is, so we have these definitions.

Nonprofits, and entities controlled by nonprofits, are the ones that benefit from this law. BlueHub is a nonprofit, the only nonprofit in the state that offers shared appreciation mortgages (SAMs). BlueHub is the parent company of BlueHub SUN, the actual mortgage lender, so it is protected as well.

This officially defines “shared appreciation mortgage” under the law. A shared appreciation mortgage is a second loan/lien on the homeowner’s property where a percentage of the equity must be paid to the lender. A promissory note/contract must be signed, and the SAM is secured by the mortgage itself.

This defines “shared appreciation” without using the word “equity” once. We learned in fourth grade that you cannot define a word by using the word you are attempting to define, but here we are. Make no mistake – this loan means you owe the lender a portion of your home’s equity if you want to refinance, sell, or take out a home equity line of credit.

(2) If a nonprofit holds a shared appreciation mortgage from either a first-time homebuyer or someone buying back their home from BlueHub (a far more likely scenario), and this SAM entitles the nonprofit to get a share of the property’s equity when the homeowner:

Sells, conveys (often called a transfer on death deed – your heirs are also responsible for the SAM), or otherwise gives or trades the property to someone else;

Refinances or pays off the first (primary) mortgage on the property; or

Something else the homeowner signed with the SAM, such as an end date (left open to interpretation, what else could they make you agree to?),

Then the nonprofit and whoever is financing the mortgage is completely off the hook and cannot be made to pay money damages, stop what they are doing/void the contract or provide any kind of non-monetary compensation. The courts cannot order this based on past judicial opinions, or under any current laws, nor invoking fairness. This last is an astonishing removal of equity powers from the courts, which normally are free to ignore the law if the law produces a manifestly unfair outcome. Read on.

Chapter 93A are the state’s consumer protection laws. Chapter 140D covers the cost disclosures consumers looking to take out credit must receive. Chapter 183C regulates predatory home loan practices. Chapter 271, Section 49 defines criminal usury (excessively high interest rates) and the punishments for acting in such a manner.

This law makes BlueHub’s shared appreciation mortgage practice exempt from all of these statutes.

Whatever terms are listed in the SAM contract are covered under this law. This is terribly vague. Typically, someone can’t ask another person to sign their rights away, but under this law, the right to sue for consumer protection violations or predatory lending is basically out the window. You can sue, but you won’t win. The fine print could literally require you to give BlueHub your child; although perhaps others might have a claim against them for human trafficking, you would have no standing to bring any claim.

You cannot sue as long as you received a “full disclosure” in writing before you went through the closing process with BlueHub. Again, BlueHub is currently the only nonprofit in the state that meets the requirements to be protected under this law, but that doesn’t mean unscrupulous companies won’t follow suit now that the door is open.

The notice must state that you are required to have a SAM as a condition of refinancing/getting a new mortgage with BlueHub. It must state that the SAM becomes effective at the closing of the new mortgage.

You can only get a SAM and sign a promissory note/contract if you have received notice of foreclosure from your current lender or can prove you are more than 90 days past due on your current mortgage.

If your new mortgage loan principal (the amount you owe) is not lower than the one you could not pay, then BlueHub cannot offer you an SAM. This could be why they take so few clients.

(3) BlueHub cannot offer an SAM or ask you to sign a promissory note for an SAM without letting you know these things:

Since you are getting a new mortgage, BlueHub (sorry, “the undersigned entity,” as if this refers to anyone else) is going to “make an offer” (an offer you literally cannot refuse, or you will not get to refinance with them) of an SAM. You need to know the following things:

You do not have to pay anything towards the SAM during your traditional mortgage term. Unspoken: Since the SAM entitles BlueHub to a certain percentage of your accrued equity when you go to sell, refinance or give away your property, there would be no way to get you to pay beforehand anyway.

But when you refinance your BlueHub mortgage with someone else or sell your property, you must pay the SAM. Interestingly, the law says you cannot deed your property to someone else without paying the SAM either, but this disclosure says nothing about a non-monetary transfer. (It’s in the optional verbiage later. Confusing why it would not be required.)

This notice does not tell you exactly what percentage of your equity you will owe, only that it’s based on the amount that your prior mortgage was reduced by. (It also goes off of how much your home has appreciated in value since you got your new mortgage, and there is no specific line to write in what percentage that will be. Prior BlueHub customers have sometimes had to pay more than 50% of their equity as part of their SAM.)

(4) “May” – BlueHub is not required to put any of this on the notice telling you what the SAM really means. Theoretically, you could get all the way to closing before you hear about some of this, if you do at all.

Optional disclosure which sounds reasonable, but which is not actually required by this law. If included in the notice, BlueHub may encourage you to talk this over with your family, housing counselors or others, before signing. We assume “others” at the end refers to “an attorney,” but legal counsel is not specifically mentioned.

More than one plaintiff in the lawsuit has said BlueHub specifically told them they did not need a lawyer before closing on their new mortgage. Maybe this practice has changed. Regardless, if this optional clause is included in the notice, you might lose your right to get a BlueHub mortgage if they want you to get housing counseling before closing and you don’t.

BlueHub has the option to give you a list of certified HUD housing counselors. Whether they do is apparently up to them.

If included, this optional clause allows the lender to request you to wait 7 days before signing this notice about the SAM (giving you time to get it reviewed).

Since the law just says you have to get notice before you close, theoretically, this notice could come very late in the process. There’s incentive here to wait and have you sign it quickly under the presumption you’ll want to hurry to get your new mortgage started. Will they do this? Who knows. Can they? Under this law, yes, and you can’t sue them later.

Further, “notice” is the legal requirement, not “signed notice.” If they can prove delivery, they likely don’t need to collect your signature at all.

This optional disclosure seems like something that should be required, but the law decided not to do that. If included, this verbiage informs you that this is just the notice, not the promissory note, for the SAM. If included, it tells you what an SAM is and what you’ll owe (part of your equity, not a specific percentage or dollar amount). It does not compel you to continue the process with BlueHub.

Without this language, people could think they are stuck proceeding with BlueHub and a SAM even if they’d rather not.

If this optional clause is included, you will be informed you do not legally have to proceed with your mortgage or an SAM if you don’t want to. Why isn’t this required language?

Nothing is final until it’s final. You aren’t locked into an SAM until you both sign and date the SAM contract and promissory note. This is something else that is optional, since the law says the notice “may” contain this language. It “may” also contain a recipe for chocolate chip cookies or a secret code giving you access to Area 51, but will it? It’s up to whoever writes this notice.

It's worth noting that landlords are heavily restricted with the verbiage that can appear in legally mandated notices, sometimes down to the font size. This gives BlueHub permission to pretty much write whatever they want, as long as they get in there somewhere that a SAM takes part of your “shared appreciation” that is due. This means your equity, but the word “equity” does not appear in the law, so there’s another loophole here.

This optional clause, if included, states that your SAM and the promissory note are not due until you sell, deed or otherwise transfer ownership of your property to someone else, or until you refinance or your mortgage is paid off,

Or until other undefined things that you might sign up for under the promissory note or SAM happen. In theory, your SAM could have a maturity date that is different (earlier) from your primary mortgage’s maturity date.

(5) The attorney general can put rules in place for how this new law is actually put into practice. The current attorney general, Andrea Campbell, has expressed reservations about this law existing at all, so what happens in the future is worth monitoring. Some further rules may be coming down the pike. We suggest actual required verbiage for the notice, instead of a vague “make sure they know these things, and maybe this other stuff that seems highly important but is optional for them to tell you.”

We will keep an eye on this law and any forthcoming regulations, and update as necessary.