Legal Definitions - SAM

SAM stands for Shared-AppreciationMortgage.

A Shared-Appreciation Mortgage (SAM) is a type of home loan where the lender agrees to charge a lower-than-market interest rate, or sometimes even no interest, on the loan. In exchange for this reduced interest burden, the borrower agrees to share a predetermined percentage of the property's future appreciation (increase in value) with the lender. This share is typically paid when the property is sold, refinanced, or at a specified future date.

Here are some examples to illustrate how a Shared-Appreciation Mortgage works:

• Example 1: First-Time Homebuyer in a Rising Market

  A young couple, Sarah and Tom, are eager to buy their first home in a competitive housing market. They have a steady income but struggle to afford the high monthly payments of a traditional mortgage. They find a lender offering a SAM with a significantly lower interest rate than standard loans. In return, they agree that when they sell the house, the lender will receive 20% of any profit made from the increase in the home's value since they bought it. Five years later, the housing market has boomed, and their home's value has increased substantially. When they sell, they pay back the original loan amount plus 20% of the appreciation to the lender, having benefited from lower monthly payments for years.

  How this illustrates SAM: Sarah and Tom received a financial benefit (lower interest rate/monthly payments) in exchange for sharing a portion of their home's future appreciation with the lender.

• Example 2: Property Developer Seeking Project Funding

  A small property development company, "Urban Loft Builders," needs capital to construct a new apartment complex. Traditional bank loans come with high interest rates that would strain their project budget. An investment firm offers them a SAM, providing the necessary construction funds with a very low interest rate. The agreement stipulates that upon the sale of all units in the complex, the investment firm will receive 15% of the net profit generated from the property's appreciation. The project is successful, and the apartments sell quickly at a good profit. Urban Loft Builders repays the loan and shares 15% of the appreciation with the investment firm.

  How this illustrates SAM: The developer secured funding with favorable interest terms by agreeing to share a percentage of the future profits (appreciation) from their development with the lender.

• Example 3: Homeowner Needing Funds for Retirement or Repairs

  Mrs. Henderson, a retiree, owns her home outright but needs a significant amount of money for essential home repairs and to supplement her living expenses. She doesn't want to take on a traditional loan with accumulating interest or sell her beloved home. A specialized financial institution offers her a SAM. They provide her with a lump sum of cash. In exchange, the agreement states that when Mrs. Henderson eventually sells her home or upon her passing, the institution will receive the original loan amount plus 25% of the home's appreciation since the loan was taken out. This allows her to stay in her home comfortably while accessing needed funds.

  How this illustrates SAM: Mrs. Henderson received immediate cash without high interest payments, by agreeing to give the lender a share of her home's future value increase.