Hi and welcome to JA. I am Ray and will be the expert helping you today.
Yes this is currently permitted under California law and has become pretty standard in such a situation involving loan modification.
Here is the law for reference.
1917.060. The relationship of the borrower and the lender, as to a
shared appreciation loan, is that of debtor and creditor and shall
not be, or be construed to be, a joint venture, equity venture,
partnership, or other relationship.
1917.061. Any waiver of any right of a borrower under the
provisions of this chapter shall be void and unenforceable.
1917.062. (a) Notwithstanding Section 711, a provision in a shared
appreciation loan (not including the refinancing obligation)
permitting the lender to accelerate the maturity date of the
principal and accrued interest on the loan upon a sale or other
transfer of the property, as specified in subdivision (e) of Section
1917.031, shall be valid and enforceable against the borrower, except
as may be precluded by Section 2924.6.
(b) The Legislature finds and declares that potential exposure to
liability for enforcement of a "due-on-sale" clause consistent with
Section 711, as interpreted by the courts, makes use of such a
provision impractical. Moreover, the additional risks to the lender
inherent in shared appreciation financing are greater with longer
loan terms (which are more desirable from the standpoint of housing
affordability), but this risk is reduced with an enforceable
"due-on-sale" clause. Therefore, in order to facilitate shared
appreciation financing, it is necessary to establish the exception
specified in subdivision (a).
1917.063. This chapter facilitates the making of shared
appreciation financing in this state which conforms to the provisions
of this chapter. The terms and conditions of any shared appreciation
loan made pursuant to this chapter shall be consistent with this
chapter. This chapter does not, however, apply to or limit shared
appreciation financing of real property
of a type specified in
Section 1917.030 that is made pursuant to other provisions of law, or
which is not otherwise unlawful. Nothing in this chapter shall be
construed to in any way affect shared appreciation financing ofcommercial property
or residential property not meeting the criteria
specified in Section 1917.030.
Nothing in this chapter precludes a pension fund specified in
Section 1917.030 from providing shared appreciation financing
pursuant to Chapter 5 (commencing with Section 1917.110) or any other
provision of law, or which is not otherwise unlawful.
1917.064. A shared appreciation loan shall not be subject to any
provision of this code or the Financial Code which limits the
interest rate or change of interest rate of variable, adjustable, or
renegotiable interest instruments, or which requires particular
language or provisions in security instruments securing variable,
adjustable, or renegotiable rate obligations or in evidences of such
This section is declaratory of existing law.
1917.065. The lien of a deed of trust
securing a shared
appreciation loan shall include and secure the principal amount of
the shared appreciation loan, and all interest, whether accrued or to
be accrued, including all amounts of contingent deferred interest.
1917.066. The lien of a shared appreciation loan, including the
principal amount and all interest, whether accrued or to be accrued,
and all amounts of contingent deferred interest, shall attach from
the time of the recordation of the deed of trust securing the loan,
and the lien, including the lien of the interest accrued or to be
accrued and of the contingent deferred interest, shall have priority
over any other lien or encumbrance
affecting the property secured by
the shared appreciation instrument which is recorded after the time
of recordation of the shared appreciation instrument. However,
nothing in this section or Section 1917.165 shall preclude a junior
lien or encumbrance subordinate to the obligation of the shared
1917.067. Lenders shall be exempt from the usury provisions of
Article XV of the California Constitution with respect to shared
appreciation loans made pursuant to this chapter.
This section is declaratory of existing law.
1917.068. The qualification requirements of Sections 25110, 25120,
and 25130 of the Corporations Code shall not apply to a shared
appreciation loan, provided (1) the loan obligation is evidenced by
one promissory note secured by a deed of trust which is not one of a
series of notes secured by interests in the same real property and
(2) the loan obligation is not evidenced by fractional undivided
interests in one promissory note secured by interests in the same
1917.069. The aggregate amount of any fee charged to the borrower
for processing an application and preparing any necessary documents
in connection with originating a shared appreciation loan shall not
exceed the reasonable cost of providing the service. No prepaid
interest shall be charged to the borrower, but nothing in this
chapter shall preclude a lender from requiring a fee for providing
commitments for shared appreciation loans to builders or others who
will not be the ultimate borrower.
It is legal for them to include this as part of terms of the loan modification.
I appreciate the chance to help you today.Please let me know if you have more follow up.Thanks again.