Frequently Asked Questions

The EquityKey Home Option is a real estate transaction in the form of an option agreement.  Through our transaction, we pay you an option payment (called an “Option Premium”) to invest in the potential future appreciation of your property.  In exchange for our payment, we get the right to participate in your property’s appreciation, if any.  The amount of our participation (called the “Appreciation Participation Rate”) varies depending on how much we pay for the Option Premium.

We pay homeowners between 8% and 16% of the current value of their home as an option payment.  If, for example, a home had a value of $500,000, we would pay between $40,000 and $80,000 for the option.  Payment amounts are subject to existing loan-to-value (“LTV”) threshold requirements, as well as other general underwriting requirements
Click on our calculator to see how much you could qualify for, or call us at (877) 234-4635.

Unlike a reverse mortgage or other home loan, which can have closing costs of $6,000 to $10,000 or more, all that is required in connection with an EquityKey Home Option application is a $300 deposit.  This deposit is refunded to you if your application is declined or your transaction is completed.  The only time we keep your deposit is if you decide to withdraw your application or decide you don’t want to complete our transaction.

No.  There are no repayment obligations (assuming you do not breach the agreement or end it early), no interest charges, and we don’t report to credit bureaus or credit reporting agencies with respect to EquityKey Home Option transactions (so our transaction does not appear on your credit report).  As stated in number 1 above, our transaction is a real estate transaction.  We focus on the potential future return from our investment in your property, not your ability to repay us what we paid you for our investment.

We use a licensed appraiser to establish the initial value of your property (called the “Initial Property Value”).  We select and pay for the appraisal.  If you do not agree with the appraisal, you have the right to select a different appraiser from the list of licensed appraisers we provide.  If you select a different appraiser, you are responsible for paying for the second appraisal.  If two appraisals are used, the average of both appraisals establishes the Initial Property Value.  The Initial Property Value is used as the basis against which the amount of the option premium is determined and appreciation is calculated.  (See number 6 below for more on how appreciation is calculated).  The Initial Property Value we use in your transaction will be specifically disclosed on the first page of your option agreement.

If you don’t agree with the Initial Property Value after the appraisal process described in number 5 above, you are under no obligation to enter into an option agreement with us.  It is important to note, though, that because we use an index to track appreciation (as described in number 7 below), the Initial Property Value acts as the basis in the transaction.  If, for example, you believe the Initial Property Value is too low, the effect this has in our transaction is it lowers the amount of appreciation we are entitled to.  A low Initial Property Value also lowers the amount we will pay you for the option.  Conversely, if the Initial Property Value is too high, we will pay you more for the option, but we are entitled to more appreciation.  This is true because both the option premium we pay you and the amount of appreciation we are entitled to are tied to the Initial Property Value (i.e., each are a percentage of the Initial Property Value).  Usually, we pay between 8% and 16% for an option premium, and the corresponding appreciation participation rate is between 50% and 100%.  (See number 9 below for more on the appreciation participation rate).

The appreciation of your property is determined by the S&P/Case-Shiller Home Price Index® (“Index”).  The Index is prepared by Standard & Poor’s® (“S&P”) and tracks the changes in value of the residential real estate market in certain metropolitan regions across the United States.  You can access and learn more about the Index at S&P’s website (www.standardandpoors.com). At the time you enter into an EquityKey Home Option, the value of the Index for the metropolitan statistical area (“MSA”) in which your property is located is used as the “Beginning Index Value.”  If the value of the Index is higher at the end of the option’s term than the Beginning Index Value, the percentage increase is used to determine the appreciation.  If the value stays the same or is lower at the end of the option, there is no appreciation.  Under our agreement, we are only entitled to a payment if there is appreciation, assuming you have not breached the agreement or ended it early. To calculate the appreciation, the percentage increase (if any) of the Index is multiplied by the Initial Property Value.  To determine the percentage increase, the Beginning Index Value is subtracted from the value of the Index on the date the option may be exercised (the “Ending Index Value”).  This difference is then divided by the Beginning Index Value to determine the percentage increase in the Index.  The percentage increase is multiplied by the Initial Property Value to establish the appreciation of the property. Example:  If a property had an Initial Property Value of $500,000; a Beginning Index Value of 100; and an Ending Index Value of 150, the appreciation would be determined as follows:                      Percentage Increase in Index = 150 – 100 =   50   = 0.5 or 50%                                                                     100          100                                              Appreciation = $500,000 X 50% = $250,000                            

We believe it is more appropriate to use an objective tool, controlled by a well-established and reputable third-party that is not related to us, to measure appreciation.  While we could use appraisals to establish the beginning and ending value of your property, we would rather avoid the subjectivity and potential conflicts appraisals at both ends of our transaction might present (e.g., a low beginning appraisal and a high ending appraisal). The S&P/Case-Shiller Index is the most widely recognized benchmark for measuring home price movement.  This index is managed and controlled by S&P, and its performance can be tracked or reviewed at anytime through S&P’s website (www.standardandpoors.com).  We have no control or influence over the S&P/Case-Shiller Index or its performance.

The amount of appreciation we share (called the “Appreciation Participation Rate”) depends on the amount we pay you for the option. The more we pay for the option, the higher our percentage is with respect to the amount of appreciation we are entitled to; the less we pay for the option, the lower our percentage is of appreciation. The maximum amount of appreciation we are entitled to is one hundred percent (100%), the minimum is fifty percent (50%). We will provide to you a range of option premium amounts we will pay for the option and the corresponding Appreciation Participation Rates. You choose how much of an option premium you would like, which establishes the corresponding Appreciation Participation Rate for your transaction.
Click on our calculator to learn more about the Option Premium you could receive and the Appreciation Participation Rates.

If there has not been any appreciation at the time the option may be exercised, we lose the amount we paid you for the option, assuming you have not breached the agreement or ended it early.  This is the risk we take in our transaction, and this is what makes us different from a loan.  There is no repayment obligation under our agreement (assuming you have not breached the agreement or ended it early).  The only time we are entitled to a payment is if there has been appreciation. Additionally, if there has only been some appreciation (i.e., not enough to cover the amount we paid you for the option), we are only entitled to our share of the appreciation.  Consequently, if our amount of appreciation does not cover the amount we paid you for the option, we lose the difference.  You have no obligation to pay this amount back to us (assuming you have not breached the agreement or ended it early).

As we’ve mentioned earlier, through the EquityKey Home Option we are investing in your property.  As with any investment, we could lose, break even, or gain.  The following three hypothetical scenarios are intended to illustrate these outcomes.  These scenarios assume there has not been a breach of the agreement and that you haven’t ended it early.  If so, other charges may apply.  The facts are as follows: Facts:       Initial Property Value - $1,000,000; Option Premium - $120,000; Our amount of Appreciation – 75%; Your amount of Appreciation – 25%; Beginning Index Value – 100.

Scenario 1 – No change or a loss in the Index. If the Ending Index Value is equal to or lower than 100, under our agreement there has been no appreciation.  If there has not been any appreciation, we are not entitled to payment.  In this case, we lose.  You keep the $120,000 we paid you for the option, and we’re not entitled to any payment.  What’s more, you have had the benefit of that $120,000 during the term of our agreement.

Scenario 2 – An increase in the Index sufficient to cover the Option Premium. If the Ending Index Value is 116, our amount of appreciation is $120,000. 

This amount is calculated as follows:

Percentage Increase in Index = (116 – 100)/100 =  16/100  = 0.16 or 16%

Appreciation = $1,000,000 X 16% = $160,000

Our Amount of Appreciation = $160,000 X 75% = $120,000

Your Amount of Appreciation = $160,000 X 25% = $40,000 In this case, we were able to recoup what we paid for the option – i.e., $120,000.  You keep the original amount we paid for the option (i.e., $120,000), plus you get $40,000 as your share of appreciation.  Also, you had the benefit of the $120,000 option payment during the term of our agreement.

Scenario 3 – A significant increase in the Index. If the Ending Index Value is 200 (i.e., the index doubles), our amount of appreciation is $750,000. 

This amount is calculated as follows:

Percentage Increase in Index = (200 – 100)/100 =    100/100    = 1 or 100%

Appreciation = $1,000,000 X 100% = $1,000,000

Our Amount of Appreciation = $1,000,000 X 75% = $750,000

Your Amount of Appreciation = $1,000,000 X 25% = $250,000 Here, we paid $120,000 for the option, but we got back $750,000.  This turned out to be a good investment for us.  We also see it as a good investment for you.  We paid you $120,000 for the option, which you had the benefit of during the option term.  Additionally, your share of the appreciation is $250,000. It is important to note that in all three scenarios, whatever equity you had in the property prior to our option agreement remains yours.  Unlike a reverse mortgage, we do not drain the equity you have worked so hard to build over the years.  Our interest is in the potential future appreciation or growth of your property, not your current equity.  Also, in all three scenarios, you keep the amount we paid you for the option.  There is no repayment obligation with an EquityKey Home Option (assuming you have not breached the agreement or ended it early).  

The “Cash Settlement Amount” is the amount we are entitled to at the end of the option term under our agreement.  This amount is also called the “Option Exercise Price.”  The Cash Settlement Amount equals either our amount of appreciation or the Early Termination Charge if you breached the agreement in the first ten years and did not fix your breach in accordance with the terms of the agreement (see number 18 below for more on the Early Termination Charge). It is important to note that our option is designed as a “cash-settled option.”  As such, if we exercise the option at the end of the option term, the option is “cash-settled.”  We do not take actual ownership of the property; instead, we are paid the Cash Settlement Amount.

The Cash Settlement Amount can be paid in a number of ways.  It is anticipated that in most cases the option term will mature (i.e., become exercisable) when the property is subject to a sale.  In this instance, the Cash Settlement Amount can be paid through escrow or the normal closing process from the sale proceeds.  The Cash Settlement Amount can also be paid by a new loan, through insurance proceeds, directly by you (or a third party on your behalf), from proceeds received from a condemnation, or any combination of these payment methods. If the option matures because you breached the agreement, payment of the Cash Settlement Amount is due within sixty days of the date your right to cure (or fix) the breach ends.  You have thirty days to cure a breach once we provided notice of the breach to you.  If the option matures as the result of a sale or transfer of the property, payment of the Cash Settlement Amount is due on the closing date of the sale or transfer.  As mentioned above, this amount can be paid through the closing or escrow process.

The period during which we may exercise the option (called the “Option Exercise Period”) begins upon the earlier to occur of: (i) the date we are informed of a pending sale or a transfer of ownership of the Property; or (ii) if you breach the agreement, the date by which you must fix or cure your breach as provided in the agreement, and will end ninety days from either (i) or (ii) above, whichever occurs first.  Also, there is a maximum term of fifty years associated with the option.  If the option has not matured within fifty years from its effective date, the option may be exercised by us at any time during the ninety day period immediately preceding the fiftieth anniversary of the option. We recognize that certain transfers do not involve an unrelated third party and should not cut off our option.  For example, the transfer of property from the owner to his or her estate in a death event, or the transfer of property into a trust created by the owner.  However, because an estate or trust can exist “in perpetuity,” the option has a stated term of no longer than fifty years.  Also, in the event of a transfer to your estate or trust, we will need your legal representative or trustee to acknowledge in writing our interest in the property.

Our option is intended to be a long-term investment in your property.  If you sell your property our option will likely be cut off.  If this occurs within the first ten years of our agreement, we will not have the opportunity to realize the full potential of our investment.  Consequently, if you sell your property in the first ten years, an Early Termination Charge applies.  See number 18 below for more on the Early Termination Charge.  If you sell after ten years, while the sale triggers our right to exercise the option, no Early Termination Charge applies. When considering the EquityKey Home Option, it is important to factor in your ownership plans for the property.  If you intend to sell the property in the near term, our transaction might not be right for you. You do have a choice, though, if you want or need to move from your property in the first ten years and don’t want to pay an Early Termination Charge.  Under the EquityKey Home Option, if you maintain ownership of your property and satisfy the terms of our agreement (e.g., keep the property in good condition and insured), you can move to a different property and an Early Termination Charge will not apply.  Unlike a reverse mortgage, you don’t have to reside in your property.  You can rent it or allow your children to live in it.  As long as you maintain your ownership, the terms of our agreement covering the property continue and there is no Early Termination Charge.

If you’re able to sell the property after ten years for an amount that would indicate a higher appreciation amount than established using the S&P/Case-Shiller Index, you keep the difference.  All we’re entitled to is our amount of the appreciation determined by the S&P/Case-Shiller Index.  If you’ve worked hard to maintain or improve your property after we entered into our option, and that effort results in a higher sales price, we think you deserve to enjoy your hard work.  Any amount above our amount of appreciation as calculated using the S&P/Case-Shiller Index is yours. It’s important to note, however, that if you sell the property for an amount that would indicate a lower appreciation amount, we still are entitled to our amount of appreciation that is calculated using the S&P/Case-Shiller Index, regardless of the actual sales price of the property.  There is an incentive, therefore, for you to maintain and care for your property and to seek the highest selling price possible for your property.  If you sell at a lower price, our amount of appreciation (as calculated using the index) will likely be higher than you initially anticipated because of the lower selling price.  If this occurs, you will likely receive less from the sale of your property than you thought you were going to receive.  It is important to note that if the proceeds from the sale are not sufficient to cover the amount we are entitled to under the agreement, you are responsible for the difference. Remember, you can always track the S&P/Case-Shiller Index to determine the amount of appreciation we are entitled to under the option agreement.  If you desire to sell your property, it may help to review the S&P/Case-Shiller Index at S&P’s website (www.standardandpoors.com) to factor in the amount we are entitled to when determining the sales price for your property.

It is important you know your obligations under the option agreement.  For example, you must keep the property in good condition, insured, and free from other liens or encumbrances (unless you have our prior written permission).  Your obligations are intended to protect our investment in your property.  You should take time to carefully read and make sure you understand your obligations under the agreement.  Please remember that if you fail to satisfy your obligations, or if you otherwise violate the terms of the option agreement, you will be considered in breach of the agreement.  If you breach the agreement and do not cure your breach, we have the right to exercise our option.  If your breach occurs within the first ten years of the agreement, the Early Termination Charge discussed in number 18 below will apply.

As we’ve stated before, we view our investment in your property as a long-term investment.  In order to allow your property the opportunity to appreciate, time must pass.  If you take some action that cuts short our option (e.g., sell your property or breach the agreement), we would not have the opportunity to realize the full potential of our investment.  This is why we require that you not sell, transfer or otherwise convey any ownership interest in your property or otherwise breach the agreement within the first ten years.  If you do, an “Early Termination Charge” will apply.  The Early Termination Charge equals the greater of: (i) the amount we pay you for the option plus our origination cost (the origination cost equals three percent of the Initial Property Value) and any Protective Advances made on your behalf, plus interest on this amount at the rate of twelve percent per year; or (ii) the amount of appreciation we are entitled to at the time of breach. In the event of an early death (i.e., within ten years of the effective date of the option agreement), your estate has the right to maintain ownership of the property and avoid an Early Termination Charge.  If it elects to do so, your estate would need to acknowledge our interest in the property.  If, however, your estate desires to sell your property and the sale occurs within the first ten years of the option agreement, while an Early Termination Charge will still apply, the amount we paid to originate the option will not be included in the Early Termination Charge. It is important you review the Early Termination Charge provision in the option agreement and understand its consequences.  If you do not anticipate owning your property for at least the next ten years, the EquityKey Home Option might not be right for you.

Protective Advances are any amounts we have to pay on your behalf to protect our interest in the property. For example, if you fail to maintain insurance on the property, we may purchase insurance to cover the property. If we do, we are entitled to reimbursement of the Protective Advance. Please review the option agreement to understand when a Protective Advance might apply.

As part of our option transaction, we file a memorandum of option and performance deed of trust against your property.  The memorandum of option is intended to provide public notice of our option.  The memorandum of option is an encumbrance on the title to your property. The performance deed of trust we file secures our rights and your obligations under the option agreement.  A performance deed of trust acts like a mortgage or other security instrument commonly used in loan transactions.  However, since the EquityKey Home Option is not a loan (i.e., you do not have to pay back the amount you receive as long as you abide by the terms of your agreement), the performance deed of trust secures the performance of your obligations under the option agreement.  Just like a mortgage or other security instrument used in a loan transaction, a performance deed of trust is a lien against your property.  If you file or become subject to a bankruptcy proceeding, the performance deed of trust affords us the right of being a secured party in the bankruptcy proceeding.  Additionally, our performance deed of trust will provide notice to others of our interest in your property. It is important to note that the memorandum of option and performance deed of trust encumber your property and may affect your ability to receive credit from others using your property as collateral or security.

You’ll need to get our prior approval (and the approval of your lender), but you can refinance an existing loan or enter into a new loan concerning your property after you enter into our agreement.  The structure of your new loan must satisfy our guidelines, and the loan-to-value ratio cannot exceed the percentage established in your option agreement with respect to your share of the property’s value.  Your share of the property’s value means the Initial Property Value plus your amount of the appreciation calculated in accordance with the terms of the option agreement.  Please see the option agreement for more on permitted loans.

While we believe our option will be treated as an option for tax purposes (and therefore the tax consequence of our transaction will not be realized until the option is either exercised or terminated), each individual’s tax situation is unique, and you should consider and make sure you understand the tax effects of entering into a real estate option transaction with us.  Please consult with your tax advisor for the effect of our transaction on you.

You have three business days from the date you sign the option agreement to cancel the agreement.  If after you sign the agreement you have second thoughts and want to cancel it, simply send written notice to: EquityKey Real Estate Investments, L.P. 8880 Rio San Diego Drive, 4th Floor, San Diego, CA 92108.  Please be aware your notice must be postmarked within three business days from the date you sign the option agreement.  If we have already sent to you the option premium before we receive your cancellation notice, you have to immediately return the payment to us. As we’ve stated above, it is important you understand the option transaction you’re entering into with us.  Please take the time to read and make sure you understand the option agreement.  We suggest and encourage you to review the agreement with your family or others who may have an interest in the property or this transaction.  Also, we suggest and encourage you to review the option agreement with your lawyer, financial planner, and tax advisor. 

The EquityKey Home Option™ is currently available for homes located in the states of California, New York, Massachusetts, New Jersey and Connecticut.  EquityKey continues to expand its market presence and expects to be in at lease seven states by the end of 2011, with more to follow in 2012

If you are interested in the EquityKey Home Option™ and we are not yet in your area, please let us know by clicking here.