AARP joins suit against Unison HEI model

In a new lawsuit that has attracted AARP, a consumer advocacy group is suing home equity investment platform Unison, the latest in a series of similar cases HEI firms have seen lodged against them. 

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The National Association of Consumer Advocates filed the lawsuit in District of Columbia Superior Court. Alongside its own attorneys, NACA is also represented by legal counsel from AARP Foundation and the law firm Singleton Schreiber.

In the suit, NACA alleges Unison repeatedly told homeowners their products were not loans, involved no debt and required no monthly payments. In similar lawsuits lodged against HEI providers this decade, customers reported they did not fully understand their agreements and that inability to pay could lead them to foreclosure. 

Home equity investment products, also referred to as shared-appreciation agreements or similar terms, allow homeowners to take out a percentage of their property’s equity. While no interest accrues nor monthly payments collected, an agreed-upon share representing at least the full amount originated or more, in addition to further appreciation, becomes due at the end of the term.   

“These agreements lead homeowners to believe they’re accessing their equity safely, yet they are being locked into complicated, one-sided contracts that can wipe out a lifetime of earned savings,” said William Alvarado Rivera, senior vice president of litigation at AARP Foundation, in a press release.

The lawsuit accuses Unison of misrepresenting the nature of its product by simply putting a new ‘tech-friendly’ name on its product, NACA leadership said. 

“Unison’s product is a mortgage loan. Its product does create debt, and the homeowner will almost certainly be required to repay every penny they receive, plus interest in the form of a significant lump sum balloon payment at the conclusion of the term,” the suit said, noting amounts could reach into hundreds of thousands of dollars. 

Instead, Unison attracts potential customers by marketing itself as a simple loan alternative, “so that it does not have to abide by required mortgage lending and licensing laws,” the plaintiff’s attorneys also argued.

Unison had not responded to a request for comment prior to publication. If successful, the case would end Unison’s ability to operate in the nation’s capital and void existing agreements originated in the District. 

The San Francisco-based company, founded in 2004, is credited as one of the pioneers of home equity contracts and has originated $8.8 billion worth of agreements for more than 12,000 clients in the past 20 years, according to its website. 

Common themes in HEI legal issues

Lawsuits filed against HEI platforms have focused on product marketing and put the definition of “loan” at the center of legal arguments facing the segment.  

Consumer protection groups insist that HEI contracts should be considered mortgage loans, thereby mandating the companies providing them to comply with stringent disclosure laws like the Truth in Lending Act that home loan businesses must follow. 

Detractors previously have gone as far as likening HEI products to subprime mortgages that led to the Great Recession in 2007 and need oversight due to the risks posed. In the latest lawsuit, NACA attorneys pointed out that in HEI transactions, liens are taken out against the home, before being securitized and sold on secondary markets, akin to mortgage bonds. 

“The market for these products is growing rapidly, and it is critical that the companies behind them are held to the same lending laws and consumer protection standards designed to prevent exactly this kind of harm,” Singleton Schreiber senior counsel Elizabeth Aniskevich said, referring to the 2007 crisis. 

HEI companies are firmly pushing back against the mortgage definition but have sought to work with state regulators to carve out a narrower set of laws specific to their products.

The DC lawsuit is one of several cases Unison and peer companies are currently facing. Also in the same Washington court, a 77-year-old local resident recently filed her own complaint against the company, claiming she was misled into the agreement. The plaintiff is similarly represented by AARP Foundation alongside the Legal Counsel for the Elderly.

In December, Unison agreed to settle a lawsuit in Washington State after judges threw out a prior ruling favorable to the company and stated its product met the definition of a reverse mortgage loan. The company currently faces a similar case in Colorado. 

Ongoing related cases that could determine the direction of future HEI regulation include a lawsuit against Unlock Technologies filed by one of its clients in New Jersey. Last year, the Massachusetts attorney general also sued Hometap on behalf of state residents, specifically calling its HEI offering a reverse mortgage.