In prior conversations with HousingWire’s Reverse Mortgage Daily (RMD), leaders of equity sharing companies contend that their products are different from reverse mortgages largely because they are not debt-based instruments.
But a court case playing out in the U.S. Court of Appeals for the Ninth Circuit features plaintiffs who argue that they are — at least under Washington state law. The plaintiffs also say that one company in question is not operating under the regulations that govern reverse mortgage products as it relates to things like interest rates or required counseling.
Legal details
The case, originally brought in Washington state court, is now playing out in federal court. Plaintiffs Charles Boyd Olson and Janine Olson, who reside in Kent, Washington, and Seattle resident Maggie Colin say they entered into Unison equity sharing agreements in 2019 with the understanding that Unison’s product was not a loan.
The initial legal complaint alleges that Unison’s offering “meets nearly all of the criteria for a reverse mortgage loan and functions as a reverse mortgage,” which subjects it to Washington law that regulates these products. The Olsons, facing financial challenges due to life circumstances, sought to find a way to cover their expenses and took up a Unison flyer describing its product.
The flyer said that the Olsons could “access the equity locked in [their] home by entering into an agreement with Unison that would include no monthly payments and no interest,” according to court documents. But when contemplating a home sale and their other financial obligations, the Olsons concluded that they would receive very little in proceeds and have remained in the property since.
In Colin’s case, she faced similar circumstances with her condominium and also acted on a mailed flyer advertising the Unison product. But after entering the agreement, she later realized that the agreement prevented her from refinancing the condo, according to the initial court complaint. She was allegedly informed by Unison that terminating the agreement would require “hundreds of thousands of dollars” in payments to the company.
The plaintiffs brought action against the company in 2022. They contend that the agreement is essentially a reverse mortgage operating without the rules that typically govern such products, especially as it relates to interest rates and counseling.
Unison contests this characterization of its product, saying that the product is an “option” and not a reverse mortgage. They also claim that the plaintiffs have created a term to describe their agreement — an “equitable reverse mortgage loan” — which Unison attorneys say has “never been used in the annals of American law.”
“The complaint asserts three claims under the Washington Consumer Protection Act (CPA), all resting on the false assumption that the option is not an option but a reverse mortgage loan,” Unison attorneys said.
Recent hearing
The case was ultimately remanded from state court to federal court. This week, a three-judge panel for the Ninth Circuit heard oral arguments from both sides.
Attorney Thomas Scott-Railton made the case for the plaintiffs, telling the panel that Unison’s product violates Washington law in three ways. First, that it is a reverse mortgage under the state’s Consumer Loan Act. Second, if the product doesn’t correspond with that law then it falls under the CPA through “conduct that poses the same kinds of risks as regulated conduct, but that ‘inventively evades regulation,’” Scott-Railton said.
Lastly, the plaintiffs contend that “Unison’s marketing practices have been consistently identified by both federal regulators and commentators as deceptive, and that also violates the Consumer Protection Act,” Scott-Railton said.
Unison attorney Jeremy Creelan said the claims in appeal are contradictory with the complaint.
“The plaintiff’s appeal here really is remarkable for the ways in which it departs completely and is contradicted by the plaintiff’s allegations in the complaint,” he said. “And that really shows the problem here with this appeal.”
The Washington Legislature, Creelan added, has declined to add equity sharing agreements to its definition of a reverse mortgage, which he says is “dispositive” of the claim on the Washington CPA.
Judge ‘struggles’ with Unison argument
The panel was animated in asking questions of Unison’s positions.
“Here’s the problem I’m struggling with in your argument, which is that if you look at the definition of a reverse mortgage loan, it has all these particular features that are listed, and you have all of those,” Judge Daniel P. Collins said. “And then you want to say that the general term ‘credit obligation’ actually limits those terms further.”
Collins said he wasn’t sure if that was a correct reading of the statute, “because it seems that if you have a deed of trust that gives a security interest, and you have a share in shared appreciation or equity that’s due and payable under the prescribed circumstances, that’s the type of thing it’s capturing. That suggests it qualifies as a credit obligation.”
Creelan said a “credit obligation” is not a loan.
“This is the key point — there’s no repayment obligation on the part of the consumer,” he said. “That’s why the Olsons engaged in it, and frankly, it’s what provides consumers with such significant benefits. This deed of trust does not secure one or more advances, nor does it secure any repayment of anything.”
RMD reached out to Unison for comment on the matter but did not immediately receive a reply.
”Unison’s product is a reverse mortgage stripped of the essential safeguards meant to protect homeowners,” Scott-Railton said when reached by RMD. “We believe that as courts take a closer look at these products, they’ll agree they are reverse mortgages — or at the very least an unlawful attempt to circumvent reverse mortgage laws.”