The line between reverse mortgages and home equity sharing products got a little blurrier on Thursday when a Ninth Circuit Court of Appeals panel reversed a lower court’s dismissal order in a proposed class-action suit against Unison.
The opinion found that the plaintiffs suing Unison have shown that their arrangement with the company amounts to a reverse mortgage and must follow the special statutory requirements for reverse lending products.
The three-judge panel stated in their opinion that plaintiffs Charles Boyd Olson and Janine Olson offered valid consumer protection claims against Unison and remanded the case for further proceedings.
The panel said Unison’s 2019 agreement with the homeowners entailed a “consumer credit obligation” as described in the Washington state law that regulates reverse mortgages, although the company has argued that the couple wasn’t expected to repay anything.
The ruling notes that under state law, a consumer credit obligation may qualify as a reverse mortgage “even though the actual future obligation to pay back sums may be entirely contingent upon future events, including sufficient shared appreciation or equity.”
In the lower court case in 2024, Unison attorney Jeremy Creelan argued that a “credit obligation” is not a loan.
“This is the key point — there’s no repayment obligation on the part of the consumer,” Creelan 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.”
The three-judge panel saw it differently, stating in their ruling that “[t]he entire structure of the arrangement is designed to put Unison in the same position, and to have the same right to payment, as an unadorned nonrecourse obligation to pay Unison 70% of the home’s equity, less $194,250.
“The fact that Unison must elect to receive that payment, by exercising the option, does not detract from the fact that, even prior to the exercise of the option, the Olsons have a very real set of contingent obligations to make future payments to Unison.”
The panel also recognized that the Olsons adequately alleged Unison’s violation of the Washington Consumer Protection Act by marketing the arrangement as involving no “debt,” “loan” or “interest.” These alleged statements by the company had the capacity to deceive the public, according to the federal appeals court.
HousingWire‘s Reverse Mortgage Daily reached out to Unison for comment but did not receive an immediate response.
Case background
The Olsons, 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.
They contend that the agreement is essentially a reverse mortgage that operates without the rules that typically govern such products, especially as it relates to interest rates and counseling. The plaintiffs brought action against the company in 2022.
When the Olsons faced financial challenges due to life circumstances, they 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, 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.