In previous conversations with HousingWireAccording to Reverse Mortgage Daily (RMD), leaders of equity sharing companies claim that their products differ from reverse mortgages largely because they are not debt-based instruments.
But a court case taking place in the United States Court of Appeals for the Ninth Circuit includes plaintiffs who argue that this is the case – at least under Washington state law. The plaintiffs also say that one company in question is not operating under the regulations governing reverse mortgage products, as this relates to issues such as interest rates or required counseling.
Legal details
The case, which was originally tried in court in Washington, is now playing out in federal court. Plaintiffs Charles Boyd Olson and Janine Olson, who live in Kent, Washington, and Seattle resident Maggie Colin, say they have entered into an agreement Unison share-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,” making it subject to Washington law regulating these products. Facing financial challenges due to their living conditions, the Olsons tried to find a way to cover their expenses and took with them a Unison flyer describing the product.
The flyer stated that the Olsons’ could gain access to the equity that had been committed [their] home by entering into an agreement with Unison that includes no monthly payments and no interest,” according to court documents. But as they considered selling a house and their other financial obligations, the Olsons concluded they would receive very little proceeds and have remained in the property ever since.
In Colin’s case, she faced similar circumstances with her condominium and also acted on a flyer advertising the Unison product. But after entering into the agreement, she later realized the agreement prevented her from refinancing the apartment, according to the initial court complaint. Unison allegedly informed her that terminating the agreement would require “hundreds of thousands of dollars” in payments to the company.
The plaintiffs filed proceedings against the company in 2022. They claim the deal is essentially a reverse mortgage that operates without the regulations that typically apply to such products, especially when it comes to interest rates and advice.
Unison disputes this characterization of its product, saying the product is an “option” and not a reverse mortgage. They also allege that the plaintiffs have coined a term to describe their agreement – an “equitable reverse mortgage loan” – that Unison lawyers say has “never been used in the annals of American law.”
“The complaint alleges three claims under the Washington Consumer Protection Act (CPA), all of which rely on the false premise 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 panel of three judges for the Ninth Circuit oral arguments heard from both sides.
Arguing for the plaintiffs, attorney Thomas Scott-Railton told 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 comply with that law, it falls under the CPA because of “conduct that poses the same risks as regulated conduct but that ‘inventively evades regulation,’” Scott-Railton said.
Finally, the plaintiffs allege that “Unison’s marketing practices have been consistently identified as deceptive by both federal regulators and commentators, and also violate the Consumer Protection Act,” Scott-Railton said.
Unison lawyer Jeremy Creelan said the claims on appeal contradict the complaint.
“Plaintiff’s appeal here is truly remarkable for the way in which it is completely divergent and contradicted by plaintiff’s allegations in the complaint,” he said. “And that really shows the problem with this call.”
The Washington Legislature, Creelan added, has declined to add equity sharing agreements to the definition of a reverse mortgage, which he said is “dispositive” of the Washington CPA claim.
Judge ‘struggles’ with Unison argument
The panel was animated in asking questions about Unison’s positions.
“This is the problem that 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 specific features that are listed, and you have them all,” ruled Daniel P. Collins said. “And then you want to say that the general term ‘credit obligation’ actually limits those terms even further.”
Collins said he wasn’t sure if that was the correct reading of the statute, “because it appears that if you have a deed of trust that gives a security interest, and you have a share in the shared appreciation or equity that is due is under the prescribed circumstances, that is the kind of thing that is recorded. That suggests it qualifies as a credit obligation.”
Creelan said a “credit obligation” is not a loan.
“This is the most important point: there is no refund obligation on the part of the consumer,” he said. “That’s why the Olsons got into it, and honestly, it’s what provides such significant benefits to consumers. This deed of trust does not secure any advances, nor does it guarantee any repayment of anything.”
RMD contacted Unison for comment on the matter but did not immediately receive a response.
“Unison’s product is a reverse mortgage, stripped of the essential safeguards designed to protect homeowners,” Scott-Railton said when contacted by RMD. “We believe that as courts take a closer look at these products, they will agree that they are reverse mortgages – or at least an unlawful attempt to circumvent reverse mortgage laws.”
