Consumers fuel HEI scrutiny with yet another class action suit

Home equity investment products are under more fire as consumers have filed yet another class action lawsuit against one of the space’s biggest players.

Processing Content

Five plaintiffs sued Unison in a North Carolina federal court last week over the company’s allegedly deceptive agreements. The accusations follow other class action complaints against Unison and its peers as consumers and regulators raise more concerns that the HEI products should be treated as residential mortgage loans.

The new case centers on each plaintiff’s situation, in which they’d have to pay back Unison a sum multitudes higher than the amount they received at the time of signing a contract. The homeowners question whether the so-called shared appreciation agreements were fraudulently marketed, and if they should be treated as high-cost home loans.

“Stripped of the complex mathematical formulas, the practical result is that the homeowner (or her estate) is forced to pay Unison far more than she received—and far more than the law allows—when an exercise event occurs,” wrote attorneys, referring to the end of a contract and repayment period.

Neither a spokesperson for Unison nor attorneys who filed the lawsuit responded to requests for comment Tuesday. 

Why Unison’s agreements are under fire

The lawsuit describes Unison’s arrangement, in which it pays a homeowner an initial sum in exchange for a large equity share in the person’s property. Homeowners do not owe monthly payment or accrue interest, but must pay a lump sum to Unison at the end of a contract based on a formula related to the anticipated higher value of the home. 

Consumers point to numerous aspects of the transaction that should classify it as a loan. That includes origination fees over 5% of the initial Unison payment which plaintiffs say far exceed origination costs for home equity line of credit or reverse mortgages. 

The contract ends either at the end of a 30-year term, a sale of the property, or the owner’s death or default. Unison calculates its homeowner payment demand by multiplying its “investor percentage” by the present value of the home, and subtracting a sum determined in part by the initial homeowner payment.

Plaintiffs raise other concerns, such as a prepayment penalty if they sell their home within 3 years of signing the contract. The lawsuit alleges that Unison uses appraisal vendors who will minimize homes’ appraisal values to maximize their future returns, and that the company can alter the value formula if they determine the homeowner failed to maintain the property. 

Each of the homeowner plaintiffs describe arrangements in which they’d currently owe Unison sums at least two-to-three times greater than the five-figure payments they initially received. One family claims they could owe the HEI provider up to $269,405, after receiving a Unison payment of $61,425 at the beginning of their contract. 

Pending litigation

The lawsuit over alleged violations of state unfair and deceptive trade practices law seeks to cover a class of all North Carolina residents who entered a Unison agreement, a number plaintiffs estimate could be in the hundreds. 

Another class action against Unison in Colorado filed this spring remains pending. According to the company’s website, it’s partnered with over 17,000 homeowners nationwide and is invested in $8.8 billion in residential property. It also claims it’s helped consumers pay off $27 million in mortgage debt and $163 million in larger debts. 

HEI competitor Hometap is also facing several lawsuits accusing it of violating the Truth in Lending Act, and the company is currently trying to force those disputes into arbitration proceedings.