Consumer slams HEI contracts in class action against Unlock

Another home equity investment giant is headed to court as consumers continue to accuse the companies of deceiving them and robbing them of their equity. 

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Colorado homeowner Sheila Johnsen sued Unlock Technologies in a state court this week, for violating consumer laws including the Truth in Lending Act. Class action cases like Johnsen’s have heated up in the HEI space this year, as Unlock’s peers are fending off a wave of similar allegations.

“People who needed credit were deceived by complicated and confusing terms used to obscure the true cost of these ‘Home Equity Agreements,'” said Eric Halperin, founding partner at Halperin Petersen & Mikkilineni, on behalf of Johnsen in a press release. 

Unlock is one of the largest firms in the HEI space, claiming over $2 billion in total originations and over 20,000 funded home equity agreements nationwide. Its competitors, including Hometap, Unison, and Point, are also locked in class action litigation in pending cases. 

The latest complaint accuses Unlock of evading federal and state laws governing mortgage originations, and pushing bloated, opaque contracts onto homeowners that obscure its true costs. Similar to other HEI offerings, Unlock’s “Home Equity Agreement” gives homeowners an advance on their equity and places a lien on a customer’s property, for a 10-year term.

Johnsen, like others, cries foul over the larger repayment due at the end of that contract, which she claims will guarantee Unlock a massive return regardless of housing market conditions. 

A spokesperson for Unlock declined to comment on pending litigation but defended the company’s product. 

“We stand behind the integrity of our home equity agreement and the value it’s delivered to nearly 25,000 homeowners,” the statement read. 

The Unlock lawsuit

Johnsen received a $65,400 payment from Unlock in 2023, representing 12.58% of her home value, the suit explained. She was also charged origination, appraisal, settlement and recording fees. According to its website, Unlock can charge an origination fee of up to 4.9% of the transaction amount. 

Per her HEA, upon a home sale or the end of the 10-year contract, Unlock is due to receive 25.78% of the home value. Attorneys say Unlock’s large return is only capped by an “annualized cost limit” of 19.9%, itself far above today’s mortgage rates as well as a Colorado usury cap for unsupervised loans. 

The complaint also suggests that Unlock shifts every downside risk onto the consumer, by requiring them to pay for all taxes, insurance and maintenance. In the case of an uncured default, Unlock can increase the amount the consumer owes by 10%, the suit claims. 

Next steps

The lawsuit suggests a class of hundreds of Coloradans, and in addition to damages seeks to void or reformulate Unlock’s home equity agreements. 

None of the numerous class action lawsuits against HEI providers have been certified. A complaint against Unison in Colorado federal court is awaiting a ruling on a motion to transfer the suit. Both Hometap and Point are asking federal judges to push four separate complaints against them into arbitration proceedings. 

State officials have also begun to scrutinize the platforms. The Massachusetts attorney general is suing Hometap in a case a judge refused to dismiss last year. Maine also passed a bill in April to regulate HEI contracts as loans, a move the industry said would effectively ban them in the state.