Ninth Circuit Court of Appeals Rules Unison's Home Equity Agreements May Be Classified as Reverse Mortgages

A recent decision by the Ninth Circuit Court of Appeals has significant implications for home equity sharing products, particularly those offered by Unison. The court reversed a lower court's dismissal, indicating that Unison's agreements may indeed fall under the classification of reverse mortgages, thereby subjecting them to specific statutory requirements. This ruling underscores the increasing scrutiny on financial arrangements that allow homeowners to access their equity, pushing the boundaries between traditional lending products and innovative sharing models. The legal landscape for such financial instruments is clearly evolving, with consumer protection at its forefront.

The legal proceedings initiated by Charles Boyd Olson and Janine Olson against Unison challenged the nature of their home equity sharing agreement. The Olsons argued that despite Unison's claims of offering a product without 'debt,' 'loan,' or 'interest,' the agreement effectively functioned as a reverse mortgage. The appeals panel concurred, noting that the arrangement constituted a 'consumer credit obligation' under Washington state law, which governs reverse mortgages. This interpretation directly contradicts Unison's defense that the agreement involved no repayment obligation from the consumer, emphasizing that even contingent obligations could qualify as such.

In 2024, Unison's legal representative, Jeremy Creelan, contended that a 'credit obligation' fundamentally differs from a loan, asserting that the consumer incurs no repayment duty. This distinction, he argued, offers substantial benefits to consumers. However, the three-judge panel viewed the situation differently. They stated that the entire framework of the agreement was designed to place Unison in a similar position to a nonrecourse obligation, granting it the right to a significant portion of the home's equity. The court found that the homeowners held a 'very real set of contingent obligations to make future payments,' despite the necessity for Unison to elect receiving payment.

Furthermore, the appeals court acknowledged the Olsons' contention that Unison's marketing practices, which described the arrangement as free from 'debt,' 'loan,' or 'interest,' could be misleading to the public. This finding suggests a potential violation of the Washington Consumer Protection Act. The case dates back to 2019 when the Olsons and Seattle resident Maggie Colin entered into similar agreements with Unison, under the belief that these products were not loans. Their experiences highlighted the challenges faced when attempting to sell or refinance their properties, realizing the significant financial implications imposed by these agreements.

The current legal development signals a critical moment for companies operating in the home equity sharing space. It mandates a reevaluation of how these products are structured, marketed, and regulated to ensure transparency and consumer protection. The court's decision may pave the way for stricter oversight and clearer definitions, ultimately benefiting consumers by providing greater clarity on the long-term financial commitments involved in such agreements.