CFPB files amicus brief in home equity investment case

The Consumer Financial Protection Bureau filed a brief in a legal case that could greatly impact how home equity share agreement products are defined and regulated

In the case involving home equity investment platform Unlock Technologies, the bureau said its product in question should fall under the purview of the Truth in Lending Act. TILA rules historically have applied only to businesses offering mortgages and other types of credit. 

As HEIs are not classified as loans, businesses offering them are not required to provide the same mandated marketing disclosures. In previous cases, though, CFPB similarly put forth that intent, rather than language, should govern how TILA is administered.

Without offering its support to either the plaintiff or defendant, the CFPB explicitly stated in the brief, “Unlock’s product is a residential mortgage loan.”

An Unlock homeowner client filed suit against the company in a New Jersey federal court in early 2024 after first entering into contract with the HEI platform in 2021. Home equity investment products allow consumers to draw on the value of their properties, with an equivalent share or more owed to the provider at time of sale or end of the contract term, inclusive of any appreciation. The products are also sometimes referred to as shared-appreciation agreements. 

In the current lawsuit, the CFPB claimed certain terms in the act applying to lending were present, and makes the lawsuit “timely to the extent it alleges violations of the TILA provisions that govern high-cost mortgages and residential mortgage loans.”

In 2021, Unlock gave the plaintiff a lump sum equaling 44% of her home value. The contract specified the amount due at repayment would amount to either 70% of the home’s value at that time or the initial amount plus 18% annual interest.

A spokesperson for Unlock said the company could not comment on ongoing legal matters, but the legal filing noted arguments used in its defense. While acknowledging its product is secured by a home lien, “Unlock contends, however, that its product is not a residential mortgage loan because it is not credit,” the amicus brief said. 

The CFPB countered, noting that since the plaintiff owes Unlock a payment that can be deferred up to 10 years, “the product is therefore credit.”

The question of how home equity investment products should be defined and whether providers are giving consumers appropriate disclosures have been at the crux of several lawsuits involving similar HEI platforms. In many of those cases, consumers either ended up in bankruptcy or lost their homes.  

Consumer advocacy groups contend HEI platforms should be regulated as lenders, as customers entering into such agreements are not always fully aware of the risks, and some are financially burdened to the point they do not qualify for a traditional loan.

“We’re pleased to see that the CFPB is standing with consumers by recognizing that so-called home equity investments products are not investments, as they have been mislabeled, but are in truth high-cost loans that threaten homeownership,” said Andrew Pizor, senior attorney at the National Consumer Law Center.

NCLC is also providing legal counsel to a homeowner in another legal case involving a different HEI provider. 

Named in several ongoing lawsuits is recently defunct Easyknock, which faces multiple legal actions or enforcement in eight states after claims of misleading customers. The company abruptly shut down in early December, directing clients to work with a property management firm, which shared the same address and phone number as Easyknock. The sudden closure and unanswered questions led several senators to demand answers in a letter sent to Easyknock’s founder and CEO.

Despite the controversy, the platforms are seeing growing interest from the investment community, with several firms, including Easyknock, on the receiving end of capital raises in 2024.

Alongside the amicus brief, CFPB also issued a consumer advisory, warning homeowners to be wary of home equity investment contracts.

“What the company may not tell you is that, even if your home loses value, you will probably still have to pay the company more than you received and might have to sell your home,” it said.

Along with not issuing standard mortgage disclosures, HEI platforms do not always check the borrower’s ability to pay and may include arbitration clauses to discourage legal action. 

Within the fine print of the contracts, issuing companies often will put a lien on the house, the bureau also said.

While terms may not require regular payments, upfront costs may rise into the thousands of dollars, CFPB added.