'No-debt alternative' mortgages strip homeowners' equity, suit charges

Not debt in name, but they behave like high-cost borrowing in practice.

Home equity loans are one thing but an alternative called a “no-debt” home equity alternative is something else again, according to a lawsuit filed in D.C. Superior Court recently.

Never heard of a no-debt loan? No one else had either but an investigation by the National Association of Consumer Advocates (NACA) found that something by that name is being marketed to unsuspecting homeowners who can wind up owing hundreds of thousands of dollars and being forced to sell their homes.

The deals are being promoted by a company called Unison, which NACA says is offering unlicensed mortgage loans. Other companies offering similar deals include Point, Hometap, Unlock and Splitero.

On its website, Unison says it “offers another way [to raise cash] by investing alongside you, providing cash today in exchange for a percentage of your home's future growth in value.”

Some analysts see these products as a symptom of household debt stress or a “shadow credit market” growing outside traditional lending rules, driven partly by homeowners who feel “locked-in” by appreciated homes and low-interest mortgages.

How it works

Here’s a simplified example of how a “home equity investment” works:

• You get $50,000 today

• You agree to share 20–40% of your home’s future appreciation

• You settle when:

  • You sell the home

  • You refinance

  • Or after ~10 years

No payments until the end — but the final payout can be large if home values rise, as they have done steadily in recent decades.

It sounds good but the downsides are:

• You give up a portion of your home’s future gains.

• Payouts can balloon — e.g., $50k today could mean $100k+ repayment if values surge.

• Often requires repayment when selling or refinancing.

• Investor usually gets a lien on the property.

“Misleading claims,” suit charges

NACA’s suit was filed by attorneys from its staff, AARP Foundation, and Singleton Schreiber. It charges that Unison promotes its product as an “equity sharing agreement” or “home equity investment,” repeatedly telling homeowners it is not a loan, involves no debt, carries no interest, and requires no monthly payments.

The lawsuit alleges these claims are misleading and designed to make homeowners believe they are entering into a simple partnership rather than a high-cost mortgage transaction.

In reality, the complaint alleges, the product operates like a mortgage loan. Homeowners receive an upfront cash advance, Unison records a lien on the home, and the homeowner must later repay a much larger lump sum, often leaving selling the home as the only way to pay Unison back, or face foreclosure.

As alleged in the complaint, Unison’s affiliates package the liens it obtains into investment funds, allowing its clients — high-net-worth individuals and institutional investors — to profit off the backs of homeowners.

Private equity, venture capital driving the growth

The “equity sharing” loans are spreading rapidly around the country, driven by record homeowner equity combined with tight credit and high interest rates. The deals appeal to people locked into low mortgage rates who don’t want to refinance and generally have looser qualification standards than true home equity lines of credit (HELOCs).

Venture capital and private equity are entering the space and promoting the loans heavily.

One-sided contracts

“These agreements lead homeowners to believe they’re accessing their equity safely, yet they are being locked into complicated, one-sided contracts that can wipe out a lifetime of earned savings,” said William Alvarado Rivera, Senior Vice President of Litigation at AARP Foundation, in a news release. “Misleading products like Unison’s can undermine the security people need as they age.”

The lawsuit further alleges that Unison is operating as an unlicensed mortgage lender in the District of Columbia and failing to comply with federal and local consumer protection laws that regulate mortgage products.

By labeling its product as an “equity sharing agreement” or “investment,” and falsely claiming it involves no debt or interest, Unison evades the licensing, disclosure, and consumer protections required for mortgage loans, leaving homeowners without clear information about the true cost and risks of the transaction, the suit alleges.

“We’ve seen the devastation that follows when complex mortgage products are pushed into the market without meaningful oversight, and the 2008 financial crisis made clear just how devastating that can be for families and communities,” said Elizabeth Aniskevich, Senior Counsel at Singleton Schreiber, and lead attorney for the lawsuit.

“The market for these products is growing rapidly, and it is critical that the companies behind them are held to the same lending laws and consumer protection standards designed to prevent exactly this kind of harm,” she said.

A nationwide operation

Unison operates nationwide, with agreements covering thousands of homes and billions of dollars in residential real estate value. NACA brings the case under the District of Columbia Consumer Protection Procedures Act, seeking to halt Unison’s practices in the District, void existing agreements, and prevent further harm to homeowners.

“Unison has simply put a new ‘tech-friendly’ name on a decades old unfair and deceptive scheme to steal wealth from long-time D.C. homeowners,” said Ira Rheingold, Executive Director of NACA. “Like those abusive actors before it, Unison’s unlawful behavior must be stopped, and it must be held accountable for the harm it has caused.”

Regulators taking notice, issuing warnings

The Consumer Financial Protection Bureau (CFPB) has previously argued in court that some agreements are effectively credit secured by homes and should follow Truth in Lending Act rules, although under the current administration, it’s not thought likely the CFPB will pursue the issue.

Some states, including Connecticut, Maryland and Washington have already begun treating them as mortgage loans or regulating them similarly. Regulators expect more states to follow with licensing or disclosure rules.