Two public interest law firms have filed a proposed class action against Unlock Partnership Solutions Inc., alleging the company’s home equity agreements constitute residential mortgage loans and violate Colorado and federal consumer-protection and mortgage laws.
Halperin Petersen & Mikkilineni and Towards Justice filed Johnsen v. Unlock Partnership Solutions Inc. et al. in Adams County District Court on behalf of Sheila Johnsen, a Commerce City homeowner, and a proposed class of Colorado homeowners who entered into similar agreements with Unlock.
David Seligman, executive director of Towards Justice, said the class-action structure is important because financially vulnerable consumers may be “confused about their rights or deceived about what their rights are” or may not have the resources to pursue a case.
The lawsuit alleges Unlock has characterized its agreements as investments rather than loans in an effort to avoid laws governing mortgage lending, including disclosure requirements, interest-rate limits and other consumer protections.
Eric Halperin, founding partner of Halperin Petersen & Mikkilineni, said, referring to Unlock, “They provide homeowners with an advance of money. They receive a security through a deed on their home. And then they require the repayment of that money within 10 years. That has all the aspects of a loan.”
Unlock instead describes its product as an equity investment and uses a lengthy contract containing specialized terminology. The complaint alleges a typical agreement is nearly 100 pages long.
Johnsen received $65,400 from Unlock in 2023, representing about 12.58% of her home’s value at the time. The agreement provides that Unlock will receive 25.78% of the home’s value at the end of the 10-year term or when the home is sold, according to the lawsuit.
The complaint alleges the transaction also included origination, appraisal, settlement and recording fees and that the effective cost of the loan could exceed Colorado’s usury cap for unsupervised loans.
The complaint alleges Unlock has provided similar agreements to more than 500 Colorado homeowners.
The agreements put largely all risk on homeowners. “They set up the product so in every turn all the risk is shifted to the consumer,” Halperin said, pointing to restrictions on how homeowners can use their property, in addition to responsibilities for repairs and other expenses.
Seligman said, “For many Coloradans, their home equity is their only nest egg — their only chance at retirement, their only plan to put their kids through college, all they have to protect their family in the case of a serious illness. This case alleges that a lender came into Colorado and scammed hardworking Coloradans out of that financial security.”
Mortgage Protections on the Line
The lawsuit alleges violations of the Colorado Uniform Consumer Credit Code, Colorado laws governing traditional and reverse mortgages, the Colorado Consumer Protection Act, the Truth in Lending Act and the Colorado Consumer Equity Protection Act.
“If you’re going to be making mortgage loans, you need to be licensed,” Seligman said, adding that Colorado also places limits on the interest that can be charged to consumers. Federal law, he said, requires disclosures that allow consumers to compare the cost of different credit products.
Johnsen found Unlock while seeking financial help after her husband, Adam, suffered a serious car accident in 2022. After several phone calls and an appraisal of the home, the complaint alleges, Johnsen received a package of documents but no further explanation from an Unlock representative.
The lawsuit alleges Unlock’s agreements are structured so that the company is unlikely to lose money even if home values decline significantly. The complaint contends a decline greater than five times the largest drop in home values in modern history would be necessary before Unlock would face a risk of not being fully repaid.
Does Terminology Matter?
Halperin said the case will turn in part on whether a company can avoid a regulatory framework by changing the terminology used to describe a financial product.
“We will use the evidence that is in the Unlock agreements with consumers,” Seligman said. “We think that’s powerful evidence of the fact that these were unconscionable loans in violation of the Colorado consumer code and federal mortgage law.”
The case is part of a wider question about whether financial technology companies can structure products to avoid existing consumer-protection laws.
“It’s really important that we police the contours of these laws by making sure that you can’t just evade them by recharacterizing yourself using new and different terminology,” he said.
Damages and Rescission
The plaintiffs are seeking damages for class members, including recovery of allegedly illegal interest and equitable relief.
The firms are also seeking to have the agreements declared void, terminated, rescinded or reformed.
The attorneys said they hope the litigation ultimately affects not only the named plaintiffs but how similar products are offered in Colorado and elsewhere.
“We’ve seen what predatory mortgage lending can do to both consumers and the broader economy,” he said. “That’s why both states and the federal government put these protections in place.”