Last month, in the unpublished opinion Olson v. Unison Agreement Corporation, the United States Court of Appeals for the Ninth Circuit found that a home equity investment (HEI) agreement met the definition of a reverse mortgage under Washington law and was not, as the company intended, a real estate option contract (2025 WL 2254522, at *5 (9th Cir. Aug. 7, 2025)). This was a critical ruling for a growing and unique industry that regulators and courts are still getting their arms wrapped around. And because the Olsons brought a putative class action, the eventual result in their suit could impact many other consumers.
In Olson, the homeowners in question alleged that the HEI provider violated several provisions of the Washington Consumer Loan Act (WCLA) in making the HEI agreement, including lacking “the necessary state approval to provide such loans,” failing to provide state-mandated counseling in association with the HEI agreement, and making “deceptive” statements in connection with the marketing of the HEI agreement. As a result, the key question for the court was whether the HEI agreement actually constituted a reverse mortgage loan under the WCLA.
Through Wash. Rev. Code Ann. § 31.04.505(5), the WCLA defines a reverse mortgage loan as a “nonrecourse consumer credit obligation” – meaning the obligation can only be enforced to the extent of the security interest granted in the security instrument. The statute also details that a reverse mortgage is a:
- (a) A mortgage, deed of trust, or equivalent consensual security interest securing one or more advances is created in the borrower’s dwelling;
- (c) The broker or lender is licensed under Washington state law or exempt from licensing under federal law.
While the WCLA does not define the term “consumer credit obligation,” the court looked to the dictionary definition of the term “credit” and the definition of a “loan” under the WCLA to determine that a “credit obligation . . . must involve, at a minimum, an initial advance of funds or goods coupled with an obligation to make future payment to the person providing the advance.” The court further noted that this broad definition of a “credit obligation” aligns with the definition of a reverse mortgage loan that secures “shared appreciation or equity.”
After establishing the scope of a reverse mortgage under the WCLA, the court considered whether the HEI agreement in question qualified as such. The key terms of the HEI agreement at issue include the following:
- The homeowners receive an initial lumpsum payment of $64,750 in exchange for the HEI provider obtaining a future right to purchase up to a 70% interest in the homeowners’ home.
- To exercise the purchase option, the HEI provider must make an additional payment of $194,250 to the borrower.
- At the time the parties entered into the HEI agreement, the relevant property was valued at $370,000, meaning the two payments from the HEI provider to the homeowners would equal 70% of the home’s value at the time the HEI agreement was executed.
- There are four conditions that allow the HEI provider to exercise their purchase option:
- the expiration of the HEI agreement’s 30-year term;
- the sale of the property;
- the death of the last surviving homeowner; or
- the homeowners’ default under the HEI agreement.
- The homeowners’ may cancel the HEI agreement and terminate the HEI provider’s option right only after the HEI agreement has been in effect for at least 3 years.
- However, to cancel the HEI agreement, the homeowners must pay the greater of the initial lumpsum payment of $64,750 plus costs the HEI provider has advanced on behalf of the homeowners or the amount the HEI provider would receive if the house was sold at the time of cancellation.
The court noted that the lower court initially dismissed the homeowner’s claims under the WCLA because the HEI agreement was an option contract, not a loan. And while the court agreed that “option contracts generally do not constitute credit obligations,” the court looked to the broader context of “this overall agreement” to determine that the HEI agreement “effectively creates the substance of a shared-appreciation reverse mortgage” subject to the WCLA. Overall, the court concluded that the consumers were advanced funds and were obliged to repay those funds – therefore, the product was a loan. The court did not point to a specific term of the HEI agreement as the basis for its finding. Instead, the court noted that the “entire structure of the [HEI agreement] is designed to put [the HEI provider] in the same position, and to have the same right to payment, as an unadorned nonrecourse obligation to pay [the HEI provider] 70% of the home’s equity.”
Unison filed a Petition for Panel Rehearing and Petition for Hearing En Banc on September 11, 2025. Therefore, the findings in the Olson matter may continue to evolve.
Link to Takeaways for HEI Providers Takeaways for HEI Providers
While the current high-level takeaway is that the United States Court of Appeals for the Ninth Circuit has found that an HEI product constitutes a loan, it is important to note that this ruling may ultimately have a narrow impact on the industry because the case is specific to the definition of a reverse mortgage under the WCLA and the particular HEI agreement in question. However, HEI providers should conduct, or potentially re-conduct, a thorough review of state lending laws in their relevant jurisdictions to determine whether other states define a reverse mortgage or other loan products so broadly as to arguably include HEI products. In states with laws similar to the WCLA, it may be prudent for HEI providers to take a proactive approach and engage in conversations with relevant regulators about their expectations with regard to HEI products.