📝 usncan Note: Home Equity Investments Face A Legal Reality Check
Disclaimer: This content has been prepared based on currently trending topics to increase your awareness.
Shot of a family of four viewing their new home together
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The home equity investment model has become one of the hottest trends in consumer finance
Homeowners get upfront cash in exchange for a share of future appreciation. No monthly payments. No traditional interest. It looks like an appealing alternative to home equity loans and lines of credit.
But a recent Ninth Circuit decision makes one thing clear: if a product functions like a loan, courts may treat it as one.
What’s Driving The HEI Boom
Here’s how it works: A homeowner gets a lump sum in exchange for a percentage of future value gains. Repayment happens at a “triggering event” like a sale, refinance, maturity or death. Investors get back their advance plus a share of appreciation, or less if the home has lost value.
The appeal is obvious. Homeowners can access wealth without monthly obligations. Investors are responding. Unison’s $300 million secondary market deal with Carlyle and Unlock Technologies’ $280 million funding round show the scale of interest. Hedge funds and private capital are circling, betting that HEIs could become a mainstream asset class.
Innovation is pushing the market forward too. In Phoenix, Bonus Homes recently launched its “Home Appreciation Partnership.” The program lets homeowners with low mortgage rates cash out equity while keeping exposure to future appreciation. Bonus converts the property into a rental and manages it until the homeowner sells, at which point both parties share in the upside. With $65.5 million in seed funding from Redwood Trust, Nextview Ventures and others, Bonus has already built a $20 million portfolio and plans to expand to thousands of homes across Arizona and Tennessee.
These moves show why industry leaders want regulatory clarity. With consistent rules, standardized HEI products could scale faster and reach more homeowners.
The Ninth Circuit Steps In
The case making waves involves a Washington couple who took a $64,750 advance in 2019 in exchange for 70% of their home’s equity. Marketing promised “no loan,” “no debt” and “no interest.” The Ninth Circuit looked beyond those labels.
In August 2025, the court reversed a lower court dismissal. Under Washington’s Reverse Mortgage Act, the arrangement qualified as a reverse mortgage loan. The judges said the structure “effectively creates the substance of a shared-appreciation reverse mortgage.” Translation: money was advanced, secured by a deed of trust, and repayable later. That’s a loan.
The court also revived deceptive marketing claims. “No debt” and “no interest” statements could mislead consumers, especially since the company would typically recoup its advance unless property values dropped more than 25%.
The defendant has retained new appellate counsel and is preparing a petition for rehearing, warning that the panel’s reasoning could extend far beyond Washington.
A Patchwork Of Rules And Rising Risks
Even before this ruling, HEIs operated in legal gray areas. Connecticut classifies shared appreciation agreements as mortgage loans. Maryland requires HEI providers to get mortgage lender licenses. Many states remain silent, leaving providers to piece together compliance from general lending, real estate and consumer protection laws.
California courts have historically taken a more permissive view, distinguishing HEIs from traditional loans. Federal courts applying California law concluded that certain option-style HEI contracts were not loans under the Truth in Lending Act. Those decisions emphasized that because repayment was not guaranteed and the option price could yield no profit, the agreements fell outside loan statutes. While favorable to providers, these rulings highlight how outcomes turn on contract structure and judicial interpretation, leaving little uniformity for nationwide operators.
Illinois has moved in the opposite direction. Effective January 1, 2025, the state amended its Residential Mortgage License Act to explicitly cover “shared appreciation agreements.” Proposed regulations issued in August 2025 go further, requiring HEI providers to be licensed and to deliver model disclosures similar to those used for mortgage loans. The draft rules would also mandate independent counseling, detailed repayment examples, restrictions on balloon payments, and third-party appraisals to determine property values. If finalized, Illinois will join Connecticut and Maryland in imposing a full mortgage-style regime on HEIs
Recent litigation is making things worse. In Colorado, a bankruptcy case involves a homeowner who argued that an HEI “option” structure was really a mortgage loan. The judge declined to dismiss most claims, allowing seven of eight counts to move forward. These included allegations of unconscionability, usury and unfair practices.
Massachusetts regulators are watching closely. The state attorney general is challenging shared equity contracts under mortgage and consumer protection laws. To strengthen its position, the AG filed the Colorado ruling as supplemental authority in its own case. This shows how state enforcers monitor parallel litigation and leverage each other’s wins.
Without federal guidance, state regulators and private plaintiffs are filling the void. They’re testing new legal arguments. As one jurisdiction recognizes them, others follow quickly. The result is growing momentum toward treating HEIs as loan products.
What This Means
For Homeowners: The “cash now, profit later” model is attractive, but recent cases show the risks. Contracts marketed as “not loans” may still be treated as loans in court.
For Investors: Appetite for secondary market deals could shrink in states where HEIs face loan classification. Jurisdictions with clearer rules may attract more capital.
For Banks: Traditional lenders may see an opening if rules align with existing licenses. But reputational risk will matter.
For Regulators: State-level rulings signal pressure to clarify HEI treatment. Legislators may need to step in to balance consumer protections with innovation.
How Providers Can Adapt
- Use plain-language disclosures with repayment tables and “what-if” scenarios.
- Engage with regulators early to shape laws that recognize HEIs as distinct from mortgages while still protecting consumers.
- Build compliance programs that account for divergent state laws.
- Educate customers about both the benefits and risks, including equity dilution and exit restrictions.
- Explore hybrid designs, such as capped investor upside or early buyout options.
The Road Ahead
The Ninth Circuit’s message is clear: economic reality beats creative structuring. For an industry built on innovation, that’s both a challenge and an opportunity.
HEIs still hold promise as mainstream financial products. New entrants are testing fresh approaches. But with litigation expanding in Washington, Colorado and Massachusetts, the days of operating in a self-defined gray zone are ending.
The industry’s future depends less on clever contracts and more on transparency, trust and regulatory engagement. Everyone sees the opportunity. The question is whether providers can seize it without putting their business at risk.
