Unlock has settled with the Office of the Minnesota Attorney General over allegations that the company’s home equity agreement (HEA) products were mortgage loans that violated state usury caps, disclosure rules and licensing requirements.
In the settlement, Arizona-based Unlock denies the claims, stating that it entered into the settlement to “avoid litigation” and noting it no longer offers the product in Minnesota. Under the terms, the company will pay nearly $1 million in relief to homeowners.
The agreement, filed in early August, resolves AG Keith Ellison’s investigation into Unlock’s equity-sharing product, which advances a lump sum of cash to homeowners in exchange for a contractual right to a share of future home equity.
Unlock, founded in 2020, entered into about 86 HEAs in the state, with advances ranging from $30,000 to $339,500, between 2021 and 2023. On average, it took an equity stake of roughly 33% in each property, secured by a mortgage that could be foreclosed upon, according to the AG’s office.
Ellison alleged the economics of the product made it “an extremely costly and illegal form of interest” that far exceeded typical mortgage costs.
“Homeownership is a primary means for Minnesotans to obtain financial stability and secure a place to live and raise a family,” Ellison said in a statement. “I brought this action to stop practices that attempted to evade those protections and misled consumers.”
His office claimed that when origination fees and equity stakes were treated as finance charges, the company charged an initial amount equal to 100% to 140% of the amount advanced and collected up to 22% in annualized interest, despite marketing the agreements as not creating debt and not charging interest.
The investigation also found that Unlock did not verify borrowers’ ability to repay without refinancing or foreclosure, Ellison said. Minnesota tightened its Mortgage Originator and Servicer Licensing Act after the 2008 foreclosure crisis to require ability-to-repay assessments and to curb equity-based lending that can strip homeowner wealth and potentially lead to repossession of a property.
Unlock, which cooperated with the investigation, agreed to stop offering its HEAs in Minnesota unless it becomes licensed by the Minnesota Department of Commerce and complies with the state’s mortgage laws, including rate caps.
Unlock’s response
The company issued a statement to HousingWire in which it said it has been “actively engaged” with state commerce officials on developing purpose-built regulations for shared equity products. The framework includes plain-language disclosures, rescission periods and caps on sharing percentages, which Unlock and other members of the Coalition for Home Equity Partnership (CHEP) already apply voluntarily.
“We’ve been at the table with regulators because we believe the best long-term outcome — for homeowners and for this industry — is regulation written specifically for how shared equity products actually work,” said Michael Micheletti, chief communications officer at Unlock. “We’re committed to helping build that framework, and we’ll keep showing up until it’s done.”
The company also said it “firmly stands behind the accuracy of its marketing and the key differences between a loan and an HEA. Traditional mortgage loans are a form of debt financing. In contrast, shared equity products are a form of equity financing through which a homeowner receives cash in exchange for a share of the value of their home when the agreement ends.
“There are no monthly payments, just one payment at the end of the agreement. There is also no principal balance or interest rate. While traditional mortgage loan requirements focus on the consumer’s ability to make scheduled monthly payments, HEAs focus on the home’s condition and the amount of equity a homeowner has.”
The settlement provides $944,626 in combined monetary and debt relief for affected Minnesotans. That includes $201,050 in direct refunds to consumers, an estimated $460,000 in debt relief and $283,576 that will be paid to the attorney general’s office for additional restitution.
In July, the company reached a settlement with Colorado’s attorney general, which requires Unlock to treat its home equity agreements as consumer credit under the state’s Uniform Consumer Credit Code. Unlock must comply with rate caps, disclosures and licensing rules, and had identified $283,375 in restitution owed to 125 homeowners, with more payments expected as additional loans close.
Editor’s note: This story has been updated with comments from Unlock.
