Class Action Lawsuit Alleges ‘Misbranded’ Hometap HEI Loans Are Predatory, Illegal

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A proposed class action lawsuit alleges that Hometap Equity Partners ensnares consumers into unlawful, high-risk home equity investment (HEI) contracts that drive borrowers deeper into debt or cause them to lose their homes.

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The 28-page class action lawsuit says that although the fintech company offers homeowners cash loans in exchange for a mortgage-secured interest in the value of the borrower’s home, otherwise known as an HEI contract, Hometap Equity Partners fails to provide consumers with any of the legally required protections and safeguards afforded by the federal Truth in Lending Act (TILA).

According to the lawsuit, the TILA broadly stipulates that consumer lenders must use practices “that are understandable and not unfair, deceptive, or abusive,” to borrowers. Troublingly, Hometap, the case alleges, misrepresents that its HEI products are not loans but rather “purchase option contracts,” for which the company can exercise the option to acquire an interest in a home after 10 years.

The suit contends that “[t]his ‘option’ language is mere artifice” to conceal that Hometap will inevitably force the sale of, or foreclose on, a property in the event a homeowner cannot settle their debt at the end of the 10-year contractual period. The lawsuit says that Hometap’s marketing materials claim that the lack of repeat monthly payments gives consumers an advantage, while in reality, borrowers could be blindsided by a huge lump-sum payment due upon the expiration of the contract period.

“No matter how Hometap labels its HEI loan product, the reality is that it provides homeowners with an advance of money for a secured mortgage interest in their home, and then requires repayment with interest within 10 years or less,” the complaint states. “That is a mortgage loan.”

The TILA requires mortgage lenders to exercise due diligence in determining whether a consumer can reasonably repay a loan, be licensed under state and federal laws, and not include mandatory arbitration clauses in their contracts, the class action lawsuit states. These protections, the case explains, are intended to prevent lending companies from taking advantage of desperate, cash-strapped consumers.

Hometap, the lawsuit argues, operates “without regard” to whether homeowners can repay the HEI loans in question, as the defendant allegedly does not inquire about relevant factors—such as homeowners’ income, assets, employment, or future ability to settle the loan—when determining eligibility. The case says that Hometap only considers whether a homeowner could feasibly repay the HEI loan by refinancing or selling their home.

The lawsuit further alleges that Hometap’s annual accrued interest rates are unreasonably high and harmful to consumers; often, the suit states, its interest rates for HEI contracts exceed 20 percent.

According to the suit, Hometap also attempts to stifle consumers’ right to litigate its unlawful loans by including an arbitration clause in its HEI contracts, which the case says would compel alternative dispute resolution instead of a lawsuit. Per the complaint, these contract provisions are unenforceable, as the TILA specifically forbids arbitration clauses “precisely because it is so important that homeowners can get before a court to save their house.”

Finally, the filing dismantles Hometaps’s assertion that it is “entirely exempt” from state and federal lending laws because its products are option contracts, not loans. The case repudiates this claim, saying that “[n]o matter how Hometap labels its products, it is still a mortgage loan because Hometap provides homeowners with an advance of money, receives security through a mortgage on their home, and then requires payment within 10 years or less.”

As such, the case states, Hometap is obligated to adhere to the same standards as all other mortgage lenders, including compliance with the TILA.

The case pointedly adds that Hometap includes language in its contractual materials stating that HEI contracts are loans, indicating that the company is willfully and recklessly continuing to operate unlawfully without the required licensing and candid disclosures to consumers. 

The lawsuit states that the plaintiffs, who were experiencing financial hardship and did not qualify for a traditional loan, entered an HEI contract with Hometap and received a $103,575 loan, approximately 13 percent of their home’s value, less a $3,107.25 “origination fee.”

The suit conveys that, unbeknownst to the plaintiffs, the loan terms included an outrageous and unlawful rate of annual compounded interest, meaning the plaintiffs “would be forced to pay Hometap up to twice as much or more than the loan amount’s principal” when attempting to settle the HEI contract.

Hometap’s loans, the case scathes, “peddle to the most vulnerable consumers, all the while believing that they have created something so original and unique that they can skirt traditional federal and state lending laws.”

The Hometap Equity Partners class action lawsuit seeks to cover all individuals who have entered into an option purchase agreement with the fintech company within the last three years.

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