Alleging that a Boston company “pervasively and systematically violated the state’s consumer protection laws, including mortgage and foreclosure prevention laws, putting financially vulnerable homeowners at high risk of losing their homes,” Massachusetts Attorney General Andrea Joy Campbell has filed suit against the firm and its holding company. 

The AG alleged that Hometap Equity Partners LLC–and HomeTap Management Systems, LLC–engaged in illegal and predatory practices targeted for financially vulnerable homeowners, according to the suit filed in Suffolk County Superior Court.

“The Commonwealth alleges systematic and pervasive unfair or deceptive acts and practices in connection with a purportedly novel financial product which operate to strip Massachusetts homeowners of home equity,” the suit alleged.

“Lured by promises of no payments or interest for ten years, hundreds of Massachusetts homeowners have taken on a risky lending product, secured by a mortgage on their family home, that amounts to a ticking time bomb,” according to the suit. “Soon, these unlawful loans will come due, and communities across the Commonwealth will face the fallout.”

The complaint alleged that while Hometap claims to ‘make homeownership less stressful’ by offering a product that has no interest and no income requirements, “in reality, this product is vastly more expensive than any common mortgage product on the market.” The compliant continued, “When consumers cannot pay, Hometap will sell their homes.”

In addition, the suit alleges that Hometap:

• Devalues a homeowner’s equity by paying them as little as half the value of the equity it takes.
• Offers upfront “fast cash” to consumers without evaluating their financial conditions. Campbell alleged that Hometap markets its product to “house rich, cash poor” homeowners. That practice would lead to homeowners being unable to pay the large amount required at the end of their contract. That, the AG said, put them at risk of losing their homes.
• Offers illegal reverse mortgages, although the company contends that its home equity product is an investment and not a reverse mortgage. In the suit, the state contended that Hometap’s Home Equity Investment does not comply with requirements intended to protect reverse mortgage borrowers, including that the loans only be made to borrowers over 60 years old, that a seven-day cancelation period be offered and a requirement that borrowers receive third-party counseling to ensure that they understand the product.
• Engages in deceptive marketing practices by claiming that it “invests alongside consumers and does not charge interest. Campbell and the suit alleged that the product is far more costly than advertised.

Campbell asked for Hometap to be barred from continuing allegedly illegal activities, as well as restoration of financial losses for consumers and a prevention of foreclosures for homeowners with Hometap home equity products.

As we have blogged about previously, these types of agreements have come under increasing scrutiny from the CFPB (in the waning days of Director Rohit Chopra’s leadership) and state regulators, with a number of states (Connecticut, Maryland and Washington) having amended their statutes and/or issued regulations making their position clear that these types of products are considered residential mortgage loans and imposing specific disclosure obligations in connection with these products. This action by the Massachusetts AG is consistent with our forecasting regarding increased focus and scrutiny from state regulators.