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On August 7, the U.S. Court of Appeals for the Ninth Circuit reversed a district court's dismissal of a putative class action alleging violations of the Washington Consumer Protection Act (WCPA) against a company offering a "HomeOwner Agreement" product. The plaintiffs claimed the arrangement functioned as a reverse mortgage loan subject to the Washington Consumer Loan Act (WCLA) and Washington Reverse Mortgage Act (WRMA), and that the defendant failed to comply with licensing, counseling, and other statutory requirements.
The Ninth Circuit concluded the agreement created a nonrecourse consumer credit obligation secured by a deed of trust, with repayment through shared appreciation or equity after certain triggering events. Despite being structured as an option to purchase a percentage interest in the home, the court found the transaction fell within Washington's statutory definition of a reverse mortgage loan, allowing the plaintiffs' per se WCPA claim to proceed.
The court's ruling addressed the following under the WCPA:
- Reverse mortgage loan classification. The agreement met the statutory definition of a reverse mortgage loan under the WRMA because it involved an advance of funds, was secured by a deed of trust, and required repayment through shared equity or appreciation after triggering events.
- Per se unfair practice. Alleged noncompliance with WRMA provisions, including licensing, counseling, and insurance requirements, constituted a valid claim for per se unfair trade practice under the WCPA.
- Deceptive marketing statements. Plaintiffs plausibly alleged deception from the company's statements such as "no loan," "no debt," and "no interest."
Putting It Into Practice: The Ninth Circuit's decision sends the case back for further proceedings, where class certification could significantly expand potential liability. Companies offering equity-based home financing in Washington should not assume that alternative structures fall outside reverse mortgage regulations. If an arrangement resembles a loan secured by a home, it may be treated as such under state law. Providers should proactively review product terms, licensing status, and marketing statements for compliance with the WCLA, WRMA, and WCPA to reduce the risk of protracted litigation and enforcement action.
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