How a family was left ‘shattered’ by a Homesafe contract on their single mother’s home

A few years ago, Alinta Davidson's mother, Gillian, then in her late 80s, moved in with her after an illness and hospital stay. Alinta was sorting through Gillian's paperwork when she came across a large folder marked "Homesafe".

Alinta, an early childhood educator who lives in Melbourne, knew that in 2014, when she was 79, Gillian had entered into a contract with Homesafe, a home wealth release company.

The company allows older people to access money upfront, in exchange for a portion of the sale proceeds when they eventually sell their home, or die and their home is sold through the estate.

Gillian's is one of half a dozen cases Guardian Australia has uncovered as part of an investigation into Homesafe and whether its customers fully understand what they are signing up to.

The scheme has been a joint venture of Bendigo Bank and Athy Pty Ltd, a company owned by the actuary and designer of the Homesafe model, Peter Szabo. It has been operating in Australia since 2005.

Last year, Bendigo Bank announced it would be divesting its interest in Homesafe by the end of June and would no longer be funding any new contracts. As yet, Homesafe has not announced a new backer.

Gillian had taken out the contract in order to get a lump sum of $250,000 to help her son buy a home, on the understanding it was an early inheritance and that it would be sorted out fairly between the siblings after her death. Alinta knew this had been done, but discovering the details of the deal left her "shattered".

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At the time she entered into the Homesafe deal, Gillian's house was valued at $900,000, so the $250,000 Homesafe gave Gillian was 27.8% of the value of the house.

"I looked in there and there was paperwork that broke down what would be owed to [Homesafe] over periods of time," she says. These documents say the figures provided are "illustrative" and "there is no suggestion that these assumptions will eventuate and that the results will be as shown".

Guardian Australia has seen this documentation, as well as the deal Gillian eventually signed, which said that Homesafe would be entitled to 45.57% of the eventual sale price of the property.

"And that, you know, that just freaked me out," Alinta says. "I was shattered. I was like, this can't be true. I didn't think it could possibly be true."

Alinta recently had her mother's house valued, at $1.66m, which means if it sold now for that price, Homesafe would receive $757,000, or three times the amount originally given to Gillian.

Homesafe said in a statement: "When a customer accepts an offer from Homesafe and signs a Homesafe contract, it is to sell Homesafe that specified percentage of the eventual sale proceeds of the home.

"The contract makes it very clear that the customer is selling a capped percentage of the sale proceeds of their home."

'She didn't understand' Alinta says her mother is mentally competent, but also forgetful, and has to have the Homesafe arrangement explained to her anew each time it is brought up. A few years ago, when Alinta discovered the terms of the Homesafe contract and raised them with her mother, Gillian was horrified.

"She didn't understand. When I explained it to her, she just said, 'Oh no, oh no'. I mean, in reality, she probably should have known and understood because she had the paperwork. [But] when I told her the reality of what had happened, even now, she can't believe it.

"Even now, when we talk about what will happen with this ... she's absolutely shattered."

Gillian, a former dancer, says she doesn't really remember the details of the Homesafe deal or what she understood the terms to be when she signed up to it.

"It might be my ancient age," she jokes. But she says: "I seem to recall, whatever it was, it felt, truthfully, it felt like it wasn't something that was a scam."

Gillian was reassured by the fact that Homesafe was backed by Bendigo Bank – her bank – and is adamant that she is a suspicious person and that her main priority is to do right by her children.

"You know, I'm not a fool. I'm not going to do something ever in my life where I feel like I'm going to be scammed, ever. I'll never, ever be that kind of person."

She doesn't recall what her understanding was of how much Homesafe would be entitled to at the point of sale. "I don't remember the details of that kind of thing. But, as I say, that would never have happened in any respect if I hadn't felt this is OK."

At the mention that Homesafe might claim roughly 50% of the sale proceeds, she gasps. "Wow, 50%," she says. And when told that if it sold now, Homesafe might be taking about $800,000 for the $250,000 they originally outlaid, she puts her hands to her mouth horrified. How does that number strike her?

"Not good," she whispers.

Homesafe said it understood that its product was "unique in the Australian market and that many people are not aware of it and how it works".

"However, a lack of familiarity with equity release should not be conflated with any inherent complexity or difficulty. The Homesafe contract is transparent, and our customers enjoy the certainty of being debt-free and protecting their lifetime tenancy in their homes."

Reduced options for care Alinta says the impact of the Homesafe deal affects "everything", including her mother's pension payments, which were reduced because of the lump sum that she received from Homesafe (although Alinta says her brother repaid their mother from the amount she gave him).

It has also reduced the options for Gillian's ongoing care. Alinta has Gillian living with her at the moment, but Alinta is potentially having to sell her own home due to a separation, and buying something big enough for her, her mother and her adult children is more difficult due to the Homesafe situation.

On top of this, and Alinta feels awkward about discussing this because it relates to inheritance, there is the fear that after Homesafe has its share, and the remainder is used to care for Gillian in her remaining years, there will be little left for Alinta and her children.

"Mum ... didn't have a lot of money, but she had this house in a good place that was going to be worth a lot. And her whole thing all her life was saving, saving, saving, like nickel and dime. And [she always said], 'It's all for you'," she says.

"So we were brought up with that, knowing that she worked her backside off as a single parent of four children at the time. And it was all for us in the end.

"So the impact that it has, as far as inheritance goes ... I won't be able to do anything for my children, basically."

A spokesperson for Bendigo and Adelaide Bank said the bank had "identified the opportunity to reduce complexity and simplify its business by exiting the [Homesafe] partnership" and no longer had any interest in the scheme.