9 explosive mortgage suits 2024: poaching, fraud and more

December 23, 2024 5:00 AM

This past year saw numerous brow-raising conflicts erupt within the mortgage industry.

Rival mortgage lenders sent litigation flying against one another with accusations being made of loan officer poaching and of trade secrets theft. Some of these suits were settled before year-end, while others remain pending in federal courts.

Former employees sued former mortgage lenders for alleged unfair practices and a top loan officer and his assistant got dinged for alleged large scale mortgage fraud.

Additionally, an expose from a start-up publication outlining alleged practices by the top lender in the nation sent the industry into a tizzy.

Here's a breakdown of the most high profile legal battles between lenders and other entities over the past year.

Investigation and suit accuses UWM of defrauding borrowers

United Wholesale Mortgage was accused by Hunterbrook, a venture capital-backed outlet, of holding brokers captive via its All-In Initiative and overcharging borrowers by hundreds of millions of dollars. A suit related to the investigation followed soon after.

The lengthy article and its attached research points to over 8,000 independent mortgage brokers who sent 99% or more of their loans to UWM, a volume that powered the company to the top of the industry. The lawsuit accuses "corrupt UWM loyalist" brokers of breaching their fiduciary duty to home buyers, part of racketeering charges against the firm in a new Michigan lawsuit.

The lender allegedly responded to Hunterbrook queries with a cease-and-desist. UWM called the lawsuit a sham, and slammed Hunterbrook's affiliation with Hunterbrook Capital.

Brokers and lenders expressed concern over how this would impact the image of the mortgage industry going forward.

Newrez and OneTrust settle explosive trade secrets suit

After slinging accusations back and forth, Newrez and OneTrust Home Loans, a d.b.a. of CalCon Mutual Mortgage LLC, opted to settle litigation pegged against one another.

In February, Newrez filed a bombshell suit alleging James Hecht, former head of its retail operations, staged a ruse in which he transitioned to OneTrust and brought his colleagues with him. Meanwhile, OneTrust accused Newrez of attempting to smear its reputation via legal action in a countersuit.

Terms of the settlement were not disclosed, but both pieces of litigation have been dismissed with prejudice, documents filed Sept. 11 in Pennsylvania federal court show. That means the same claims can't be tried again in court.

The unfolding brawl and uncertainty around Newrez's retail channel pushed many originators to look for new places of employment.

A and N Mortgages accuses CMG Mortgage for poaching, trade secrets theft

A Chicago-based lender sued CMG Mortgage for stealing its trade secrets, including a proprietary loan program for asylum seekers.

A and N Mortgage Services also named two former employees and Select Lending Services, an Oregon-based brokerage owned by CMG, as defendants alongside its California competitor. The complaint filed in July in an Illinois federal court claims the information the loan originator and processor stole is worth over $1 million.

Bradley Boden, who's listed as a regional manager for SLS in Chicago, allegedly sent confidential A and N customer information to his personal email between May 2023 and his resignation in January. The suit also claims Boden misappropriated a confidential A and N financing product for C08 visa holders, or customers with asylum applications pending.

Rocket Mortgage challenges its role in monitoring appraisers, sues HUD

Rocket Mortgage is challenging the Department of Housing and Urban Development's and the Department of Justice's claims that it should be held responsible for the conduct of third-party appraisers that it works with.

The megalender filed a suit against HUD in a federal court in Colorado and is asking for allegations brought against it by the DOJ in October to be thrown out; both departments accuse Rocket, an appraisal management company and an appraiser of alleged racial bias three years prior.

Rocket argues the only reason it was included in the case by the government entities was to bring "headlines to their claim."

"It is unreasonable that the DOJ chose to sue Rocket Mortgage for the conduct of an independent appraiser. We will not stand idly by while the courts are used as venues to leverage our company's name to publicize the case instead of pursuing justice against those who may have committed wrongdoing," said Bill Emerson, president of Rocket Companies, in a statement.

NEXA's co-owners have spat over airplane hangar property

NEXA Mortgage's CEO, Mike Kortas, is accusing his former partner, Mat Grella, of a number of infractions, including compromising the purchase of a $24 million hangar office property, in a suit filed in Maricopa County, Arizona.

This development comes after a falling out between the NEXA co-owners, in which Kortas was accused of misappropriating funds to make luxury aviation-related purchases and Grella was terminated from the brokerage.

A suit filed April 29 by NEXA lays out a number of charges against Grella such as breaching an implied covenant of good faith, breaching a contract, defamation and tortious interference with business expectancies.

Top producer and assistant charged in "large-scale" mortgage scheme

A top loan originator and his aide face up to 30 years in prison after the Department of Justice indicted the pair for a "large-scale" mortgage fraud scheme.

Christopher J. Gallo, a former top loan officer at NJ Lenders Corp., and his assistant, Mehmet A. Elmas, are accused of orchestrating a ploy in which the two mortgage professionals falsified loan origination documents, while they both worked at the New Jersey-based company.

Specifically, from 2018 through last October, the originators did not disclose to their employer and other lenders when a borrower was buying a second property, thereby securing lower mortgage rates for consumers. In reality, some of these properties were being bought to be used as rental or investment properties, a complaint by the DOJ reads. During this time, Gallo originated more than $1.4 billion in loans and was on National Mortgage News' top mortgage producers list for calendar years 2016 through 2020.

Lenders get dinged for failing to pay loan officer overtime

A number of mortgage lenders were accused of failing to pay overtime. CrossCountry Mortgage and Fairway Independent Mortgage, were among the lenders hit with litigation pertaining to OT.

In regards to Crosscountry Mortgage, a former loan processor is suing the lender for discouraging employees from reporting overtime pay. The plaintiff, Christina Nielsen, claims management informed her and others they could not record any overtime hours worked and that when overtime hours were reported, Crosscountry's management "refused to record any hours over 40 worked in a workweek," the suit filed in a Georgia federal court said.

Meanwhile, a suit lodged against Fairway claims it also did not pay its LOs overtime and did not reimburse them for work-related expenses. The suit, filed in a Wisconsin federal court by April Shakoor-Delgado, claims Fairway, when she was employed with them from December 2020 to December 2021, did not compensate for any overtime that exceeded 40 hours. By doing so, the mortgage lender violated state and federal regulations, such as the Fair Labor Standards Act, she said.

Crosscountry Mortgage settles one of its many poaching suits

CrossCountry Mortgage says it's reached a settlement in principle in a breach of contract and trade secrets lawsuit involving a former loan officer and rival lender.

Attorneys for American Mortgage Network, CCM and the LO said in a filing they're working to dismiss the case by the end of 2024. Amnet brought the complaint against its larger competitor in January 2023 and accused CCM of racketeering, claims a judge later dismissed.

Other counts, including unfair competition, were pending in the federal civil lawsuit. Terms of the settlement were not disclosed.

The case is one of several complaints surrounding raiding and theft of trade secrets lodged against the Cleveland-based company, one of the industry's largest nonbank lenders. CCM settled a similar suit with Caliber Home Loans and saw another from Guild Mortgage tossed by a judge. Two lawsuits from Loandepot remain pending.

Former Guild Mortgage exec sues over wrongful termination

A former executive at Guild Mortgage sued the lender for wrongful termination, alleging the mortgage shop made up reasons to legitimize the layoff.

James Seely, former division vice president of the company's Northeast region, claims Guild terminated his employment agreement on Nov. 20, 2023 based on false pretenses after company leadership failed to convince him to quit. He is seeking $750,000 in damages.

Seely joined Guild after his company, Residential Mortgage Services Holdings, Inc. was acquired in 2021, giving the mortgage company a substantial foothold in the Northeast.

The suit, filed in Maine Jan. 2, accuses the mortgage lender of fabricating claims of material breaches of employment to avoid contractual obligations. This is something Guild has done in the past "to avoid paying an executive owed compensation, namely severance pay," Seely alleges. As of Dec. 19, the case is still pending in court.