The lender claims it was left holding the bag on over $921,000 in loans
Rocket Mortgage has accused a California broker of running a debt-hiding scheme that left the lender holding the bag on three loans.
The mortgage giant filed suit in federal court in Michigan, alleging that Sharp Loan, Inc. and Reynaldo Reyes, who signed the broker agreement on behalf of the company, submitted loan applications that deliberately concealed borrowers' existing debts. The case, filed on February 3, remains in its early stages, and the defendants have yet to respond to the allegations.
At the heart of the dispute are three residential loans that closed on March 17, 2020, totaling just over $921,000. Rocket Mortgage funded the loans based on the applications it received from the broker. What the lender says it did not know at the time was that the same borrowers had quietly taken out five other mortgages with United Wholesale Mortgage just days earlier, between March 3 and March 10.
The kicker: Sharp Loan allegedly brokered those UWM loans too.
According to the lawsuit, the broker never disclosed those debts to Rocket Mortgage before closing. The lender claims it only learned about the undisclosed loans after the fact, when the damage was already done.
Rocket Mortgage and Sharp Loan had been doing business together under an agreement signed in August 2018. That agreement required the broker to submit accurate applications and to disclose any facts that could adversely affect a borrower's credit, character, or capacity. The lender argues the broker failed on both counts.
The lawsuit paints Reyes as a central figure in the alleged scheme, stating he had full knowledge of the undisclosed debts and actively participated in submitting misleading applications. Rocket Mortgage has brought a fraud claim against him individually.
The financial consequences, according to the lender, were considerable. Rocket Mortgage says it was forced to buy back all three loans after demands from the loans' investors. The company claims it lost $194,183.67 when it resold the loans on the secondary market.
The lender says it notified Sharp Loan of the alleged breaches and demanded that the broker repurchase the loans and cover its losses. The broker refused, prompting the lawsuit.
For mortgage professionals, the case serves as a cautionary tale about the risks lurking in the wholesale channel. When brokers work with multiple lenders simultaneously, gaps in information sharing can create opportunities for borrowers, or brokers themselves, to game the system. The allegations here suggest a scenario where one broker exploited that very vulnerability.
The lawsuit seeks to recover the full amount of the lender's claimed losses, plus interest, costs, and additional damages. The court has not made any determination on the merits of the case.
