Rocket Mortgage has filed a federal lawsuit against California-based mortgage broker Sharp Loan Inc. and one of its officers, alleging the firm knowingly submitted fraudulent loan applications that concealed borrowers’ preexisting debts with rival lender United Wholesale Mortgage (UWM).
In a complaint filed Feb. 3 in a Michigan federal court, Rocket accuses Sharp Loan and the loan officer, Reynaldo Reyes, of orchestrating a scheme in March 2020 where borrowers obtained five mortgages from UWM just days before closing with three separate loans with Rocket. Rocket claims the failure to disclose these obligations forced it to repurchase the loans from investors, resulting in losses totaling $194,183.
Both Rocket and UWM did not immediately respond to requests for comment.
Sharp Loan also does business as WeLoan, according to WeLoan’s website. Reyes is currently listed on the website as CEO and senior mortgage loan officer at WeLoan.
Reached by phone Thursday, Reyes stated that he was unaware of being named in a lawsuit and said his company “had no business with Rocket.”
According to court documents, the dispute centers on three residential loans funded by Rocket Mortgage on March 17, 2020, with a combined value of $921,500. Rocket alleges that unbeknownst to the company, other mortgage loans from UWM were issued roughly a week before the Rocket closings.
The complaint asserts that Sharp Loan acted as the broker for the UWM loans as well. Thus, Rocket argues, the brokerage and its top official possessed “full knowledge” of the additional debt but failed to disclose it in the applications submitted to Rocket.
The broker “with the full knowledge, approval, and active participation of Reyes, submitted fabricated, misleading, and/or otherwise untrue Applications for the purpose of misrepresenting the borrowers debts and/or concealing the existence of the borrowers’ debts,” the complaint alleges.
Rocket Mortgage alleges that this constitutes a material breach of the broker agreement signed by the parties on Aug. 23, 2018. Under this agreement, Sharp Loan — which was formerly known as a Sterling Homex Inc. — was obligated to comply with disclosure requirements that necessitated the sharing of all facts regarding a borrower’s creditworthiness and was barred from withholding false or misleading information.
Rocket asserts that it provided written notice to Sharp Loan regarding the alleged breaches of contract and demanded the company repurchase the affected loans or hold Rocket harmless against losses, damages or other liabilities. The complaint claims that Sharp Loan refused to comply with that demand.
The lawsuit seeks to hold the loan officer personally liable for fraud, with Rocket arguing that Reyes, who signed the 2018 agreement on the brokerage’s behalf, “personally and actively participated” in the scheme.
In the filing, Rocket characterized the defendant’s actions as “malicious, deliberate, reckless and/or willful,” alleging they were intended to induce Rocket to fund loans it otherwise would have rejected had the proper disclosures been made.
Rocket Mortgage reported that it subsequently resold the loans on the secondary market, incurring losses of $194,183.47, an amount it now seeks to reclaim, on top of punitive damages.
In total, the lawsuit asserts three counts: breach of contract against Sharp Loan, breach of express indemnity agreement against Sharp Loan and fraud against Reyes. Per the broker agreement, the case has been assigned to the U.S. District Court for the Eastern District of Michigan, the state Rocket is headquartered in.
