Rocket Mortgage Alleges $194,000 Loss In Broker Fraud Lawsuit

Rocket Mortgage has sued a California mortgage brokerage and one of its executives, alleging they knowingly submitted fraudulent loan applications that concealed borrowers’ debts and caused financial losses after the loans were sold to investors.

In a complaint filed Tuesday in the U.S. District Court for the Eastern District of Michigan, Rocket Mortgage said Sharp Loan Inc. — formerly known as Sterling Homex Inc. — and originator Reynaldo Reyes misrepresented borrowers’ financial obligations in three mortgage applications submitted in March 2020. Summonses were issued to Reyes and Sharp Loan on Wednesday, according to the docket report.

National Mortgage News and Mortgage Professional America (MPA) first reported on the litigation.

Rocket alleges the broker failed to disclose that the borrowers had taken out multiple mortgages with United Wholesale Mortgage (UWM) in the days leading up to the closings, despite contractual obligations. UWM is not a party in the suit, nor is it accused of any wrongdoing.

According to the lawsuit, Rocket funded three residential mortgages totaling more than $920,000 based on the applications submitted by Sharp Loan. The company later discovered what it described as “misleading, untrue, fabricated, altered and otherwise fraudulent” information that understated or concealed the borrowers’ debts.

Rocket said the undisclosed loans rendered the mortgages noncompliant with investor requirements, forcing the lender to repurchase the loans and resell them at a loss. The company claims damages of about $194,000, citing investor repurchase demands, secondary-market losses and related costs.

The lawsuit ultimately accuses Sharp Loan of breaching its broker agreement with Rocket, failing to indemnify the lender for losses and acting in bad faith.

“Broker, with the full knowledge, approval, and active participation of Reyes, engaged in this conduct knowingly, willfully, and/or with specific and malicious intent to defraud Rocket Mortgage,” the suit reads.

Rocket also brought a separate fraud claim against Reyes, alleging he personally and knowingly participated in the submission of false information. “Reyes’s misrepresentations have proximately caused Rocket Mortgage to sustain and to continue to sustain damages,” the suit states.

Reyes’s LinkedIn account names him as the director of sales for Sharp Loan. And under the self-reported employment history on his Nationwide Mortgage Licensing System consumer access page, he is listed as president of the company.

Rocket is seeking monetary damages, interest, legal fees and additional relief, including exemplary damages related to the alleged fraud. The company told HousingWire that it had nothing to add beyond what’s in the filing. Reyes and Sharp Loan did not respond to requests for comment.