Lenders are taking more repurchase demands to court

More mortgage firms are suing their counterparties over buyback demands.

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In the past six months, several lenders and servicers have sued origination partners over repurchases, for funds experts say they may never recoup. Although the latest federal complaints are small in number, they’re ticking up again after a small wave of the complaints arose in 2023 in the wake of the low-interest-rate era.

Recent litigants include the industry’s largest lenders, Rocket Mortgage and United Wholesale Mortgage, and other mortgage players such as Seneca Mortgage Servicing and Citizens Bank. While some of those lawsuits allege commonly cited loan defects for which the broker didn’t repay, others suggest more advanced fraud. 

Even more repurchase cases today may be being waged in smaller business and state courts across the country, said Robert Maddox, partner at Bradley Arant Boult Cummings. The industry attorney said he’s seeing an uptick in the complaints, which represent a last straw by the lender to resolve such disputes with business partners.

“Filing a lawsuit is probably the only way that they can find relief,” said Maddox. “Because brokers, they’re not going to service the loans.”

Brokers meanwhile typically don’t have the means to fight back, let alone win a repurchase dispute that goes to court.

Why lenders are going to court

There’s more of a transactional relationship between counterparties today as the market, particularly the non-qualified mortgage space, has more investors, said Arthur Prieston, attorney and president of repurchase insurer Prieston & Associates. That compares to the past, where investors had a heavier hand and lenders bought back tarnished loans to preserve the relationship. 

The expert said he doesn’t anticipate repurchase litigation growing because of the costs. 

“When it’s transactional … it basically means that it’s okay if a lender loses that investor because they’re in an argument, and they’re going to litigation about it,” he said. 

Industry professionals however described the recent federal cases as one-off events, as litigation could cost more than the losses a loan owner could get back in the scratch-and-dent market. The plaintiff firms, with some of the industry’s deepest pockets, may simply be filing the cases to flag and potentially punish bad players. 

“It’s very rare that any major, top-three mortgage banker would sue a broker,” said Prieston. “When you put all that together, this is more punitive. They’re sending a message, and that makes sense.” 

Sharp Loan is a rare brokerage fighting buyback claims, as it denied Rocket’s accusations last month in federal court. Their blanket denial however did not include detailed responses regarding the loan issues. Maddox, commenting on the disputes at large, said he couldn’t recall seeing a brokerage take a repurchase lawsuit to trial.

“Sometimes it’s cheaper to settle,” he said. “The economies of scale and the benefits from a cost perspective would have to exist, or it’s a ‘bet the company’ case. Like, if we lose this case, we’re out of business. Then you have to fight.”

What’s wrong with the loans?

Despite the resurgence of some buyback lawsuits, repurchase demands at large are down from their rise following the refinance boom.

Freddie Mac in a recent report said repurchase demand on performing loans was down 26% at the end of 2025 versus the earlier part of the year, primarily due to a reduction in income defects. That was the most frequent reason for a buyback, followed by collateral defects and liabilities, such as undisclosed non-mortgage debt or missing documents. 

Lenders in the half-dozen repurchase suits in federal court last fall have accused their counterparties of a range of issues, although nine of the almost two dozen loans in question in recent cases involve accusations of fraud. UWM, in suing one California-based broker, claims Freddie Mac discovered the fraud via IP tracing of a document’s e-signature.

In all, mortgage firms are seeking a combined $2.9 million in damages. Nearly all of the recent cases, triggered by government-sponsored enterprise notices, are third-party origination disputes. The cases, some of which involve loans from the Great Financial Crisis and the refinance boom, are:

• Rocket v. Sharp Loan, $194,183 for 5 loans; 
• Seneca v. Homespire Mortgage, $376,147 for a single loan
• Sun West Mortgage v. First National Bank of Pennsylvania, $872,000 for 3 loans; 
• UWM v. Suzanne Fillerup, $697,988 for 8 loans; 
• UWM v. Prestige Home Loans, $309,245 for 3 loans;
• Citizens Bank v. The Mortgage Link, $448,000 for a single loan.

UWM has secured default judgments against Fillerup and Prestige, as those companies have yet to formally acknowledge, or respond, to the accusations. Unlike the other fights, Citizens Bank claims The Mortgage Link admitted to incurable defects but still didn’t indemnify the depository. 

Defending against repurchase demands

Prieston said more industry participants, including non-qualified mortgage players, have sought his firm’s unique repurchase insurance policies in anticipation of greater future business. A policy, which is charged via a low one-time basis points fee, allows for an impartial insurer to assess the claim and alleviate some frictions. 

“That’s becoming more of an option for those investors who do not have a robust appeals process, like Fannie and Freddie, so that you can avoid litigation,” he said. 

Artificial intelligence will also reshape the flow of repurchase demands between lenders, experts said. While the tools can catch and clean up errors in the origination process, they can also spot trends in larger origination activity. 

“You’re not just going to see that (a lender) had a bad day,” said Maddox, the industry attorney. “You’re going to see that there was a systemic issue.”

Many of the cases of yesteryear involving Rocket and other players like Home Point Financial either fizzled out, or resolved via default judgment. Lenders named as defendants in today’s cases haven’t acquiesced, so far. 

One of the brokerages being sued is on the Federal Housing Finance Agency’s Suspended Counterparty program. Prieston emphasized that investors need to do their due diligence on counterparties in a more conservative, but responsible approach.

“Otherwise, you’re enabling these guys to start originating loans and they throw everything at the investor and see if they get caught,” he said. “And that’s definitely an approach they want to take.”