Pennsylvania Federal Court Allows Borrowers To Bring Fraud Claims Against Rocket Mortgage For Terminating Their Application For A Loan At 3.99% Interest Without Justification, Then Immediately Offering A New Loan At 5.5% Interest
By: Carl L. Engel
April 13, 2022
On April 11, 2023, the U.S. District Court for the Eastern District of Pennsylvania, in the case Speicher v. Rocket Mortgage, LLC, allowed loan applicants to bring fraud claims against a lender who had terminated their mortgage-refinance application without justification, only to immediately thereafter offer a different loan at the higher rate. The court found that, because the applicants accused the lender of purposefully delaying their application to allow interest to rise before offering the second loan, they had stated claims for fraud. This case illustrates the recourse available to borrowers who fall victim to lenders’ interest-rate games in an economic climate where rates are fluctuating dramatically.
In 2022, John Speicher and Patricia Giles contacted Rocket Mortgage for the purpose of refinancing their property located in a suburb of Charlotte, North Carolina. According to them, during the application process, they “locked in” a fixed rate of 3.99% for a thirty-year loan in the principal amount of $647,200.
On March 23, 2022, Rocket Mortgage sent disclosure forms to the applicants, which included a cover letter with a signature line asking them to confirm that they received the forms. The cover letter set a closing date for March 30, 2022. The applicants signed the cover letter and returned it to Rocket Mortgage. They did not hear from Rocket Mortgage for more than two weeks.
On April 15, 2022, Rocket Mortgage telephoned one of the applicants and informed him that “the 3.99% mortgage rate was being terminated due to lack of activity on the file for a three-week period of time.” The applicants responded that the delay had been caused by Rocket Mortgage, and that they had been ready to close on the scheduled date. During the call, Rocket Mortgage raised “concerns” that one of the applicants had worked for two different law firms in the same year. The applicant responded that the first law firm had merged with the second in the middle of the year. Rocket Mortgage concluded the call by agreeing to extend the closing date on the loan to May 2, 2022.
On April 19, 2022, the applicants emailed Rocket Mortgage to explain the merger of the two law firms in more detail. On April 20, 2022, Rocket Mortgage notified the applicants that it was terminating their application. It then offered to restart the application process, but advised that the interest rate would be 5.5% instead of 3.99%.
The applicants thereafter filed a lawsuit against Rocket Mortgage for (i) breach of contract, (ii) negligence, (iii) fraud, (iv) violations of the Truth in Lending Act, and (v) violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). Rocket Mortgage filed a motion to dismiss each of the claims brought against it.
On April 11, 2023, the court issued its decision, dismissing some of the claims but preserving others. The court dismissed the contract claim, because the applicants and Rocket Mortgage never finalized a contract between them. The court dismissed the negligence claim, because it found that Rocket Mortgage did not owe the applicants a common-law duty with respect to the application. Finally, because the applicants did not identify which sections of the Truth in Lending Act they believe Rocket Mortgage to have violated, the court dismissed the claim for violations of that Act.
The court, however, allowed the applicants’ claims for fraud and violation of the UTPCPL to proceed to discovery. In support of the fraud claim, the court observed that the applicants had made allegations that Rocket Mortgage had represented to them that it would keep the 3.99% interest rate on the table until May 2, 2022, but that Rocket Mortgage’s ulterior motive was to stall while interest rates rose to 5.5%. The court found that these same allegations were sufficient to state a claim for violation of the UTPCPL, as well.
In a period of economic uncertainty when interest rates are fluctuating wildly in short periods of time, there is recourse available to borrowers who are at the losing end of a lender’s rate-gaming scheme. As illustrated in this case, an unscrupulous lender may be liable to the applicant for the difference between the two rates offered. In effect, the result would be that the applicants obtain their loan at the lower rate, because they have not yet paid interest on a loan, so there is nothing yet for the lender to reimburse. Moreover, because the UTPCPL allows a prevailing consumer to collect their attorneys’ fees, the unscrupulous lender may also be required to pay the applicants’ legal fees incurred in connection with enforcing the lower interest rate. Therefore, a loan applicant who believes that they are the victim of a lender who is gaming interest rates should consult with an attorney to discuss their rights under both the UTPCPL and common law.