Layla Zulfa
Top-five mortgage lender CrossCountry Mortgage (CCM) has initiated a significant legal offensive against its former employees, issuing cease-and-desist letters to at least 25 loan officers who have recently departed the company. The letters, reviewed by HousingWire and confirmed by sources within the industry, assert that these former employees are in violation of their employment agreements, specifically citing a two-year non-solicitation clause. CCM is demanding substantial financial penalties, in some cases reaching nearly $20,000 per individual, based on a contractual provision that creates a "legal presumption" of violation for any mortgage product or service offered to past, present, or future CCM customers.
The aggressive stance taken by CCM underscores a growing trend of stringent enforcement of restrictive covenants within the highly competitive mortgage lending sector. These agreements, often signed at the outset of employment, are designed to protect a company’s proprietary information, client relationships, and market share. However, in this instance, CCM’s interpretation and enforcement of these clauses appear to be particularly broad, casting a wide net over the activities of its former loan officers.
Legal Framework and Demands
The cease-and-desist letters, all bearing the date of October 29 and sent by Ashley C. Wakefield, senior corporate counsel for the Cleveland-based lender, outline a three-part demand. First, they order the recipients to immediately cease and desist from any further solicitation or business activities that allegedly violate their non-solicitation covenants. Second, they demand payment calculated at 75 basis points (bps) for each refinanced loan originated by the former loan officer that CCM deems to be in breach of the agreement. Third, the letters include a formal litigation preservation notice, warning recipients that legal action is a distinct possibility if the demands are not met.
CCM’s legal arguments are rooted in what it describes as a "legal presumption" embedded within the employment agreements. The company asserts that any mortgage product or service provided by a former loan officer to a CCM customer, whether past, present, or future, is automatically considered a violation of the non-solicitation covenant. This presumption shifts the burden of proof, placing the onus on the former employee to demonstrate that their actions do not constitute a breach, rather than on CCM to prove they have been harmed.
The financial penalties outlined in the letters vary, with some demanding several thousand dollars and one specific instance showing a demand approaching $20,000. These payments are to be made via check mailed to CCM’s headquarters in Cleveland within 10 business days of the letter’s receipt. Failure to comply within this strict timeframe could result in CCM filing a lawsuit "without further notice," according to the correspondence.
Underlying Contractual Provisions
The core of CCM’s legal claims lies in the restrictive covenants within the employment agreements allegedly signed by the loan officers. These provisions typically encompass confidentiality, non-solicitation, and the return of company property. CCM contends that these clauses are binding even after an employee’s departure.
Specifically, the company argues that confidential material includes all non-public personal information of borrowers, which is protected under the Gramm-Leach-Bliley Act (GLBA). Furthermore, CCM asserts that every loan handled by a loan officer during their tenure remains the "sole and exclusive property" of the company. This broad claim of ownership over loan files and associated borrower data forms a critical part of their argument for enforcing the non-solicitation clause.
Scope of Impact and Potential Reach
While the letters obtained by HousingWire specifically target a limited number of loan officers, industry observers suggest this action could be part of a broader strategy. Many loan officers have left CrossCountry Mortgage in recent years, seeking opportunities at other lending institutions. If these former employees have continued to originate loans, particularly those involving former CCM clients, they could potentially face similar legal action.
Data from RETR, a platform tracking loan officer movements, indicates that a significant number of loan officers have departed CrossCountry Mortgage over the past 14 months. Specifically, 843 loan officers have left the company during this period. Of these, 61 generated at least $20 million in volume within that timeframe. However, it remains unclear how much of this volume was directly attributable to former CCM clients. The departure of such a substantial number of loan officers raises questions about the potential scale of CCM’s enforcement efforts.
The cease-and-desist letters not only demand financial compensation but also explicitly instruct recipients to cease originating loans for any CCM customer, prospect, or referral source. They are also required to stop using any CCM confidential material and to provide written certification that all company materials have been returned.
Litigation Preservation Notice: A Deep Dive
The litigation preservation notice included in the letters is particularly comprehensive and signals CCM’s readiness to pursue legal remedies. Recipients are warned that "litigation over these matters is reasonably likely." They are instructed to preserve a wide array of records, including:
- Employment and Compensation Records: Offer letters and compensation details from their current employer.
- Loan Origination Data: Loan files, lead-source data, CRM (Customer Relationship Management) system records, and loan origination system records.
- Communications: All communications with any current or former CCM borrower.
Crucially, this preservation demand extends to personal devices and digital tools. It specifically names email, text messages, instant messages, voicemails, call logs, calendar entries, shared drives, cloud accounts, and even "AI chat history." This broad scope suggests CCM’s intent to meticulously scrutinize digital footprints for any evidence of non-compliance.
The letters also contain a stern warning regarding the destruction of evidence. Recipients are instructed to immediately suspend any auto-delete policies or practices related to device replacement. Failure to preserve evidence, the letters state, "may expose you to sanctions for spoliation," a legal term referring to the intentional withholding or destruction of evidence.
Industry Context and Precedents
The aggressive enforcement of non-solicitation clauses is not a new phenomenon in the mortgage industry. Lenders invest heavily in building client lists and training loan officers, viewing these as valuable assets. When loan officers leave, especially to join competitors, companies often seek to protect their investments and client base.
However, the scale and specific demands in CCM’s letters appear to be a significant escalation. The "legal presumption" of violation for any loan to a former customer is a particularly stringent interpretation of non-solicitation agreements. Such clauses are often the subject of legal disputes, with courts scrutinizing their reasonableness in terms of scope, duration, and geographical reach.
The Gramm-Leach-Bliley Act, cited by CCM, is a federal law that requires financial institutions to explain how they share their private information to consumers. While it mandates privacy protections, its application in enforcing non-solicitation agreements typically relates to the protection of borrower data as confidential information.
Potential Repercussions and Industry Reactions
The immediate impact of these letters is likely to create significant anxiety and uncertainty among former CCM loan officers. They face a difficult decision: either comply with the demands, potentially paying substantial sums and ceasing their current business activities, or challenge the legality and enforceability of the agreements, which could lead to costly litigation.
For the broader mortgage industry, CCM’s actions could signal a hardening of employer-employer relationships and a more aggressive approach to retaining and protecting client relationships. This could lead to increased legal scrutiny of employment contracts, with both employers and employees seeking legal counsel to understand their rights and obligations.
New employers of these loan officers may also find themselves indirectly involved. If the former loan officers are unable to comply with CCM’s demands, it could impact their ability to perform their duties, potentially leading to disputes with their current employers.
As of the publication of this report, representatives at CrossCountry Mortgage had not immediately responded to HousingWire’s request for comment, leaving the company’s motivations and broader strategy open to interpretation. However, the meticulous detail and stern tone of the cease-and-desist letters suggest a calculated and determined effort to assert control over its former workforce and protect its market position. The coming weeks and months will likely reveal the full extent of CCM’s enforcement campaign and the legal responses from the affected loan officers. The outcome of these disputes could set important precedents for non-solicitation agreements in the mortgage lending industry.
