How To Legally Steal A Sales Team

Customer lists are the main reason these poaching lawsuits get filed

Katie Jensen
Steal a Sales Team

Would you leave your company for a $50,000 signing bonus? How about a $1 million signing bonus?

That’s how much Mark Everts, a former branch manager for Caliber Home Loans, was offered to switch over to CrossCountry Mortgage (CCM) along with the rest of his branch, according to a lawsuit filed on May 6, 2022. He was offered an additional $500,000 if his branch (those he brought with him from Caliber) achieved $600 million in loan originations by the end of the year, the lawsuit states.

It can’t be easy walking away from a deal when someone is laying that much cash down on the table. A million to five million dollars for a sign-on bonus? Those are life-changing figures. Branch managers and loan officers are extremely susceptible to these types of deals, especially in a market downturn when commissions are expected to be low.

In August, Mortgage Bankers Association forecasted total origination volume to drop 47% to $2.3 trillion by the end of 2022. That’s disheartening news for loan originators — not only will loan volume be cut in half this year, but they’ll have to deal with more competition as well. During the housing boom (or refinance boom) active state MLO licenses increased by 21% year-over-year in 2020 with the average MLO holding 3.75 licenses. That’s a lot of new loan originators chasing not a lot of volume.

Offering sign-on bonuses to loan officers when they’re feeling vulnerable can definitely work in your favor as a recruiter. But when it comes to luring away top producers in the industry, it’ll take a little more work than that.

CCM is embroiled in a number of lawsuits for “systematically raiding” competitors such as Guild Mortgage, Caliber Home Loans, and loanDepot. According to Caliber’s lawsuit, CCM “stole” 80 employees from 18 branches in six states who were responsible for more than $2.3 billion in annual loan originations.

A source told NMP that CCM CEO Ron Leonhardt is the mastermind behind these raids, calling him “one of the best recruiters in the business.” Based on the source’s interactions with Leonhardt, he believes these lawsuits are a cost of doing business. In fact, Leonhardt is one of the most directly involved executives when it comes to recruiting large groups into his business, the source said.

A spokesperson for CrossCountry Mortgage had previously told NMP, “CCM follows fair recruiting and employment practices. We do not comment on legal matters.”

Although Leonhardt’s strategy may cross some ethical boundaries, one can’t help but admit he is doing an excellent job of it. How does he do it? The source claims Leonhardt has a personal driver for his Mercedes-Benz Sprinter van who was hired solely for the purpose of wining and dining people he wants to recruit. He’ll pick them up from the airport and take them to dinner, which likely impresses his targets and leads them to believe they will be well taken care of at CrossCountry.

Steal a Sales Team 2

How And Why It Works

Loan originators and brokers are used to getting approached by recruiters and even brag about it in some cases. You may think it’s flattering that another company thinks you’re doing such a good job they want to recruit you. But, in most cases, it’s not just you they want. It’s your entire sales branch, or even your entire sales division.

Daniel Jacobs, founder and managing director of TruLoan Mortgage in North Carolina, says most of these recruiters don’t look at top producers, but at top-producing branches. This makes sense as most of these poaching lawsuits label the branch manager as the “conspirator” who convinces everyone else in the office — support staff included — to leave with him or her.

“Here’s what happens: you get a big branch with 20 loan officers. Five of them do $20 million in loans per month and the other 15 do another three loans per month. So, they move as a group, right? For morale and everything they move as a group,” Jacobs explained. “Companies don’t care about the individual loan officer, they care about the aggregate.”

In loanDepot’s lawsuit against CCM it states that the company’s focus on loanDepot’s New York branches are hardly a surprise as they are “highly profitable” and “have produced $846 million of loans per year on average.”

This strategy benefits the recruiter (or poacher) in many ways. Instead of trying to recruit every individual in a branch location, the recruiter only needs to capture one — in most cases, the branch manager. If the recruiter were to call up every staffer in the branch it would come across as intentional poaching, but if the branch manager or “conspirator” convinces the entire branch to switch over, they are more likely to get hit with a lawsuit rather than the recruiter’s company.

In CCM’s case, email exchanges show that the company encouraged its competitors’ employees to leave and take company information along with them.

Exploiting A Lack Of Unity

Jacobs also makes a valid point about morale. Basic psychology tells us people don’t like change, so why would someone be OK with switching companies during a time of economic uncertainty? Lenders that have branches spread across the country lack company unity. The employees won’t have loyalty if there is no company culture tying them together. They do, however, have loyalty and culture within their own office.

Branch managers are generally quite independent. Each branch is responsible for their loan production and the managers are in charge of hiring staff. Recruiters or poachers target specific branches either because they’ve assembled a good team or they’re located in an area with high demand.

– Jonathan Fowler, American Financial Network

Now, recruiting is not as easy as calling up a loan officer and offering a sign-on bonus. Cold-calling loan officers and offering them a job may come across as suspicious or even like harassment. Jonathan Fowler, vice president of business development at American Financial Network, calls it the “shotgun approach.”

“Ask any loan officer who is closing at least five loans a month — they don’t even have to be a top producer — any loan officer, and they’ll likely tell you they prefer to reach out to a recruiter instead of getting a cold call from someone they don’t know,” Fowler said.

Fowler, who is an experienced recruiter in the industry and has had his fair share of recruiters contact him, explains what good “aggressive” recruiters do.

“I had a great phone call from a [recruiter] the other day,” Fowler said. “She was aggressive but she did a great job promoting her company. She found me on LinkedIn, and started using social media to make her presence known. She would comment or emote on my post, then she started sending me messages, asking me if it was OK to set up a phone call. She did a great job and I hope she goes far.”

One of the biggest mistakes a recruiter can make, Fowler said, is disparage the company the employee is currently working for. Fowler says this makes the recruiting target suspicious — it sends the message that this recruiter cares about damaging their competitor rather than snagging the person they’re recruiting.

Use The Positives

Neither Jacobs nor Fowler claim to engage in this aggressive type of recruiting. Fowler said he does not have a pitch to throw at people and he rarely, if ever, reaches out to individuals to recruit them. Instead he uses the positives of the company he is at and relays that information to everyone, and the ones that reach out with questions or show interest are recruitable.

“The people who make these poaching or recruiting calls have no value to add,” Fowler said. “Most of them don’t even know what it’s like to be a loan officer. They’re just trying to get someone to move over in what I call this horrible shotgun approach.”

Jacobs said he avoids aggressive recruiting tactics because he dislikes paying attorneys. “So over the years as I’ve built organizations, we did not aggressively outbound recruit people, because part of our process is to ask if they have restrictive covenants and we insisted they follow them. What that often resulted in was we couldn’t get the entire branch because they didn’t read their agreement and they weren’t allowed to bring a lot of the people with them. But sometimes they could.”

Jacobs said his company takes a more passive approach by mostly sticking to inbound recruiting where they’d market what they were doing through direct mail or paid ads.

Information ‘Stealing’

Poaching from your competitor usually isn’t the sole cause for these lawsuits. More so, it has to do with stealing information from competitors.

It’s common practice for mortgage professionals to hop from one company to the next. It’s a cyclical business with a high turnover rate, so unless someone’s employment contract states otherwise, it’s OK for loan officers to leave and begin working with their competitor. (In some agreements, it states that an employee cannot work for a direct competitor for a stipulated amount of time.)

However, stealing company information can lead to legal trouble. In most poaching lawsuits between mortgage companies, terms like “trade secrets” and “confidential proprietary information” pop up. But what exactly does that mean?

For the most part, they’re talking about customer lists. Other stolen information like marketing campaigns and company reports are not going to divert money away from a lender or brokerage, but the clients are their bread and butter. Every lender’s entire business depends on their clientele.

“There are very few company secrets in this business,” Jacobs said. “No one has the Coke recipe in their vault. We’re all dealing with the same agencies, selling the same loans, using the same guidelines. We all have a version of the same processes. Are there really some instances of company secrets? I would say perhaps when a company is heavily invested in expensive marketing campaigns and manipulating their data for conversions … Yes, that’s a secret. But other than very few instances, I kind of laugh at this idea of company secrets — we’re all selling the exact same thing.”

Fighting for Customer Info

Lists Are Central

Customer lists are central in this battle and are the main reason these poaching lawsuits get filed.

Debra Killian, former co-owner of Charter Oak Lending Group, was a victim of poaching in 2004 when all of her employees left to work for her competitor, CTX, bringing their customer lists along with them.

Killian decided to go toe-to-toe with the then-mortgage giant in court. She was surprised to hear her former employees claim they were “independent contractors” instead of W-2 employees.

“Using the independent contractor premise, they basically said they own their clients,” Killian said. “But loan officers who have no ownership in the company must be paid on a W-2. We paid every one of our employees on a W-2. We withheld taxes, we had a 401(k), we offered other benefits a W-2 worker would typically get. They were claiming to be independent contractors with the benefit of employee status.”

Killian insists that her former employees knew what they were doing was wrong. She said everyone on her staff was provided a copy of the employee handbook and they reviewed it annually.

“We had an employee handbook that said you must refrain from any conflict of interests. You need to be working for one company at a time, so you can’t work with your competitor while you’re also working for us — kind of common sense things,” Killian said. “We also had a very simple paragraph in the employee handbook that basically said all data and files are property of the company and they are not to be shared with anyone outside of the company for any reason.”

‘Nobody Owns The Client’

However, ownership of customer lists is not as black and white as that — not even in court.

Fowler admits that a federal court will say the company owns the clients and lenders subscribe to that belief for obvious reasons. The loan officer community, on the other hand, will say nobody owns the client. For the most part, loan officers think if you were to ask the client who they choose to work with, they’d follow the loan officer.

Loan officers and brokers have access to their own pipeline. They got those leads (unless the company paid for them), they formed a relationship with the borrower, and they are tracking the progress of those loans. In most cases, loan officers and brokers build their entire pipeline themselves or with the assistance of their support staff who they hire themselves. After putting in all that effort to build their pipeline, it’s no wonder why they feel possessive.

“The salesforce is out there gathering those names and that information,” Fowler said. “They’re the ones borrowers are following up with, they’re the ones who run into clients in the grocery store, and so forth — not the legal firm, not the compliance officer, or any of those people.”

It’s You — Not Your Logo

Fowler says most seasoned loan officers have what he calls a “seasons greeting list” made up of past clients so they can stay in contact with each other, and the loan officer can get more referrals.

“As a borrower, I do not do business with you because of the moniker on your shirt,” Fowler said. “I do business with you because I feel like I could trust you, I like you, and you seem to work hard for me.”

So, if anyone were to ask the client who they would prefer to continue working with, either the loan officer at the new company or their original lender, they might be more inclined to choose the loan officer.

In reality, the borrower likely chooses to work with a specific lender because of the loan officer and the products the lender offers. They can be swayed in either direction with a little convincing, but the loan officer has already built a relationship with that borrower so they’re likely better at luring them in.

The only opinion that matters, though, is a judge’s opinion. In most cases, the wealthiest company wins because it has the financial endurance to pursue litigation.

David Lykken, executive coach and business strategy consultant at Transformational Mortgage Solutions, who has testified as a witness in multiple poaching cases, said, “He who has more money and better attorneys wins.”

In Lykken’s experience, if there is good evidence that a company did not encourage information stealing, and the loan officers did it on their own, they can get away with it — not for free of course, as legal fees can quickly add up.

Data Theft

How To Prevent Poaching

It’s hard, as the owner or executive leader of a company, to prevent your sales team from being poached. Considering how much every mortgage company relies on its sales team to bring in business, it’s quite natural to be afraid of them.

Most of all, you want to avoid going to court, especially if you find yourself in a David vs. Goliath situation. If your competitor is much bigger than you, should you even attempt to hit back? Well, the answer is entirely up to you. But, if you do decide to hit back, make sure you’re financially prepared for a drawn-out battle.

As a leader, you want to command respect. You want your employees to like working for you. You don’t want to be a cruel boss, but you don’t want your employees to walk all over you either.

First, every business owner or leader should accept the fact that most, if not all, employees will leave you at some point. They’ll either retire, get married and move away, switch occupations, or get lured away by another mortgage company. The possibilities as to why are endless; therefore, you should discuss the proper way to leave with every employee that gets hired to avoid future conflicts.

Plenty of companies review their employee handbook annually with their staff. Unfortunately, that won’t be enough to dissuade them from leaving and stealing company information on the way out. Lykken suggests showing them concrete examples of what happens when you steal company property and leak information to competitors.

“Tell them it’s OK to leave and educate them on how,” Lykken said. “Give examples of people who got sued and use case law to educate your loan officers.”

Don’t Get Blacklisted

Lykken said he saw one company sue another for taking cups and pins, literally. These lawsuits can start with something as small as office supplies before they start thinking about what else you might have taken.

“It’s called going nuclear,” Lykken said. “They’ll bring up everything you may or may not have done to wrong the company and pile it into a lawsuit.”

He said companies have access to loan officer logins, as well — they can track your location, IP address, and login times — so they know when and where you’re accessing client information.

“Loan officers can get fired from their new employer for stealing from their previous employer. They get blacklisted and may never work in the industry again. That, and they’ll have to pay millions of dollars in fines and fees,” Lykken said. “Do a better job of educating your team up front and be proactive in protecting information.”

When a loan officer agrees to engage in poaching, they must know the reputation, legal, and financial risks behind that decision. But is scaring your loan officers the only answer to gaining their loyalty? Of course not.

Jacobs recommends a strategy of open communication as well and a willingness to negotiate.

“I would often engage in a conversation that goes like this: Let’s look at the pipeline you’ve got. I want to know what your expectations are and I hear what they say, and then I inform them of what the agreement is. But, then I’ll set those things aside and say let’s talk about this practically.”

First, Jacobs and the employee will identify which leads the company paid for, and keep those. Self-generated leads, on the other hand, are negotiable.

“If we’ve got a locked loan or a loan in processing, typically what I would say is ‘We’re going to retain those. You’re not allowed to solicit those, and if the client calls you let them know you are being well taken care of elsewhere. For anything that closes in 30, 60, or maybe 90 days, we’ll pay you a certain amount per loan.’ It might be less than their regular commission because someone else is helping to close it, but we would come to a negotiation that way,” Jacobs said.

For any loans that have not been locked, gone under contract, or haven’t progressed much, the loan officer can take them, Jacob said. This way, the company can protect what it has invested in.

After adopting this strategy Jacobs has seen positive results, such as having a loan processor return to his company after leaving for a competitor. He suggests because they parted ways amicably, the woman felt comfortable enough to ask for her old job back and she got it.

Take Them To Court

Poaching can truly be a nightmare for its victims. But, what can be even worse is the litigation that follows afterwards.

Killian, the former co-owner of Charter Oak Lending Group, with her husband Don DeRespinis, had nine loan officers and one processor working for her in 2004.

Killian paid for seven originators and herself to attend a conference that another mortgage company was hosting. Unbeknownst to Killian and her team, the people who invited them to the conference were involved with their competitor, CTX, and were recruiting for them.

Shortly after the conference suspicious activity started to arise. Killian stayed home from work one day because she had a backache, but decided to login to her system to check in on everyone.

“All of a sudden I saw all these loans being suspended, suspended, suspended in our system,” Killian said. She then decided to call her husband and ask him what was going on. Both of them realized their loan officers were shutting down loans that they had started.

By the time Killian’s husband called her back, four of Charter Oak’s top employees had quit without giving notice. Real estate agents and attorneys began to call her office saying that they had just received cards postmarked days earlier announcing that the (now former) employees were moving to CTX Mortgage, a giant broker and lender and one of the country’s leading homebuilding companies.

Over the next few weeks several more employees resigned, including one processor who was a friend of Killian’s since kindergarten, and left to join CTX. In total, it took about 30 days before everyone in her company left, taking customer lists with them.

“All of a sudden, we’re getting calls,” Killian said. “We had customers calling us, telling us they didn’t authorize their file to be taken somewhere else. I mean, it was just a lot of unbelievable stuff.”

Killian said CTX paid her former employees collectively $278,000 in signing bonuses. The company also asked for data and files belonging to Charter Oak Lending.

Business David vs. Goliath

Gone In A Month

After spending 10 years building up her company, Killian saw it all fall apart within a month. But, that was just the beginning of her nightmare.

Killian filed a lawsuit in December 2004 against CTX and the employees who left, alleging unfair trade practices, misappropriation of trade secrets, breach of fiduciary duty and computer-related offenses, among other charges. Nine years of litigation ensued between the two companies and all 10 defendants involved in the poaching, and it cost Killian about $500,000.

“Attorneys can lure you into a case without you really understanding how big and bad it could really get,” Killian said. “They don’t talk about that at the beginning.”

Unfortunately, the lawsuit did not pan out as Killian had planned. At the time, the courts didn’t understand the nature of the problem and did not know how to value the information that was stolen — mainly client information like names, addresses, social security numbers, dates of birth, and interest rates on their loans.

“The courts don’t understand white collar crime,” she said. “They didn’t understand the value of a file that represents a customer that represents a transaction. That could be $3000 or $5,000, whatever the value of that transaction closing was, they just didn’t get it.”

Crabgrass, Not Green Grass

Despite all this turmoil and frustration, Killian still somewhat felt bad for the employees who left. They thought they were leaving for greener pastures, but that’s not what ended up happening.

“Most of the people that left us ended up getting out of the business,” Killian said. “CTX ended up selling to PTE.”

“If this were to happen all over again, and if I were gonna file a suit, it would be filed in federal court,” Killian said. “Because the federal courts are no nonsense and they expedite things where the state drags things out. The second thing is I don’t think the state really understood the essence of the case where I think a federal judge is more sophisticated and probably would’ve understood a little bit better.”

– David Lykken, Transformational Mortgage Solutions

Although CTX could afford to bring in heavy-hitting attorneys from Dallas and did not suffer as much from the legal fees, Killian believes her competitor’s decision to poach from her company was their loss.

“I’m guessing that it cost them more than what they got in loan production,” Killian said.

Bad Decision?

Still, Killian admits it likely hurt her company and family more to pursue litigation, although she believes it was the right decision at the end of the day.

The irony behind it all was that Killian found out, in the midst of gathering information during litigation, that CTX sued other companies for doing the exact same thing that they did to Charter Oak Lending.

As mentioned, Jacobs said he likes to avoid lawsuits. Instead, he consults with his competitors directly.

“When another company recruits someone from our company, and then we see them going after a few more people, we send out a notice of our contract and the restrictive covenants that employee had,” Jacobs said. “Without us doing that, the company can claim they didn’t know about our restrictive covenants. But once they do know, we can sue that company for tortious interference.”

He recommends this as a good technique to stop the bleeding, but it won’t make up for how much you’ve already bled out.

‘It never results in getting the employees back,” Jacobs said. “It rarely results in money being exchanged. It can only put a stop to what the poacher is doing.”

Poaching vs. Recruiting

Even though poaching is extremely prevalent in the mortgage industry, most people struggle to accurately define it. It’s important to note the differences, especially if you’re trying to avoid a lawsuit.

Texas-based business law firm, Hendershot & Cowart P.C., states that employee poaching occurs when one competitor hires multiple employees from a competitor’s company. Assuming the company acquired these new workers intentionally, the term is called “poaching,” or “employee raiding.” In some states, poaching is legal and within others it is not.

Recruiting is when one competitor hires employees from a competitor’s company without the intention of doing so.

There is only a thin, gray line between the two terms. Essentially, a company must prove that their competitor intentionally seeked out multiple employees from their office to recruit.

Word of advice: Don’t be a poacher; be an aggressive recruiter.

This article was originally published in the NMP Magazine October 2022 issue.
Katie Jensen
Published on
Oct 03, 2022
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