Direct Mortgage says it's happily acquired, but a past ugly breakup is coming to light.
Ex-employees Brooks Kelly and Jason Harris are suing the Utah-based Direct and its CEO Jim Beech in federal court, over an expensive split involving faulty software, hundreds of thousands of dollars in compensation and an unfulfilled acquisition. The breach of contract suit, filed days before Direct announced its
The lawsuit was first reported
The other $200,000 regards an unpaid personal loan Kelly and Harris allegedly floated the struggling company. In a message to National Mortgage News Monday, Beech refuted that story, suggesting the pair had instead agreed to cover the company's losses ahead of their acquisition of Direct, before ultimately ditching the lender.
"So sad that they didn't do what they promised," wrote Beech in an email.
The former CEO, who said he's now retired, indicated a counterclaim would be filed. An attorney for the plaintiffs declined to comment on the filing and Beech's response.
The plaintiffs said they joined Direct last summer and entered into an option contract to buy the company for around $2.2 million. They were enticed by the lender's
The LOS however generated inaccurate documents, defective disclosures and other problems that created compliance and business risks, according to the complaint. Beech promised the company would fix its technology, and Harris and Kelly say they lent the $200,000 to Direct last year.
The pair said they floated the loan despite Beech telling them previously that the business had roughly $3.2 million in working capital. Harris and Kelly emphasized their claim that Direct never repaid them.
"Direct acknowledged the irreparable systemic limitations and told Plaintiffs to abandon the loan operating system, advising plaintiffs to leave the company altogether," the complaint read, stating the lender made plans to sell the company immediately thereafter.
Direct Mortgage disputes claims
Beech, denying there was a loan, said the employees interested in buying the firm agreed to share profits until they could complete the deal. They also agreed to pay for all losses during the transition, and paid $200,000 for losses last June, the CEO said.
"When there were more losses the next month they refused to pay for those losses," wrote Beech. "The company, contrary to our agreement, had to pay for these losses."
Direct asked Harris and Kelly to pay for the losses, or it would terminate their agreement to buy the firm. The pair then gave notice they were leaving Direct and left in August, causing "even greater losses," according to the CEO.
In lamenting their broken promise, Beech added there was no written agreement, but rather a verbal agreement with emails.
Long hours, no pay
The plaintiffs further accuse Direct of multiple
Kelly, hired last June as an originator and a director of retail sales, claims he closed $10 million in loans without any compensation or commissions. He claims to have worked 90 hours a week last summer, or 16-hour weekdays and weekend work.
Harris, a strategic advisor for the firm, was promised bonus compensation as a percentage of the increase in Direct's operating profits. According to the suit, Harris worked 14-to-16 hour days, seven days a week, including a 112-hour week last year. Combined, the plaintiffs say they're owed at least $100,000 in unpaid commissions and at least $450,000 in unpaid bonuses.
Direct moves on
Direct, which is licensed in 19 states, recorded around $209 million in loan volume in 2024, according to the most recent Home Mortgage Disclosure Act data. Orange County, California-based Lendermac agreed to buy Direct last month. The nonqualified mortgage lender operates in the wholesale and correspondent space.
Beech said Monday that the company completed their acquisition "with speed and professionalism."
Lendermac CEO Kenneth Jo in a statement last month lauded Direct as bringing a "strong operational expertise" and an established national presence to his firm. Financial terms of the deal were undisclosed, and Jo didn't respond to a message Monday asking if the price for Direct was close to the $2.2 million option Harris and Kelly alleged they were offered.
