California-based Loan America, Inc. is the most recent ex-business partner to sue Sprout Mortgage Six months after the lender of mortgages abruptly shut its doors, the suit was filed.
The suit was filed in the Superior Court of the State of California, County of Los Angeles on December 20, and accuses Sprout, its president Shea Pallante, Sprout’s owner, and Christopher Wright, chief financial officer, of fraud and theft, promissory isoppel, negligence and unfair business practices. It also alleges civil conspiracy.
HousingWire emailed the representatives of these companies asking for their comments, but they did not respond.
Loan America is a mortgage service company that relies on credit lines or warehouse loans for funding. This approach is similar to other lenders. Typically, such loans are not held for longer than two weeks by the company. Instead, they are sold to a number of investors, including Sprout Mortgage.
The lawsuit states that Loan America and Sprout agreed to agree rates and prices for all loans that Sprout might be interested in buying. Loan America said it would not finance or close the loan until it received a confirmation from Sprout that they are “cleared and ready to close”.
After doing its research, Sprout sent a confirmation of “cleared for purchase”. This was what Loan America reported happened to a package consisting of $7,581,712 loans that were originated between January and March 2022. The lender claimed that Sprout did not complete the purchase.
Loan America attorneys stated in the suit that Sprout had failed to comply with its contract to purchase any loans despite repeated requests, which were ignored by all parties.
According to the lender, it left $700,000.000 in its warehouse credit card line by March 23rd. About $700,000 of the $10,000,000 available was made up of loans that were locked with Sprout. This reduced its ability to finance new loans and led to revenue losses.
Loan America claims that it suffered losses after being forced to transfer the loans to third parties to reduce its damage.
According to information and belief, Sprout was insolvent or had been declared bankrupt on or before January 20,22. It could not fulfill its obligations towards Plaintiff. Plaintiff was not informed of this fact by Sprout. Instead, Sprout conspired with all Defendants to hide it from Plaintiff.” the lawsuit claims.
Tech mortgage platform Modex Loan America has originated mortgage loans worth $95,000,000 in the past 12 months. This is an increase of about $14 million from February and $4 million from November. There is one branch of the company and eleven active loan officers.
According to the suit, problems at Sprout began months before it shut down operations in July. It laid off all its employees without severance and their last paychecks.
Ex-employees claim that the company cut their insurance retroactively on May 1, 2022, without any prior notice. The company also allegedly took insurance premiums out of employee paychecks.
New York police are investigating the facts. The facts are under investigation by New York authorities. New York State Department of Labor HousingWire was told by spokesperson that it does not comment on ongoing or open investigations.
Sprout was sued recently by vendors, former employees and business partners such as Banc of California, New Wave Lending Group, Merchants Bank of Indiana And FirstFunding. Some of the claims have been denied by the mortgage lender, who has begun to address them.