Originators burned by Sprout Mortgage’s shutdown last month are suing the company for allegedly reneging on agreements to purchase millions of dollars worth of home loans.
A pair of mortgage firms have filed federal lawsuits in the past three months accusing Sprout of breach of contract, among other counts, for agreeing to purchase pools of mortgages despite its impending collapse. Meanwhile a bank is going after Sprout for failing to remit a loan payoff. Sprout reportedly shuttered early last month, although the company has been silent on its status.
“Despite repeated written demands – all of which have been ignored – Defendant Sprout has failed and refused to abide by its agreement to complete the purchase of any of the loans,” wrote attorney Daniel Goldberg of Uniondale, New York-based Offit Kurman, P.A., on behalf of New Wave Lending Group in a suit last month.
Industry, California-based New Wave, a non-QM lender, sued Sprout two weeks ago in the U.S. District Court of the Southern District of New York for approximately $6 million, related to its failure to purchase approximately $32 million worth of loans. Sprout regularly purchased New Wave loans and the companies were in a flow mortgage loan purchase and sale agreement since last July, according to the suit.
Between Jan. 20 and Feb. 15, New Wave solicited bids from multiple investors for approximately 50 loans it funded and closed, ranging from $220,000 to $1.9 million for a total value of approximately $32.8 million, the suit said. New Wave accepted Sprout’s offers to purchase the pool. In April Sprout said the loans were cleared for purchase, but its insolvency meant the company failed to follow through. New Wave was forced to seek a new buyer.
“Defendant Sprout knew that Plaintiff New Wave was acting on the basis of incorrect and mistaken information,” the suit said.
New Wave is seeking the difference between Sprout’s agreed-upon price and the unspecified price at which New Wave sold the loans to an unidentified third party. The lender is also seeking a combined $567,501 in “holdback” funds, or 2% of the principal amount of the loans, which Sprout agreed to pay upon confirmation of the deal.
New Wave declined to comment Wednesday and an executive for East Meadow, New York-based Sprout didn’t respond to a message seeking comment.
In late May, non-QM lender Family First Funding accused Sprout of breach of contract for defaulting on the purchase of $5.1 million in loans. Sprout in April confirmed the loans were cleared for purchase but failed to complete the deal, according to the complaint filed in the U.S. District Court of the Southern District of New York.
In one instance, Sprout took possession and control of a loan but failed and refused to pay the agreed-upon price, Toms River, New Jersey-based FFF said. The company eventually sold the loans to an unnamed third party for an undisclosed price, and is seeking unspecified damages from the shuttered lender.
Merchants Bank of Indiana also sued last week in the U.S. District Court of the Eastern District of New York for $1.2 million in a case where Sprout was the seller. Sprout originated a mortgage for a Los Angeles property and the Carmel, Indiana-based bank bought the loan in April, according to the lawsuit.
However, the loan had a short life and the borrowers paid the $1.2 million mortgage in full in April to Sprout, then the interim servicer of the loan. But Sprout refused to remit the payoff to Merchants, the company said. In addition, Sprout also owes Merchants a prepayment penalty of $15,187 because the loan was paid off within 90 days.
An attorney for both Merchants and FFF and a lawyer for Sprout didn’t return requests for comment Wednesday. A pretrial conference between FFF and Sprout is scheduled by telephone Sept. 21.
Sprout is also facing a federal class action suit from two former employees accusing it of denying employees their final three weeks of pay before firing them one day before their paychecks were due. Summons for Sprout and parent company Recovco Mortgage Management were served to an operations manager identified as “Lisa H.” at the lender’s office last month, according to court filings.
The company is the second mortgage firm to shutter amid an industry cycle of layoffs and declining mortgage activity, following Plano, Texas-based lender First Guaranty Mortgage Corp.’s bankruptcy in June.