Sprout Mortgage reportedly in settlement negotiations with laid-off employees
Sprout Mortgage is addressing some fallout from last summer’s shutdown. It is currently discussing settlements with former employees, certain business partners, but not cooperating to other lenders. Five federal lawsuits have been filed against the former East Meadow, New York-based company. They allege that it failed to pay its mortgage payments in the months preceding its July closure. One of the cases involves a settlement with former employees who sued for three weeks of back pay. This would be a rare concession for mortgage professionals who were impacted by mass layoffs in last year. According to court records, 96 former Sprout employees have joined a lawsuit in the U.S. District Court of the Eastern District of New York. According to court records, the complaint alleges that CEO Michael Strauss instructed employees not to issue paychecks during a two-to three-week period in June and July. “I can report that the attorneys had a substantive conversation over the documents that defendant Strauss has produced concerning Defendant Strauss’s ability to contribute towards a settlement,” Scott Simpson, Menken Simpson & Rozger for plaintiffs, wrote in a Tuesday filing. He didn’t reveal any further details and didn’t discuss any proposed settlement amounts. Simpson suggested that an update would be filed next Wednesday. Strauss and the attorneys for the parties did not respond to queries this week. According to federal court records, Sprout is negotiating settlements in two other business disputes. In a dispute over Sprout’s alleged default on a $5.1million loan purchase, the firm agreed to a $475,000 judgment by Family First Funding in New Jersey. California-based New Wave Lending Group is suing Sprout for $6 million in a New York federal Court. It is seeking recourse for the company’s alleged failures to purchase $32million of loans. According to a filing this month, the sides have reached agreement on one portion of New Wave Lending Group’s claims. The group is suing Sprout in a New York federal court for $6 million. It is suing Sprout because it failed to pay a $1.2million loan payment to Merchants Bank of Indiana. MBIN counsel asked a judge last week to deny Sprout’s counterclaim due to its late responses to court deadlines. “Merchants has serious concern about collectability, including what Sprout did with the payoff for The Ganz Loan,” wrote John Waller of Dinsmore & Shohl for MBIN. He also accused Sprout of not remitting $810,000 owed by the bank for a loan trade obligation arising from a May mortgage. Sprout is also accused of not cooperating with a suit by warehouse lender FirstFunding. This suit is seeking $262,500 in unpaid dues following an August agreement. FirstFunding, a subsidiary First American Financial Corp., provided Sprout a $175 million warehouse funding facility at the time of Sprout’s shutdown. In December, a FirstFunding attorney wrote to the court that Sprout had stopped cooperating in September. An earlier federal judge ordered FirstFunding’s counsel to give cause by January 31 to continue the case. He cited a lack of prosecution efforts. According to the Nationwide Multistate Licensing Systems, attorneys in all cases have not responded to requests for comment. In August, Strauss quietly registered Smart Rate Mortgage in Jacksonville, Florida. Smart Rate was granted a license in November to originate loans in Illinois. Strauss is listed in the role of principal loan originator. HousingWire first reported the registration. The website of Smart Rate includes loan application forms, but not other details. The phone number of the company returned a dead tone this week, and an email message to its email address was not returned. In 2009, Strauss agreed to a $2.45million settlement with the Securities and Exchange Commission for his role in the collapse of American Home Mortgage. In the wake of the Great Financial Crisis, the SEC accused Strauss of engaging in accounting fraud and misleading investors. Strauss did not admit to or deny the allegations when he agreed to the settlement. He was also barred from being an officer or director in a public company for five year.