Sprout bankruptcy exposes creditors, complicates settlement

One of the first lenders to fail last year revealed huge financial burdens to counterparties, which in turn complicated millions of dollars in payments to its former employees.

According to the September bankruptcy filing, Sprout Mortgage has $66 million in secured and unsecured claims from former employees, mortgage lenders, depositors, regulators and industry suppliers. A federal judge is expected to convert Sprout’s involuntary Chapter 7 bankruptcy filing this week, filed by its creditorsinvolving a Chapter 11 bankruptcy case.

Petition blocks $3.5 million settlement to be paid to fired employees Seeking alleged back wages When Sprout suddenly closed last July, $1.95 million was placed in an escrow account, and the bankruptcy trustee asked the court to seize the funds.

Lawyers for more than 100 former employees want to continue wage lawsuits against former Sprout executives, including former CEO Michael Strauss, but not the company itself. The defendants opposed the move, and workers’ lawyers accused executives of hiding behind paychecks. Bankruptcy cases can take years to play out.

“This is wrong because as a result of the actions of Sprout and these individual defendants, plaintiffs have been repeatedly hindered from recovering back wages, wages and warning damages,” the plaintiffs wrote.

They also accused Strauss of claiming he was poor even though he lived in a multimillion-dollar home in the Hamptons, owned an expensive Park Avenue townhouse in New York City and tried to run a new business.

Lawyers for Strauss declined to comment this week, and attorneys for prosecutors did not respond to requests for comment.

Class-action lawyers for the lawsuit say about 600 mortgage loan employees suffered losses of about $20 million as a result of Sprout.The East Meadow, New York-based lender closed last July, the second mortgage company to do so after First Guaranty Mortgage Corp. a month ago.

The bankruptcy filing reveals the complexities of Sprout and Strauss’ finances before and after the company closed. Sprout allegedly received $24.4 million from Sprout parent company Recovco Mortgage Management the year before the involuntary bankruptcy filing, according to independent trustee filings. The move led trustees to speculate about why Strauss did not immediately file for Chapter 11 protection for the lender.

“This is either Mr. Strauss’s refusal to prepare a schedule or the Debtors’ inability to prepare a schedule independently of Mr. Strauss and the professionals around him,” the trustee wrote, referring to the timing of detailing creditors. surface. “Both cases are cause for concern. Both cases indicate post-application issues.”

Case documents also disclose other state court actions against Sprout, including claims from PNC Bank. The depositary accused Sprout of mixing mortgagor payments into its general operating account instead of depositing funds into a lockbox, documents show.

Sprout did not break out total revenue for 2022 but claimed it generated $160 million in revenue in 2021. The company also claims that two lenders that filed for involuntary bankruptcy in July owe it a combined $12.5 million for various claims.

Strauss’ wife, Elisabeth Strauss, also ignored court orders requiring her to produce documents and testimony related to the bankruptcy, according to other documents. She allegedly founded Smart Rate Mortgage, a Florida-based company founded by Michael Strauss. Get original license briefly.

The bankruptcy trustee said earlier this year that he was trying to determine whether Sprout’s assets were transferred to Smart Rate. Illinois regulators revoked Strauss’ license earlier this year after a brief appeal. His initial amount this year is still US$5.56 million. According to data cited by HousingWire.

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