A recent lawsuit filed by Banc of California is claiming that mortgage lenders and servicers Sprout Mortgage (now defunct) and Planet Home Lending owe $1.5 million related to the proceeds of two notes it owned and funded.
In addition, the bank alleges that Sprout’s transactions with its warehouse lines have resulted in a deficiency of $2 million since the start of July 2022. Despite the bank’s requests, Sprout has not paid.
The non-QM lender abruptly shut down its operations on July 6.
Mortgage industry veteran Michael Strauss, Sprout’s founder, is also listed as a defendant. According to the lawsuit, the executive executed in November 2021 a personal guaranty in Banc of California’s favor for Sprout’s liabilities.
Banc of California filed the lawsuit on November 2 in the U.S. District Court in the Central District of California, Southern Division. The bank’s representatives and Michael Strauss did not return requests for comments.
Dona DeZube, a spokesperson for Planet Home Lending, said the company does not have a contractual relationship with Banc of California and is disappointed to be named in the dispute between the bank and Sprout.
“Planet is confident that it has fulfilled its obligations as a subservicer for Sprout and expects a favorable resolution of this matter,” the executive wrote in an email to HousingWire.
The bank claims it’s the owner and funder of two notes: one dated February 19, 2020, which designates Craig Ataide as the primary borrower, and the second, dated March 10, 2020, which names Raymond Topps as the primary borrower.
Sprout sold the notes to Banc of California in 2020, maintained the servicing responsibilities, but entered into an agreement to have Planet as the subservicer.
According to the lawsuit, the Ataide Note was liquidated via refinancing and the Topps note was foreclosed upon. Planet received the funds from the reconciliation of the refinance and the proceeds from the foreclosure.
However, “despite multiple requests, neither Planet nor Sprout have remitted to Banc the funds,” according to the lawsuit.
Aside from the notes and the deficiency in the warehouse lines, Sprout has failed to compensate Banc of California in litigation related to the lender’s deposit account at the bank, as the parties signed in Banc’s Deposit Agreement, according to the lawsuit.
Banc of California mentioned a lawsuit filed by PNC Bank against the bank and Sprout in the Supreme Court of the State of New York, New York County, in which it was named in its capacity as Sprout’s depositary bank.
“On October 19, 2022, Banc’s counsel in the PNC Action sent an indemnification tender to Sprout, demanding that Sprout indemnify Banc in its defense of the PNC Action. To date, Sprout LLC has refused to do so,” Banc’s lawyers wrote in the lawsuit.
Since shuttering its operations in July, Sprout has been the target of multiple lawsuits from former employees and business partners, such as New Wave Lending Group, Merchants Bank of Indiana and FirstFunding.
According to sources, Strauss is trying to sell his Manhattan penthouse at Park Avenue. Zillow shows the estimated price is $26.5 million as of November 30.