When industry veteran Michael Strauss abruptly shut down Long Island-based Sprout Mortgage in early July, there was uproar. Shocked employees didn’t receive their last paychecks. There were no severance packages, and even health insurance was canceled retroactive to May 2022, leaving some on the hook for huge medical bills.
The lawsuits quickly came pouring in, but Strauss never did seek bankruptcy protection for Sprout or its affiliates. The mystery as to what happened to its loan pipeline and funding endure.
Yet Strauss, who already has a $2.45 million mortgage fraud settlement with the Securities and Exchange Commission to his name, seems to be back in the mortgage business. That’s according to four former employees and company registration documents reviewed by HousingWire.
Michael Jeffrey Strauss registered a company called Smart Rate Mortgage, LLC., with a start date on August 1, 2022, in Jacksonville, Florida, according to the Nationwide Multistate Licensing System (NMLS). The NMLS registry also shows that the company – NMLS ID 2420605 – has a license to originate loans in Illinois that was issued on November 1, 2022.
The corporate entity, Smart Rate Mortgage LLC, is registered to Beth Strauss, Michael Strauss’s wife, and is headquartered at 9424 Baymeadows Road STE 250, Jacksonville, Florida, according to the Florida Limited Liability Company annual report, which was signed on January 17.
The address that Beth Strauss listed on the incorporation documents is 610 Park Avenue, New York NY, which the Strauss’s are trying to sell for $26.5 million.
Michael Strauss did not immediately respond to requests for comment.
Michael Strauss’s Smart Rate?
The nascent mortgage company, however, has only one loan officer registered and no loan origination volume so far, according to the mortgage tech platform Modex. The Smart Rate website mentions that the mortgage lender offers purchase and refinancings, jumbo, FHA, adjustable, bank statement and investors loans.
While there is speculation about whether Strauss took clients who had loans in the pipeline when Sprout shut down, it’s unclear if Smart Rate originated or bought any loans, or how the firm would fund new mortgages.
“It’s truly unbelievable and nauseating. We are no closer to being paid and he had the capital to open up Smart Rate Mortgage,” said a former employee who requested anonymity due to an ongoing legal case.
“How is that even possible? That scares me,” said a former executive at Sprout Mortgage speaking on condition of anonymity. “Can I get my expense report money back, please?”
“He (Strauss) didn’t pay 600 people and I don’t know what to say [other than] he owes my team more than $60,000,” said another former executive at Sprout Mortgage. “He literally owes me over $50,000, my processor $7,000, my assistant $5,000 and a LO on my team another $5,000. That tool canceled benefits retroactively back to May but that may have been sorted out forcefully.”
(The facts are under investigation by New York authorities, which do not comment on open investigations.)
Another strike for Strauss?
In 2009, the Securities and Exchange Commission (SEC) charged two former executives at American Home Mortgage Investment Corp. with accounting fraud: chairman and CEO Michael Strauss and the former CFO Stephen Hozie. According to the SEC, the executives allegedly engaged in a pattern of false and misleading claims that concealed financial losses from investors.
Strauss settled with the SEC, agreeing to pay $2.45 million. The SEC prohibited Strauss from owning or operating another company for five years.
In 2015, Strauss launched Sprout Mortgage, a mortgage lender focused on non-qualified mortgages (non-QM). Last year, surging mortgage rates brought losses to the company in the secondary market as it struggled to sell loans originated at 2-4% when investors were asking for more premiums.
Lawsuits against Sprout have piled up since the company shut down. The company was sued by former employees, vendors and business partners, such as Banc of California, New Wave Lending Group, Merchants Bank of Indiana, FirstFunding and Loan America. The mortgage lender has started to respond to some of these claims, denying the various allegations.
The former employees who filed class action lawsuits against Sprout are waiting to hear back from their attorneys on how Strauss’s attempt to start a new business will affect ongoing litigation, a former Sprout LO said.