California-based wholesale/correspondent lender New Wave Lending Group filed a lawsuit against Sprout Mortgage, accusing the company of defaulting on a pool of $32 million in loans it agreed to purchase.
New Wave filed the lawsuit Monday in the U.S. District Court of Southern District of New York against Sprout Mortgage and Sprout Mortgage Asset Trust for fraud, breach of contract, promissory estoppel and unjust enrichment.
Sprout’s executives did not immediately return a request for comment, nor did executives at New Wave.
New Wave said it requested bids from multiple investors from Jan. 20, 2022, to Feb. 15, 2022, for the purchase of 51 loans, with a total principal value of $32,864,270.
After accepting Sprout’s written offer, the parties started the due diligence process. But Sprout refused to complete the purchase of $32,189,270 in loans and didn’t return $567,501 of the holdback amount, New Wave claimed in the lawsuit.
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Court documents show that Sprout usually held back around 2% of the principal of each loan and returned the sum once due diligence was done and credit and closing documents conditions were satisfied.
New Wave claims Sprout failed to disclose its “financial inability” to purchase the loans. New Wave is seeking compensation for damages it claims it suffered by selling the pool of loans to a third party at a lower price and for the unpaid holdback amount.
Headed by industry veteran Michael Strauss, Sprout shut down on July 6 after a deal for funding fell through, sources told HousingWire. A sharp rise in mortgage rates saddled the company with tens of millions of dollars in loans it couldn’t sell to investors in the secondary market at par.
Two days after shutting down, Sprout was sued by former workers alleging it laid off around 100 employees at the New York office without giving legally required written notice and failing to pay their paychecks.
In another lawsuit, the engineering company DynAMC Solutions LLC entered a request in the Supreme Court of the States of New York, in the County of New York, to recover $3.3 million, exclusive of interest and costs, from 10 invoices from October 2021 through June 2022 – HousingWire sent a message to the company, but did not receive a response.
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