FirstFunding takes the non-QM lender to court, claims it is no longer working cooperatively
Shuttered non-QM lender Sprout Mortgage is facing a lawsuit for breaching a $175 million contract with warehouse lender FirstFunding.
FirstFunding, a subsidiary of First American Financial Corporation, filed the lawsuit against Sprout last week in the US District Court for the Central District of California. According to court documents, Sprout entered into a $50 million warehouse financing agreement with FirstFunding in October 2020. That figure was increased to $230 million in April but reduced to $175 million in May.
Two months after finalizing the agreement, Sprout laid off around 600 of its employees, telling them that the company was going under and closing down. Sprout CEO Michael Strauss also allegedly informed FirstFunding on July 6 that his company would not be able to pay its debts amounting to $220,281,891.35.
Read more: Sprout Mortgage abruptly closes, lays off some 600 workers
On August 5, Sprout and FirstFunding executed a new contract permitting FirstFunding to “immediately exercise all of its rights” and receive mortgage loan proceeds directly from Sprout or any borrower.
However, FirstFunding’s attorney Benjamin West claimed that “Sprout and Strauss are no longer working cooperatively with FirstFunding to effectuate the prompt disposition of the pledged mortgage loans and reduction of advances under the funding agreement to maximize value.”
Read next: BayFirst National Bank shutters national mortgage business
The warehouse lender is seeking to recover $262,500 in damages it believes are held in a Banc of California account – the depository services loans in Sprout’s closed loan portfolio.
