AI mortgage startup LoanSnap is facing an avalanche of lawsuits from creditors and has been evicted from its Southern California headquarters, leaving employees worried about the company’s future, TechCrunch has learned.

LoanSnap, founded by serial entrepreneurs Carlo Giacobbe AND Allan Carroll, has raised about $100 million in funding since its 2017 seed round, including $90 million between 2021 and 2023, according to PitchBook. Investors include Richard Branson’s Virgin Group, the Chainsmokers’ Mantis Ventures, Baseline Ventures and Reid Hoffman, LoanSnap says. Furthermore, according to PitchBook estimates, the startup has incurred debts of around $12 million.

Despite the capital raised, as of December 2022, LoanSnap has been sued by at least seven creditors, including Wells Fargo, who collectively said the startup owes them more than $2 million. LoanSnap was also fined by state and federal agencies and nearly lost its license to operate in Connecticut, according to legal documents obtained by TechCrunch.

Although LoanSnap has not yet closed its doors, according to two employees, the atmosphere inside the company is harrowing as workers await clarity on the company’s future. Between December 2023 and at least January 2024, the company lost payroll and decreased headcount. At its peak, LoanSnap employed more than 100 people. After layoffs and attrition, that number has dropped to fewer than 50, according to one source.

“The current state is the result of terrible leadership, unnecessary overspending, and institutional investors who fall for the charming façade Karl can put up,” one former employee, who asked to remain anonymous out of fear, told TechCrunch of retaliation. The person’s identity is known to TechCrunch.

Given the scope of the company’s problems as of 2021, the situation raises the question of why investors poured money into the company well into 2023 — and what happens after that.

Reid Hoffman was unavailable for comment and his office declined to comment. (LoanSnap is not an investment of Greylock Partners, the VC firm confirmed.) Virgin Group, Mantis VC and Baseline Ventures also did not respond to requests for comment.

Jacob and Carroll, LoanSnap’s CEO and CTO, respectively, did not respond to multiple requests for comment over several days, via email and text. LoanSnap’s press line referred the matter to the CEO and declined to offer comment.

Creditors sue, agencies fine LoanSnap

In 2021, LoanSnap made nearly 1,300 loans with a total value of nearly $500 million, according to data filed with federal regulators: both documents to boot. By 2023, LoanSnap reported to the Consumer Financial Protection Bureau (CFPB) that it made just 122 loans for the year (though the data may not be definitive).

Despite the record number of loans, trouble was already brewing in 2021. Legal documents show that in May 2021, the same month LoanSnap announced It’s a $30 million Series B with investors like Hoffman, the Mortgagee Review Board of the US Department of Housing and Urban Development has entered into an agreement settlement agreement with the company. Although LoanSnap did not admit to wrongdoing, the agency said it violated Federal Housing Administration (FHA) requirements for failing to notify the FHA of an operating loss that exceeded 20% of its fiscal quarter-end net assets 2019. Agreed to pay a $25,000 fine.

At least from 2021 three complaints were filed against LoanSnap with the Better Business Bureau, and the company now has an F rating. Those complaints allege that the startup charged nonrefundable fees and then failed to close loans in a timely manner or pay fees from an account escrow. Additionally, in four complaints filed with the Consumer Financial Protection Bureau and reviewed by TechCrunch, consumers accused LoanSnap of selling a fully paid loan to another lender instead of properly closing it, misleading consumers about mortgage approval and shorting escrow accounts as a guarantee.

Between December 2022 and May 2024, at least seven creditors sued LoanSnap and the company approached at least three CFOs, a source says. In late 2022, Steve Anderson of Baseline Ventures resigned from the board, according to someone familiar with the matter.

Four of the lawsuits came from sellers who claimed the startup had fallen behind or completely stopped making contractual payments for services. LoanSnap has not yet filed a formal response with the courts for any of these lawsuits, according to public records.

For example, Wells Fargo presented a cause in August 2023 for $431,000, alleging that a loan purchased from LoanSnap violated the bank’s income-to-debt ratio policies. Because LoanSnap failed to comply with the lawsuit (meaning it did not respond in a timely manner), the judge ordered LoanSnap to pay.

As of mid-2023, LoanSnap was facing a California Department of Financial Protection and Innovation investigation stemming from a complaint filed against it, and the company was fending off threatened litigation from at least one investor, according to documents viewed by TechCrunch. (A spokesperson for the California Department of Financial Protection said it “does not comment on investigations even to confirm or deny their existence.”)

Then, 2024 brought more legal problems. In January, the Connecticut Department of Banking presumed the company was participating in the “unlicensed systemic mortgage lending” business by employing unlicensed individuals. One employee told TechCrunch that the company was eager to hire people without much mortgage experience, with the idea of ​​training them so they could one day get licenses.

Connecticut also alleged that LoanSnap violated the Fair Credit Reporting Act, the SAFE Act and the Fair Lending Act, among other state statutes, and threatened to revoke its license. Ultimately, LoanSnap he paid a fine of $75,000 without admitting guilt and vowed not to use unlicensed individuals for mortgage loan officer work in the state.

“It’s a really big deal for them to threaten that,” said Andrew Narod, a partner in the Banking and Financial Services Practice Group at law firm Bradley. But Narod noted that the deal was not “particularly onerous,” adding: “Pay $75,000 and stop doing illegal things, which, frankly, should have been the business model all along.”

In February LoanSnap was sued from the Costa Mesa landlord, who claimed the company had stopped paying rent and owed nearly $405,000. When LoanSnap failed to respond to the lawsuit, the judge ruled that it had failed to comply, and the landlord was given the OK to evict LoanSnap in mid-May, according to to judicial instances. (LoanSnap had a second office in San Francisco, though it’s unclear whether that office is still in use.)

A new lawsuit was filed in May. A tax firm that lent LoanSnap $5 million he claims that LoanSnap has stopped making payments and owes more than $900,000.

Another VC invests millions in 2023

Many of these lawsuits were filed in late 2023. But even before then, the internal problems were clear: LoanSnap’s finances had run into trouble, according to the FHA settlement; had suffered layoffs; complaints had been filed with the BBB and CFPB; and a well-known Silicon VC, inside sources say, has resigned from the board.

However, in July 2023, LoanSnap raised another $19 million in venture capital funding from new investor Forté Ventures. (Forté Ventures did not respond to a request for comment.)

One employee attributes the company’s venture capital fundraising success to CEO Jacob.

Jacob has the kind of resume that attracts Valley VCs, having founded and exited numerous startups since 1997, when he sold a company called Dimension X to Microsoft. His bio on LoanSnap proudly states that he has “raised 23 rounds of funding” and “has generated hundreds of millions of dollars in investor returns.” Its co-founder Carroll also had repeated successes. He is a former Microsoft research engineer who launched three previous startups and sold two of them.

But many questions remain, such as where all the millions raised by LoanSnap went. The employees we spoke to had no answers. When times were good in 2021 and headcount was at capacity, Jacob committed to expenses such as authorizing an expensive holiday party with an open bar for employees in 2021 at a beach resort. One year he gave Meta Portals to employees and threw a party in Denver for the Web3 ETH event.

The company also operated two offices, both in high-rent areas. The rent in Costa Mesa (from which he was evicted) was about $55,000 a month, and the San Francisco office was demanding at least $30,000 a month, according to court documents obtained by TechCrunch.

Employees were told that the multimillion-dollar Newport Beach home where Jacob and Carroll stayed while visiting the Costa Mesa office was also owned by the company. LoanSnap hosted its 2022 holiday party there.

Despite all the problems now evident, LoanSnap is still gaining public recognition from investors, media and industry players.

In mid-May, Newsweek named LoanSnap to its list of America’s top online lenders and one of its VCs, True Ventures, applauded the startup on LinkedIn for inclusion. In the same month, LoanSnap and Visa announced that LoanSnap had joined Visa’s fintech program, which helps startups use its payment programs.

And just last month, LoanSnap announced that it has entered in Nvidia’s free Inception program, which offers benefits to AI startups. One former employee called these recent announcements strange, as the company appears to be trying to change direction or move forward as if nothing is wrong.

“It’s really not difficult to find numerous lawsuits and complaints, some of them from government agencies, with a quick Google search,” the employee said, wondering how Nvidia and Visa allowed LoanSnap into the programs.

True Ventures and Visa did not respond to our request for comment. Nvidia declined to comment.

Meanwhile, employees who haven’t yet left the company feel stuck, unsure whether some version of the company will rise from the ashes.

“There is no communication, no accountability,” the employee said. “This makes people nervous.”

Source