TechCrunch has learned that LoanSnap, an artificial intelligence mortgage startup, is facing an avalanche of lawsuits from creditors and has been evicted from its Southern California headquarters, leaving employees nervous about the company’s future.
LoanSnap, founded by serial entrepreneurs Karol Jakub AND Allan CarrollAccording to PitchBook, it has raised roughly $100 million since its seed round in 2017, of which $90 million was raised in 2021-2023. Investors include Richard Branson’s Virgin Group, Chainsmokers’ Mantis Ventures, Baseline Ventures and Reid Hoffman, in response to LoanSnap. PitchBook estimates that the startup has also taken on about $12 million in debt.
Despite the capital raised, as of December 2022, LoanSnap has been sued by at least seven creditors, including Wells Fargo, who collectively alleged that the startup owes them over $2 million. LoanSnap was also fined by state and federal agencies and nearly lost its license to operate in Connecticut, in response to legal documents obtained by TechCrunch.
LoanSnap has yet to shut, in response to two employees, but the atmosphere inside the company is rocky as employees wait for clarity on the company’s future. Between December 2023 and at least January 2024, the company didn’t include payroll and the variety of employees decreased. At its peak, LoanSnap had over 100 employees. According to the source, after layoffs and weakening, the number dropped to lower than 50 people.
“The current state of affairs is the result of terrible leadership, overspending on futility, and institutional investors falling for the charming façade that Karl can put on,” one former worker, who asked to not be named for fear of retaliation, told TechCrunch. The identity of this person is known to TechCrunch.
Considering the scale of the company’s problems starting in 2021, the query arises why investors pumped money into the company only in 2023 and what is going to occur next.
Reid Hoffman couldn’t be reached 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 didn’t reply to requests for comment.
Jacob and Carroll, LoanSnap’s CEO and CTO, respectively, didn’t reply to repeated requests for comment over several days via email and text messages. LoanSnap’s press line was referred to the CEO on this matter and he declined to comment.
Creditors are suing, agencies are imposing penalties on LoanSnap
According to LoanSnap data, in 2021 it issued almost 1,300 loans for a total amount of virtually $500 million data submitted to federal regulators – each startup documents. By 2023, LoanSnap reported to the Consumer Financial Protection Bureau (CFPB) that it made only 122 loans during the yr (though the data will not be final).
Despite the record variety of loans, troubles were already mounting in 2021. Legal documents show that in May 2021, the same month LoanSnap announced its $30 million Series B with investors resembling Hoffman, the U.S. Department of Housing and Urban Development’s Mortgage Review Board entered into an agreement settlement With a company. Although LoanSnap didn’t admit wrongdoing, the agency alleged that it violated Federal Housing Administration (FHA) requirements for failing to notify the FHA of an operating loss that exceeded 20% of its net value at the end of the 2019 fiscal quarter. It agreed to pay a penalty of $25,000.
At least from 2021 three complaints have been filed against LoanSnap with the Better Business Bureau, and the company currently has an F rating. These complaints allege that the startup charged non-refundable fees and then didn’t repay loans on time or pay taxes out of the escrow account. Additionally, in 4 complaints filed with the Consumer Financial Protection Bureau and reviewed by TechCrunch, consumers accused LoanSnap of selling a fully paid loan to a different lender as an alternative of properly closing it, misleading consumers about mortgage loan approvals and shorting escrow accounts.
According to the source, between December 2022 and May 2024, at least seven creditors sued LoanSnap and the company had at least three chief financial officers. Steve Anderson of Baseline Ventures stepped down from the board in late 2022, in response to a person familiar with the matter.
Four of the lawsuits got here from vendors who alleged that the startup fell into arrears or stopped making contractual payments for services altogether. Public records show that LoanSnap has not yet filed a formal response in court to either of those lawsuits.
For example, Wells Fargo filed a lawsuit in August 2023 for $431,000, alleging that a loan purchased from LoanSnap violated the bank’s income-to-debt ratio policies. Because LoanSnap defaulted on the lawsuit (meaning it didn’t respond in a timely manner), the judge ordered LoanSnap to pay up.
Data provided by TechCrunch shows that in mid-2023, LoanSnap was under investigation by the California Department of Financial Protection and Innovation stemming from a criticism filed against it, and the company was keeping off threats of litigation from at least one investor. (A spokesman 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 troubles. In January, the Connecticut Department of Banking alleged the company operated in the field of “systemic unlicensed mortgage loans”, employing unauthorized individuals. One worker told TechCrunch that the company was desirous to hire people without extensive mortgage experience, with the idea of training them so they might one day earn licenses.
Connecticut also found that LoanSnap violated the Fair Credit Reporting Act, the SAFE Act and the Fair Lending Act, among other things, and threatened to revoke its license. Ultimately, LoanSnap paid a superb of $75,000 without admitting guilt and promised not to make use of unlicensed people to work as mortgage loan officers in the state.
“It’s a really big deal for them to be threatened,” said Andrew Narod, a partner in the Banking and Financial Services Practice Group at the Bradley law firm. Narod, nevertheless, noted that the settlement was not “particularly burdensome” and added: “Pay the $75,000 and stop doing illegal things, which, frankly, really should have been the business model from the beginning.”
In February, LoanSnap was sued by a Costa Mesa property owner who alleged that the company had stopped paying rent and owed nearly $405,000. When LoanSnap failed to reply to the lawsuit, a judge ruled that LoanSnap had didn’t uphold the criticism, and the landlord received permission to evict LoanSnap in mid-May, court records show. (LoanSnap had a second office in San Francisco, although it is unclear whether this office is still in use.)
A brand new lawsuit was filed in May. The tax firm that loaned LoanSnap $5 million claims that LoanSnap has stopped making payments and owes over $900,000.
Another VC will invest thousands and thousands in 2023
Many of those lawsuits were filed in late 2023. But even before then, the internal problems were clear: LoanSnap’s funds were struggling, in response to the FHA settlement; went through layoffs; Complaints filed with the BBB and CFPB; and the well-known Silicon VC, in response to internal sources, resigned from the management board.
Despite this, in July 2023, LoanSnap raised one other $19 million in enterprise financing from recent investor Forté Ventures. (Forté Ventures didn’t reply to a request for comment.)
One worker credits the company’s enterprise fundraising success to CEO Jacob.
Jacob has a resume that pulls Valley VCs, having founded and exited quite a few startups since 1997, when he sold Dimension X to Microsoft. His LoanSnap bio proudly states that he has “raised 23 rounds of financing” and “generated hundreds of millions of dollars in investor returns.” His co-founder Carroll also enjoyed repeated success. He’s a former Microsoft research engineer who launched three previous startups and sold two of them.
But many questions remain, resembling where all the thousands and thousands raised by LoanSnap went. Employees we spoke to have no answers. When times were good in 2021 and employment was at an all-time high, Jacob engaged in expenses resembling allowing an expensive worker holiday party with an open bar in 2021 at a beach resort. One yr, he gave Meta Portals to employees and hosted a party in Denver for the Web3 ETH event.
The company also operated two offices, each in expensive rental areas. Court documents obtained by TechCrunch show that the rent in Costa Mesa (where she was evicted) was around $55,000 a month, and the San Francisco office was charging at least $30,000 a month in rent.
Employees were told that the multimillion-dollar Newport Beach townhouse where Jacob and Carroll stayed during their visit to the Costa Mesa office was also owned by the company. LoanSnap hosted its 2022 holiday party there.
Despite all the now obvious problems, LoanSnap continues to be praised by investors, media and industry players.
In mid-May, Newsweek included LoanSnap on its list of top U.S. online lenders and one of its VCs, True Ventures, praised the startup on LinkedIn for including. In the same month, LoanSnap and Visa announced that LoanSnap has joined Visa’s fintech program that helps startups use its payment programs.
And just last month LoanSnap has announced that it has entered down Free Inception from Nvidia, which advantages AI startups. One former worker called these latest announcements strange because it appears the company is either trying to vary itself or move on as if every little thing is superb.
“It’s really not that hard to find the numerous lawsuits and complaints, some of them from government agencies, with a quick Google search,” the worker said, wondering how Nvidia and Visa allowed LoanSnap into the programs.
True Ventures and Visa didn’t reply to our request for comment. Nvidia declined to comment.
Meanwhile, employees who have not left yet feel stuck, unsure whether some version of the company will rise from the ashes.
“Lack of communication and accountability,” the worker said. “It makes people nervous.”