AI mortgage startup LoanSnap is facing an avalanche of lawsuits from creditors and has been kicked out of its Southern California headquarters, leaving employees worried about the company’s future, TechCrunch has learned.
LoanSnap, founded by serial entrepreneurs Karl Jacob and Allan Carroll, has raised about $100 million in funding since a seed round in 2017, $90 million of which was raised 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. The startup also took on about $12 million in debt, PitchBook estimates.
Despite the capital it has raised, as of December 2022, LoanSnap has been sued by at least seven creditors, including Wells Fargo, who together claimed the startup owes them more than $2 million. LoanSnap has also been fined by state and federal agencies and nearly lost its license to operate in Connecticut, according to legal documents obtained by TechCrunch.
While LoanSnap has not yet shut down, according to two employees, the atmosphere inside the company is shaky as workers wait for clarity on the company’s future. Between December 2023 and at least January 2024, the company lost payroll and downsized. At its peak, LoanSnap employed more than 100. After layoffs and attrition, that number has dwindled to fewer than 50, according to a source.
“The current situation is the result of terrible leadership, overspending on vanity and institutional investors falling for the charming facade that Karl can put on,” one former employee, who asked to remain anonymous for fear of reprisal, told TechCrunch. . The identity of the person is known to TechCrunch.
Given the extent of the company’s problems starting in 2021, the situation begs the question of why investors poured money into the company until 2023 – and what will happen after that.
Reid Hoffman was not available for comment and his office declined to comment. (LoanSnap is not a Greylock Partners investment, the VC firm confirmed). Virgin Group, Mantis VC and Baseline Ventures also did not respond to requests for comment.
Jacob and Carroll, who are 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 pressed the CEO on the matter and he declined to offer comment.
Creditors sue, agencies fine LoanSnap
In 2021, LoanSnap originated about 1,300 loans for a total value of nearly $500 million, according to filings with federal regulators — both records for the startup. By 2023, LoanSnap reported to the Consumer Financial Protection Bureau (CFPB) that it had only 122 loans for the year (although the data may not be conclusive).
Despite the record number of loans, trouble was already brewing in 2021. Legal filings show that in May 2021, the same month LoanSnap announced its $30 million Series B with investors like Hoffman, the Department of Homeland Security’s Mortgage Review Board The US Department of Housing and Urban Development entered into a settlement agreement with the company. While LoanSnap did not admit wrongdoing, the agency alleged it violated Federal Housing Administration (FHA) requirements by failing to notify the FHA of an operating loss that exceeded 20% of its net worth at the end of fiscal quarter 2019. It agreed to pay a $25,000 fine.
As of 2021, at least three complaints have been filed against LoanSnap with the Better Business Bureau, and the company now has an F rating. Those complaints allege that the startup charged non-refundable fees and then failed to close loans on time or managed to pay taxes from an escrow account. Additionally, in four complaints filed with the Consumer Financial Protection Bureau and reviewed by TechCrunch, consumers accused LoanSnap of selling a fully paid-off loan to another lender instead of closing it properly, misleading consumers about with mortgage approvals and cutting escrow accounts.
Between December 2022 and May 2024, at least seven creditors sued LoanSnap and the company fired at least three CFOs, a source says. Near the end of 2022, Steve Anderson of Baseline Ventures left the board, according to someone familiar with the matter.
Four of the lawsuits were from vendors who claimed the startup had fallen behind or completely stopped contractual payments for services. According to public records, LoanSnap has yet to file a formal response in court to any of these lawsuits.
For example, Wells Fargo filed a lawsuit in August 2023 for $431,000, alleging that a loan purchased by LoanSnap violated the bank’s debt-to-income ratio policies. Because LoanSnap defaulted on the lawsuit (meaning it didn’t respond in a timely manner), the judge ordered LoanSnap to pay.
In mid-2023, LoanSnap was facing an investigation by the California Department of Financial Protection and Innovation, stemming from a complaint filed against it, and the company was avoiding a lawsuit threatened by at least one investor, according to the filing. viewed by TechCrunch. (A spokesman for the California Department of Financial Protection said it “does not comment on investigations to confirm or deny their existence.”)
Then 2024 brought more legal trouble. In January, the Connecticut Department of Banking alleged that the company was engaging in “systemic unlicensed mortgage lending” activity by employing unlicensed people. One employee told TechCrunch that the company was eager to hire those without much mortgage experience, with the idea of training them to one day be licensed.
Connecticut also claimed 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 paid a $75,000 fine without admitting guilt and promised not to use unlicensed people to work as mortgage loan officers in the state.
“It’s a really big deal for them to threaten this,” said Andrew Narod, a partner in the Banking and Financial Services Practice Group at the law firm Bradley. But Narod noted that the settlement was not “particularly onerous,” adding, “Pay $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 its landlord in Costa Mesa, who claimed the company stopped paying rent and owed nearly $405,000. When LoanSnap didn’t respond to the lawsuit, the judge ruled it had failed to reach the complaint, and the landlord was given the OK to evict LoanSnap in mid-May, according to court filings. (LoanSnap had a second office in San Francisco, though it’s unclear if that office is still in use.)
A new lawsuit was filed in May. A tax company that loaned LoanSnap $5 million claims LoanSnap 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, internal problems were clear: LoanSnap’s finances had seen problems, according to the FHA agreement; had gone through layoffs; complaints were filed with the BBB and CFPB; and a well-known Silicon VC, insiders say, had resigned from the board.
However, in July 2023, LoanSnap raised another $19 million in venture funding from new investor Forté Ventures. (Forté Ventures did not respond to a request for comment).
One employee attributes the company’s fundraising success to CEO Jacob.
Jacob has the kind of resume that attracts Valley VCs, having founded and exited many startups since 1997, when he sold a company called Dimension X to Microsoft. His LoanSnap bio proudly states that he has “raised 23 rounds of funding” and “generated hundreds of millions of dollars in returns from investors”. His co-founder Carroll has 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 that LoanSnap raked in went. Employees we spoke to did not have an answer. When times were good in 2021 and employee numbers were at their maximum, Jacob engaged in spending such as authorizing an expensive open bar holiday party for employees in 2021 at a seaside resort. One year, he donated Meta Portals to employees and hosted a party in Denver for the Web3 ETH event.
The company also operated two offices, both in expensive rental areas. The rent in Costa Mesa (from which he was evicted) was about $55,000 a month, and the San Francisco office paid at least $30,000 a month in rent, according to court documents obtained by TechCrunch.
Employees were told that the million-dollar Newport Beach townhouse where Jacob and Carroll stayed when they visited the Costa Mesa office was also owned by the company. LoanSnap hosted its 2022 party there.
Despite all the already obvious problems, LoanSnap is still winning public praise from investors, media and industry players.
In mid-May, Newsweek named LoanSnap to its list of America’s Best Online Lenders, and one of its VCs, True Ventures, applauded the startup on LinkedIn for the inclusion. That same month, LoanSnap and Visa announced that LoanSnap had joined Visa’s fintech program, which helps startups use its payments software.
And just last month, LoanSnap announced that it entered Nvidia’s free Inception program, which benefits AI startups. One former employee called these latest announcements strange, as the company appears to be trying to either pivot or carry on as if nothing is wrong.
“It’s not really hard to find multiple 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 quit feel stuck, unsure if some version of the company will rise from the ashes.
“There is no communication, no accountability,” the employee said. “It makes people nervous.”
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