Sprout Mortgage faces major lawsuit over breach of contract

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.