Reid Hoffman, Richard Branson, and the Chainsmokers are among the people who have backed the company.
Learned that LoanSnap, an AI mortgage startup, is being sued by many creditors and has been kicked out of its headquarters in Southern California. This has made workers worry about the future of the company.
LoanSnap was started by Karl Jacob (pictured above) and Allan Carroll, who are both experienced business owners. The company has raised about $100 million since its seed round in 2017, with $90 million coming in between 2021 and 2023, according to PitchBook. LoanSnap says that investors include Reid Hoffman, Paul Allen, the Chainsmokers’ Mantis Ventures, and Richard Branson’s Virgin Group. PitchBook says the company also borrowed about $12 million.
Even though it raised money, LoanSnap has been sued by at least seven creditors since December 2022. These creditors, including Wells Fargo, say the company owes them more than $2 million. Legal papers that TechCrunch obtained show that LoanSnap has also been fined by state and federal agencies and almost lost its license to do business in Connecticut.
Two employees say that even though LoanSnap hasn’t shut down yet, the mood inside the company is scary as people wait for answers on the future of the business. The company missed at least one payment between December 2023 and January 2024, and the number of employees has been going down. More than 100 people worked for LoanSnap at its peak. A source says that number has dropped to less than 50 after cuts and people leaving the company.
One former employee told TechCrunch, “The current state is a result of terrible leadership, overspending on useless things, and institutional investors falling for Karl’s charming front.” The employee asked to remain anonymous for fear of retaliation. TechCrunch already knows who the person is.
There are a lot of problems with the company that started in 2021. This makes me wonder why buyers kept putting money into it until 2023 and what will happen next.
Reid Hoffman could not be reached for comment, and his office refused to say anything. (1) Greylock Partners has stated that it does not have an investment in LoanSnap. We also asked Virgin Group, Mantis VC, and Baseline Ventures for comments, but they didn’t answer.
When asked for comments several times over several days by email and text, LoanSnap’s CEO, Jacob, and CTO, Carroll, did not reply. LoanSnap’s press line said they would let the CEO handle the situation and wouldn’t say anything else.
Creditors Sue, And Organizations Get Fined LoanSnap
According to information shared with federal regulators, LoanSnap made almost 1,300 loans worth a total of $500 million in 2021. This was a record for the startup. The Consumer Financial Protection Bureau (CFPB) was told by LoanSnap in 2023 that it had only made 122 loans that year, but this information may not be accurate.
In 2021, there were a record amount of loans, but trouble was already starting to form. Legal records show that the U.S. Department of Housing and Urban Development Mortgagee Review Board reached a settlement deal with LoanSnap in May 2021. This was the same month that the company announced its $30 million Series B round of funding with investors such as Hoffman. LoanSnap didn’t say it did anything wrong, but the agency said it broke rules set by the Federal Housing Administration (FHA) by not telling the FHA about a running loss that was more than 20% of its net worth at the end of the fiscal 2019 quarter. It agreed to pay a fine of $25,000.
There have been at least three complaints about LoanSnap with the Better Business Bureau since 2021. The company now has a F grade. The charges say that the startup charged fees that could not be returned and then either didn’t close loans on time or didn’t pay taxes from an escrow account. Additionally, four reports sent to the Consumer Financial Protection Bureau and looked at by TechCrunch said that LoanSnap sold a paid-in-full loan to another lender without properly closing it out, lied to customers about mortgage approvals, and emptied escrow accounts.
At least seven creditors sued LoanSnap between December 2022 and May 2024, and a source says the company had at least three CFOs. A person who knows about the situation says that Steve Anderson of Baseline Ventures quit the board near the end of 2022.
Four of the claims were from service providers who said the startup had fallen behind on payments or stopped paying for services altogether. Public records show that LoanSnap has not yet formally responded to any of these lawsuits.
For example, Wells Fargo sued LoanSnap for $431,000 in August 2023, saying that a loan it got from LoanSnap broke the bank’s rules about the ratio of income to debt. The judge told LoanSnap to pay because it “defaulted” on the lawsuit, which means it didn’t answer in time.
Records seen by TechCrunch show that in the middle of 2023, LoanSnap was being investigated by the California Department of Financial Protection and Innovation because of a complaint. At the same time, the company was defending itself against legal threats from at least one backer. The California Department of Financial Protection wouldn’t say anything about the reviews, not even to confirm or deny that they are happening.
Then there were more court problems in 2024. In January, Connecticut’s Department of Banking said the company was hiring people who were not qualified to do “systemic unlicensed mortgage loan” work. As one worker told TechCrunch, the company was eager to hire people who didn’t have much experience with mortgages so that they could be trained so that they couldday get licenses.
The state of Connecticut also said that LoanSnap broke the Fair Credit Reporting Act, the SAFE Act, and the Fair Lending Act, among other laws, and threatened to take away its license. Mortgage loan officer work in the state would no longer be done by people who were not qualified by LoanSnap, who paid a $75,000 fine without admitting guilt.
Andy Narod, a partner in the Banking and Financial Services Practice Group at the law company Bradley, said, “That’s a really big deal for them to say.” Narod said the settlement wasn’t “particularly onerous,” and he added, “Pay $75,000 and stop doing illegal things, which, to be honest, should have been the business model from the start.”
LoanSnap was sued by its Costa Mesa owner in February, who said the company had stopped paying rent and owed almost $405,000. When LoanSnap didn’t answer the suit, the judge said it had defaulted on the lawsuit. In mid-May, the landlord was given permission to evict LoanSnap, according to court records. (LoanSnap had a second office in San Francisco, but it’s not clear if it’s still being used.)
A new suit was brought in May. A tax company that gave LoanSnap a $5 million loan says that LoanSnap stopped paying and now owes more than $900,000.
Another VC Puts Millions Of Dollars Into 2023
A lot of these cases were started in late 2023. And even before that, it was clear that there were problems inside the company. According to the FHA settlement, LoanSnap’s finances had been bad; it had fired people; there were reports to the Better Business Bureau and the Consumer Financial Protection Bureau; and, according to insiders, a well-known Silicon Valley investor had quit the board.
Still, Pitchbook says that in July 2023, LoanSnap got an extra $19 million in startup capital from a new investor called Forté Ventures. (Forté Ventures did not answer when asked for a response.)
One worker says that CEO Jacob is to blame for the company’s success in raising money for venture capital.
Valley VCs are interested in Jacob’s resume because he has started and sold several businesses since 1997, when he sold Dimension X to Microsoft. He’s proud to say in his LoanSnap bio that he’s “raised 23 rounds of financing” and “generated hundreds of millions of dollars in investor returns.” His co-founder Carroll has also done well more than once. He used to work as a research engineer at Microsoft and has started three businesses and sold two of them.
But there are still a lot of questions, like where did all the money that LoanSnap raised? The workers we talked to don’t know what to do. When business was good in 2021 and the number of workers was high, Jacob spent money on things like letting employees have an expensive holiday party with open bars at a beach resort. He gave his workers Meta Portals as a gift one year and threw a party in Denver for the Web3 ETH event.
The business also had two offices, both of which were in expensive places to rent. TechCrunch got court papers that show the rent in Costa Mesa, where the company was kicked out, was about $55,000 a month and at least $30,000 a month at the office in San Francisco.
They were told that the company also owned the multimillion-dollar Newport Beach town house where Jacob and Carroll stayed when they came to the Costa Mesa office. LoanSnap had its holiday party there in 2022.
LoanSnap is still getting praise from investors, the media, and people in the business, even though all of its problems are now clear.
Newspapers across the country called LoanSnap one of the best online lenders in the United States in the middle of May. True Ventures, one of its investors, praised the startup on LinkedIn for being included. Visa and LoanSnap both said that same month that LoanSnap had joined Visa’s fintech program, which lets new businesses use its payment systems.
And LoanSnap just announced last month that it joined Nvidia’s free Inception program, which helps AI companies. Someone who used to work for the company thought the recent comments were strange because it looks like the company is trying to either change direction or move on as if nothing is wrong.
“A quick Google search makes it easy to find a lot of lawsuits and complaints, some from government agencies,” the worker said, wondering how Nvidia and Visa let LoanSnap into their programs.
We asked True Ventures and Visa for comments, but they didn’t answer. Nvidia didn’t want to say anything.
Employees who haven’t quit yet feel stuck because they don’t know if the company will come back from the dead.
Also Read: These Fintech Companies Might Go Public in 2024
The worker said, “There’s no communication and no accountability.” “Those things scare people.”
What do you say about this story? Visit Parhlo World For more.
