Sprout Mortgage employees will have to wait a little longer to receive their combined $3.5 million settlement from the defunct company.
The company, which abruptly closed last July, has been dragged into bankruptcy court via an involuntary petition filed July 5 by three lenders who claim they are owed a combined $1.35 million.
The petition for involuntary Chapter 7 bankruptcy for Sprout was filed in U.S. Bankruptcy Court for the Eastern District of New York by EF Mortgage LLC, JMJ Financial Group, and New Wave Lending Group. Following its demise, Sprout did not voluntarily seek protection from creditors in bankruptcy court.
Chapter 7 bankruptcy usually leads to liquidation of a company’s assets.
In the bankruptcy filing, EF Mortgage is seeking a total of $585,475.40 from Sprout; New Wave Lending is seeking $561,501.60, and JMJ Financial Group is seeking $198,670.
On July 12, a week after the involuntary petition was filed, attorneys for Sprout filed in U.S. District Court for the Eastern District of New York to stay the proceedings involving the settlement with its former employees. The notice seeking the stay essentially states that the bankruptcy case, by law, takes precedence over the civil case.
The settlement, announced in June, was the result of four class-action civil lawsuits that were filed in the wake of Sprout’s abrupt shutdown. The four cases were later consolidated into one.
The former employees have been waiting for a judge to approve the settlement. It has been estimated that approximately 800 former Sprout workers could be eligible for payments.
A definition provided in court documents defines the “Shutdown Class” as “all employees of Sprout Mortgage who were employed at any time between June 6, 2022, and July 7, 2022, and did not receive wages for work performed during that period.”
Attorneys for the employees stated previously that the settlement reflects the “primary concern” that Sprout and its affiliate, Recovco Mortgage, have limited assets left in their accounts “and our ability to collect on a judgment against the primary individual defendant, Michael Strauss.”
Strauss is Sprout’s former CEO who, according to a company insider, at the last minute canceled a financing deal that could have kept the company in business.
Under the settlement agreement, Strauss must make an initial deposit of $1.95 million into the settlement fund, followed by another $300,000. “This payment shall be Strauss’ only obligation under the settlement agreement,” the deal states. It is not known whether that payment was made.
Court documents state that Strauss was trying to sell his apartment at 610 Park Ave. in New York City for $1.25 million. The documents state that if the sale did not close before June 30, Strauss would “promptly and with due speed cooperatively transfer a secured interest in the proceeds of such a sale in the same amount in lieu of such cash payment.”
