AI mortgage startup LoanSnap, which raised $100 million, faces lawsuits

LoanSnap, which was once a promising fintech startup, is now unable to pay its debts and has been forced out of its headquarters. Some investors poured money into the company while it was having troubles.

Fintech startup LoanSnap, founded by Carl Jacob and Allan Carroll in 2017, offers refinancing options, such as home equity lines of credit and traditional mortgage loans.

According to Pitchbook data, the company raised $100 million from well-known investors, including LinkedIn's founder Reid Hoffman and Richard Branson's Virgin Group.

Overall, 19 investors backed the company. Interestingly, some did so despite complaints, financial troubles, and other challenges.

For example, Forte Ventures, a venture capital company, invested $19 million in LoanSnap in 2023. By then, the company should have known that the startup had broken Federal Housing Administration (FHA) rules or that the amount of startup loans had significantly diminished.

Three complaints have been filed with the Better Business Bureau since 2021, including claims that the company imposed nondisclosed and non-refundable fees.

Techcrunch reports that in 2021, LoanSnap paid a $25,000 fine for violating FHA's requirements for failing to notify the institution of an operating loss that exceeded 20% of its fiscal 2019 quarter-end net worth.

According to the data submitted to regulators, in 2021, Loansnap provided 1269 loans worth nearly $500 million. In 2023, the amount was 122, though the data may not be final.

The anonymous source told Techcrunch that Between December 2022 and May 2024, at least seven creditors sued the startup. Some of them claimed that the startup stopped making contractual payments for services.

One of the lawsuits was filed by financial services company Wells Fargo, which is seeking $431,000. Fargo says that a loan bought from LoanSnap broke the bank's rules about the ratio of income to debt.

News outlet reports that the company faced additional issues this year, with Connecticut's Department of Banking claiming that LoanSnap recruited unlicensed individuals.

According to the website, the State of Connecticut is also threatening to revoke its license, as it says the company broke several laws, including the Fair Lending Act and Fair Credit Reporting Act.

This February, a Costa Mesa landlord sued LoanSnap, saying that the company stopped paying rent and owed $405.000. As LoanSnap didn't respond to the suit, the judge ruled that it defaulted on the complaint. The company still has another office in San Francisco.

One employee who wanted to stay anonymous told that the mood inside the company is scary as people wait for clarity on the business's future.

Pitchbook data shows that the company now has 53 employees, while at its peak, LoanSnap employed over 100 people.

For now, it is unclear where the $100 million investment has gone.