Artificial intelligence mortgage loan 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, according to TechCrunch.
LoanSnap, founded by serial entrepreneurs Carl Jacob (image above) and Alan Carroll, has raised about $100 million in funding since its 2017 seed round, $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 raised, as of December 2022, LoanSnap has been sued by at least seven creditors, including Wells Fargo, who collectively claimed the startup owed 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 tense as employees wait for clarity on the company’s future. Between December 2023 and at least January 2024, the company lost payroll and the number of employees was reduced. At its peak, LoanSnap employed more than 100. After layoffs and attrition, that number has dropped to less than 50, according to a source.
“The current situation is a result of terrible leadership, overspending on futility, and institutional investors falling for the charming facade that Carl can put on,” one former employee, who asked not to be named for fear of retaliation, told TechCrunch. The person’s identity 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 next.
Reid Hoffman was unavailable 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 CEO and CTO of LoanSnap, respectively, did not respond to multiple requests for comment over several days via email and text. LoanSnap’s press line deferred to the CEO on the matter and declined to comment.
Creditors sued, companies fined LoanSnap
In 2021, LoanSnap originated nearly 1,300 loans totaling nearly $500 million, according to data filed with federal regulators — both filings to boot. By 2023, LoanSnap reported to the Consumer Financial Protection Bureau (CFPB) that it had only originated 122 loans for the year (although the figures may not be final.)
Despite the record number of loans, the problem was already brewing in 2021. Legal documents show that in May 2021, the same month LoanSnap announced Its $30 million Series B with investors like Hoffman, the U.S. Department of Housing and Urban Development’s Mortgage Review Board. settlement agreement with the company. While LoanSnap did not admit wrongdoing, the agency alleged that it violated Federal Housing Administration (FHA) requirements by failing to notify the FHA of an operating loss that exceeded 20% of fiscal year 2019 net worth at the end of the quarter. He agreed to pay a $25,000 fine.
From 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 the startup charged non-refundable fees and then failed to close loans on time or failed 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 paid-off loan to another lender instead of closing it properly, misleading consumers about mortgage approvals and shorting escrow accounts .
Between December 2022 and May 2024, at least seven creditors sued LoanSnap and the company went through at least three CFOs, a source says. Near the end of 2022, Steve Anderson of Baseline Ventures stepped down from the board, according to a person familiar with the matter.
Four of the lawsuits came from vendors who claimed the startup had fallen behind or completely stopped making contractual payments for services. LoanSnap has yet to file a formal response to any of those lawsuits, according to public records.
For example, Wells Fargo filed a lawsuit in August 2023 for $431,000, alleging that a loan it bought from LoanSnap violated the bank’s income-to-debt policies. Because LoanSnap defaulted on the lawsuit (meaning it failed to respond on time), the judge ordered LoanSnap to pay.
As of 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 fending off a lawsuit threat from at least one investor, according to filings seen by TechCrunch. (A spokesman for the California Department of Financial Protection said it “does not comment on investigations even to confirm or deny their existence.”)
Then 2024 brought more legal trouble. In January, the Connecticut Department of Banking supposed the company engaged in “systemic unlicensed mortgage lending” activity by employing unlicensed persons. An employee told TechCrunch that the company was willing to hire people without much mortgage experience, with the idea of training them to one day become licensed.
Connecticut also alleged that LoanSnap violated the Fair Credit Reporting Act, the SAFE Act and the Fair Lending Act, among other state laws, and threatened to revoke its license. Finally, LoanSnap paid a $75,000 fine without admitting wrongdoing and promised not to use unlicensed people to work as a mortgage loan officer in the state.
“It’s a very big deal for them to threaten it,” 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 Costa Mesa landlord, who claimed the company stopped paying rent and owed nearly $405,000. When LoanSnap didn’t respond to the lawsuit, the judge ruled it was in default, and the landlord got 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.)
In May, a new lawsuit was filed. A tax firm that loaned LoanSnap $5 million claims that LoanSnap has stopped making payments and owes more than $900,000.
Another VC invests millions in 2023
Many of those lawsuits were filed in late 2023. But even before then, internal problems were clear: LoanSnap’s finances were in trouble, according to the FHA settlement. had he gone through layoffs; complaints had been filed with the BBB and the CFPB. and a well-known Silicon VC had, insiders say, resigned from the board.
However, in July 2023, LoanSnap raised another $19 million in venture funding from new investor Forté Ventures, according to Pitchbook. (Forté Ventures did not respond to a request for comment.)
An employee attributes the company’s success in raising venture capital to CEO Jacob.
Jacob has the kind of resume that attracts Valley VCs, having founded and exited several startups since 1997, when he sold a company called Dimension X to Microsoft. LoanSnap’s resume proudly says it has “raised 23 rounds of funding” and “generated hundreds of millions of dollars in investor returns.” Carroll’s co-founder also had repeat hits. He is a former research engineer at Microsoft who started three previous startups and sold two of them.
But many questions remain, such as where all the millions raised by LoanSnap went. The employees we spoke to have no answers. When times were good in 2021 and employee numbers were at an all-time high, Jacob splurged like endorsing an expensive open bar holiday party for employees in 2021 at a beach resort. One year, he gifted Meta Portals employees and threw 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 charged at least $30,000 a month in rent, according to court documents obtained by TechCrunch.
Employees were told that the multimillion-dollar Newport Beach mansion where Jacob and Carroll stayed when they visited the Costa Mesa office was also owned by the company. LoanSnap hosted its 2022 holiday party there.
Despite all the more obvious problems, LoanSnap continues to win public accolades from investors, media and industry players.
In mid-May, Newsweek named LoanSnap one of America’s Best Online Lenders and one of its VCs, True Ventures, applauded the startup on LinkedIn for inclusion. In the same month, LoanSnap and Visa announced that LoanSnap has joined Visa’s fintech program, which helps startups use its payment programs.
And just last month, LoanSnap has announced that it has entered in Nvidia’s free Inception program, which benefits AI startups. One former employee called these recent announcements strange, as the company seems to be trying to either pivot or move on as if nothing is wrong.
“It’s not really hard to find numerous lawsuits and complaints, some from government agencies, with a quick Google search,” the official said, questioning 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, workers who haven’t yet resigned feel stuck, unsure if some version of the company will rise from the ashes.
“No communication, no responsibility,” the employee said. “That makes people nervous.”
This article has been updated to clarify where the numerical data comes from.
