As Sprout saga smolders, ex-CEO's wife forms new lender

While Michael Strauss has absconded from massive liabilities and court cases over the demise of Sprout Mortgage, his wife and a former associate are running a new mortgage shop.

It's unclear if the embattled industry executive is involved with the Irvine, California-based Investor Funding Corp., which his spouse, Elizabeth Strauss, founded in 2024 according to public records. However, she previously helped Michael Strauss establish a short-lived mortgage firm which lost its license a year after Sprout's 2022 shutdown. 

The Mortgage Scoop first reported the news of the new Strauss business. A former Sprout executive also referenced the company in regard to the Strausses, in a social media post last week. 

Investor Funding Corp. has three employees per Nationwide Multistate Licensing System records, and is registered to do business in four states. The employees include Vinh Nguyen Luu, who self-reported in NMLS records as Sprout's former senior vice president of servicing. 

It's unclear if Luu was a part of the mass layoff Sprout undertook in July 2022, when it was one of just a handful of mortgage lenders to shutter when interest rates began their post-covid rise. While Elizabeth Strauss was briefly entangled in Sprout's sprawling bankruptcy case, Investor Funding Corp. otherwise has no other relationship to Sprout or Michael Strauss. 

Neither Luu nor Elizabeth Strauss, who formed the fleeting Smart Rate Mortgage with her husband in 2022, responded to phone calls seeking comment Friday. 

Michael Strauss meanwhile has left a professional and personal mess on the East Coast, including Sprout's bankruptcy case in which nearly 300 creditors are seeking over $87 million, per court records accessed Friday. Hundreds of laid off Sprout employees are also still seeking millions of dollars of owed backpay, in a court case that could crumble due to Michael Strauss' inaction. 

No relief in sight for Sprout employees, creditors

Three former Sprout executives — Elliot Salzman, Christopher Wright, and Shea Pallante — were cleared of wrongdoing last year in the wage case by former employees, and today all sit in leadership roles at various financial institutions. The ex-Sprout workers meanwhile have yet to recover any relief over their abrupt firing in 2022, when Sprout also retroactively canceled their healthcare payments.

Michael Strauss agreed to pay over 100 former workers a $3.5 million settlement in 2023, but the payment was halted at the onset of Sprout's bankruptcy case, which was filed on behalf of creditors. Attorneys for the employees indicated to a judge earlier this month they'd move to file for default judgment against Michael Strauss. 

The judge replied however with a threat to recommend to his superior to close the three-year old case, if plaintiffs cannot serve notice on Michael Strauss per court procedure. The case as of Friday remained pending. 

The Sprout bankruptcy case meanwhile shows no signs of resolving soon, as 289 claims remain. Of the over $87 million creditors are seeking, $28 million in unpaid federal taxes to the Internal Revenue Service has been designated as a priority. The list of creditors includes other mortgage industry counterparties, state revenue agencies, and other outside entities including the Wynn resort in Las Vegas, seeking over $26,000 in unpaid convention fees. 

Michael Strauss also owes over $3 million in taxes to New York, according to state records. He additionally owes six- and seven-figure liens on a Manhattan penthouse and a Hamptons house.

The trustee for Sprout Mortgage in its bankruptcy case has previously described Michael Strauss' handling of Sprout's funds as akin to money laundering, as he used the lender's coffers to pay for his residences, horse racing and breeding activities, and college expenses for his daughter. According to case documents, at least $27 million was transferred from Sprout accounts to entities and insiders related to Strauss ahead of the 2023 bankruptcy filing. 

The former Sprout leader's resume also includes a $2.45 million settlement with the Securities and Exchange Commission in 2009, over his activities as CEO of American Home Mortgage which collapsed during the Great Financial Crisis.