What Happened to Sprout Mortgage: Closed July 2022, Bankruptcy 8:23-bk-72433 Open in November 2026

What happened, in dated order

A premise worth correcting: the court describes the corporate defendants, in the plaintiffs' own words, as a firm that "provided due diligence, valuation, underwriting, and auditing support to financial institutions." That is how the complaint describes the Recovco and Sprout group together. The loan record in the federal file is Sprout's, a lender with its own license and its own loans. Other press reports describe Sprout as a non-QM lender; the HMDA data below show what it actually made.

Sprout's loan book in the 2021 federal file

Lenders that report under the Home Mortgage Disclosure Act put their loans in a federal file. Sprout Mortgage, LLC (ID 549300QLLCMT1VD4OD25) is on the FFIEC filer list for 2021. We downloaded its 2021 records on November 7, 2026 and counted them. All 13,353 records are first-lien conventional loans.

What the counts say, with the filters stated: we kept records with action_taken 1 (loan originated). "Non-owner-occupied" is occupancy_type 3. "Business purpose" is business_or_commercial_purpose 1; all 1,550 of those loans were also on non-owner-occupied property. Other records in the file: 1,920 applications denied, 3,720 withdrawn, 502 approved but not accepted and 109 files closed as incomplete.

• Investor loans were about a third of originations (2,377 of 7,102, or 33.5%, our arithmetic) and 19.5% of the dollars ($927,445,000 of $4,751,700,000, our arithmetic).
• The business-purpose loans: 1,206 one-unit, 211 two-unit, 70 three-unit, 56 four-unit and 7 of five to 24 units. Median loan-to-value 70.7%. 240 reported an interest-only payment. Only 9 had a note rate of 7% or more, which fits the low-rate year of 2021.
• Where: business-purpose loans were led by Florida (403), California (254), New Jersey (169), Texas (73), New York (65), Pennsylvania (61), Maryland (57) and Ohio (47).
• Most were sold quickly. 1,236 of the 1,550 business-purpose loans (79.7%, our arithmetic) went to private securitizers in 2021, and only 83 had no purchaser reported. A borrower's note, therefore, was most likely not held by Sprout for long.
• No later filings. Sprout is not named on the FFIEC filer lists for 2022 (4,483 institutions) or 2023 (5,135). That is consistent with a lender that stopped originating, but absence from a list is not proof of when it stopped.

HMDA reports business-purpose loans only for purchase, improvement or refinancing, so this is a partial view of an investor book. It has no debt-service-coverage ratio, credit score or points. For what these products are, see our guides to non-QM loans and bank statement loans.

What happened in court

The employees' case is Agudelo et al. v. Recovco Mortgage Management LLC et al., No. 22-cv-4004 (JMA)(LGD), in the U.S. District Court for the Eastern District of New York. The Third Amended Complaint asserts claims under federal, New York and California wage, plant-closing notice (WARN Act), retirement-plan (ERISA) and credit-reporting laws. These are allegations; no court has found liability against any defendant.

Two judicial statements are worth reading in the words used. The magistrate judge wrote that "Recovco and Sprout remain in bankruptcy and are unrepresented." The district judge wrote that the complaint "is wholly inadequate and insufficient to put the Moving Defendants on notice of which claims are asserted against them." The second is about pleading quality against the individual movants, not a finding on the merits against the companies.

We name companies and courts only. Press reports in 2022 and 2023 named individuals and described other suits by loan purchasers and a warehouse lender; we could not open those dockets and do not rely on them here.

The bankruptcy case

Sprout Mortgage LLC's case is 8:23-bk-72433 in the U.S. Bankruptcy Court for the Eastern District of New York. PacerMonitor, which mirrors the court's public docket, lists:

• three petitioning creditors (New Wave Lending Group, Inc., JMJ Financial Group and EF Mortgage LLC), which indicates the case began as an involuntary petition;
• a case filed July 5, 2023 (the district court's order says July 7, 2023), converted October 20, 2023, a creditors' meeting set for November 15, 2023 and a claims deadline of December 21, 2023;
• three adversary proceedings (8:24-ap-08016, 8:24-ap-08038 and 8:24-ap-08069), opened February 16, April 29 and July 10, 2024;
• docket entry No. 452, dated November 2, 2026, a withdrawal of a claim, with the docket page last updated November 6, 2026.

Two details we cannot settle from what we saved. PacerMonitor's header shows Chapter 11 with a conversion date but does not say what it converted to, and the district court's order refers to a "Chapter 7 Trustee." Check the docket on PACER for the chapter and for any distribution to creditors.

The state license

The California Department of Financial Protection and Innovation lists one action for Sprout Mortgage, LLC, license 41DBO-157070: an order summarily revoking its residential mortgage lender and servicer license "effective November 15, 2022," signed October 31, 2022 for an unpaid annual assessment, and a January 26, 2023 order that rescinded it ("the NOVEMBER 15, 2022 Order Revoking Residential Mortgage Lending and/or Servicing License issued to SPROUT MORTGAGE, LLC., is hereby rescinded"). One sentence in the revocation order names a different company; we rely on the caption and license number. We could not read Sprout's license status in the national NMLS Consumer Access database, so we make no statement about its New York or other state licenses.

Where Sprout's loans sit today: the securitization filings

Securitization sponsors must disclose, in Form ABS-15G under SEC Rule 15Ga-1, the originators of the loans in each deal and any repurchase demands. Goldman Sachs Mortgage Securities Corp.'s report filed August 13, 2026 (accession 0000929638-26-003018) lists Sprout Mortgage, LLC in seven trusts:

Together that is 271 loans and $254,960,229 (our arithmetic). The 2022-NQM1 deal is the one that matches the "non-QM" label: Sprout is the largest originator in that deal's list: 134 of the deal's 527 loans and $91,059,966 of its $341,181,777. In that row, 2 loans ($2,298,793, 1.02%) are shown as the subject of a repurchase demand and also in the "demand in dispute" columns, with nothing in the repurchased or replaced columns. The report filed November 14, 2025 showed the same 2 loans at $2,356,858 (0.98%). The sponsor's note says the information "has not been verified by any third party." A demand is not a finding that a loan breached a representation, and the filing does not say why the demand was made.

This is a Goldman Sachs list only. SEC full-text search also returns ABS-15G filings by other sponsors for the name; we did not read them all, so other deals may hold its loans.

What a reader can do with this

1. If you had a Sprout loan in process in July 2022: the closure announcement as alleged was immediate. Ask the broker or title company in writing which lender ended up funding it and whose license appears on the note.
2. If you hold a loan Sprout originated: your note is probably owned by someone else. In the 2021 file, 79.7% of its business-purpose loans went to private securitizers. The company to pay is the one named in your most recent servicing notice, not Sprout; keep that notice and your payment history. Sprout's bankruptcy does not by itself change the terms of a note it sold.
3. If you are researching a lender before you borrow: use the same four checks we used here: the federal loan file (does it still report?), the lender's state license order list, the federal court and bankruptcy dockets, and securitization originator disclosures. A lender with no 2022 or 2023 HMDA filing and an open bankruptcy is no longer a lender you can borrow from.
4. If you are an employee claimant or a creditor: deadlines in the bankruptcy (the claims deadline was December 21, 2023) matter more than the status of the district court case. Read the docket for your own claim number.

Compare active investor lenders on the federal loan file instead: our DSCR lender comparison, DSCR loans in New York and the AmeriTrust Mortgage case, another non-QM lender that changed hands in 2026.

This is analysis of public documents, not investment, legal or tax advice. It does not say that any named company or person did anything wrong; the allegations quoted are those of the parties and have not all been decided.

Kiavi pays us a referral fee when a loan closes through the button in the box below. The facts above are the same either way, and Sprout Mortgage and the other companies named are not affiliates. Visio and Lima One are shown as alternatives.

FAQ

Sources: U.S. District Court, E.D.N.Y., No. 22-cv-4004 (JMA)(LGD), Report and Recommendation (ECF 269, June 13, 2025), Memorandum and Order (ECF 274, July 30, 2025) and Settlement Agreement (ECF 201-2, filed June 1, 2023), from GovInfo and the plaintiffs' counsel's public file; PacerMonitor case page for Bankr. E.D.N.Y. 8:23-bk-72433, retrieved November 7, 2026; California Department of Financial Protection and Innovation orders for CRMLA license 41DBO-157070 (Wayback Machine capture of March 6, 2026); FFIEC and CFPB HMDA 2021 loan-level data and the FFIEC 2021, 2022 and 2023 filer lists, counted by us on November 7, 2026; SEC Form ABS-15G filings 0000929638-26-003018 (August 13, 2026) and 0000929638-25-004270 (November 14, 2025). We could not open the district court docket after July 30, 2025 or the full bankruptcy docket; both are on PACER.