Customers sue KB Home, allege rigged appraisals, inflated prices

Saturday, May 9, 2009 | 2 a.m.

Union group part of lawsuit over home prices (5-9-09)

Countrywide lawsuit

Countrywide Financial, KB Home accused of inflating home prices (3-8-2009)
Countrywide to lower interest rates in settlement (3-2-2009)

Real Estate in Crisis

Customers of KB Home are suing the homebuilder, claiming they paid more than their homes were worth because the company artificially inflated appraisals in cahoots with Countrywide Financial and its appraisers.

Representatives of the plaintiffs allege that KB Home, Countrywide and LandSafe Appraisal Services conspired over a three-year period to sell 14,000 homes in Nevada and Arizona with rigged appraisals that overvalued the homes by tens of thousands of dollars.

In two KB Home subdivisions cited in the complaint, sampled appraisals were inflated by about $82,200 per property, the lawsuit alleges.

“Even if we used a more conservative $20,000 per property, this alleged scheme would add $280 million in ill-gotten profits in KB’s pockets,” said Rob Carey, an attorney representing the homeowners.

Carey’s firm did not specify which KB Homes communities were connected with the complaint. In the Las Vegas Valley, KB Home built at least 14 subdivisions, but it’s unclear from the company’s Web site if construction of all these homes coincided with the alleged conspiracy period of 2006 to 2008. The subdivisions include five Inspirada communities in Henderson; four Mountain’s Edge communities in the southwest valley, and Ladera Crest in Summerlin.

The lawsuit was filed Thursday in U.S. District Court in Arizona by the Seattle-based law firm Hagens Berman Sobol Shapiro.

The suit alleges that KB Home steered buyers to complete a loan application from Countrywide, which then ordered appraisals from LandSafe, a subsidiary of Countrywide.

Certain appraisers were willing to “play ball,” arriving “at whatever number was necessary to close the deal at the price desired by Countrywide-KB,” the lawsuit alleges. The entwined companies controlled most or all aspects of a buyer’s real estate transaction, the lawsuit claims.

“The appraisals were fudged,” said Steve Berman, a partner with the Seattle firm. “We believe the top executives were involved in blessing this arrangement.”

KB Home disputes the allegations.

“It is particularly unfortunate in these challenging times that predatory attorneys file baseless lawsuits,” spokesman Craig LeMessurier said. “We look forward to proving the lawsuit is without merit.”

Bank of America, which owns Countrywide, responded similarly: “We believe the suit is without merit.”

According to the lawsuit, appraisers improperly selected distant and/or dissimilar properties to the KB homes being bought, used pending transactions as comparable sales and misused market factors, illegally boosting sales prices.

“Those profits come at the expense of the homeowner, who moves into a house already upside down, and the secondary market, buying tainted investments,” Carey said.

Attorneys representing seven homeowners — and thousands more, if the federal court grants the Seattle firm class action status — began investigating the matter about six months ago. During that period, attorneys spoke with “dozens” of appraisers and homeowners, Berman said, though he refused to disclose their names.

Discussion: 9 comments so far…

By its2hot

5/9/09 at 4:14 a.m.

Suggest removal

This suit shouldn't be a big surprise to any of us. The price per square foot paid for the tract homes was indeed excessive and the consumers were mislead and I do believe fraud occurred at all levels of the Real Estate crash.

The suit should include many others who participated in the pricing structure. Any tract home that sold for more than $80.00 a square foot was defrauded. The cost of the labor, materials, and other equipment was well under the prices that homes should've sold for let alone what the loan amount approved. To many people had an inherent conflict of interest when the transaction occurred, each and every one involved were paid a commission, this is where the allegations of fraud occurred and this is what needs to be changed.

What consumers need to realize, pigs get fat-hogs get slaughtered. Consumers need to jump on this band wagon and sue not just KB Homes but the TARP receipt ants. The loses that has occurred with TARP recipients we are all paying for while the commission recipients are making millions and billions at our expense.

Look at the ex-CEO of KB, 20 counts of fraud for back dating stock. Look at the other executives, they live a life if luxury in and around the USA, even McDonald Ranch in Henderson. How much does one person require at our expense and we allowed this to occur.

Go to the Seattle-based law firm Hagens Berman Sobol Shapiro website and put your name on the class action suit.
By acesbet

5/9/09 at 7:51 a.m.

Suggest removal

Sour Grapes!

Young people wanting something that they could not afford in the first place.

Only way to get a loan was to inflate the value for loan purposes.

Both are are now suffering.

Ace's
By markp

5/9/09 at 9:43 a.m.

Suggest removal

this article has been listed on the british website housepricecrash.co.uk interesting to see their comments.
By azsk8fan

5/9/09 at 6:17 p.m.

Suggest removal

I've always contended that many contributed to the mess the housing industry is now in. The home builders and realtors certainly had to pay off the appraisers to get these homes valued at 'their' asking price in order for the bank to issue the loan. No bank is going to give anyone a loan for more than what the house appraises at. By paying off the appraisers both the realtor (commission) and the homebuilder (profit) made a ton of money. A person has no option but to trust that the appraiser was giving them a true figure when appraising the home. I think there should be some action taken against crooked realtors and appraisers as that's where I truly feel the mess began.
By azbycx0918

5/9/09 at 6:37 p.m.

Suggest removal

This is why the sales comparison approach should never be used to appraise a home, but unfortunately is what most residential appraisers use to assign value to homes. Just because similar homes are selling for an inflated amount doesn't mean that the appraised house is worth the same amount. The cost or income approach would never have provided such overestimates of value and should be used as the standard for single-family homes in the future.
By its2hot

5/9/09 at 9:03 p.m.

Suggest removal

Agree; look at KB Homes Chaco Canyon located in Mountains Edge. The original home design and features determined the sale of the home, these sold for 200k and upwards. With the plunging home prices KB lowered the prices by a little but the design and quality are inherently different. The value between the phases should be substantially less but the builder is selling for just under the original market value then charging for upgrades.

Examples of the changes, the flooring in the kitchen use to be concrete, now cheap wood. The exteriors of the house use to have angles and bay windows, they're boxed now, the room lighting receptacles were standard, now they're extra and many other design changes exist that should've lowered these phases must more than being approved to loan against. The comparables are inherently different.
By 9ballguy

5/10/09 at 2:32 p.m.

Suggest removal

I am a Realtor and never had an appraiser ask my opinion of what a property was worth in my transactions. Our job as Realtors is to connect buyers and sellers with properties that meet their needs. We are NOT financial advisors and any Realtor trying to give financial advice is asking for litigation.
By loosingmoney

5/19/09 at 10:38 p.m.

Suggest removal

we unfortunately bought into a kb home, and we are having a problem with countrywide (now b of a ) telling us our house payments went up 200 dollars because of property taxes? huh ? our value has been apreciated at 45,000 less this year than last. Our insurance co (allstate) even knew it when they sent a refund for the policy because they overcharged us by mistake, noticing the price to rebuild our home is 45,000 less than what they estimated it as. So if everyone knows this why is our mortgage going up? Its a fixed at 5.9