Home-buyers sued KB Home in Phoenix federal court Thursday, claiming the builder conspired with Countrywide Financial to inflate appraisals for home sales in Arizona and Nevada.
The class-action suit focuses on home sales in the two states since 2006, alleging Los Angeles-based KB Home steered home buyers to Countrywide, which then steered them to LandSafe Appraisal Services, a wholly owned subsidiary of Countrywide. LandSafe then used appraisers who would "come in at whatever number was necessary to close the deal at the price desired by Countrywide-KB," the lawsuit says.
Appraisers would arrive at inflated values by selecting properties that weren't comparable, relying on pending sales instead of completed sales, and using false statements about the housing markets in Arizona and Nevada, the suit alleges. The aim was to increase revenues for KB Home and Countrywide at a time when values were falling.
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Craig LeMessurier, regional public relations director for KB Home, said the company hadn't seen the lawsuit and declined to comment. A spokeswoman for Bank of America Corp., which now owns Countrywide, didn't return calls.
"The impact of this scheme is staggering," says the suit, which was filed by Seattle-based law firm Hagens Berman Sobol Shapiro. The lawsuit estimates the average appraisal was inflated by $20,000 for the more than 14,000 homes built in Arizona and Nevada.
The lawsuit was filed on behalf of a handful of Buckeye and Surprise residents who bought homes from KB in 2006, but it includes any person who purchased a KB home in Arizona and Nevada since 2006 and used Countrywide as the lender.
KB Home has seven communities in the Tucson area, and the builder recently launched a line of homes priced as low as $90,000 to $100,000 in an attempt to compete with foreclosures.
"People were deprived of their ability to make an accurate assessment of their purchase," said Rob Carey, managing partner of Hagens Berman Sobol Shapiro's Phoenix office, which filed the suit. "This is an explicit agreement to try to rip off borrowers, between the lender and appraisers."
Carey said his firm arrived at the $20,000 figure for inflated appraisals through "experts who review documents to figure that out."
As background to the case, the suit cites two California cases where appraisals came in at allegedly higher values. In one of those cases the appraiser relied on false comparable sales — where homes sold for thousands of dollars less than what was described in "tainted" appraisals — to achieve a higher closing price.
But the complaint doesn't establish that kind of alleged action in the Phoenix-area cases. Rather, the Phoenix cases largely rely on appraisers going to outside communities for comparable sales.
Countrywide, once the biggest U.S. mortgage lender, settled a multi-state lawsuit in October that alleged it used deceptive practices in its mortgage-lending business.
The lawsuit filed Thursday claims the inflated appraisals contributed to the collapse of the secondary market for loans.