Value of homes rigged, suit says
As home prices soared higher earlier this decade, the buying frenzy was fueled in part by what real estate industry experts now claim were exaggerated -- or outright fraudulent -- appraisals.
A lawsuit filed by two couples this week adds a new twist: It claims that Los Angeles builder KB Home and a unit of lender Countrywide Financial Corp. pumped up appraisals in their Sacramento-area development to sell homes at higher prices.
One couple, Deborah and Lonnie Bolden, says they paid $70,000 more for their home than neighbors who used different appraisers.
Their lawsuit, filed Wednesday in Los Angeles County Superior Court, alleges that KB Home and Countrywide “conspired with affiliated appraisers to generate fraudulent” appraisal reports.
This was done, the suit contends, by comparing sales prices for homes in other KB Home developments a few miles away in the appraisal, rather than neighboring houses.
KB Home issued a statement Thursday saying “we believe that our full and complete investigation will show these allegations to be without merit.” A Countrywide spokesman declined to comment.
The Boldens in 2006 paid $475,000 for their five-bedroom, 2,987-square-foot house in a KB development in Live Oak, north of Sacramento.
Peter Fredman, the Boldens’ attorney, said a neighbor told the couple they had used their own appraiser and got KB to reduce the price of their home to $408,000, from their contract price of $469,000.
Fredman said property values in the area were falling in 2005 and 2006. As a result, houses were often worth less by the time they were built than the price agreed to several months before in purchase contracts. To keep houses at their contracted price, KB exaggerated appraisals, Fredman said.
“Prices were going down and they knew it,” Fredman said of KB Home. “They rigged the appraisals.”
David and Dolores Contreras, the other plaintiffs, paid $428,000 for a house similar to the Boldens’ in the same development in May 2006, the suit says.
The lawsuit seeks restitution as well as compensatory and punitive damages. It also seeks class-action status for all California KB Home customers who bought homes through Countrywide financing from August 2005 to July 2006.
The KB Home website now shows prices for houses with floor plans similar to those in the lawsuit starting at $282,900, without options such as additional rooms.