Homeowners Sue KB Home, Countrywide Over Inflated Appraisals

May 8, 2009 No Comments »

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Seven KB Home customers in Arizona are seeking class action status for a racketeering lawsuit against the homebuilder and its exclusive mortgage lender Countrywide Financial, according to the Arizona Republic.

The suit, filed Thursday in Maricopa County Superior Court, alleges that the builder-lender duo artificially pumped up home prices since 2006 to sell more homes while earnings thousands in loan origination fees, title insurance, and appraisal and escrow fees.

Three common elements were seen in the alleged faulty appraisals carried out by Countrywide’s subsidiary LandSafe, including “improper” and “distant, dissimilar” comparable sales, identical “false and misleading statements” that ignored actual market factors and conditions, and the use of pending KB Home sales that never actually closed.

The use of pending transactions from KB Home to substantiate home values is a red flag because such information should only be known to the homebuilder, and appraisers are not meant to confer with a builder whatsoever.

The complaint says at least 14,000 KB Homes houses have been sold since 2006 in the Southwest region alone, when home prices began to plummet.

The suit comes on the heels of new rules for appraisers that eliminate mortgage broker-ordered appraisals, prohibit appraiser coercion, and reduce the use of in-house appraisals and captive appraisal management companies.

The so-called Home Valuation Code of Conduct was implemented on May 1, but it’s too early to tell what the impact has been, or whether it will stick.

The legislation came about after Attorney General Andrew Cuomo sued First American Corp. and its eAppraiseIt unit for falsely inflating home values tied to Washington Mutual home loans.

(photo: ronnie44052)

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