Central Valley homeowner sues Pulte Homes over ‘predatory’ practices

SAN FRANCISCO
October 26, 2009 11:38am

Sodalin Kaing of Lathrop is not a happy homebuyer. She bought a home in the Mossdale Landing development in Lathrop from Pulte Homes Corporation (NYSE: PHM), but now says she was duped.

In her lawsuit filed in U.S. District Court in San Francisco, she claims the company engaged in a sophisticated and integrated fraudulent scheme to artificially prop up sales and home sale prices through convoluted control of the home sale process.

“Pulte Homes believes the allegations are without merit and were filed simply to attract media attention. We will vigorously defend the case,” a spokeswoman says.

The lawsuit claims Pulte's business model provides “one-stop shopping” for homebuyers, as the company controls the sale, financing, ancillary settlement services and appraisals in the home buying process.

The suit contends in order to sell homes at above-market values, Pulte placed buyers in loans that they could not afford while settlement and appraisal arms abandoned any presumed neutrality and took whatever steps necessary to ensure home sales closed at prices demanded by Pulte.

Ms. Kaing says that when she raised concerns about her ability to pay, Pulte sales employees pressured her to act quickly or risk losing a $75,000 discount the company offered.

"Pulte created an amazing opportunity for itself by closely manipulating all involved parties in the home sale process," says Steve Berman, lead attorney and managing partner at Hagens Berman Sobol Shapiro, a Seattle, Wash., law firm that is representing Ms. Kaing.

"Pulte created a micro-environment inside the marketplace, where it could rig, falsify and inflate reports and pricing to its hearts content and no one had any idea what was happening," says Mr. Berman.

"In my client's case the 'discount' offered was phony because it reduced the home's price from an already inflated number that was more than $50,000 higher than the appraised value," Mr. Berman says.

The lawsuit says Pulte’s business practices created “toxic subdivisions” of homes built and financed at inflated values, owned by homeowners who did not qualify for and could not service their loans, resulting in foreclosures, a steep decline in home values, a loss of buyer's down payments, loss of mortgage payments and ruined credit.

In 2006, the suit states Pulte home prices ranged from $558,000 to $694,000 in the Lathrop develpment. By the end of 2008, home values had crashed to $230,000, more than a 50 percent drop in value.

The suit makes claims against Pulte including violations of the California business codes including unlawful, fraudulent and unfair business acts and practices, negligent misrepresentation, and breach of implied covenant of good faith and fair dealing.

The lawsuit represents anyone who lives in a Pulte neighborhood in California and purchased a home from homebuilder from Jan. 1, 2005 through March 1, 2007.

Comments on this story

Consumer 10/26/09 1:30 PM
Numerous builders were doing the same things and all who were should be investigated, many probably should be criminally charged. There have been a number of small fry builders who were tried already, (e.g. F. Jeffrey Miller in KS awaiting sentencing, see mortgagefraudblog.com). But the large builders tend to pay a fine and keep on doing it. Several large builders were fined by HUD a couple of years ago for lending law violations, and Beazer Homes settled a criminal mortgage fraud case w/the govt this year, supposedly will pay over $50 million but of course they have not paid anywhere near that yet. KB Home has been under the predatory lending microscope for years, fined millions by HUD, being sued again for appraisal inflation in cahoots w/its preferred lender Countrywide. Many builders have, or had until fined, their own in-house lenders. It's not so convenient to do 'one stop shopping' when it's a one-stop-ripoff. This kind of lending craziness and fraud is what led to the housing bubble and bust, and that's a lot of what took out the economy. It's obscene that this industry is getting any elected official's time, plus millions in bailout money, but they are. They are painting themselves as victims when they are perpetrtors.

jack 10/29/09 1:07 PM
They whole housing bubble was caused by homebuilders like Pulte, lenders, Real estate agent, The Wall Street companies that securitized these loans, Apprasiers, Ect...They made billions ontop of billions and now that the bottom has fallen out they lobby congress for bailout money, new home buyer tax credits. The homebuyer who was taken advantage of is not helped. I was looking at Pulte Homes a few years ago before the bubble burst and right after it started to burst. I was told by the salesman showing me the first home that I could get a i/o 5 year arm on a $600K home and was assured in a year it would be worth $700K+. and I could refi and take that $100k equity and pay my mortgage with that for a few years and in 2 more year it would be worth $900K to a Million. and I could walk with $250K-to$300K+ all on my $55K a year salary. I asked him what do I do if I am able to sell that home for $1mil in 3 year and all the houses in the bay area are also worth $1mil ? If I put in into a $1mil house I am still in a $700K mortgage. I was told to keep doing the same thing. I asked him isn't that just like renting houses then because I can't truely afford these house for more than a few years and it becomes andendless cycle. He said that is what everyone is doing. I told him I had to think about it. I got several high pressure calls from a customer service manager for Pulte after that and was basically stupid for not buying. That $600K house is now worth around $300k and the development is 3/4 empty because everyone is foreclosing or the houses never sold. I got a call from that same customer service manager about a year ago trying to get me to buy a house in the same development for $450k I got in a nice argument with him and told him that house was suppose to be worth $800k now according to you. He seemed pretty desperate to sell a house. I ended our call buy telling him that I didn't think the downturn was over yet. He assured me it was over. I hung up