Personal Injury Blog

Builder Inflates Appraisal Prices, Faces Lawsuit

February 12th, 2008

As the country finds itself in a recession triggered by a collapse in home prices and foreclosures by home owners who find their homes have depreciated sharply since they were purchased, we are beginning to find examples of the kind of deceit and lies that marked the house buying frenzy of the past decade. As experts now realize, part of the recession is the result of the inflation of house prices by unscrupulous builders and appraisers.

This unholy nexus between the builders who want to dispose of their properties at a higher price, and appraisers who are willing to help them do it is now in the spotlight. Two California couples are suing Los Angeles-based builder KB Home a unit of lender Countrywide Financial Corporation. The allegations are KB Home “conspired with appraisers” to create fraudulent appraisal reports that led to the plaintiffs paying much more for their houses than was the going market rate. In other words, the builder used deceit to prop up the prices of their properties.

One of the couples, the Boldens, claim that they paid up to $70,000 more for their property than their neighbors. The neighbors in question, it appears, used independent financing and had their own appraisers conduct an evaluation of the property. The properties in question are part of KB Home’s property development in Live Oak, north of Sacramento.

The Boldens allege that the appraiser affiliated with KB Home compared prices to homes in other KB Home developments instead of the immediate area, as is the norm. The Boldens paid $475,000 for their 5-bedroom property. A neighbor later told them that they had used their own appraiser and managed to cut the price of the house from the contract price of $469,000 to $408,000. This was when the scam came to light.

These kind of unscrupulous measures are what fed the house buying frenzy that had millions of hopefuls lining up for financing to buy the house of their dreams. KB Home on its part has strongly denied the allegations and has asserted that they would vigorously defend themselves.

It’s not clear how they will do that since the odds are stacked so highly against them. One of their own former employees has alleged that the lenders gave loans to unqualified borrowers so KB Home could keep on building new properties for sale. Former Countrywide KB Home Loan Vice president Mark Zachary said he was fired after he questioned these unethical practices at the company. According to Zachary, appraisers were routinely asked by the company to inflate prices by as much as 6 per cent.

This kind of unrestricted loaning of money was at least partly responsible for the housing market collapse and the resulting economic recession. As the news of the lawsuit spreads we can expect to find more house owners come out of the woodwork to accuse KB home of fraudulent appraisals and artificial inflation of house prices.

KB Home may protest its innocence as much as they want to, but something does smell rotten in Denmark.

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