Two California couples are suing KB Home and mortgage lender Countrywide Financial Corp., claiming the companies schemed with real estate appraisers to inflate prices paid for homes as the housing market began to tank.
The complaint, filed Wednesday in Los Angeles Superior Court, also names as a defendants KB Home Mortgage Co., Countrywide Home Loans Inc., Countrywide KB Home Loans — a joint venture of Countrywide and the builder — and two real estate appraisers.
In a statement, KB Home said, "We believe that our full and complete investigation will show these allegations to be without merit."
Calabasas, Calif.-based Countrywide, which last month tentatively agreed to be acquired by Bank of America Corp., did not immediately respond to e-mails seeking comment.
The plaintiffs, Deborah and Lonnie Bolden, and David and Dolores Contreras, all residents of Live Oak in Northern California, are seeking unspecified restitution as well as compensatory and punitive damages.
They also want class-action status to cover KB Home customers in California who obtained financing through Countrywide and closed on their purchases between Aug. 1, 2005 and July 31, 2006.
In the lawsuit, the couples claim prospective homebuyers were presented with false or misleading data on previously sold homes in order to justify higher asking prices on new purchases.
KB customers were presented with comparable sales data from homes that were dissimilar, nowhere near the KB property being sold, or from sales that had not yet closed, according to the lawsuit.
When independent appraisers evaluated comparable home sales, the values were between 10 percent and 15 percent lower than the price the plaintiffs paid for their KB homes, the lawsuit claims.
"People like Debbie Bolden lost up to 15 percent before they ever opened their front doors," plaintiffs' attorney Peter Fredman said in a statement. "We believe that these practices propped up falling prices into the summer of 2006 at least."
The complaint suggests the alleged scheme likely affected other KB customers.
"Inflated closed-sale prices resulting from the fraudulent appraisals, in turn, infected subsequent appraisals and valuations, allowing KB Home to continue to obfuscate falling values and obtain prices inflated well beyond where they would have been in the absence of this unlawful price manipulation," according to the lawsuit.
Unlike other builders that sell finished homes, KB builds homes based on advance orders, and buyers finalize the deal when the company completes construction.
If a post-construction appraisal shows the property value has fallen below the contract price, buyers can walk away from the deal, according to the complaint.
The Boldens and Contreras each purchased homes in 2005 at KB's Oak Knoll development.
They claim other homeowners in the area paid lower prices for their homes because they did not obtain financing through Countrywide KB Home Loans and obtained an appraisal from an agency that wasn't affiliated with the companies.
The Boldens contend they paid nearly $70,000 more than one neighbor in a similar home purchased around the same time.
Countrywide's lending practices have drawn consumer complaints and litigation amid a surge in home loan defaults as the housing market went from boom to bust.
A former employee at Countrywide KB Home Loans sued the company last month claiming he was wrongly fired after he criticized the firm's lending practices.
The lawsuit contends the lender fired him after he blew the whistle on fellow employees and outlined instances in which appraisers were being strongly encouraged to inflate homes' appraised value.
Countrywide shares rose 23 cents, or 3.5 percent, to $6.84. Shares of KB added 24 cents, or about 1 percent, to $24.46.