Friday, May 8, 2009 | 2:21 p.m.
Countrywide Financial is accused in a new lawsuit of teaming up with KB Home to inflate prices on new homes in Arizona and Nevada -- allegedly hurting consumers by placing them in deals with negative equity without their consent.
Attorneys representing a group of homeowners said Thursday they filed a lawsuit in U.S. District Court in Arizona seeking class-action status against KB Home, Countrywide Financial and LandSafe Appraisal Services, claiming the three conspired to illegally rig home appraisals in KB developments in an effort to boost home values and sales prices.
The suit claims KB and the other defendants inflated home prices by as much as $280 million in Arizona and Nevada alone during a three-year period beginning in 2005.
""It is particularly unfortunate in these challenging times that predatory attorneys file baseless lawsuits. We look forward to proving the lawsuit is without merit," responded Craig LeMessurier, KB Home's regional director of public relations. Officials at Bank of America could not immediately be reached for comment on the allegations involving Countrywide, which was purchased by B of A and is now called Bank of America Home Loans.
Rob Carey, the attorney representing the plaintiffs who allege racketeering by the defendants, said KB routed purchasers to Countrywide for loan services.
"Countrywide and KB were in cahoots, intent on sticking the homeowner with an inflated home appraisal to justify the purchase price," Carey said.
Countrywide allegedly funneled all its KB customers' home appraisals to one person at LandSafe, an appraisal subsidiary of Countrywide who, in turn, would deliver an appraisal value at whatever KB and Countrywide ordered.
In two KB Home developments cited in the complaint, sampled appraisals were inflated by $82,169 per property on average, the suit charges.
"Even if we used a more conservative $20,000 per property, this alleged scheme would add ($280 million) in ill-gotten profits in KB's pockets," Carey said. "Those profits come at the expense of the homeowner, who moves into a house already upside-down, and the secondary market, buying tainted investments."
The complaint sites instances of appraisals that used pending sales within the same development as comparable properties substantiating appraisal values.
This is just the latest headache for Bank of America since it bought Countrywide, which played a big role in the subprime mortgage meltdown and in March settled a predatory lending complaint filed by the Nevada Attorney General's office.
In other recent cases:
--American International Group Inc. sued Countrywide in March, alleging Countrywide misrepresented the health of loans that the company insured, resulting in massive losses to AIG.
--A shareholders' lawsuit is progressing against Countrywide's former chairman and chief executive, Angelo Mozilo. Shareholders are complaining that he improperly profited by selling stock. The lawsuit explains how Countrywide shifted away from traditional fixed-rate mortgages toward riskier loans, such as subprime and adjustable rate mortgages. It claims the change created more risk for shareholders, who lost money when the company's stock price dropped in 2007.
--The Florida Attorney General's office continues to pursue a deceptive trade practices case against Mozillo.
This story has been corrected. The suit claims KB and the other defendants inflated home prices by as much as $280 million.
The Associated Press contributed to this report.