Pulte Homes Violated State Law in Manipulating Home Sales Prices, Lawsuit Claims
San Francisco, CA – October 27, 2009 – (RealEstateRama) — A California homeowner filed a class-action lawsuit against Pulte Homes Corporation (NYSE: PHM) claiming 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.
The lawsuit, filed in U.S. District Court in Northern California, 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. In an effort to avoid the housing market crash, Pulte used its business model to create a self-sustaining environment of high prices and high sales, despite national trends the suit claims.
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.
The complaint includes a quote from William J. Pulte, stating that in 2005, “In most of these cases, buyers have no idea how they’re going to pay.”
Despite the CEO’s cautionary statement, the suit alleges Pulte lured unqualified buyers by promising them large discounts if they used the company’s mortgage arm, Pulte Mortgage. When the named plaintiff, Sodalin Kaing, 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,” said Steve Berman, lead attorney and managing partner at HBSS. “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.”
“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,” Berman continued.
Pulte pushed homeowners into dangerous loans and then quickly sold those loans on the secondary market immediately after closing for additional profits, the suit states. These practices created ‘toxic subdivisions’ populated with homes built and financed at inflated values, owned by homeowners who did not qualify for and could not service their loans, the suit continues.
The result of Pulte’s actions to homeowners and the market was catastrophic resulting in foreclosures, a steep decline in home values, a loss of buyer’s down payments, loss of mortgage payments and ruined credit, the suit states.
In 2006, the suit states Pulte home prices ranged from $558,000 to $694,000. By the end of 2008, the company’s predatory practices caused home values in this neighborhood to crash at $230,000, more than a 50 percent drop in value. The neighborhood is “toxic” according to the complaint.
“Pulte set homeowners and itself up for failure when it thought it could curtail the housing crisis and maintain inflated home sales,” said Berman. “The company systemically ruined homeowners purely in the pursuit of profits. This scheme transformed the company from a business to a gambling venture and many homeowners have wrongly suffered significant losses.”
The suit claims Pulte allowed and encouraged buyers to provide inflated stated and verified income as part of the loan process, did not require substantial down payments, provided underwriting on sub-prime loans for buyers with bad credit, financed buyers in adjustable interest-only loans and more.
For years, the scheme ran successfully, generating billions of dollars in profits from artificial demand and sales, the suit states. According to the lawsuit, by 2005, 60 percent of Pulte’s total sales occurred in Arizona, Florida, California and Nevada – the top four states in the country in foreclosure activity.
“Based on what we have seen we expect the case to broaden to pick up toxic neighborhoods in both Nevada and Arizona,” Berman noted.
The suit names several 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. To join this case, homeowners can contact attorneys by visiting www.hbsslaw.com/pultehomes, e-mailing pulte (at) hbsslaw (dot) com or calling (206) 623-7292.
About Hagens Berman Sobol Shapiro
Hagens Berman Sobol Shapiro is a nationally recognized class-action and complex-litigation law firm based in Seattle with offices in San Francisco, Chicago, Boston, Los Angeles and Phoenix. Among recent successes, HBSS negotiated a $300 million settlement in the DRAM memory antitrust litigation, the largest antitrust settlement in U.S. history, recovered $340 million on behalf of Enron employees, and was part of the leadership team in the $3 billion Visa/MasterCard settlement. In pharmaceutical litigation, the firm’s recent successes include a $350 million settlement with McKesson, more than $200 million with other parties in drug-pricing litigation, and a $150 million settlement regarding Lupron. HBSS represented Washington and 12 other states against the tobacco industry that resulted in the largest settlement in history. For a complete listing of HBSS cases, visit www.hbsslaw.com.
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