A Court Case That Could Be A Sign of the Times
On Feb. 6, Bolden filed suit in Los Angeles Superior Court along with her husband, Lonnie Bolden, and her neighbors David and Dolores Contreras against her builder KB Home, her lender Countrywide Financial Corp., along with affiliated businesses and two appraisers. Alleging that the defendants conspired to inflate the price of their homes through deceptive, fraudulent appraisals, the suit seeks compensatory and punitive damages. Asserting that they are the tip of the iceberg and that many other KB Home owners have been harmed by the same practices, the plaintiffs are requesting class-action status for all California KB Home buyers who obtained financing through Countrywide between Aug. 1, 2005 and July 31, 2006.

A Court Case That Could Be A Sign of the Times
By Carol Lloyd, Special to San Francisco Chronicle
Friday, March 21, 2008

In a time when tens of thousands of people are losing their homes to foreclosure, house prices are falling and the mortgage industry is being criticized for its part in the credit crisis, it's not surprising that some disputes end up in court.

But until now, I've written about precious few of them. Why? So many of them just don't inspire me enough to put pen to paper.

Sure, some lenders charged unwarranted fees, and some borrowers lied on their loan applications. But a lot of the time these cases pivoted on a few hundred to few thousand bucks. A lot of money, yes, but not the dividing line between home ownership and penury, especially when compared to the money we Americans have been spending on our flat screen televisions and SUVs.

Then I heard about Deborah Bolden and her case against KB Homes and Countrywide Financial. Now this was interesting.

On Feb. 6, Bolden filed suit in Los Angeles Superior Court along with her husband, Lonnie Bolden, and her neighbors David and Dolores Contreras against her builder KB Home, her lender Countrywide Financial Corp., along with affiliated businesses and two appraisers. Alleging that the defendants conspired to inflate the price of their homes through deceptive, fraudulent appraisals, the suit seeks compensatory and punitive damages.

Asserting that they are the tip of the iceberg and that many other KB Home owners have been harmed by the same practices, the plaintiffs are requesting class-action status for all California KB Home buyers who obtained financing through Countrywide between Aug. 1, 2005 and July 31, 2006.

In July, 2005, Bolden ordered her home at 3413 Cannon Ave. in Oak Knoll, a new KB subdivision in Live Oak, on Highway 99 about 8 miles north of Yuba City. Shortly afterward, the Central Valley real estate market slammed on its brakes.

At Live Oak, the KB Home development process was to build a half-dozen model homes at different price points and then allow customers to choose their lot and their home model and have it "built to order."

Bolden availed herself of the extra services offered by KB Home. She used their in-house real estate agents and mortgage brokerage (KB Homes Sales and KB Home Mortgage Co.), the in-house lender (a joint venture with Countrywide Financial called Countrywide KB Home Loans), which arranged for the appraisal through Countrywide's appraisal company Landsafe, which contracted with an appraiser.

Bolden moved in to her completed home in early February 2006. The purchase price was the same as the original contracted price: $475,000.

An uneasy feeling

A couple of weeks after moving in, Bolden began feeling uneasy about her purchase. "It all started when I decided to create a neighborhood watch group," she said during a phone interview.

"I met Michelle Ruvacalba who had bought an identical home as mine six weeks before us who said she had troubles when they were closing." Like Ruvacalba, Bolden had bought a "top of the line" model within the development. Yet despite the similarity of the two homes, Bolden said the appraisal and the resulting purchase price were far from similar.

The Ruvacalbas had used an outside appraiser who after looking at four comparable sales of the same model in the same development ranging from $373,000 to $414,000, refused to appraise the house at $469,000, the initial contract price.

When faced with these numbers, KB Home agreed to lower the price of the home by nearly $61,000. When Bolden heard Ruvacalba's story she became concerned that her appraisal had been inflated.

Astounded by the appraisal

"I was really stunned," she said. "How could my house appraise at 480 (thousand) and hers was appraised at 407 less than two months earlier when the market was going down? That was a red flag for me."

She said she ordered a copy of her appraisal then spent weeks driving around the neighborhood finding all the homes in her subdivision that were the same model as her own. She then looked up their sale prices at the Sutter County assessor's office.

There she said she discovered the discrepancies that became the basis for her case: that her appraiser had used erroneous comparable-sales data that suggested that her home was worth more than it was.

According to appraisal documents received by The Chronicle, the Bolden appraisal cited five comparable sales. Three of the comps were from outside Live Oak, in Yuba City 8 miles away. The remaining two were from homes within the same development and were the same model, but, according to the complaint, misstated the purchase price.

One comp's listed purchase price was $461,000 but the complaint says the public record shows the real price was $408,500. Another listed a purchase price of $480,500, instead of $410,000.

Bolden said she attempted to work the problem out with KB Home but never received satisfactory answers to her questions. After repeated inquiries, she says she was told to contact KB's attorney.

Time to hire a lawyer

After the Sutter County tax appeal board agreed to retroactively lower her property taxes, based on the idea that her initial appraisal had been inaccurate, Bolden hired her own lawyer.

Eventually, David and Dolores Contreras, who also bought in Oak Knoll during the same period, joined the suit, maintaining that their appraiser also used out-of-town and inaccurately inflated comparisons.

Peter Fredman, the attorney representing the Boldens and Contrerases, said that proving that appraisals are intentionally inflated is difficult.

"I've seen a lot of inflated appraisals in my work. But often you can't successfully make an argument that appraisals are inflated because there are so many subjective factors that go into appraising a house," he said. "But this case is different."

He contends the case is strong because the appraisers repeatedly made "blatant errors" by misstating the purchase prices of the comparisons.

All builders have a motive to inoculate their inventory from a steeply declining market, but the particular model KB Home used in Live Oak makes market declines even more damaging.

With the "built to order" business model, the company has already recorded the sales based on the initial agreed-upon purchase price six or so months before the homes have been completed and the buyer has signed on the bottom line.

"In order to conceal the declining values and close pending sales," the complaint states, "KB Home and its in-house mortgage lending operation conspired with affiliated appraisers to generate fraudulent 'at value' appraisal reports."

Despite repeated requests for comment, the defendants have not responded in detail to the case. Calls to one of the named appraisers were not returned. Reached at his office, the other appraiser named in the suit declined to comment. KB Home stated in an e-mail that the company believes that the case has no merit.

"As a matter of policy, Countrywide does not comment on pending litigation," Countrywide spokeswoman Jumana Bauwens said in an e-mail.

Like every legal case in its early stages, it's impossible to know the legalistic twists and turns that may affect the case. But one thing remains certain, Deborah Bolden has already arrived at a rough real estate reality. Along with the 15 percent she claims she lost upon signing the closing papers, she says the market has shaved off an additional 25 percent in the value of her home. The experience, she says, has forever changed the way she sees buying a house.

"If we were ever to buy another home, I don't want a subdivision." she told me. "And no matter what, I would always hire an attorney to look at the paperwork. I'm just not as trusting any longer."

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