A California homeowner filed a class-action lawsuit against Pulte Homes Corporation 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 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."
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.
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.
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.
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.
The lawsuit represents anyone who lives in a Pulte neighborhood in California and purchased a home from homebuilder from January 1, 2005 through March 1, 2007.
