Homeowners’ Lawsuits Against Builders to Proceed After Ninth Circuit Overturns Ruling

United States Court of Appeals for the Ninth Circuit in San Francisco says homeowners have standing to pursue claims against major homebuilders

San Francisco, CA – This week a unanimous panel of the United States Court of Appeals for the Ninth Circuit in San Francisco ruled that lawsuits against eight major homebuilders may proceed. The suits claim the builders caused financial injury to qualified homebuyers when the builders marketed nearby houses to high-risk borrowers who later went into foreclosure.

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“This is a critical first step,” said Richard McCune, a partner at McCuneWright LLP in Redlands, Calif. McCune, along with co-counsel at the Firm in Illinois and Hanly Conroy in New York, represent the homeowners. “Our clients are financially sound people who did things the right way and were told they were buying homes in traditional, stable communities. Instead, many of these responsible homeowners are now upside-down in their homes due to the undisclosed marketing and lending practices of these builders.”

A federal district court judge had earlier dismissed the cases, but on Wednesday the Ninth Circuit appellate court said the lower court erred in concluding the homeowners lacked “standing” to pursue their claims.

The class action cases are filed in the Riverside, California branch of the U.S. District Court for the Central District of California, an area especially hard hit by the national housing crisis. The plaintiffs purchased homes in new developments from major homebuilders like Beazer Homes USA Inc. and PulteGroup Inc.’s Centex Homes, among others.

The lawsuits allege the homebuilding companies concealed and misrepresented the fact they were filling these neighborhoods with unqualified borrowers who would not be able to withstand any market downturn. As a result, the qualified homeowners paid more for their homes than they should have, and they now live in neighborhoods littered with foreclosures and own homes with significantly less value than they were led to believe they were buying. The appellate court panel found sufficient in particular the plaintiffs’ allegations that it was the builders’ conduct that “inflated the ‘bubble’ in their particular neighborhoods”.

As a result of the appellate court’s decision, the cases now will return to the trial court for further proceedings.

“This means homeowners will have a chance to hold these builders accountable and a chance to be made whole again,” said McCune.

The cases are Maya, et al. v. Centex Corp. et al., 9th U.S. Circuit Court of Appeals, No. 10-55658; Martinez, et al. v. D.R. Horton, Inc., et al., No. 10-55660; Lumalu, et al. v. MDC Holdings, Inc., et al., No. 10-55662; Stephens, et al. v. Lennar Corp., et al., No. 10-55663; Kelly, et al. v. Beazer Homes USA, Inc., et al., No. 10-5566; Nielson, et al. v. Shea Homes Inc., et al., No. 10-55665; Oneto, et al. v. The Ryland Group, Inc., et al., No. 10-55667; and Dodaro, et al. v. Standard Pacific Corp., et al., No. 10-55668.