Owners’ lawsuit blames builders for ‘inflating the bubble’

A lawsuit is being revived in federal court from a group of California homeowners who allege that eight major homebuilders are responsible for the loss in value of their homes and for their neighborhood becoming less desirable.

The homeowners had purchased homes from 2004 to 2006 in new developments built by the eight major builders in the Inland Empire region of California (Riverside-San Bernadino). The homeowners claim that the developers represented the homes as “stable, family neighborhoods.” But in the lawsuit, they allege that the builders marketed the homes to and financed unqualified borrowers, which in turn led to a “buying frenzy” that artificially inflated prices.

Following the housing bubble, foreclosures and short sales in the neighborhood skyrocketed, leading to a high number of abandoned homes and unkempt yards and crime, the homeowners say in the lawsuit.

A federal district judge in Riverside, California had originally dismissed the lawsuit, but the 9th U.S. Circuit Court of Appeals in San Francisco disagreed, saying the homeowners could continue to pursue their fraud claims against the builders.

The court said that the homeowners sufficiently alleged that the builders’ practices “inflated the bubble in their particular neighborhoods” and that “decreased economic value and desirability” are injuries that home owners can recover damages for in court.

Among the builders named in the lawsuit: Beazer Homes USA Inc., DR Horton Inc., Lennar Corp., MDC Holdings Inc., PulteGroup Inc.’s Centex homes, Ryland Group Inc., Standard Pacific Corp., and Shea Homes Inc.