More Trouble for Countrywide and KB Home

Two Goliaths of the home-buying business, KB Home and Countrywide Home Loans, have made headlines lately because of their financial problems.  KB Home reported a loss of nearly $800 million last quarter, while Countrywide has practically gone belly-up because of all the bad loans it made during the housing run-up.

Lately, though, legal trouble has landed the two companies in the news. 

First, there was this Associated Press story about Mark Zachary, a former employee of Countrywide KB Home Loans (the companies’ joint venture) who claims he was fired for refusing to approve loans for unqualified applicants.

In the suit, Zachary contended he was given an excellent performance review last February then fired three months later after he blew the whistle on fellow employees and outlined instances in which appraisers were “being strongly encouraged to inflate homes’ appraised value by as much as 6 percent.”

A week later came another AP story involving the two companies.  This time, though, it was two Northern California couples doing the suing, accusing KB and Countrywide of scheming with appraisers to pump up the prices of their homes.

In the lawsuit, the couples claim prospective homebuyers were presented with false or misleading data on previously sold homes to justify higher asking prices on new purchases. KB customers were presented with comparable sales data from homes that were dissimilar, nowhere near the KB property being sold, or from sales that had not yet closed, according to the lawsuit. When independent appraisers evaluated comparable home sales, the values were between 10 percent and 15 percent lower than the price the plaintiffs paid for their KB homes, the lawsuit claims.

The plaintiffs are seeking class-action status for the suit for anyone who purchased a California KB home between Aug. 1, 2005, and July 31, 2006.

Zachary, the fired worker, is from Texas.

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