KB Homes and Countrywide Financial Sued by Group Affiliated with Construction Workers Union

A group of homeowners affiliated with LIUNA - the Laborers' International Union of North America -- has sued KB Homes and Countrywide Mortage for allegedly conspiring to pad the value of homes to defraud home buyers.

Seven West Valley homeowners who belong to the Alliance for Homebuyer Justice, a LIUNA spinoff, filed a lawsuit in federal court against the housing industry giants just weeks after filing a separate fraud lawsuit against KB Homes.

Although local media coverage doesn't mention the union connection, Dawn Page of LIUNA confirmed that members of the union conducted all of the preliminary research for the lawsuit and recruited the homeowner plaintiffs.

The union-affiliated homeowners group is being represented by the legal firm Hagens Berman Sobol Shapiro.

LIUNA has been trying for years to get KB Homes to hire subcontractors who are members of the union. The latest lawsuit, despite being related to mortage fraud, should help keep pressure on the homebuilder, Page says.

"It's all connected," she says.

A news release today by LIUNA described details of its latest lawsuit:

The lawsuit and complaints charge that in order to inflate the appraised values, KB and Countrywide KB overlooked homes that were more comparable in size and location in favor of homes of dissimilar sizes that were much farther away, such as in the case of Abraham Nieto.

Among the plaintiffs is Abraham Nieto, who purchased a KB Home in 2006 with a $38,000 down-payment toward a $384,000 sale price. Countrywide KB Home Loans gave him the financing for the rest, including a second mortgage with a 9-percent interest rate. According to the suit, Countrywide KB's appraised the home at $384,000 by comparing it to two more expensive properties that were 5 and 11 miles away, while overlooking similar, closer properties. The value of Nieto's home fell dramatically, dropping from $312,000 to $207,000 in just one year, according to county assessor, making it impossible to refinance.

In July 2008 Nieto's home was foreclosed on. According to Nieto, after he fell behind on payments, Countrywide suggested Nieto sell the house without discussing a possible workout that would allow him to keep the home.

Helping steady the housing market by holding homebuilders accountable ultimately helps the construction workers who make up the union, Page says.

"As the economy stabilizes, there will be more jobs for our members," she says.

The union plans similar actions against Lennar and Pulte Homes in the near future, Page says.

Last month, Builder magazine published an article that says the union's tactics have homebuilders on the defense:

While the group's recent protests against public builders have been relatively small in terms of people involved, they've garnered enough media attention to become a thorn in the housing industry's side. Jacque Petroulakis, a Pulte spokesperson, depicts LIUNA's actions as a "harassment campaign" aimed at unionizing construction labor. "The union doesn't care about the quality of houses or the home buyer; its objective is very transparent," she said in a recent interview with BUILDER.