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Ninth Circuit Finds Homeowners Have Standing to Sue Lenders for Bringing Down Property Values - Maya et al. v. Centex Corp.

September 23, 2011

As Rubidoux foreclosure defense lawyers, we know all about the terrible effect a rash of foreclosures can have on a community. Particularly in Riverside and the Inland Empire, large numbers of foreclosures have left neighborhoods empty and rundown; recent reports said a vacant Glendale home was even colonized by coyotes. This in turn brings down the values of the properties in the area that have not been foreclosed, because their neighborhood is perceived as less desirable. That was the theory of liability in the proposed class action lawsuit Maya et al. v. Centex Corp., in which homeowners sued eight large homebuilders for allegedly marketing and selling loans to high-risk borrowers, and making false representations. The district court dismissed the case, but the Ninth U.S. Circuit Court of Appeals resurrected it, finding the decreased value of the homes was enough to give them standing to sue.

The plaintiffs put 20 percent or more down on new homes between 2004 and 2006. In their lawsuits, they claim the builders falsely represented that the neighborhoods would be stable and owner-occupied, implicitly guaranteeing that they would sell the homes to people who could afford them. Instead, they claimed, the defendants marketed homes to unqualified buyers and investors, and financed many of the purchases in order to make more money. The plaintiffs claim all of this was material information that was not disclosed, and thus they were defrauded. When their neighborhoods began seeing property values slide as a result of the "inevitable" flood of foreclosures, they said, they lost money and desirability. Their lawsuit alleges violations of California's Business and Professional Code, plus fraud, negligent misrepresentation and breach of implied covenant of good faith and fair dealing. The defendants filed motions to dismiss, successfully arguing that the plaintiffs lacked standing because the injuries they claimed were theoretical until their homes are sold, and not necessarily traceable to the plaintiffs' actions. The district court denied plaintiffs leave to introduce more testimony and dismissed the cases with prejudice.

But on appeal, the Ninth Circuit reversed, finding that the plaintiffs did indeed have standing. It said the district court incorrectly applied narrow rules because it erroneously used the rules for lack of statutory standing to a motion based on lack of Article III standing. When the Ninth considered whether the plaintiffs did have Article III standing, it concluded that they did. It was not disputed that a favorable court decision would redress their injuries, the court said. Furthermore, it found that the plaintiffs had demonstrated injury in fact and causation with respect to two of their claims: that they overpaid for the homes and that they would not have paid as much if they had known the truth (rescission claim). These are actual injuries stemming from the alleged deception of the defendants at the time of sale, the Ninth said; thus, any future improvement in home prices does not redress their injuries. Furthermore, it said the district court was wrong to hold them to a proximate cause standard; they need only plead a plausible chain of causation. Under the same analysis, the plaintiffs' claims for decreased value and desirability did not establish a strong enough causal connection -- but the Ninth ruled the plaintiffs should be allowed to add expert testimony to establish it. Thus, it reversed and remanded the case.

This is a victory for homeowners who believe they were defrauded by homebuilders looking to make a quick dollar during the housing bubble. And as Tustin foreclosure defense attorneys, we've seen plenty of evidence that this is possible. For example, the plaintiffs in this case allege that the homebuilders sought to inflate demand and prices by acting as the lenders for the homes they also built, which takes away the lender's incentive to determine whether the home price is fair. We've also read much about the lowering of lending standards during the housing bubble, which was made possible by increased securitization of home loans. Rather than worry about the risk of lending to someone without the means to pay the loan, the lenders were able to lend to nearly anyone and pass the risk on to investors. Both foreclosed borrowers and those who avoided foreclosure have been left in bad positions by these excesses. As Downey foreclosure defense lawyers, we look forward to hearing more about these lawsuits.

If your home is in default or foreclosure, or soon will be, and you'd like to discuss your rights and your legal options with an experienced attorney, call Howard Law, P.C. For a free, confidential case evaluation, you can send us a message online or call 1-800-872-5925.

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