AARP Foundation Litigation attorneys represent homeowners who alleged they were targets in a comprehensive scheme to defraud minority home buyers by selling them overvalued homes supported by inflated appraisals and carrying abusive mortgage fees and costs that they were unable to repay. A decision in favor of the homeowners and ordering the defendants to pay their court costs and attorneys’ fees has been appealed.
Mary Lodge was a 68-year-old retiree and first-time home buyer when she contacted United Homes in November 2002 after seeing one of its advertisements. After deciding on a home, she several times expressed concerns about her ability to support the mortgage, but was repeatedly assured that despite her sole income of $400 from Social Security and foster care payments she was temporarily receiving, two rental units in the building would provide sufficient income to cover the mortgage. In the middle of closing it was disclosed that there would actually be two mortgages with combined payments of nearly $2,900 per month. She tried to stop the closing but was assured again that rental income would suffice.
Among the problems with the transaction: The debt-to-income ratio was 75 percent, far in excess of industry standard; the income section of the loan application (completed by an employee of the mortgage lender) showed no income, an indication that the lender did not consider Lodge’s ability to repay the loan; the house was zoned for two families and thus only one rental unit was legal; and the home Lodge purchased for $419,000 had been purchased only 2 1/2 months earlier for $225,000. Upon moving into the property, Lodge found rotted flooring covered by carpets, a leaking ceiling, a flooded basement, drainage problems in an alcove, a crumbling stoop and many other problems.
Represented by attorneys with AARP Foundation Litigation and South Brooklyn Legal Services, Lodge and six other victims sued United Homes and the other parties in the selling/lending transaction. The case set a precedent with an initial ruling that established for the first time that a claim of reverse-redlining under the Fair Housing Act — that is, the targeting of minorities and only minorities for products (here, mortgages) on unfavorable or unfair terms — is cognizable in the Second Circuit.
While some defendants settled, in May 2011 a jury found United Homes and its remaining coconspirators liable for fraud and conspiracy to defraud, and awarded a total verdict against the remaining defendants of over $1 million. A judge ordered the defendants to pay the legal bills of the plaintiffs. Defendants have appealed both the jury’s verdict and the fee award.
What’s at Stake
Much of the housing market collapse of recent years was due to overvalued properties and unsupportable mortgages. Many victims were people like the United Homes plaintiffs, who had little experience purchasing homes and limited incomes, but were manipulated and fleeced by unscrupulous real estate developers, lenders and others who conspired with them to commit fraud.
Barkley v. Olympia Mortgage, along with Lodge v. United Homes and four other cases are before the U.S. Court of Appeals for the Second Circuit.