AARP Attorneys represented homeowners who allege 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.
Mary Lodge was a 68-year-old retiree and first-time homebuyer when she fell prey to a property flipping scheme. She contacted United Homes in November 2002 after answering an advertisement and was told the company would help her get a mortgage if she saw a home she liked among those United Homes had on the market. When she found a home she liked, she several times expressed concerns about her ability to support the mortgage, but was repeatedly assured that despite her sole income being $400 from Social Security and foster payments she was temporarily receiving for caring for two teenagers, two rental units in the building would provide sufficient income to cover the mortgage.
At closing she provided the requisite for $35,000 as directed. In the middle of closing it was disclosed that there would actually be two mortgages and they would combine to payments of nearly $2,900 per month. She tried to stop the closing then and there, but was assured again that rental income would suffice.
There were significant problems with the transaction. The debt-to-income ratio was 75 percent, far in excess of any industry standard; the income section of the loan application, which was completed by an employee of the mortgage lender, showed no income; the house was zoned for only two families and thus only one rental unit was legal; and the home Lodge purchased for $419,000 had been purchased 2 ½ months previously for $225,000. Upon moving into the property, Lodge found rotted flooring covered by carpets, a leaking ceiling, flooded basement and drainage problems in an alcove, and a crumbling stoop.
Represented by attorneys with AARP Foundation Litigation and South Brooklyn Legal Services, Lodge, Barkley and five other victims sued United Homes and the other parties in the selling/lending transaction. They alleged fraud, misrepresentation, and violations of various civil rights laws because (they alleged) the transaction defrauding them was part and parcel of a larger scheme United Homes, along with two mortgage lenders, appraisers, and “hand picked” attorneys perpetrated on Latino and African-American home buyers.
The case went to trial in May 2011. The jury found United Homes and its co-conspirators liable for fraud and conspiracy to defraud. It entered total verdict against defendants of $1.17 million.
What’s at Stake
Much of the housing market collapse of recent years was due to over-valued properties and unsupportable mortgages. Many victims were people like the United Homes plaintiffs who had little experience purchasing homes and limited incomes, but who could be manipulated and fleeced by unscrupulous real estate developers, lenders and others who conspired with them to commit fraud.
Barkley v. United Homes and Lodge v. United Homes were tried in the U.S. District Court for the Eastern District of New York. Barkley v. Olympia Mortgage is now before the U.S. Court of Appeals for the Second Circuit.