Wednesday, November 03, 2004

Man sues after Pulte price reductions

Man sues after Pulte price reductions
November 03, 2004

By Jennifer Shubinski

LAS VEGAS SUN

A California man who bought more than $1.5 million worth of Del Webb homes -- but says he has an income of $30,000 a year -- has sued the company alleging breach of contract after it lowered home prices throughout Las Vegas.

The suit also names Countrywide Home Loans, alleging fraudulent lending practices.

Igor Doncov, a resident of San Mateo County, Calif., alleges in the lawsuit that because Pulte Homes, the parent company of Del Webb, drastically cut home prices at the end of September, it "created an instant loss of over $100,000" on four of the Del Webb properties he owned.

That reduction, according to the lawsuit, caused Doncov to be unable to sell two of the homes he already closed on at the time the lawsuit was filed last month. Two other homes were in escrow.

At the end of September, Pulte reduced prices at its four Las Vegas Del Webb communities between 5 percent and 25 percent, or $50,000 to almost $160,000. Pulte also reduced prices in 18 of its 23 Pulte Home communities, with reductions ranging from $25,000 to $170,000. Pulte Homes blamed the reductions on a slowdown in demand and an over-aggressive pricing strategy.

Sheryl Palmer, Nevada area president of Pulte Homes, said she believes the company is close to a resolution with Doncov. Palmer said she could not disclose any details of the possible resolution.

Doncov, whose attorney Michael Cristalli declined comment, alleged that after realizing he did not have the means to pay the $15,000-per-month mortgages because he only makes "a little" more than $30,000 a year, he tried to cancel two of the contracts that had not closed escrow, according to the lawsuit.

Doncov alleged Del Webb refused to give his deposit money back and refused to cancel the contracts because he allegedly had been qualified and approved to close by Countrywide. The company then lowered its prices, Doncov alleged.

In the lawsuit, Doncov also alleged that Countrywide Home Loans engaged in fraudulent lending practices by overstating his income "in an effort to force him to close on a transaction no lending institution would ever approve based on his income."

According to the lawsuit, Countrywide obtained approval through a "stated income" loan, for which Doncov alleged Countrywide used fraudulently stated income never disclosed or approved by Doncov.

Countrywide Home Loans officials declined comment.

Scott Bice, Nevada's Mortgage Lending Division commissioner, said there have been no formal complaints filed against Countrywide regarding this case.

Bice said standard home loan forms include a section where the borrower signs off on the accuracy of the forms and of the stated income.

"If he signed that application, he's really responsible," Bice said. "If it was wrong, in theory he should have said this is erroneous."

The difference in the cost of the property and Doncov's income raised red flags for Ngai Pindell, an associate law professor who specializes in property and land use regulation at UNLV's William S. Boyd School of Law.

"I'm just struck by how an investor could tie up $1.5 million of property with such little personal income and such little capital behind that," Pindell said. "For me, it just shows one, a problem with speculation, namely how investors could participate in this housing market in this way."

Many investors and homeowners complained after Pulte Homes cut its home prices across the board. Many said it not only created a lack of confidence in the company, it hurt them financially.

Jeremy Aguero, a principal at Applied Analysis, said the bottom line is that any speculation in a market and any type of investment is a risk.

"Prices go up and prices go down," he said.

Aguero said he has sympathy for people who got caught at the peak of the market, but he said all the warning signs were there that the market had experienced hyper-appreciation that couldn't last.

"In the true absence of fraud, that a builder would be held strictly liable for price changes borders on ridiculous," he said.

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