Beazer Opens The Door To Litigation –

On Thursday Beazer Homes USA confessed that employees of its mortgage subsidiary violated federal down payment assistance regulations. On Friday one industry observer said the housing giant’s admission signalled it was caught with its hand in the cookie jar, and fighting the charges would be useless. Now, what remains to be seen is whether Beazer’s revelation opens it up to lawsuits from angry customers and federal regulators.

Geez, do you think angry customers might wanna litigate?

Beazer said employees of its mortgage subsidiary may have violated the regulations of certain Federal Housing Administration insured loans dating back, at least, to 2000.

“… at least, to 2000” Yikes! Not good for Beazer.

… a Houston-based law firm, said Beazer’s revelation is ” remarkable” because it leaves the company open both to lawsuits by borrowers, and fines and penalties from the government. Whether or not borrowers could recover damages, he said, is dependent on whether the borrower knew the money was being provided unlawfully. If the buyer did not realize that the down payment assistance was unlawful, they may be able to collect both actual damages and punitive damages.

Berg said Beazer’s admission means that it was “caught red-handed and they want to put a stop to the bleeding.” He added: ” The evidence must have been so overwhelming that it would have been useless to continue the fight.”

Gentlemen, start your class action lawsuits.

HUD is conducting its own criminal investigation into Beazer’s business practices, including mortgage fraud, after The Charlotte Observer reported in March that the company had an unusually high rate of foreclosures in many developments around Charlotte. The Observer reported that Beazer had a foreclosure rate over 13% in Mecklenburg County between 1997 and 2006.

At the time Beazer denied any wrongdoing, saying its internal investigations haven’t found any evidence to support the allegations.

A 13% foreclosure rate would certainly be a smoking gun pointing to a crime. I wonder if those other homeowners who didn’t get foreclosed on would have a case against Beazer for what the foreclosures did to their property values?

Beazer brought in business to its mortgage arm by offering incentives to buyers, such as offering to pay closing costs or down payments. But in return Beazer made above and beyond the cost of the incentive by charging higher interest rates and fees. As a result, the buyers were actually financing their own closing or paying their own down payments. The Observer reported that for every $1 in incentives the company spent, the company made $1.20. Worse, buyers looked at these ” incentives” as a gift.

That sounds like standard operating procedures for new home builders. I don’t know. Do any readers know?

On Friday, Fitch Ratings downgraded Beazer’s credit. Fitch cut its issuer-default rating, which measures a company’s ability to service all of its obligations, to BB-minus from BB. The BB category is the top junk-bond rating, which, while it does not indicate an imminent risk of default, means the company’s creditworthiness is far from pristine.

It looks like Beazer will be the poster boy, the Enron, for homebuilder fraud.

Could the U.S. housing industry be headed toward a Sarbanes-Oxley Act type of mega-regulation of homebuilders and mortgage lenders? 2008 is an election year and politicians could be falling all over themselves to do something to show they are helping distressed homeowners, that is, to help themselves get more votes.

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