Beazer Homes USA’s subsidiary Beazer Mortgage has agreed to pay almost $2.5 million in restitution to about 1,600 borrowers in North Carolina to settle an investigation by the North Carolina Office of the Commissioner of Banks into its mortgage originations.

“We believe that many home buyers were sold loans from Beazer Mortgage that violated North Carolina law,” said Deputy Commissioner of Banks Mark Pearce in a statement about the settlement. “These homeowners will receive a substantial refund of fees we believe were collected illegally.”

The Commissioner of Banks questioned the company’s charging “discount points” to home buyers. While the fees are typically charged to lower a mortgage rate, the regulator “does not believe discount points charged in Beazer Mortgage loans functioned in this manner,” said the statement. The fines will provide an average of a $1,500 refund to borrowers.
In settling the case, Beazer did not admit to any wrongdoing.

The settlement marks the resolution of one more item on what has been a long list of legal problems triggered by a series of stories by the Charlotte Observer newspaper in the spring of 2007. Before high foreclosures became the norm across the country, the newspaper noted an unusually high number of foreclosures in some Beazer neighborhoods in North Carolina.

In May after those stories were published, the Office of the Commissioner of Banks began examining the company’s mortgage origination records. A year later Beazer relinquished its mortgage lending license in North Carolina. The company had already gotten out of the mortgage business.

Beazer still has a significant investigation to settle that related to its mortgage lending operations in North Carolina; that inquiry is being conducted by the U.S. Attorney for the Western District of North Carolina. In a recent conference call, Beazer CEO Ian McCarthy said it was negotiating with the agency, but had not yet struck a resolution agreement. He said Beazer has aside roughly $13 million for estimated payments to settle the investigations in 2009 and 2010. The $2.5 million to settle the Commissioner of Banks case will come out of that money.

But fines to resolve the U.S. Attorney investigation could be even higher, according to McCarthy's comments during the call. The total payments could reach as high as $50 million over 60 months, but the future payments are likely to be linked to the company’s return to profitability.

A few weeks ago Beazer also agreed to settle a group of lawsuits filed by shareholders accusing the company and some of its officers of issuing false and misleading statements regarding the company’s business prospects and not disclosing facts related to alleged improper lending practices in the mortgage origination business. The builder did not admit guilt in that case, and its insurance company paid the $30.5 million settlement bill.

Teresa Burney is a senior editor for BIG BUILDER and BUILDER magazines.

Learn more about markets featured in this article: Charlotte, NC, Atlanta, GA.