A three-judge panel from the Ninth Circuit Court of Appeals late Wednesday allowed a class-action suit against eight large home builders over the impact of risky mortgage lending on homeowners in planned communities to proceed.
A district court judge had earlier dismissed the suit, ruling that the homeowners who filed the suit lacked standing to file it. The appeals court reversed that ruling.
The suit names Centex Homes (now PulteGroup), D.R. Horton, M.D.C. Holdings, Lennar Corp., Beazer Homes, Shea Homes, the Ryland Group, Standard Pacific Homes and several subsidiary and independent mortgage companies.
In the opinion, Circuit Judge Betty B. Flecther stated, "In some ways, the facts presented here echo national trends, but we decide a fairly narrow question: whether individuals who purchased homes in new developments have standing to sue the developers for injuries allegedly caused by the developers' practice of marketing neighboring homes to individuals who presented a high risk of foreclosure and abandonment of their homes, financing those high-risk buyers, concealing that information, and misrepresenting the character of the neighborhoods."
The ruling allows the case to proceed in lower courts and the plaintiffs to amend their case to include expert testimony that "can be used to explain the causal connection between defendants' actions and plaintiffs' injuries, even in the context of other market forces." Attorneys for the builders had argued that the foreclosures were the result of market forces unleashed nationally by the housing crash.