Hovnanian Enterprises' 2005 purchase of First Home Builders of Florida not only made the Red Bank, N.J.-based builder the top builder in the now-decimated Fort Myers-Cape Coral market, it also delivered some legal problems to the publicly traded company's doorstep.

People who bought real estate investment properties from First Home from Sept. 1, 2003, through Dec. 31, 2005, have filed a class action suit in May against First Home Builders; its individual officers and directors; Hovnanian; and D'Alessandro & Woodyard, a Fort Myers-based real estate brokerage firm, which has since become Gates D'Alessandro & Woodyard. On Friday, Oct. 19, the plaintiffs amended their complaint in the Federal Court for the Middle District of Florida to include the shareholders for First Home Builders who sold the company to Hovnanian.

The suit alleges that the defendants made misleading and false statements to investors in order to entice them to buy rental properties in Lee County, Fla., from First Home. According to the suit, First Home would turn the names of those people who visited its model home centers, but couldn't qualify for a loan, over to D'Alessandro & Woodyard and Gates D'Alessandro & Woodyard, which recruited these people to live in the homes built by First Home. First Home would then sell these homes to investors as leased up homes, according to the suit.

The investors in these homes allege that First Home and D'Alessandro & Woodyard promised that they would secure tenants, that the rental income from these tenants would cover the buyer's mortgage, and that these investors would receive a 14% return after their first year. The 14% return was supposed to be achieved when the tenant bought the house from the investor. The plaintiffs also allege that other than a $5,000 deposit, they would assume no costs for these homes. However, at the time of the suit, the plaintiffs say the defendants had not produced tenants.

On October 19, the plaintiffs also added a new cause of action based upon a violation of the Interstate Land Sales Full Disclosure Act. The plaintiffs allege that First Home needed to file registration with the U.S. Department of Housing and Urban Development (HUD) to sell the properties under a common promotional plan. They say this didn't happen.

Learn more about markets featured in this article: Cape Coral, FL.