Thursday, in a scheduled 10-Q SEC filing, D.R. Horton disclosed that a punitive class action suit was filed against the company on June 15 of this year. The complaint, filed by a single individual in the United States District Court for the Southern District of Georgia, alleges that the company strong-armed a buyer into financing through Horton's affiliated mortgage company subsidiary, in effect, violating Section 8(c) of the Real Estate Settlement Procedures Act (RESPA).
But that could just be the beginning. The complaint is seeking certification status that would allow it to include other home buyers who purchased a home from the company and financed through the affiliated mortgage business within the year preceding the suit. Because it involves RESPA violations, the suit was filed in U.S. District court, rather than a local county court, which means if the case reaches class-action status, home buyers from across the country would be eligible to join the suit.
During the period from June 2006 to June 2007 of this year, Horton closed on roughly 46,800 homes, and according to SEC documents, the company's mortgage capture rate (the percentage of total home closings by home building operations for which DHI Mortgage handled the home buyers' financing), fluctuated between 67% and 68% during that time. In effect, more than 31,000 home sales could be vulnerable under the terms of this suit.
The 32-page court document states that buyers were "required by the literal terms of their real estate purchase agreement with Horton to finance their purchase through Horton mortgage or else forfeit various discounts off of the purchase price and/or closing costs for their new home." In this specific case, closing costs up to 6% of the purchase price resulted in a savings of several thousand dollars.
According to the company filing, the action seeks damages in an unspecified amount and injunctive relief. At press time, Horton had not responded to Big Builder requests to discuss the case, though the company includes this statement in the SEC filing: "We believe the claims alleged in this action are without merit and will defend them vigorously. However, due to the early stages of this matter, we are unable to express an opinion as to the likelihood of an unfavorable outcome or the amount of damages, if any. While the ultimate outcome of the lawsuits and contingencies cannot be predicted with certainty, we believe the ultimate liability, if any, will not have a material adverse effect on our financial position or operations."