Real Estate Law Journal

Homebuyers Can Sue Developer For Marketing and Sales in Nearby Projects

by Bruce D. Voss

In a surprising decision, the Ninth Circuit ruled that individuals who bought homes in new developments can sue developers for selling nearby houses to people who couldn’t afford them.

In Maya v. Centex Corp., the Ninth Circuit held that the plaintiffs had standing to sue developers for marketing neighboring homes to people 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 plaintiffs claimed that they paid too much for their homes, and that their homes had since lost property value, because developers had sold nearby houses to “unqualified buyers who posed an abnormally high risk of foreclosure.”

The trial court dismissed the plaintiffs’ lawsuits, finding that because they had not yet sold their homes the plaintiffs had not yet suffered any actual losses. The trial court also noted the plaintiffs’ claims for decreased value and alleged overpayment had the capacity “to fluctuate with changes in the economy,” thus “strongly suggesting” that the injury was “conjectural and speculative, not actual or imminent.”

The Ninth Circuit reversed and reinstated the lawsuit. The Court found that the lawsuit sufficiently alleged that the defendant developers had “inflated the ‘bubble’ in their particular neighborhoods, causing plaintiffs to overpay” for their houses. The Ninth Circuit also found that the plaintiffs should be permitted to prove their damages for loss in value were caused by the developers’ actions, not just general market conditions.

The lawsuit arose from the foreclosure crisis and sharp decline in home values in California. Although market conditions have not fluctuated as dramatically in Hawaii, some creative plaintiffs’ lawyers here may bring claims anyway.

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