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NEW YORK — A series of federal lawsuits filed by eight black first-time homebuyers alleging that New York’s United Homes targeted minorities as part of a conspiracy to sell over-valued, broken-down homes financed with predatory loans will go forward following a federal judge’s rejection of the defendants’ motions to dismiss. Eastern District Judge Raymond Dearie in Brooklyn whittled the parties’ “protestation and hyperbole” down to two core issues: Did the plaintiffs sufficiently plead their racial discrimination claims and were the claims against the individual defendants � about a half dozen lawyers, appraisers and lenders, along with the president of United Homes, Yaron Hershco � pleaded with sufficient specificity? Judge Dearie found in favor of the plaintiffs on both accounts and, aside from the dismissal of a few comparatively minor causes of action, allowed the cases to go forward in their entirety. “[G]iven both the general and specific allegations in the pleadings, it should be acknowledged that even the most casual reading would leave no one in doubt of what is being alleged,” Dearie wrote in Barkley v. Olympia Mortgage, 04cv875. “And the highly interdependent nature of the alleged scheme underscores the contribution of each defendant to the conspiratorial endeavor.” While the Eastern District courts are currently hearing other similar cases � last week, Magistrate Judge Marilyn Go sanctioned Better Homes Depot for spoliation of evidence in a nearly identical set of claims ( M& T Mortgage v. Miller, 02cv5410) � the present action may be the most prominent. The plaintiffs claim that United Homes � a Brooklyn and Queens real-estate company that, according to a recent news report, has sold more than 1,000 houses in the last few years, and whose ongoing development projects include Brooklyn’s 296-unit, $168 million Oro 306 condominium � oversaw a conspiracy to rip off minorities seeking to join the real-estate rush of the early 2000s. BAD DREAM The plaintiffs’ allegations share numerous common elements. After responding to ads on the subway or local newspapers promising “We Make Dreams Come True,” the plaintiffs were rushed through a streamlined process in which the various defendants conspired to sell them over-priced, defective houses at unfair mortgage rates based on a succession of misrepresentations, according to the complaints.
The plaintiffs claim that United Homes oversaw a conspiracy to rip off minorities seeking to join the real-estate rush of the early 2000s.

Plaintiff Sandra Barkley, for example, found out after purchasing her home � a process that took less than two weeks from contacting United Homes through closing � that the value of the Bedford-Stuyvesant home she purchased for $359,000 was overstated by the company’s appraiser by more than $100,000, according to her complaint. Mary Lodge, a retired nurse’s aide living on a $400 monthly Social Security check, discovered the company’s $420,000 appraisal nearly doubled the actual value of her home, she alleged. One of the house’s two promised rental units could not be legally leased, she claimed, and the contracted-for repairs resulted simply in new carpeting over a rotting, hole-ridden floor. Lisa and Miles McDale claimed that United Homes provided them with an attorney, who then advised them to make an oral “side agreement” with the company regarding significant renovation issues in order to avoid delaying closing and facing higher interest rates. The plaintiffs filed a series of lawsuits against United Homes that were consolidated for pretrial purposes. FLIPPING SCHEME ALLEGED As summarized by Judge Dearie, “Plaintiffs claim that defendants were part of a fraudulent property-flipping scheme. They allege that United Homes and its affiliated companies . . . bought damaged properties at foreclosure auctions or estate sales[,] performed some cosmetic repairs and, shortly thereafter, sold the properties, often at double the purchase price.” The buyers claimed that United Homes conspired with appraisers, mortgage lenders and lawyers “who facilitated the sales by preparing significantly overvalued appraisals and originating loans and mortgages that were correspondingly inflated.” They claimed violations of the Fair Housing Act and other anti-discrimination laws, as well as a number of state-law violations. The defendants � United Homes, its subsidiaries and attorneys Michael Cheatham, Benjamin Turner and Edward Schiff, among others � moved to dismiss, setting forth numerous defenses. They argued, among other things, that the buyers failed to allege “discriminatory intent” as required under the federal statutes. Judge Dearie disagreed, citing the claims regarding United Homes’ targeting of minorities and its execution of its “fraudulent scheme.” “[P]laintiffs allege that United Homes used advertising featuring minority consumers,” the chief judge for the Eastern District wrote. “They also allege that the company placed ads in the Caribbean Life community newspaper that serves the West Indian immigrant community, while not advertising in community papers that are part of the same newspaper chain but serve primarily white neighborhoods.” The court also cited one plaintiff’s claim that he was shown houses only in minority neighborhoods and other plaintiffs’ claims of “race-conscious outreach strategies,” including pairing a black buyer with a black salesman who promised he “takes care of ‘his own.’” Dearie concluded, “Taken together, these allegations permit the inference that defendants sought to lure minority homebuyers into fraudulent transactions.” The judge did dismiss as time-barred a number of the plaintiffs’ lesser claims, including Barkley’s Truth in Lending Act cause of action and several claims against appraiser Joseph Gaeta. ATTORNEYS’ REACTIONS Alan Vinegrad of Covington & Burling represented United Homes. Vinegrad said Wednesday, “United Homes will continue to vigorously defend the lawsuits and is confident that ultimately United Homes will prevail.” Richard J.J. Scarola of Scarola Ellis; Meghan Faux and Brigitte Amiri of South Brooklyn Legal Services; and Nina Simon and Jean Constantine-Davis of AARP Foundation Litigation represented the plaintiffs. In a conference call Wednesday, Scarola said, “The decision is probably the first time a New York federal court has come to grips with this issue � the intersection of predatory lending and race discrimination � and Judge Dearie has made a clear statement that will have strong precedential value in this area.” Faux called the decision one of first impression for the Eastern District, adding that it will serve as a useful precedent for South Brooklyn Legal Services’s Foreclosure Prevention Project, the first and perhaps largest such practice in New York. “It’s going to have a huge value for the types of discriminatory and predatory lending suits we can bring,” she said. Mark Fass is a reporter with the New York Law Journal, a Recorder affiliate.

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