Connecticut Attorney General Richard Blumenthal has sued three Torrington-based companies for alleged predatory lending practices surrounding the sale of new homes at the Pine Meadow Farms subdivision in New Hartford.
Three Torrington-based companies are facing a lawsuit after allegations that they conspired to scam first-time homebuyers by signing them up for mortgages they couldn’t afford, temporarily giving them money so they falsely appeared to meet down payments and illegally supplementing their mortgage payments.
Connecticut Attorney General Richard Blumenthal has sued Approved Mortgages Inc., Litchfield County Realty and Heritage Builders for alleged predatory lending practices surrounding the sale of new homes at the Pine Meadow Farms subdivision in New Hartford. Banking Commissioner John P. Burke and Department of Consumer Protection Commissioner Edwin R. Rodriguez are also participating in the lawsuit.
“These companies were insidious and inventive in turning the American dream of homeownership into a nightmare, as our complaint powerfully claims,” Blumenthal said in a prepared statement. “They cynically scammed families into purchasing homes they could not afford, condemning them to foreclosure and financial ruin. My office will vigorously and aggressively seek restitution – money back to families so they can rebuild their lives – and appropriate penalties and forfeiture of profits.”
The Attorney General’s Office has identified four victims, but believes there may be more. At least two of the four are close to losing their homes to foreclosure, according to Blumenthal’s office.
The lawsuit alleges that sometime before 2002, the three companies devised a scheme to lure homebuyers into purchasing homes for which they ultimately would not be able to pay. The companies allegedly worked together to falsify buyers’ income and credit histories, getting them mortgages they could not afford. They also temporarily deposited funds into the buyers’ bank accounts so they would qualify for loans, then demanded the money back after closing, according to the Attorney General’s Office.
A lawyer for Litchfield County Realty did not return a phone call, but Approved Mortgage’s attorney, William Dow of Jacobs, Grudberg, Belt, Dow & Katz in New Haven, said the company has not engaged in any illegal activity.
“The bottom line is that anyone can file a lawsuit,” Dow said. “My client did nothing wrong.”
Heritage Builders could not be reached.
‘Misleading’ Practices
There was little available information on the three companies being sued. The state Department of Banking became involved in the case because of the presence of the mortgage company. Approved Mortgage is a prime lender, according to the department.
“The department believes that Approved Mortgage Inc. joined in misleading business practices which have harmed Connecticut’s consumers,” said Banking Commissioner John P. Burke in a prepared statement. “The agency is working closely with the Attorney General’s Office to resolve this matter.”
The attorney general started investigating the three companies between six and eight months ago after receiving complaints from consumers, Blumenthal said. The four consumers cited in the lawsuit filed some of the original complaints. But since the lawsuit was filed, Blumenthal’s office has been receiving more complaints, some involving different companies, he said. His office will expand its investigation to include those.
“The web of deception apparently created by these companies was ingeniously effective in exploiting the consumers’ American dream of owning a home,” said Department of Consumer Protection Commissioner Edwin R. Rodriguez in a prepared statement. “The evidence suggests that they collaborated to deceive and defraud their clients, turning their dream into a nightmare.”
Each of the companies named in the Pine Meadow Farms lawsuit could face penalties of $5,000 per violation, Blumenthal said. Although the suit aims to force the companies to pay restitution to the alleged victims, the consumers’ credit ratings likely will still be affected, according to the Department of Banking.
The development of Pine Meadow Farms – which is still under construction and is being built under the state affordable housing appeals act – has been plagued with problems since the 1980s, when it was first proposed, according to William Baxter, New Hartford’s first selectman. The town and the developer went back and forth over issues such as density, and the developer eventually sued under the affordable housing appeals act, which applies to developments that include at least 30 percent affordable units. The statute allows those developers to forego some local zoning ordinances, such as those dealing with density, and to appeal to the state for approval if they are not happy with the restrictions a city or town places on the project or if the municipality does not approve the project.
About 50 of the planned 64 houses in the project are now built, Baxter said. The original plans called for 60 percent of those to be affordable, but the town and the developer recently reached an agreement to lower that to 30 percent.
“The percentage of affordable units was just too high,” Baxter said.
The town agreed to lower the percentage after townspeople who lived in Pine Meadow Farms began complaining a couple of years ago about their homes being subject to foreclosures. Although the attorney general’s lawsuit cites four homeowners who may have been victim to predatory lending, there have been eight foreclosures in the subdivision, Baxter said. Some of those have been in the affordable homes.
“We were aware of what was going on,” Baxter said.
The subdivision is made up of densely packed, single-family homes, according to Baxter. Construction is still under way on the remaining homes. New Hartford, a town of nearly 6,500 residents, is currently experiencing a development boom, Baxter said. Pine Meadow Farms is located on Route 44, near the center of town.
As the prices of homes go up, predatory lending is becoming more prevalent, according to Blumenthal.
“Unfortunately, we see [these types of practices] as increasingly common in a real estate market that involves rising prices,” he said.
Blumenthal’s office sued a developer in 2003 for predatory lending practices. The developer was allegedly buying run-down, dilapidated buildings in Waterbury, making cosmetic repairs, then selling them at inflated prices to homebuyers who couldn’t afford them, then foreclosing, according to Blumenthal.
“We encountered this before,” he said.
The victims of predatory lending usually fall into the lower- to middle-income category and are first-time homebuyers, he added. They are sometimes non-English speakers.
