A group of Arizona homeowners has filed a lawsuit against KB Home, charging that the home builder engaged in fraud by failing to properly disclose a history of crop-dusting operations at a development site and failing to properly notify home buyers about a special tax district.

A KB Home spokeswoman said company officials “are disappointed that these homeowners have chosen litigation,” and that the company “is diligent in creating our disclosures and in communicating with our homeowners.”

Thomas A. Stoops and Michael T. Denious, lawyers at the Stoops, Denious & Wilson law firm in Phoenix, Ariz., filed the lawsuit with the Arizona Superior Court in Pinal County. The lawyers are representing a group of homeowners that includes 12 married couples and three individuals. Stoops and Denious offered no comment on the lawsuit.

The lawsuit alleges that KB had failed to disclose that parts of a subdivision in the Phoenix area, known as SK Ranch, and adjacent property was formerly the Three Point Airport, which was used as a base for “aerial applicators of agricultural pesticide and herbicide from 1940 to 1984.” All of the home buyers represented in the lawsuit entered into contracts to purchase homes at SK Ranch.

The lawsuit also states that KB Home failed to properly disclose plans for a special tax district at SK Ranch that raises money from homeowners for various improvements.

Homeowners represented in the lawsuit are seeking a rescission of the purchase of their homes or compensatory damages, and punitive damages and lawyer fees.

This is not the first time that questions have been raised about proper disclosures at the development site. The Arizona Department of Real Estate last year issued a consent order against KB Home that found KB violated real estate subdivision laws “by failing to disclose to some purchasers the existence of a special assessment district.”

The department and KB negotiated a settlement agreement that included civil penalties and payments of about $43,000 and “reimbursements to certain purchasers for the undisclosed special assessment district,” according to a July announcement by the department. Eight home buyers reportedly did not receive a notice of the special tax district before closing on their home purchase.

Also, the department “maintained throughout the course of its investigation that KB Home failed to adequately disclose the existence of the Three Point Airport” in its application for a subdivision public report. And “although KB Home agreed to amend their public report to include the disclosure of the Three Point Airport, they declined to admit to any wrongdoing specifically pertaining to the airport,” according to the department’s announcement.

Also, in its June 23 consent order relating to KB Home, the department “denied KB Home’s application for renewal of its real estate license,” though “KB Home appealed the denial and was granted renewal of its license.”

Kate Mulhearn, a KB Home spokeswoman, said of the state’s order, “It is important to note that KB Home was not found to be in violation regarding timely disclosure of the existence of Three Points Airport.”

She said that based on the prior uses of the SK Ranch property, “We hired third-party experts to test the soil specifically for pesticides before purchasing the land or building homes,” and those experts “concluded that the site was completely clean and appropriate for new homes.”

Mulhearn said KB offered the homeowners a “mediation process to address their concerns, but our offer was rejected.” There are 281 homes at SK Ranch, and Mulhearn said most of the site is built out with only a couple of model homes still available.

The lawsuit alleges that the homeowners represented in the lawsuit entered into contracts with KB from late 2000 through 2002, and KB Home in mid-2003 “amended its public report for SK Ranch to disclose the Three Point Airport and the aerial application of pesticides from the airport.”

The suit alleges that KB Home engaged in a “pattern of unlawful activity” relating to “intentional or reckless false statements or publications concerning land for sale.”

Mulhearn said that in response to requests by the Arizona Department of Real Estate, KB Home provided each SK Ranch homeowner with information on where they can view environmental impact reports prepared for KB Home on SK Ranch.

As a part of the consent order, KB was required to work with colleagues and the state department “to help establish means and methods for ensuring responsible industry compliance with disclosure requirements, and the department’s enforcement of those requirements,” according to a report by the state department.

Mulhearn said KB Home “has industry-leading disclosure practices. Nonetheless, we constantly strive to improve our processes to make sure that (we) do not encounter the type of regulatory and consumer concerns we experienced in SK Ranch.”

The lawsuit names KB Home Sales-Phoenix, KB Home Phoenix, KB Home, and Kaufman & Broad Home Sales of Arizona, as defendants.

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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