The Vietnam Veterans of America has filed a lawsuit accusing several mobile-home manufacturers and financing firms of illegally padding invoices for homes sold to veterans during the past eight years, adding an average of $5,000 to the cost of a home and often leading to repossessions when owners defaulted on loans.
The veterans claimed that the money the manufacturers allegedly added to the invoices went to mobile-home dealers as rebates, violating the rules of the Veterans Administration's loan guaranty program.The suit, filed in U.S. District Court in Wilmington, Del., charged that, because dealer rebates were added to the cost of the mobile homes, veterans paid higher prices and finance charges than they should have under the VA regulations. The veterans claimed in the suit that the mobile-home manufacturers and finance companies violated federal racketeering and truth-in-lending laws and asked that they be reimbursed for the overcharges.
The suit names 22 veterans and active-duty military men and women as plaintiffs, along with the 20,000-member veterans' organization. The group asked the court to classify the suit as a class action on behalf of all other veterans who allegedly were victims of illegal invoice padding. The suit also asked for class-action status for the defendants, to cover other companies that might have engaged in the practice.
The defendants are 10 companies, which include manufacturers and their parent firms; an individual officer who held positions in several of the companies, and three lending organizations.
Spokesmen for several of the companies denied they committed any illegal acts, while five defendants did not return a reporter's telephone calls.
The veterans' lawsuit follows a lengthy VA investigation into the mobile-home industry that resulted in four manufacturers pleading guilty to criminal charges and agreeing to reimburse the federal agency for its losses. The investigation is continuing.
Robert A. Hincken, the VA's assistant inspector general, recently told a congressional subcommittee that invoice-padding is "extensive throughout the mobile-home industry" and that the VA may have overpaid as much as $3 million on defaulted mobile-home loans insured by the agency.
An estimated 90,000 veterans have bought mobile homes under the VA's mortgage-insurance program since it was established in 1970, the suit said. Under the insurance program, the VA guarantees 50 percent of the loan amount or $20,000, whichever is less. To hold down costs for the buyers, the VA will insure only mobile homes with price tags limited to 120 percent of the manufacturer's wholesale price, and the agency requires the manufacturers to certify that no hidden charges or impermissible rebate costs have been added to the wholesale price.
When a purchaser defaults on a VA-insured loan, the agency pays it off and the veteran eventually must repay the VA.
Nearly all the buyers of mobile homes are low- and moderate-income veterans or active-duty military people, said Daniel F. Haye, an attorney with a Washington-based law firm, Smiley, Olson, Gilman and Pangia, which is representing the mobile-home owners. The mobile homes they purchased ranged in price from $15,000 to $25,000 and generally were the only housing within their economic grasp, Hayes said.
The manufacturers being sued are U.S. Home Corp., Fleetwood Industries Inc., Commodore Corp., Redman Industries Inc., Zimmer Corp. and Guerdon Industries Inc. All are incorporated in Delaware but have their headquarters in other states. Also named as defendants are City Investing Co. and a former subsidiary, Wood Brothers Homes Inc. Guerdon was owned by Wood Brothers until last April.
Peter C. R. Huang, once an officer or director of City Investing, Wood Brothers and Guerdon, is named as a defendant in the suit individually and as a representative of other officers and directors of the companies. Another defendant, City Investing Co. Liquidating Trust, was created to oversee the liquidation of City Investing Co., according to a City Investing spokesman. Still another defendant, GDV Inc., no longer exists.
Also being sued are three lenders, Green Tree Acceptance Inc., Kensington Mortgage & Finance Co. Inc. and Shelter America Corp. Inc.
An attorney representing U.S. Home Corp. said that, when the company responds, "it will be in the form of a motion to dismiss" because the case is "legally insufficient." An attorney representing Fleetwood said the company has no comment.
"We . . . deny any wrongdoing," said Richard G. Evans, general counsel for Green Tree. "It's a bit extreme to be suing the financial institutions." Bruce Hulbert, president of Shelter America, said his company did not violate any laws or VA regulations. "We'll defend the suit vigorously, [but] we feel it is inappropriate to go into specifics," Hulbert said.
Commodore Corp. filed for reorganization under Chapter 11 of the bankruptcy code in June, according to John R. Lutz, the company's attorney. As a result, the veterans' lawsuit against Commodore is being put aside until resolution of the bankruptcy proceeding, Lutz said. He declined comment on the allegations in the lawsuit.
Representatives of Zimmer Corp., Redman Industries and Kensington Mortgage could not be reached for comment.
John Herndon, a City Investing vice president, said the firm's liquidation is "virtually completed," but declined comment on the suit. Huang's assistant said Huang "won't be able to respond. . . . He is traveling."
Wood Brothers Homes Vice President Philip J. Teigen said he believes that only the VA, not individual veterans who bought the mobile homes, was "harmed by these practices" because the agency had to pay the insurance claims when veterans defaulted.
Teigen called the practice of padding invoices "stupid." Manufacturers and dealers "started playing this game because of the very restrictive VA program," which he said does not allow enough margin for the dealer. Dealers and manufacturers are at fault, however, "for not addressing this issue in an appropriate manner" with the VA, he said.
Wood Brothers, which builds houses and does not make mobile homes, is being sued as the former parent company of Guerdon Industries. Guerdon's new owner, J. Frederick Huckvale, said he believes the suit "uses as its basic premise alleged facts we don't believe are true" -- that dealer rebates are illegal and that veterans were overcharged.
Guerdon, which is based in Denver, pleaded guilty last spring to falsely certifying that the wholesale prices quoted to the VA and buyers did not contain amounts for dealer rebates. The company paid a $50,000 fine and $450,000 to the VA as restitution.