A federal appeals court has decided that a real estate lawsuit filed by homeowners against builders, accusing them of marketing other homes in the neighborhood in a reckless manner, inflating demand and deflating prices, can proceed. The Ninth U.S. Circuit Court of Appeals in San Francisco has ruled that a federal district judge in Riverside, California, who dismissed the plaintiffs’ complaint, erred in his judgment.

The lawsuit names major homebuilders including MDC Holdings Inc., Beazer Homes USA Inc., Lennar Corp., Ryland Group Inc., DR Horton Inc., Standard Pacific Corp. and Shea Homes Inc. According to the lawsuit, these builders sold homes in the neighborhood to high-risk borrowers. Many of these homes were sold to people who could not afford to repay their mortgages, and resulted in foreclosures. The houses had been purchased from the defendants between 2004 and 2006 during the housing bubble.

According to the lawsuit, the plaintiffs were led to believe that these builders were constructing stable, family neighborhoods in the Inland Empire region. However, they were marketing the homes to high risk borrowers, triggering a massive sale of homes and inflating prices. When the housing bubble burst, San Diego business dispute lawyers were not surprised to find that the sales of many of these houses ended in foreclosure.

The other houses that were left in the neighborhood became less desirable and lost value. The homeowners found that property prices in their neighborhood dropped significantly because the foreclosed homes were in a state of neglect, with unkempt yard and stray animals. These homes also attracted crime, pushing down property prices further.

However, a judge in Riverside, California, dismissed their complaint, saying that any losses to plaintiffs were not a direct result of the defendants’ actions. The federal appeals court has overturned that judgment.