Banks Blame Countrywide for U.K. Mortgage Losses in 97 Suits

Suninder Sandha bought his luxury apartment in Coleorton Hall, a 19th century country mansion near Leicester in central England, using a 1.2 million-pound loan ($1.86 million) from Barclays Plc (BARC) in 2005.

When the property market collapsed two years later, Sandha couldn’t make his mortgage payments and Barclays seized the apartment, selling it for 500,000 pounds. The lender has now sued Countrywide Plc (CWD), whose surveying unit valued it at the peak of the boom, for its losses, according to court papers.

The suit is one of 38 filed last year in London’s High Court against Countrywide, the nation’s largest residential property broker, by lenders including Barclays, Lloyds Banking Group Plc (LLOY) and GMAC-RFC. That’s more claims than any of the four largest U.K. banks faced in 2011, according to data compiled by Bloomberg. As many as 97 lawsuits have been filed since 2007 against Countrywide, bought that year by private-equity firm Apollo Management LP.

“These banks have incurred huge losses and they are looking for someone to blame,” said Alexandra Anderson, a partner at law firm Reynolds Porter Chamberlain LLP representing surveyors including Countrywide. “Often the blame is themselves, and the lending practices they had.”

Countrywide, now also owned by Oaktree Capital Management LLC (OAKTRZ) and Alchemy Partners LLP, said in an e-mailed statement it had seen a considerable increase in professional negligence claims, particularly from now-defunct lenders.

‘Fulfilled Our Responsibilities’

“We will continue to defend our position when we believe we have fulfilled our responsibilities,” Countrywide said. “If an error is made, then we do seek to settle with claimants.”

The London company isn’t affiliated with Countrywide Financial Corp., the Calabasas, California-based subprime lender acquired by Bank of America Corp. in 2008. The Charlotte, North Carolina-based bank paid a fair-lending practices record $335 million last month to settle a U.S. Justice Department probe into Countrywide Financial’s practices.

A U.K. judge ruled in Countrywide Plc’s favor last month in one of the first such cases to reach court, saying GMAC-RFC, the British mortgage-lending unit of Ally Financial Inc (ALLY)., didn’t do enough research in making a loan on a property the surveyor valued.

Lenders suing Countrywide say they issued home loans based on unrealistic valuations by its surveying unit and lost money when the properties turned out to be worth less than estimated.

Buyout Holdings

Apollo went public in March and reported a third-quarter loss of $1.14 billion in November after writing down the value of its buyout holdings as equity markets tumbled. The New York- based firm bought Countrywide when U.K. house prices were rising at the fastest pace in almost four years, figures compiled by researcher Hometrack Ltd. then showed.

Apollo also bought Realogy Corp., the largest U.S. residential real estate broker, for $8.5 billion in 2007 during the worst downturn in home sales there since the Great Depression. By the end of the next year Realogy, owner of the Century 21 and Coldwell Banker brands, was on the verge of defaulting on the what Apollo had borrowed to buy it.

U.K. home prices have fallen 9.5 percent since the market slumped in 2007, real-estate broker Savills Plc estimated in November. The biggest loser has been England’s northwest with a 14 percent drop. London prices have shed 2.9 percent.

Barclays spokeswoman Emma Austin declined to comment on its lawsuit. U.K. telephone directories online didn’t list an address for Sandha since he left Coleorton Hall and the lawsuit didn’t provide details of where he is now. Apollo spokesman Charles Zehren declined to comment.

Surge Last Year

Many more claims haven’t yet reached court, said Anderson. The 2011 surge was caused in part by the statute of limitations requiring grievances be filed within six years, she said.

The property boom continued into 2007 so the number of lawsuits may rise further, lawyers for both sides said.

“I anticipate the volume of valuer claims will surge significantly again over the next couple of years particularly as limitation is becoming more of an issue for claimants,” said Andy Lyon, an attorney for lenders including U.K. banks.

Countrywide, which has rental, estate agency and financial services units as well as the surveying arm, announced an exceptional charge of 11.9 million pounds in 2010 due to “an abnormal increase in the number of professional indemnity claims,” according to its annual report.

Out of Business

Surveying firms insure against legal claims, though they must pay a deductible and face rising insurance premiums because of the number of lawsuits filed, Anderson said. Several small surveying firms went out of business because of the costs associated with litigation, she said.

In the GMAC-RFC case, a judge in Leeds ruled Countrywide was not liable for the 61,500-pound difference between its valuation and the eventual sale price of a seized property in York, in northern England.

A unit of GMAC-RFC sued Countrywide saying it had been negligent in its initial valuation of the apartment, which was seized by the lender in 2008 after the borrower defaulted.

Judge Andrew Keyser faulted GMAC for making the loan on the York property and sided with Countrywide.

“If GMAC had made proper enquiries as to the borrower’s financial position, it would have found that he was unable to verify his declared income or to give satisfactory explanation for his inconsistent statements of earnings,” Keyser said in December in his written judgment.

GMAC’s Paratus AMC unit said in an e-mailed statement the case had turned on expert evidence on the value of the apartment. It said it didn’t accept the judge’s finding that the lender was partly to blame for its losses.

To contact the reporter on this story: Kit Chellel in London at cchellel@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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