The Department of Housing and Urban Development (HUD) recently charged multiple entities with housing discrimination based on an asserted biased appraisal and denial of a mortgage refinance loan application based on the appraisal. Charges were brought against the appraisal company, Maverick Appraisal Group; the appraisal management company, Solidifi U.S. Inc.; the lender, Rocket Mortgage, LLC; and the individual appraiser. The loan applicant initially filed a complaint with the Colorado Civil Rights Division, which later agreed to HUD investigating the matter.

In the charge, HUD alleged that in 2021, Rocket Mortgage denied a borrower’s application to refinance a mortgage based on what HUD considers to be a discriminatory appraisal report, in violation of the Fair Housing Act. According to the factual allegations, the applicant, a Black woman, applied to refinance a mortgage on a duplex in a predominantly white neighborhood in Denver, CO. In order to process her application, Rocket Mortgage ordered an appraisal of the property from Solidifi. Solidifi, in turn, selected Mr. Mykhailyna of Maverick Appraisal Group to conduct the appraisal and provided him with Rocket Mortgage and Solidifi’s extensive guidelines and instructions for the appraisal. HUD concluded that the appraiser reached an “insupportably low” value for the borrower’s duplex based on the following asserted factors, among others:

• Property values in the area were generally increasing around the time of the subject appraisal, which was the only appraisal of the subject property out of seven conducted over nine years that indicated a drop in the property’s value ($640,000 in 2021, compared to $860,000 in 2020 and $750,000 in 2018).
• In selecting comparables, the appraiser chose properties only to the east of the subject property, in areas with higher concentrations of Black residents, ignoring several closer duplexes to the west in a more predominantly White area that had higher sales prices, and the appraiser had used comparables in that area when appraising a home in the same area as the subject property for a White owner.
• The appraiser failed to account for positive adjustments that would have come from including a more detailed description of the basement and the consideration of recent renovations that were made to the property.
• In conducting appraisals for White property owners in the same neighborhood, the appraiser made area adjustments reflecting a more favorable view of the neighborhood, and he described the area’s access to amenities more favorably.

According to HUD, after reviewing the appraisal report, the applicant spoke with representatives at Rocket Mortgage about her concerns that the report might be discriminatory. HUD also claims that Rocket Mortgage then informed the applicant that she could proceed with her loan application using the appraised value or she could have her loan application cancelled or denied and her discrimination complaint referred to Rocket Mortgage’s Client Relations Department. Ultimately, the application was “cancelled” and “denied,” and the applicant was unable to refinance her mortgage for a lower interest rate or more favorable terms.

In the announcement regarding this charge, Diane M. Shelley, HUD’s Principal Deputy Assistant Secretary for Fair Housing and Equal Opportunity stated, “HUD will continue to vigorously enforce the Fair Housing Act against those who seek to limit the financial returns associated with homeownership because of race or any other protected characteristic.” Due to the official charge from HUD, the case will be assigned to an administrative law judge, unless any party elects to have the case heard in federal district court. Potentially, a decision on the matter may provide guidance to the industry regarding appraisal bias claims.

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