The U.S. Department of Justice filed a racial discrimination lawsuit on behalf of a Black woman in Denver last week against Rocket Mortgage and two appraisal companies, alleging they purposely low-balled the value of her home because of her race.
Francesca Cheroutes originally complained to the U.S. Department of Housing and Urban Development in 2021 after she received an appraisal from Rocket Mortgage for her duplex home. Located in an upscale neighborhood of Denver, the home was appraised for $220,000 lower than one she’d received only eight months earlier from Rocket, despite a booming housing market in Denver and substantial upgrades she’d made to her home.
The new appraisal was also $200,000 lower than an appraisal for a similar duplex property nearby with a white owner that had been done by the same appraiser, who is white.
HUD determined there was “reasonable cause” to determine that the new appraisal was discriminatory and had violated the federal Fair Housing Act, and referred her complaint to the Justice Department.
Cheroutes claims in the lawsuit filed in U.S. District Court for the District of Colorado on Monday that she was looking to take advantage of historically low mortgage rates to refinance the home she’d owned and lived in since 2011 when appraiser Maksym Mykhailyna, the CEO of Maverick Appraisal Group in Denver, came to evaluate her property in January 2021.
She said he made note of a Black Lives Matter sign in her front yard, and briefly talked to her and her college-age daughter, both of whom are Black, while inspecting the unit they lived in.
Cheroutes said Mykhailyna showed no interest in her efforts to inform him about the $200,000 in improvements she’d made to the property since the prior appraisal, including adding new gutters and doors, installing new granite countertops in the kitchen, and painting and updating bathrooms. He didn’t take any notes about the upgrades, which were not reflected in the appraisal he submitted the next day to Solidifi, the appraisal management company hired by Rocket Mortgage, the lender.
The new appraisal valued her home at $640,000 — $220,000 less than the appraisal done in May of 2020.
A low appraisal can derail mortgage approvals by skewing the loan-to-value ratio and prompt lenders to offer less attractive terms or, in some cases, withdraw their offer altogether, notes Rismedia, a residential real estate news site.
When HUD reviewed the comparable property sales used by Mykhailyna to arrive at that lower appraisal value, it found that he had not used sales from duplex properties in Cheroutes’ predominately white neighborhood or similar nearby neighborhoods within a mile of her property, but had relied on sales from more distant neighborhoods with larger Black populations.
Her house is located on a quiet, tree-lined street in the tony Hale neighborhood, her complaint says.
Meanwhile, two of the six sales comps the appraiser used were for homes less than a block away from “a less desirable area” near East Colfax Avenue, “a street with a well-known reputation for activity considered detrimental to housing value, often drawing law enforcement and thus loud sirens and bright lights late at night.”
Surprised at the steep drop in her appraisal value, Cheroutes contacted Rocket Mortgage to complain and requested a new appraisal.
Cheroutes told a loan officer she believed the appraiser had undervalued her property because of her race. She recounted Mykhailyna’s unfriendly, disinterested manner during the site inspection, and said “she regretted being in the house during the inspection because Mr. Mykhailyna was able to see that it was owned by a Black person.”
Her complaints of racial discrimination were routed to Matthew Watson, a solution consultant for Rocket, who allegedly told Cheroutes “because she had raised the issue of discrimination, he could not talk to her or help her,” and then said if she did not agree to proceed with a loan based on the $640,000 appraisal, he would cancel the loan.
Cheroutes, an attorney specializing in labor law, further tried to resolve the issue with client relations staff, pushing for another appraisal using more accurate sales comps, she said, but Rocket Mortgage quickly canceled her application, which she asserts was in retaliation for her complaining that the appraisal was discriminatory.
Cheroutes subsequently had her home appraised for $885,000 in March 2022, a valuation that she argues more properly reflected Denver’s record-setting housing market, where home prices had soared since she purchased her home for $270,000 a decade earlier.
Because Rocket canceled her refinance application, her complaint says she was unable to obtain a refinance mortgage loan that would have had a lower interest rate, a shorter term, and lower monthly payments. Afraid she would continue to be discriminated against by a different mortgage company if she tried to refinance, she obtained a variable-rate home equity line of credit instead, with terms “less favorable financially.”
The experience with the appraiser, Solidifi and Rocket caused Cheroutes to suffer financial harm, emotional distress and humiliation, the lawsuit claims. She seeks a jury trial and unspecified monetary damages that will “restore her to the position she should have been in but for their discriminatory conduct,” and for the court to order the defendants from engaging in discrimination on the basis of race or color in future real estate-related transactions.
“This lawsuit is part of our ongoing efforts to bring an end to appraisal bias which prevent Black communities and other consumers of color from accessing credit and benefitting from homeownership,” Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division said in a statement.
“The complaint alleges racially discriminatory practices by a lender and an appraiser that harmed a homeowner. These discriminatory practices have gone on for too long in Denver,” said Acting U.S. Attorney Matt Kirsch for the District of Colorado.
This is the second appraisal bias case involving a top-10 lender and a powerful regulator, reported Housing Wire, noting that the DOJ and Consumer Finance Protection Bureau filed statements of interest in the case in which a Black couple in Maryland alleged they got an undervalued appraisal from a local appraiser and were subsequently discriminated against by the lender.
Atlanta Black Star reported in April that loanDepot settled that racial discrimination case by agreeing to offer a second appraisal when there are signs of discrimination and bias in the process and to cut ties with biased appraisers.
Rocket Mortgage responded to the latest DOJ lawsuit with this statement to reporters:
“Under federal law, mortgage lenders are required to work at arm’s length during the appraisal process, partnering with independent appraisal management companies who assign the work to state-licensed professional appraisers. The law’s intent is to determine the home’s value without any input or bias from the lender or any other party with interest in the transaction. It is clear the government isn’t interested in their own rules, or facts, and are simply including us in this case to score headlines based on our strong brand and prominent position in the industry. We look forward to exposing the government’s massive overreach in this matter.”
In an emailed statement to Atlanta Black Star, a company spokesperson for Solidifi said:
“This filing is not a new complaint, it is simply the next procedural step in the existing matter. Our position has not changed. While we cannot comment on ongoing investigatory, administrative, or litigation proceedings, Solidifi intends to vigorously defend any allegations regarding failure to detect or correct any alleged bias in an appraisal. Solidifi is committed to working with regulatory authorities, lenders, and the appraiser community to reduce and eliminate appraisal bias and discrimination.”
Mykhailyna and Maverick Appraisal Group did not respond to a request for comment.
