HUD Files Appraisal Discrimination Charge Against Rocket Mortgage

Born in 1895 in Woodville, Mississippi and raised in Little Rock, William Grant Still’s earliest musical influences included his mother, a teacher and musician, and his stepfather, who introduced him to opera and symphonic music. Still showed a deep interest in music at a young age. He had formal violin lessons and taught himself to play the clarinet, saxophone, oboe, double bass, cello and viola.

After high school, Still attended Wilberforce University, where he conducted the university band and started composing and orchestrating music. He did not graduate from Wilberforce but later enrolled in the Oberlin Conservatory of Music. At Oberlin, Still studied composition, assisting the janitor and doing odd jobs to make ends meet. He also studied composition with prominent composers such as George Whitefield Chadwick and Edgard Varèse.

By 1916, Still was working for W.C. Handy. He recorded with Fletcher Henderson's Dance Orchestra in 1921. He played in the pit orchestra for Noble Sissle and Eubie Blake's musical Shuffle Along and in orchestras with Paul Whiteman, Artie Smith, and Sophie Tucker. By the 1930s, he was composing works for NBC Radio broadcasts and arranging music for the films Pennies from Heaven and Lost Horizon.

Still composed nearly 200 works, including symphonies, ballets, operas, choral pieces, and chamber music but is most frequently recognized for his "Afro-American Symphony" (Symphony No. 1), which was the first symphony written by an African American composer to be performed by a leading orchestra. While that performance was groundbreaking, Symphony No. 1, which incorporated African American spirituals and blues elements, was only one of Still’s many complex and artistic meritorious compositions. 

Called the "Dean of Afro-American Composers,” Still found himself typecast as a composer of African American music. Yet, he and other African American composers faced barriers in having their works performed and gaining recognition for works that did not explore African American themes.

In real estate, African American homeowners may experience a different variation of typecasting. Appraisals may value their homes based on homes in predominantly Black neighborhoods—even though they do not live there. This article discusses a recent fair housing claim filed by the Department of Housing and Urban Development (HUD) on July 15, 2024 against Rocket Mortgage and an appraiser who HUD claims discriminated against Black homeowners in the appraisal process.

The Fair Housing Act Applies to Residential Real Estate Appraisals

The Fair Housing Act (FHA) was passed in 1968 to prohibit housing discrimination based on race, color, religion, and national origin. Since then, the FHA has been amended to prohibit discrimination based on sex, disability, and familial status. Recently, HUD clarified that discrimination against LGBTQ individuals is sex discrimination and, therefore, violates the FHA. State and local laws also may prohibit appraisal and other housing discrimination.

In addition to prohibiting discrimination in the sale or lease of housing, the FHA prohibits discrimination in “residential real estate-related transactions,” which include the “selling, brokering, or appraising of residential real property.” HUD’s regulations define appraisal "as an estimate or opinion of the value of a specified residential real property made in a business context in connection with the sale, rental, financing or refinancing of a dwelling or in connection with any activity that otherwise affects the availability of a residential real estate-related transaction, whether the appraisal is oral or written, or transmitted formally or informally." The appraisal includes all written comments and other documents submitted to support the estimate or opinion of value.

"Conditioning the terms of an appraisal. . . on a person's response to harassment because of race, color, religion, sex, handicap, familial status, or national origin" is also illegal.

The FHA definition of appraisal may cover estimates or opinions of value issued by real estate professionals, even though they are not formal appraisals. Even websites that provide value estimates based on an algorithm could violate the FHA if they somehow incorporate the owner’s or user’s protected attribute as a factor when determining home value.

Appraisal discrimination need not be intentional. Appraisal practices that adversely impact people in a protected class can violate the FHA.  

Further, someone may engage in appraisal discrimination even though they are not a licensed appraiser. Using a discriminatory appraisal violates the FHA “where the person knows or reasonably should know that the appraisal improperly takes into consideration race, color, religion, sex, handicap, familial status, or national origin.”

HUD’s Allegations

In January 2021, Complainant sought to refinance her duplex in Denver, Colorado using Rocket Mortgage. Located in a predominantly White area, the duplex had two units, each with three bedrooms and two bathrooms. Rocket Mortgage ordered an appraisal from Solidifi, which then engaged Maksym Mykhailyna of Maverick Appraisal Group.

When reviewing the appraisal, Complainant found several issues, including factual inaccuracies, inappropriate comparables, and a suspiciously low appraised value. She suspected the low appraisal was discriminatory, as property values in her area had been increasing, and her property had undergone recent updates.

Mykhailyna’s appraisal valued Complainant’s property at $640,000, significantly lower than previous appraisals ordered by Rocket Mortgage, which valued Complainant’s home at $860,000 in 2020 and $750,000 in 2018. Complainant attributed this discrepancy to Mykhailyna's choice of questionable comparables and adjustments. He made large adjustments for site size not indicated by industry standards, used incorrect interior square footage measurements, did not account for rooms below grade, and ignored recent renovations.

Even though Complainant’s home was located in an area with predominantly White residents, Mykhailyna selected comparables only from areas with high concentrations of Black residents. In doing so, he ignored closer, more relevant properties in predominantly White areas. 

Complainant says that when she raised these concerns with Rocket Mortgage, the lender responded by giving her the option to move forward with the loan application based on the disputed appraisal or cancel her application. Despite Complainant’s request not to terminate her loan application, she says Rocket Mortgage canceled and denied her application.

Stereotyping Real Estate

Despite being a prolific composer, for years, most of William Grant Still’s music was downplayed to support his stereotype as a composer of African American music. Likewise, real estate may be inappropriately stereotyped based on the owner’s race.

A key element in a real estate appraisal is how the subject property compares to similar, recently sold properties. Selecting comparable properties by necessity “stereotypes” real estate as similar to the selected comparables. Those "stereotypes" are acceptable if the comparable properties are selected based on the property's characteristics rather than the owners' race.

Under appraisal standards, comparable properties should be selected based on proximity and other similarities to the subject property. Properties in the same neighborhood and of the same building construction, age, condition, traffic, size, and so forth provide the most accurate comparables. 

However, who owns the property should be irrelevant when selecting comparable properties. It violates the FHA when a property is stereotyped by selecting comparables based on the property owner’s race rather than the properties’ characteristics.

Other Appraisal Discrimination Cases

The Denver case isn't the first time a Black homeowner has experienced appraisal discrimination. In 2021, Johns Hopkins University professor Dr. Nathan Connolly (an expert on redlining who researches the role of race in the housing market) and his wife, Dr. Shani Mott (who also taught at Johns Hopkins), experienced race discrimination when their Baltimore home was appraised for a mortgage refinance.

After receiving an appraisal they believed was below market, the couple applied for a different loan. This time, they removed their family photos and had a white Johns Hopkins professor meet with the appraiser. The second appraisal (prepared by an appraiser who did not know the homeowners were Black) was over 50% higher than the first one. Connolly settled the case two years later, in 2023, unfortunately after Dr. Mott's death from cancer.

A Black California couple settled a similar case in 2023. Like Dr. Connolly and Dr. Mott, Tenisha Tate-Austin and Paul Austin obtained two appraisals. The second appraisal, done after the couple removed items that showed a Black family lived there, was over 50% higher than the first.

And in 2023, a Jacksonville couple, Abena and Alex Horton, had a similar experience. Suspecting discrimination after the appraisal on their home came in below market value, before a second appraisal, Mrs. Horton, who is Black, removed photos of Black family members and books by Black authors from the home. The couple arranged for only Mr. Horton (who is White) to be home when the appraisal took place so the appraiser would not know one of the homeowners was Black. The second appraisal valued the home at 40% higher than the first.

Combatting Appraisal Discrimination

Despite widespread publicity from the Connolly/Mott case in particular, it seems some appraisers continue to typecast homes based on the race of their owner.  Yet, the Connolly/Mott case and others like it caught the attention of the Department of Justice and Consumer Finance Protection Board. 

Both agencies are part of the Property Appraisal and Valuation Equity Task Force (PACE) established in 2023 to evaluate the causes, extent, and consequences of appraisal bias and establish a transformative set of recommendations to root out racial and ethnic bias in home valuations.

Rather than typecasting William Grant Still as solely a composer African American themed music, the public now appreciates more of William Grant Still's prolific music out. Likewise, appraisers should ensure they select comparables on a home’s unique characteristics, rather than the race of the home’s owners.

© 2024 by Elizabeth A. Whitman

Any references clients and their legal situations have been modified to protect client confidentiality

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