Rocket Mortgage, Solidifi among defendants in appraisal bias suit

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A Denver woman who tried to refinance a duplex she’d owned for a decade when mortgage rates were falling to historic lows was thwarted when the appraiser undervalued her home because she was Black, the Department of Justice alleges in a lawsuit against the appraiser.

The Oct. 21 lawsuit also names Solidifi U.S. Inc. — the appraisal management company that reviewed but allegedly did nothing to correct the appraisal — and Rocket Mortgage, which is accused of retaliating against property owner Francesca Cheroutes by canceling her loan application when she claimed the appraisal was biased.

Rocket Mortgage said in a statement to Inman that the company followed the law and expects to prevail in court, where it looks forward to “exposing the government’s massive overreach in this matter.”

Solidifi said in a statement that it intends to “vigorously defend any allegations regarding failure to detect or correct any alleged bias in an appraisal” and is committed to eliminating appraisal bias and discrimination.

Not in dispute is that Maksym “Max” Mykhailyna and his company, Maverick Appraisal Group, appraised the property in question at $640,000 in January 2021. That’s $220,000 less than it had been appraised for the year before, when Cheroutes refinanced with Rocket, prosecutors said in their complaint.

With home values in Denver appreciating and interest rates dropping to historic lows, Cheroutes sought to refinance her property again — obtaining a written loan estimate from Rocket based on the May 2020 appraised value of $860,000.

Although Rocket said she would need to get the property appraised again, she was offered a $563,000 loan at an interest rate of 2.75 percent that, based on the previous appraisal, would not have required her to take out mortgage insurance.

“Compared with her existing mortgage loan, the loan estimate provided a lower interest rate, lower monthly payment amount, shorter loan term, and lower total repayment amount over the lifetime of the loan,” prosecutors noted.

But Cheroutes’ hopes of locking in a lower interest rate were thwarted by Mykhailyna’s valuation, which at a time when homes in the Denver market were appreciating rapidly, knocked more than 25 percent off the valuation she’d received the year before.

Prosecutors alleged Mykhailyna’s decision to value the property at $640,000 “was based on a series of intentional choices and suspect errors” signaling his view of the property “was affected by the race of its owner.”

Mykhailyna did not respond to requests for comment from Inman.

Although Cheroutes’ property is located in the predominantly white Hale neighborhood three miles from downtown Denver, Mykhailyna selected comparable properties “based on race, selecting less valuable properties from distant neighborhoods with larger Black populations instead of similar properties from nearby neighborhoods,” prosecutors alleged.

“Mykhailyna’s approach differed markedly from how he appraised a property of a white owner in Ms. Cheroutes’s neighborhood one month before the subject appraisal,” the complaint said. “The relevant facts and circumstances … demonstrate that Mr. Mykhailyna used faulty comparables and made other inaccurate assumptions because Ms. Cheroutes was Black.”

Property appreciated in six of seven valuations

Over the years, Cheroutes — who had invested $200,000 to renovate the duplex after purchasing it for $270,000 in 2011 — had obtained six appraisals and one residential evaluation.

Cheroutes purchased the property “at a favorable time,” prosecutors noted. “Between 2011 and 2021, the average home sale price in the Denver metro area increased from about $256,000 to about $612,000.”

But the steady rise in the property’s value — with the exception of Mykhailyna’s Jan. 20, 2021 appraisal — also reflected the care she spent on the property, prosecutors said.

When Mykhailyna visited the property, Cheroutes told him “about recent improvements to the property, including new gutters, new doors, and updates to the kitchen and bathroom,” prosecutors said. “He did not respond and did not include this information in his report.”

A March 2022 evaluation — a residential evaluation that did not include an interior inspection — valued the property at $885,000.

Appraisal accepted, loan application rejected

Rocket Mortgage didn’t hire Mykhailyna directly. In order to comply with rules intended to protect appraisers from being pressured by lenders, it ordered the appraisal through a third-party appraisal manager, Solidifi.

Although Mykhailyna’s appraisal “did not comply with Solidifi’s standards and requirements for its appraisers, Solidifi did not request any changes or take any corrective action based on its review,” prosecutors said.

After Solidifi provided Mykhailyna’s appraisal to Rocket, Cheroutes “repeatedly attempted to contact Rocket with her concerns about the low value of the appraisal, and her belief that Mr. Mykhailyna had undervalued the subject property because of her race,” prosecutors said.

She told her loan officer at Rocket Mortgage that when Mykhailyna inspected the property, “she had a Black Lives Matter sign in the yard and that she regretted being in the house because Mr. Mykhailyna was able to see that it was owned by a Black person.”

Although Cheroutes was told Rocket would review the appraisal, she was given a revised loan estimate based on the $640,000 appraisal offering her less favorable terms. When Cheroutes insisted she wanted another appraisal, Rocket canceled her loan application, prosecutors said.

“To avoid relying on the discriminatory appraisal, Rocket could have ordered an appraisal of the subject property from a different appraiser,” prosecutors said — or asked Mykhailyna to “consider more appropriate comps and fix other errors” in the appraisal. “In fact, Rocket did request that Mr. Mykhailyna correct an error in the subject appraisal unrelated to Ms. Cheroutes’s complaint, and Mr. Mykhailyna corrected that error.”

Rocket “coerced, intimidated, threatened, or interfered with Ms. Cheroutes in the exercise or enjoyment of, or on account of her having exercised or enjoyed, rights granted or protected by” the Fair Housing Act, prosecutors alleged.

Rocket, Solidifi look forward to day in court

In a statement to Inman, Rocket said it followed the law and expects to prevail in court.

“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,” Rocket’s statement said. “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.”

Rocket — which was the nation’s biggest mortgage lender before being overtaken by United Wholesale Mortgage in 2022 — accused regulators of going after it for publicity.

“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,” Rocket’s statement said. “We look forward to exposing the government’s massive overreach in this matter.”

Mykhailyna and his company, Maverick Appraisal Group, had previously been charged along with Solidifi and Rocket Mortgage in an administrative proceeding by the Department of Housing and Urban Development. The administrative proceeding was terminated on July 23, after Cheroutes elected to have the Department of Justice pursue the case in federal court.

The lawsuit is part of the Department of Justice’s 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.

“Appraisal bias exacerbates the racial wealth gap, and runs contrary to the principles of fairness, transparency and equity that we need in our housing market today,” Clarke said. “The Justice Department will continue to hold appraisers, lenders and others who discriminate against loan applicants accountable for their actions.”

In a statement to Inman, Solidifi said the lawsuit “is not a new complaint, it is simply the next procedural step in the existing [HUD] matter. 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 said it is “committed to working with regulatory authorities, lenders, and the appraiser community to reduce and eliminate appraisal bias and discrimination.”

HUD in July announced an agreement with The Appraisal Foundation, an organization that sets standards and qualifications for real estate appraisers, that’s intended to bring more Black people and other people of color into the profession.

The Appraisal Institute, a professional association of real estate appraisers, is participating in an Appraiser Diversity Initiative with Fannie Mae, Freddie Mac and the National Urban League, and offers scholarships, workshops and other resources to those interested in becoming appraisers.

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Email Matt Carter