DOJ Files Enforcement Action for Appraisal Bias Fair Lending Violations

The DOJ filed one of the first public enforcement actions for appraisal bias against a large national mortgage lender, an appraisal management company, and an appraiser.

The complaint alleges that a Black borrower sought to refinance her home in Denver, Colorado with the lender who had made the original loan for the property.  In connection with the original loan, the property appraisal valued the home at $860,000.  The appraiser for the refinance had met the borrower during the appraisal process and was aware of her race, and the complaint includes allegations that the appraiser treated the borrower rudely during this meeting and ignored information the borrower sought to provide about the property.  The appraisal value for the refinance came in at $640,000 despite the borrower having made improvements to the property since the original purchase and despite a large overall increase in property values in the area since the time of the original loan.

The property was located in a predominantly White neighborhood.  The complaint alleges that the appraiser ignored nearby sales of similar properties in determining which comps to use for the appraisal, and instead focused on properties which were further away and which were located in areas with higher minority populations.  Further, the appraiser allegedly applied excessive downward price adjustments which conflicted with professional standards and requirements set by the appraisal management company (AMC).  Notably, the same appraiser had appraised another home in the borrower’s neighborhood only a month before and used different methodologies and different types of comps to arrive at a comparably higher value than for the property at issue in this case.

The borrower complained to the lender about the appraisal and how she believed the low appraisal value may have been motivated by racial discrimination.  The lender allegedly did little to investigate the allegation of discrimination and instead insisted that the borrower either had to accept the appraisal or her refinance loan would be cancelled.  When the borrower continued to request that the appraisal be changed or redone due to the alleged discrimination, the lender cancelled the loan.  Likewise, the complaint asserts that the AMC accepted the appraisal despite it not conforming with the AMC’s guidelines and standards.

The DOJ alleges that the defendants’ actions violated the Fair Housing Act and is seeking monetary and injunctive relief.  The defendants have not yet responded to the lawsuit.