Justice Department sues Rocket Mortgage, alleging racially biased appraisal
The U.S. Justice Department filed a lawsuit Monday against Rocket Mortgage and a group of appraisal companies for undervaluing a Black woman's Denver home in the latest allegation of housing discrimination that has widened the decades-long wealth gap for communities of color.
The Justice Department filed the lawsuit Monday after Francesca Cheroutes, of Colorado, complained to the U.S. Department of Housing and Urban Development about her Denver home being undervalued because of her race.
Cheroutes said in the complaint that Rocket Mortgage canceled her loan application in retaliation for her suggesting the appraisal was discriminatory. HUD referred the complaint to the Justice Department after determining there was "reasonable cause" concluding Rocket Mortgage, Solidifi US Inc., Maverick Appraisal Group Inc. and a Maverick appraiser violated the Fair Housing Act.
The Justice Department said the Maverick appraiser assessed Cherutes' property at more than $200,000 lower than a nearby white owner's property, despite rising home values in Denver.
The department sued the companies on behalf of Cheroutes. Assistant Attorney General Kristen Clarke said the lawsuit is within the department's efforts to end appraisal bias that's kept Black and other consumers of color from credit and homeownership.
“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. No one should have to suffer the indignity and financial harm associated with appraisal bias.”
U.S. attorneys said Cheroutes' home is in a predominately white neighborhood, but the Maverick appraiser didn't use sales from similar, nearby neighborhoods. Instead, sales from communities further away with larger Black populations were used. That process differed from what the person did a few months prior for a white homeowner, prosecutors said. There, the Maverick appraiser used sales in the owner's same neighborhood to support an appraisal.
According to the lawsuit, she told the Rocket loan officer that she had a Black Lives Matter sign in the yard, and regretted being in the house during the appraiser's visit, as he could see it was owned by a Black person.
Black Americans have been fighting racism in the home appraisal process for several decades as they said their homes doubled when they adorned their homes with photos of white families. The Biden Administration announced reforms last year to battle the appraisals.
“Home appraisals are meant to be fair and objective estimates of the market value of a property. However, far too often, they are not,” Vice President Kamala Harris said at the time.
Feds: Appraiser deliberately valued the home using Black neighborhoods
U.S. attorneys said in a complaint the allegations stemmed from a January 2021 appraisal of Cheroutes' home when she sought to refinance her loan. Her home, a duplex, was valued at $860,000 in 2020.
She's owned the home since 2011 and lived in one of the units. She started the refinance process in 2020 when mortgage rates dropped to "historic lows," according to the lawsuit.
A federal complaint filed in U.S. District Court in Colorado said the Maverick appraiser met Cheroutes in January 2021 and knew a Black family lived at the home because her daughter was at home and spoke with a prospective employee who was brought along.
Cheroutes informed the Maverick appraiser about improvements she made to the home, but none of them made it into the report, attorneys said in court papers.
Attorneys said in court papers the Maverick appraiser valued the property at $640,00 - $220,000 lower than an earlier appraisal Cheroutes had. They added the employee's assessment was lower than sales of all six comparable duplexes in a mile radius of the property, which Solidifi's agreement with the Maverick appraiser directed them to consider.
Those properties Solidifi directed him to use were within one mile of Cheroutes' and ranged between $698,000 to $1.2 million. The Maverick appraiser instead used sales from Black neighborhoods further away from Cheroutes' home, attorneys said.
She notified Rocket Mortgage about the home's value and her belief it was motivated by racial discrimination.
Rocket Mortgage used the new value, according to court papers, and told Cheroutes she could proceed with the application, or it would be canceled. Her application was canceled by Rocket after Cheroutes requested a new appraisal.
Cheroutes had her home appraised for $885,000 in March 2022.
“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.
In response to Paste BN's request for comment, Rocket Mortgage said federal law requires lenders to work "at arm's length" during the appraisal process, and with an independent appraisal management company that assigns gigs to state-licensed appraisers to avoid input or bias from lenders or anyone else involved in the application.
"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," the company said in a statement. "We look forward to exposing the government’s massive overreach in this matter.”
Maverick Appraisal Group didn't respond to Paste BN's multiple requests for comment.
Solidifi declined to comment on the lawsuit's specifics but said it will "vigorously defend any allegations" about bias in the appraisal process.
Discrimination in appraisal process a decades-old problem
Cheroutes isn't the only Black American who's had her home significantly undervalued.
In 2021, a Black Indianapolis woman saw her home double from $125,000 to $259,000 when she stripped her home of her racial and cultural identity and replaced it with a white man's image. She did that after suspecting her race played a role.
Carlette Duffy filed fair housing complaints against the mortgage lenders and appraisers.
In 2020, a Black California couple had their home appraised twice - first with pictures of their family, then again with photos of a white family. To their shock, their home value doubled when they used the white family. The couple, Tenisha Tate-Austin and Paul Austin settled a fair housing lawsuit against an appraiser in 2023, and another against the appraisal management company.
“We missed out on a better interest rate because of the unfair appraisal we received,” Tenisha Tate-Austin said in a statement through her lawyer.
Undervaluing Black homeowner's properties is one of the factors keeping Black Americans from closing the housing gap. In 1960, 65% of white people owned homes compared to 38% of Blacks. In 2021, the gap widened with 73% of white people compared to 44% of Black people owning a home, according to the Urban Institute.
Harris said in 2023 lower appraisals also help widen the racial wealth gap as Black and Latino homewowners would pay more for loans, get smaller revenues from selling and are less able to get home equity loans.
“Homeownership is one of the single most powerful engines of wealth-building available to American families,” she said. “Millions rely on the equity in their homes to put their children through college, to fund a startup, to retire with dignity, to create intergenerational prosperity and wealth. We also know, for generations, many people of color have been prevented from taking full advantage of the benefits of homeownership.”
Contributing: JC Reindl, Detroit Free Press
Contact reporter Krystal Nurse at knurse@USATODAY.com. Follow her on X, formerly Twitter,@KrystalRNurse.