In 2020, Francesca Cheroutes decided to make some improvements to her six-bedroom duplex in Denver. She installed new gutters and added new countertops and bathroom lighting.
Interest rates were falling, and home values were climbing in her neighborhood at that time, so she decided to refinance her mortgage. After all, a previous appraisal on the property, completed less than a year prior, had valued it at $860,000. She lives in a three-bedroom home on one side of the duplex; she rents out the other side. Surely, the property was worth more with the upgrades, she thought.
To her shock, an appraiser who assessed the duplex in January 2021 came up with a new number: $640,000 — effectively slashing its value by 25 percent.
A lawyer who specialized in labor law and discrimination, Ms. Cheroutes, who is Black, suspected racial bias. “To think that my house is worth less because I live in it is appalling,” said Ms. Cheroutes, 54. Last week, the Justice Department filed a discrimination lawsuit against all parties involved in the valuation: Rocket Mortgage, her lender; Solidifi U.S. Inc., an appraisal management company; Maverick Appraisal Group; and the appraiser, Maksym Mykhailyna, who is white and is the chief executive of Maverick.
The Justice Department claims that Mr. Mykhailyna and Maverick “significantly undervalued Ms. Cheroutes’s home because of her race and color,” according to the lawsuit filed on Oct. 21 in U.S. District Court in Colorado.
According to the lawsuit, the appraisal was riddled with errors — he did not take note of the improvements Ms. Cheroutes had done to the property, he listed the wrong elementary school for the homes, selecting one with a much higher concentration of Black students; and he incorrectly stated that the homes did not have a fence. More critically, Mr. Mykhailyna used the value of homes located several miles away from Ms. Cheroutes’s house, in areas with significantly higher percentages of Black residents, to set a base line for his appraisal, rather than relying on homes in her own neighborhood, the Justice Department claims.
Reached by phone, Mr. Mykhailyna described the allegations as “completely made up” and said that race had nothing to do with his appraisal. “She’s using the race card to create this conflict,” he said later.
A spokesman for Rocket Mortgage, which closes more loans than any other lender, said the company plans to file a motion to dismiss Rocket Mortgage from the case. In an emailed statement on Thursday, the spokesman called the Justice Department’s allegations against Rocket “baseless” and “government overreach” and sought to distance Rocket Mortgage from Mr. Mykhailyna’s actions.
Mr. Mykhailyna is an independent appraiser and Rocket played no role in his valuation, the spokesman said in the statement. “Rocket Mortgage had no right or authority to ‘correct’ or change the value in Mykhailyna’s appraisal,” it added.
Rocket Mortgage had contracted with Solidifi, which connects lenders and appraisers for valuations. Solidifi, in turn, hired Mr. Mykhailyna to perform the appraisal for Rocket.
Representatives for Solidifi, which connects lenders and appraisers for valuations, did not respond to a request for comment.
The home appraisal industry, which relies partly on subjective opinions to translate home values into dollars and cents, has faced a firestorm of criticism in recent years.
Nearly 95 percent of home appraisers are white, according to the Bureau of Labor Statistics, and since the summer of 2020, when conversations on race and discrimination in America rose to the forefront following the murder of George Floyd, dozens of Black homeowners have alleged discrimination in the home valuations they received.
Nathan Connolly and Shani Mott, a Black couple in Baltimore who sued their lender and appraiser in 2022 after their home was lowballed by nearly $300,000, received a settlement earlier this year from their mortgage lender, loanDepot, that included a number of sweeping policy changes if a client believes discrimination was at play. The lawsuit against their appraiser, Shane Lanham, is ongoing.
Ms. Cheroutes’s story has echoes of the experience of Dr. Connolly and Dr. Mott, who removed family photos from their house then ordered a second appraisal and had a white colleague stand in for them, only to see the value of the second appraisal skyrocket. Ms. Cheroutes lives in Hale, a neighborhood in east Denver that is 77 percent white and has highly-ranked schools.
Her brick home is on a tree-lined street, and the day Mr. Mykhailyna showed up at the house, she and her daughter were home and a “Black Lives Matter” sign was visible in the front yard.
To determine value, appraisers frequently weigh real estate against the sale prices of similar nearby homes. According to the Justice Department’s lawsuit, Solidifi’s agreement with Maverick instructed Mr. Mykhailyna to choose comparable properties within a one-mile radius of Ms. Cheroutes’s home, but Mr. Mykhailyna instead opted to expand his search radius to 2.5 miles, into neighborhoods with more Black residents — and lower home values.
“Mr. Mykhailyna chose sales comps based on race, selecting less valuable properties from distant neighborhoods with larger Black populations instead of similar properties from nearby neighborhoods,” the complaint reads.
But Mr. Mykhailyna told The New York Times that he pulled comps from further neighborhoods because there were no suitable homes available within one mile. He also said he had no knowledge of the racial composition of any of the neighborhoods in his report. “I as a professional have no technical capability to weigh in who lives where and in what proportion,” he said.
According to the complaint, six suitable duplexes had been available within a one-mile radius.
Mr. Mykhailyna also did not include the recent renovations Ms. Cheroutes had made to the property in his report. He told The Times that Ms. Cheroutes had not done any work since 2011.
The Times reviewed receipts of the work provided by Ms. Cheroutes; all were dated within seven months of the appraisal in question.
There were other errors with the appraisal, according to the Justice Department’s lawsuit, including discrepancies in some of the adjustments Mr. Mykhailyna made. Solidifi, which reviewed the appraisal, should have requested changes, the lawsuit reads, because the work “did not comply with Solidifi’s standards and requirements for appraisers.”
Ms. Cheroutes told The Times that she called Rocket Mortgage multiple times to share her concerns over the appraisal, but was told the company could not investigate. When Ms. Cheroutes told them she would not accept a loan based on a value of $640,000, Rocket opted to cancel her application for refinancing.
In its statement, Rocket Mortgage said it was legally bound to accept Mr. Mykhailyna’s appraisal. “Federal regulations explicitly require that mortgage lenders remain at arm’s length in the appraisal process, hiring independent appraisal management companies that assign work to independent state-licensed professional appraisers. This structure is deliberately designed to prevent any influence from lenders on home valuations,” the company said.
Rocket Mortgage’s inaction prompted Ms. Cheroutes to file a complaint with the Colorado Civil Rights Division in April 2021. Months later, in June 2021, the Colorado agency transferred the matter to the Department of Housing and Urban Development, and according to the complaint, HUD determined “that reasonable cause existed to believe that Defendants violated the Fair Housing Act.”
Ms. Cheroutes, who has two adult children, said she had read about home appraisal bias and felt that she had to do something.
“People believe that if they’re successful in their career, if they’re homeowners, if they have great kids and they do everything they’re supposed to do, then racism like this isn’t going to hit them,” she said. “I have always taught my children that you have to fight this kind of behavior because it’s not OK.”
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