A Denver woman who claims an appraiser undervalued her home because she was Black can have her day in court, and the lender and appraisal management company that hired him must defend themselves against allegations that they violated the Fair Housing Act, a federal district court judge ruled Friday.
The Department of Justice sued appraiser Maksym “Max” Mykhailyna and his company, Maverick Appraisal Group Inc., in October, alleging that he “used faulty comparables and made other inaccurate assumptions” in his valuation of a duplex owned by Francesca Cheroutes because she was Black.
The 2021 appraisal valued the duplex at $640,000 — $220,000 less than it had appraised for the year before.
Cheroutes filed her own complaint against Mykhailyna in March — which, like the Department of Justice’s lawsuit, names Rocket Mortgage and its appraisal management company, Solidifi U.S. Inc., as defendants.
Mykhailyna has denied both the Department of Justice’s and Cheroutes’ claims that his appraisal was biased, and is seeking to have the case dismissed.
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.
Rocket and Solidifi maintain they were legally barred from interfering with Mykhailyna’s appraisal.
In rejecting motions by Rocket Mortgage and Solidifi to be dismissed from the case, U.S. District Judge Gordon Gallagher said state and federal appraisal independence requirements do not preclude lenders or appraisal management companies from taking action to remedy biased appraisals.
“The government and Cheroutes each assert that Rocket could have taken several different actions to avoid reliance on the allegedly discriminatory appraisal,” Gallagher wrote in the Sept. 12 order. “Among these, both allege that Rocket could have requested correction or requested a separate appraisal.”
Attorneys for Rocket argued that lenders are prohibited by law from correcting appraisals.
Gallagher said that doesn’t explain why it didn’t order a separate appraisal — “even after receiving Cheroutes’s complaint about racial discrimination (and, instead, cancelling her loan application)” — and why that should not be viewed as intentional discrimination.
Gallagher also ruled that Solidifi can be found “vicariously liable” for a discriminatory housing practice by an agent or employee.
Although Solidifi maintained Mykhailyna was an independent contractor, Gallagher cited a previous ruling that “an independent contractor can be an agent” and that an “agent need not be an employee.”
Solidifi also maintains that state and federal appraisal independence regulations, which are intended to protect appraisers from pressure by lenders, barred it from influencing Mykhailyna’s appraisal.
But Gallagher ruled that both Colorado and federal appraisal independence regulations allow appraisal management companies (AMCs) to ask appraisers to consider additional information about a property, provide further details substantiating their valuation, and to correct errors.
“These are precisely the sort of corrective actions about the methods and manner of appraisal sought by Cheroutes through her discrimination complaint and over which Solidifi is alleged to exercise significant control,” Gallagher wrote.
Rocket sued the Department of Housing and Urban Development in December, saying its regulations have created “a tightrope that is impossible to walk,”
At the time, Rocket said it had offered Cheroutes “a path to challenge the appraisal through a value reconsideration process which complies with the law. The borrower declined to engage in that process on two separate occasions.”
Rocket said it had previously originated three mortgages for Cheroutes and was the servicer collecting monthly payments on her current mortgage.
“Any assertion that Rocket Mortgage is biased is false,” the company said in December. “Rocket Mortgage remains committed to homeownership for everyone who can sustainably afford it.”
A discovery conference in the lawsuit filed by the Department of Justice and Cheroutes is scheduled for Oct. 5.
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