Appraisals and ValuationsMortgage

Appraisal firm, loanDepot sued by Black couple for bias

Couple alleges their Maryland home was appraised 60% lower by 20/20 Valuations than when they conducted a "whitewashing experiment"

A Maryland couple is suing appraisal firm 20/20 Valuations, its appraiser and mortgage lender loanDepot after their home was appraised at a far lower value than it was a few months later when they removed indications that a Black family lived there.

Nathan Connolly and Shani Mott, in a suit filed in Maryland District Court last week, claimed that Shane Lanham, president of 20/20 Valuations and the real estate appraiser who conducted the appraisal, discriminated against the couple by “dramatically undervaluing their home” because of their race and the home’s location close to a Black census block, despite the fact that is located within Homeland, an affluent, white neighborhood.

The New York Times first reported on the lawsuit.

The couple are suing Lanham, his firm and loanDepot on five counts for allegedly violating the Fair Housing Act and the Equal Credit Opportunity Act, which makes it illegal to discriminate against people because of their race.

As millions of homeowners did during the pandemic, Connolly and Mott applied to refinance their existing mortgage debt in mid-2021 at loanDepot to take advantage of the historic low interest rates. The lender approved their application for a loan with a 2.25% interest rate, with a “conservative” estimated value of the house at $550,000, pending approval. 

In 2017, the couple bought the four-bedroom, fully detached single-family home at 209 Churchwardens Road for $450,000. With average home sale prices in Baltimore having increased by about 25% since then, a loan officer at loanDepot told the couple that “we should be good” because the estimated value was “pretty conservative.”

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Between April 2020 and June 2021, Connolly and Mott, after taking out a $30,000 home equity loan, made investments in the house including $35,000 to remodel their club room and $5,000 on a tankless water heater, among other upgrades. The couple believed this work increased the value of the home above its pre-improvement value.

However, the couple was “shocked” when they were informed by loanDepot’s loan officer that Lanham, who conducted the appraisal, valued their home for only $472,000. loanDepot contracted 20/20 Valuations and after the appraisal, the lender said it would not extend the loan.

The complaint alleges that Lanham “cherry-picked low-value homes” as comparables ignoring nearby sales in majority-white areas that had higher values. 

Lanham, when contacted for comment, declined to comment on the case. 

Among the three comps with values ranging from $435,000 to $545,000, one was located outside of Homeland proper, in a majority-Black census block. A fourth comparable, which sold for $650,000, was not used in calculating the value of the home, according to the suit. 

When Connolly – who is a history professor at Johns Hopkins University and is considered an expert on redlining – and his wife Mott told the loan officer that the appraisal was infected by racial bias, he gave them “an arbitrary and excessively tight deadline” of less than 10 days to submit a letter to loanDepot explaining why they believed the appraisal was flawed. 

Until it was too late, the loan officer never informed the couple that under loanDepot’s policies, they had 60 days to formally appeal the appraisal, the suit alleges. The loan officer did not respond after they submitted the letter to loanDepot, besides “what appeared to be an automated email informing that two new documents had been uploaded to their customer portal,” according to the suit.

“loanDepot relied on Lanham’s appraisal despite being informed that it was infected by discrimination and stopped answering or returning Plaintiffs calls once they challenged the appraisal on that basis,” the complaint said.

loanDepot said it “strongly oppose bias in the home financing process and support the plans to combat appraisal bias and promote more sustainable, affordable housing for minority and low- to moderate-income families and communities.”

“While appraisals are performed independently by outside expert appraisal firms, all participants in the home finance process must work to find ways to contribute to eradicating bias,” the firm’s statement said. 

In December 2021, the couple received a Maryland Department of Assessments and Taxation Notification assessing the value of the house at $622,000. 

The couple applied for a loan with Swift Home Loans, partnering with Rocket Mortgage in early January 2022. Rocket Mortgage approved the couple, pending appraisal for a finance loan at a 3.23% interest rate, which they brought down to 2.75% by paying $2,136.

Prior to the appraisal, the couple did something different this time. 

They decided to conduct a “whitewashing” experiment on their home, in which they replaced family photos with white pictures from white friends and colleagues. Instead of Connolly and Mott greeting the appraisal, a white colleague was present during the process. 

They “felt embarrassment, humiliation, and anger that they had to carry out this experiment,” according to the complaint. “By all appearances, the Churchwarden’s Home was owned by white people.”

The home was appraised for $750,000, almost 60% higher than seven months ago. “They made no significant improvements in their home in the interim nor had home prices meaningfully change since Lanham’s appraisal,” the suit alleges.

The second appraiser pulled comps throughout all of Homeland that were selling from $749,000 to $785,000, significantly higher value than those selected by Lanham. The first appraiser also deducted 10% from homes that were not on a busy road, while the second appraiser only deducted 2% for the same reason. 

Racial discrimination has been deeply rooted in the U.S. housing industry with one of the recent lawsuits including a Black homeowner suing Wells Fargo alleging the bank’s lending algorithms amplified the U.S. financial system’s racist treatment of Black customers. 

The lawsuit also follows another lawsuit filed by a Black couple in California that accuses an appraiser of valuing the house lower by $500,000. The case is scheduled for mediation in September, where parties have a chance to resolve the matter before heading to court. 

In June 2021, the Biden administration created the Interagency Task Force on Property Appraisal and Valuation Equity. Led by Susan Rice, the White House domestic policy adviser, and Marcia Fudge, the HUD Secretary, the agency aims to address racial bias in home lending and appraisals and root out inequity. 

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