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An appraiser who allegedly deviated from his own methodology in producing an “insupportedly low” valuation of a duplex owned by a Black woman in a mostly white area of Denver has been charged with violating the Fair Housing Act by federal regulators.
Solidifi U.S. Inc., an appraisal management company, and lending giant Rocket Mortgage are also named in the complaint filed Monday by the Department of Housing and Development (HUD) against appraiser Maksym “Max” Mykhailyna and his company, Maverick Appraisal Group.
The allegations stem from a homeowner’s attempt to refinance her mortgage in January 2021, when mortgage rates had plunged below 3 percent to historic lows.
While the home had been appraised at $860,000 the year before, the appraisal Rocket Mortgage ordered from Solidifi came in at $640,000.
The “relatively low valuation” was driven primarily by Mykhailyna’s choice of comparable properties and adjustments he made to their values but also contained “numerous inaccuracies and inappropriate comparisons,” HUD alleged in its complaint.
In choosing comps, Mykhailyna “focused on areas with relatively high concentrations of Black residents, ignoring closer, more predominantly White areas,” with higher sales prices, the complaint said. The appraiser also made “inexplicably large adjustments for site size and used an incorrect measure of interior square footage that also drove down his valuation,” HUD alleged.
As a result, the homeowner was “unable to obtain a lower interest rate, shorter-term refinance loan with lower monthly payments that would have saved her thousands of dollars over the life of the loan,” HUD alleged. “She also suffered other actual damages, including emotional distress.”
Inman has requested comment from Mykhailyna and his company, Maverick Appraisal Group.
A spokesperson for Rocket Mortgage said the company followed the law and expects to prevail in court.
“Under federal law, mortgage lenders are required to work at arm’s length during the appraisal process, partnering with independent appraisal management companies who assign the work to state-licensed professional appraisers,” Rocket Mortgage said in a statement.
The intent of the law “is to determine the home’s value without any input or bias from the lender or any other party with interest in the transaction. For that reason (and more), our company is clearly a misplaced target used simply to score headlines because of its brand and position in the industry. We look forward to bringing the facts of this case to court to set the record straight.”
Solidifi said in a statement that the company “cannot comment on ongoing investigatory, administrative, or litigation proceedings” but that it “intends to vigorously defend any allegations regarding failure to detect or correct any alleged bias in an appraisal.”
Specifics of HUD’s complaint
Many of the specific allegations in HUD’s complaint are focused on Mykhailyna, who is accused of undervaluing the property “because [the owner] is Black.”
But HUD maintains Solidifi and Rocket Mortgage also bear responsibility, having reviewed Mykhailyna’s appraisal but failing to correct it despite “several red flags.”
In its complaint, HUD said Rocket Mortgage ordered the appraisal from Solidifi, which hired Mykhailyna — the founder and CEO of Maverick Appraisal Group — to perform it. Mykhailyna was given “Rocket Mortgage and Solidifi’s extensive guidelines and instructions for the appraisal.”
A week later, Mykhailyna showed up to inspect the property, “which had photographs of Black people displayed inside and two Black Lives Matter signs displayed in the yard,” HUD’s complaint noted. The appraiser met the homeowner and her adult daughter, who is also Black.
While five previous appraisals of the property relied on comps in “more predominantly white areas,” Mykhailyna focused on areas with higher concentrations of Black residents, “ignoring several closer duplexes to the west in a more predominantly White area.”
But HUD claims Mykhailyna used comparables from that area when appraising a different property with a White owner in the same neighborhood, and “made area adjustments reflecting a more favorable view of the neighborhood” assessing properties owned by Whites.
“He also incorrectly associated the subject property, but not a White homeowner’s nearby property, with a local school that had a higher concentration of Black students,” HUD alleged.
The homeowner was dismayed by Mykhailyna’s appraisal report, which valued her home at $220,000 less than another appraisal completed just 8 months before. She “spoke to several employees of Rocket Mortgage about the subject appraisal’s factual inaccuracies, problematic comparable properties, and low appraised value, noting that she believed it was discriminatory,” HUD said in its complaint.
According to HUD, Rocket Mortgage “responded by presenting [the homeowner] with a choice — she could proceed with her loan application using the appraised value she complained was discriminatory, or she could have her loan application canceled or denied and her discrimination complaint referred to Rocket Mortgage’s client relations department.”
Although the homeowner “made clear to Rocket Mortgage that she did not want her loan application terminated while she attempted to pursue her discrimination complaint,” she was sent a letter stating that Rocket Mortgage was unable to offer her financing.
In turning down her request to refinance, HUD alleges that Rocket Mortgage violated section 818 of the Fair Housing Act “by coercing, intimidating, threatening, or interfering with [the homeowner] by retaliating against her because she reported a discriminatory housing practice.”
It will be up to a United States Administrative Law Judge to hear HUD’s charges, although any party can choose to have the case heard in federal district court. If an administrative law judge finds discrimination has occurred, the judge may award damages to the homeowner, HUD said.
Increasing diversity in the appraisal profession
The Biden administration launched an initiative to combat appraisal bias in 2022 in the wake of media reports of Black families receiving higher appraisal values after removing indications of their race, and evidence of a wealth gap created, in part, by a history of bias in home appraisals.
Last week HUD announced an agreement with The Appraisal Foundation, an organization that sets standards and qualifications for real estate appraisers, that’s intended to bring more Black people and other people of color into the profession.
The Appraisal Institute, a professional association of real estate appraisers, is participating in an Appraiser Diversity Initiative with Fannie Mae, Freddie Mac and the National Urban League, and offers scholarships, workshops and other resources to those interested in becoming appraisers.
Editor’s note: This story was updated after publication to include a comment from Solidifi.
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Email Matt Carter