A Black couple is suing loanDepot and an appraiser over allegations of racial bias, claiming a discriminatory, undervalued home valuation led to the lender’s rejection of their refinance application.
Nathan Connolly and Shani Mott later received a higher home valuation and secured a refi loan with a different lender, after “whitewashing” their home for another appraiser, according to a suit filed last week in the U.S. District Court for the District of Maryland. The couple, both professors at John Hopkins University, live in Homeland, a small, historic and predominantly white neighborhood in north Baltimore. According to 2020 census data, its population is 77.5% white, the suit said.
Shane Lanham, the sole owner of Parkville, Maryland-based 20/20 Valuations, appraised their home last June at $472K, far below a loanDepot lending officer’s conservative estimate of $550K, according to the complaint. The couple contends the appraisal was based on questionable calculations stemming from Lanham’s “racist beliefs.”
“Defendant Lanham’s dramatically lower valuation reflected his beliefs that a Black family did not genuinely belong in Homeland and could not be the owners of a higher valued home,” wrote John Relman, an attorney with Washington D.C.-based Relman Colfax, PLLC.
LoanDepot rejected the couple’s refi application based on the low valuation, and lending officer Christian Jorgensen allegedly answered the couple’s concerns by giving them an incorrect deadline to appeal and stopped responding to their calls for months. The company’s reaction was retaliation for the couple exercising their fair housing rights, the suit claims.
The complaint was first reported by the New York Times.
The Foothill Ranch, California-based lender in a statement said it strongly opposes bias in the mortgage process and supports the White House’s Property Appraisal and Valuation Equity task force formed earlier this year to address appraisal inequities.
“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 statement said.
Lanham declined to comment Tuesday, and Relman didn’t respond to a message.
The couple bought their four-bedroom, three-and-a-half bathroom home in 2017 with a $450K, 30-year mortgage with Prime Lending. The mortgage had a fixed interest rate of 4.65%, according to the lawsuit. They also took out a $30K home equity loan in 2020 to make home improvements, including repairs, landscaping and remodeling of a basement “club room.”
The couple sought a refi with loanDepot amid last year’s record-low interest rates and were approved for a loan with a 2.25% interest rate, subject to a $550K estimated value with a formal appraisal, the lawsuit said.
Lanham’s appraisal was blatantly unprofessional, the couple claims, because of his limited search of comparable, recently sold homes, by including one outside of Homeland in a majority Black census block and ignoring the majority-white areas of the neighborhood. Lanham allegedly failed to account for the couple’s upgrades and also made excessive downward adjustments to the comparable homes, such as a 10% discount in price to a comparable home sold because of a busy road.
Jorgensen, in relaying loanDepot’s rejection to the couple, responded to the couple’s concerns by giving them an inaccurate 10-day window to submit an appraisal appeal letter, the suit said. He stopped responding to their phone calls and failed to tell them of the company’s 60-day appeal window until months later. The lender eventually told the couple the denial was final, failing to mention the discrimination allegations in a correspondence.
The couple said they received a home valuation of $622K from a state assessment office last December. They then applied for, and were approved for, a refi with Swift Home Loans, partnering with Rocket Mortgage, for a higher interest rate of 3.23%, brought down to 2.75% by paying $2,136 to buy points off their rate.
Ahead of their next appraisal, the couple “whitewashed” their home, they said. They removed family photos, childrens’ art of their family, Black art and literature and a “Black Panther” poster and replaced them with family photos from their white friends and colleagues and other art depicting white people.
“Plaintiffs felt embarrassment, humiliation, and anger that they had to carry out this experiment,” the suit said.
The couple had a white colleague stand-in as the homeowner for appraiser Daniel Ray Dodd of Towson-based Associate Appraisers, who viewed the home in January. His appraisal came in at $750K, almost 60% higher than Lanham’s appraisal, the suit claims. The couple made no significant improvements from their home, but Dodd gave them credits for their home improvements and compared the home to recently sold properties throughout Homeland in the $749K to $785K range.
Appraisal bias is a hotly-debated issue in the mortgage industry, with the White House’s PAVE task force formed to take action on evidence of appraisal gaps from studies by the government-sponsored entities last year. Analyses haven’t been uniform: a study in June by Veros Real Estate Solutions showed no signs of racial bias in automated valuations in 50 Chicago ZIP codes.
Marcia Fudge, the secretary of the Department of Housing and Urban Development and co-chair of PAVE, called attention Monday to the “systemic racism” in appraisal gaps.
“When you look at an industry that is more than 95% white, you find that people are treated differently because t. is an in.nt bias within a lot of them,” she said, referring to the makeup of appraisal professionals. “And because they collect the data, the data is not good data.”