Couple Alleging Racial Bias in Home Appraisal Settles With Lender

A Black couple who claimed mortgage lender loanDepot denied a refinancing of their mortgage because it relied upon a racially biased, considerably low appraisal of their Baltimore home have agreed to a legal settlement in which the lender vows to change how it handles complaints of racially biased appraisals.

The settlement filed in U.S. District Court for Maryland also includes an undisclosed financial amount for the couple. It does not, however, include any admission of liability or facts by loanDepot nor does it resolve complaints against the independent appraiser, who has denied liability and countersued for defamation.

Dr. Nathan Connolly and the estate of Dr. Shani Mott (who died of cancer earlier this month) brought suit after being denied a refinancing by loanDepot based on what they maintain was a biased appraisal value that was almost $300,000 below what it should have been.

The couple, both professors at Johns Hopkins University, applied to loanDepot in mid-2021 to refinance their existing mortgage debt and take advantage of historically low interest rates. LoanDepot approved their application for a loan with a 2.25% interest rate, subject to confirming the $550,000 estimated value of the home with a formal appraisal. According to the complaint, loanDepot’s loan officer wrote to them that “we should be good” because the estimated value was “pretty conservative.”

LoanDepot hired Shane Lanham of 20/20 Valuations to do the appraisal. The couple greeted Lanham when he came to their home. Lanham appraised the home for only $472,000, more than $75,000 below the loan officer’s “conservative” estimate of value. LoanDepot denied their loan application because of the low valuation.

The couple was shocked at the low valuation and complained that the valuation was racially biased. They maintained that the appraiser discriminated against them by dramatically undervaluing their home because of their race and because of their home’s location adjacent to a Black census block, notwithstanding that it is also located within an affluent, mostly white neighborhood. The mortgage lender stuck to its denial.

Connolly and Mott then applied to another lender to refinance. This time they “whitewashed” the house prior to the appraisal, removing the many indicia that a Black family lived there, such as family photos and their children’s drawings of Black people, and replacing them with items borrowed from white friends. They enlisted a white colleague to be present when the appraiser came and stayed away from the house themselves. This time the home appraised for $750,000 and the couple obtained their refinance loan on that basis, but at a higher interest rate than they would have received from loanDepot.

The couple filed a civil action alleging that Lanham’s appraisal for loanDepot was discriminatory on the basis of race, and that loanDepot discriminated and retaliated against them by failing to overturn that appraisal and/or order them a new appraisal in violation of the Fair Housing Act, the Equal Credit Opportunity Act and other federal and state laws.

LoanDepot has denied, and continues to deny in the settlement, that it violated any fair lending, equal credit or other laws, and maintains that it remains committed to treating all customers fairly and to engaging in lending practices in a manner that ensures compliance with federal and state laws.

The policy changes agreed to by loanDepot in the settlement include enhanced notifications for customers of their right to a reconsideration of any valuation and clear standards for when a free second appraisal will be done. The firm will also improve training of employees in all department to identify discriminatory “red flags” or “code words.” All complaints or reconsideration requests that allege appraisal discrimination will be escalated to the appraisal department and fair lending group to research and respond.

The company will also screen their appraisers and will not use any who have previously been found to have discriminated by a regulatory body or court of law.

John Relman, of the law firm Relman Dane and Colfax, who represented Connolly and Mott, said in a statement that while loanDepot denies the allegations in the litigation,”it engaged constructively throughout the settlement process, demonstrating a commitment to combat bias in lending.”

In a statement, Connolly stated that he is “pleased that loanDepot has agreed to these important best practices for ROVs and hopes that other lenders will follow loanDepot’s lead and commit to comparable policies and procedures.”

Professors Connolly and Mott have both been involved in African-American studies. Mott’s writings are on history and literature. Connolly’s writings include a book about property ownership, redlining and racial segregation.

Appraiser Counter-Suit

Judge Stephanie A. Gallagher approved the settlement and dismissal of the claims against loanDepot only, leaving the claims against the appraiser Lanham.

In his unsettled counterclaim for defamation, Lanham accuses Connolly and Mott of falsely labeling him a racist.

“These highly damaging, false accusations were recklessly made to The New York Times and ABC News, among others, and were published and broadcast nationwide where they were seen by millions of people and then republished in various print and electronic media worldwide,” his complaint states. “Dr. Connolly and Dr. Mott—who are highly educated professors at Johns Hopkins University—knew at the time that they made their false and defamatory accusations of racism that they were false.”

Lanham maintains that his appraisal “had nothing to do with discrimination” because of race and he accuses Connolly and Mott of purposely withholding what he alleges are “inconvenient” facts including that the sale of a similar house next door sold a month later for $7,000 less than his appraisal and that their second appraisal occurred seven months after he did his appraisal and allegedly relied on home sales that had not even occurred at the time of his appraisal.

His counter-complaint, filed in January, seeks both compensatory and punitive damages.