How much does it cost to keep family portraits and other items that identify you as a particular race hidden? One family claims that the value of your home might be in the hundreds of thousands of dollars if you are Black.
A couple in Baltimore is suing a mortgage lender and an appraiser, claiming that because they are Black, their home was grossly devalued, preventing them from renewing their mortgage.
The couple claims that a different evaluation, conducted after they “whitewashed” the residence by removing family portraits and having a white coworker take their place, increased the home’s worth by $278,000
The two “understood that the low assessment was due to racial discrimination” and “were astonished at the evaluation,” according to the lawsuit submitted earlier this week to the Maryland U.S. District Court.
Officials from loanDepot, the lender charged in the case, declined to comment on the accusations. The publicly traded corporation, however, stated in a statement that it vehemently rejects bias.
“All parties involved in the home financing process must endeavor to find ways to contribute to reducing bias,” according to the statement that “appraisals are completed independently by outside expert appraisal firms.”
20/20 Valuations, the case’s assessment firm, could not be reached right away for comment. It doesn’t yet have any attorneys identified in the court documents, nor does the specific appraiser who was named in the lawsuit.
House renovation
The problem started last year when Nathan Connolly and Shani Mott, two professors at Johns Hopkins University, decided they wanted to follow the same path as millions of other Americans. They intended to refinance both their mortgage and a home equity loan in order to benefit from the low interest rates.
The four-bedroom house belonged to the couple, who paid $450,000 for it in 2017 and made a number of improvements. For instance, they spent $35,000 remodeling their club room. Additionally, they spent money on recessed lighting, a tankless water heater, and other upgrades that, according to the family’s attorneys, increased the home’s value.
That would be in addition to the nationwide and regional increase in housing prices that occurred between 2017 and 2021.
Midway through 2021, the couple submitted a loanDepot application, and loanDepot initially authorized them for a 2.25% interest rate, subject to an evaluation to make sure the house was sufficiently valuable in case of default. According to the lawsuit, a loanDepot lending officer gave the family a “very conservative” estimate of $550,000.
However, the complaint claims that the appraiser from 20/20 Valuations, who was employed by loanDepot, estimated the home’s value to be only $472,000 instead. According to the lawsuit, this prompted loanDepot to call and announce that it would not extend the loan.
According to the lawsuit, the appraiser disregarded surrounding sales in predominantly white neighborhoods that had greater values when looking up comparable homes to the plaintiff’s house. He allegedly instead listed properties with lower values and those in neighborhoods with a higher concentration of Black people.
Later that year, the couple was informed that the government had valued their home at $622,000 at the time. They then tried to get a loan again. This time, they experimented by using family photos that they had acquired from white friends and coworkers in place of their own.
Even new artwork was added, which included an antique print of a “white pin-up model.” They also made sure not to be at home when the appraisal took place, sending a white colleague in their place to welcome the assessor.
The house was then valued for $750,000, which is 59% more than the evaluation from less than seven months earlier.
According to John Relman of the Relman Colfax law firm, which is representing the plaintiffs, “It’s shocking to a lot of people that a home should be an objective valuation, but when the appraiser appraises it believing it’s a Black-owned home, it gets one value, and suddenly it’s worth 50% more when the appraiser believes it’s a White-owned home.”
“Johns Hopkins has two distinguished academics on staff. They followed instructions to the letter, “added Relman. But “They actually follow appraisal prejudice into this community of mostly white residents because it is so subtle and pernicious. And unlike their neighbors, they are unable to access the value that is increasing and from which they ought to profit.”
The racial wealth gap was largely fueled by the lengthy history of racial discrimination in the housing sector of the United States and continues to this day. President Joe Biden said last year that he was initiating an interagency project to address bias in house appraisals on the occasion of the 100th anniversary of the Tulsa race murder.
The plaintiffs are well aware of the history. Connolly has authored a book about how Jim Crow segregation rules were established between the early 1900s and the 1960s in part due to property ownership. Mott has written about American literature and history as well as African-American literature.
12.5% of homes appraised in Black areas were valued at less than the original cost of building the home, according to a Freddie Mac report from 2021. According to the data, the number is equivalent to 7.4% of homes in White communities and 9.4% of homes in Latino neighborhoods. According to Freddie Mac executives, the discrepancies indicate that there is an appraisal discrepancy among homeowners of color that exists across the country.
The data from Freddie Mac was derived from assessments of single-family houses in the top 30 U.S. metro areas.
Other studies have revealed that Black and Latino homeowners struggle more to obtain mortgages, and that when they do, the interest rates on such loans are occasionally higher than for Whites in comparable economic situations. Real estate brokers have occasionally been observed directing Black homeowners toward less desirable areas.