When a black person owns a home, it is worth $472,000. $750,000 if the owner is white.
Nathan Connolly and his wife, Shani Mott, say that their home was undervalued because of the race of the people who lived there. The lawsuit was filed in the state of Maryland.
Nathan Connolly and his wife, Shani Mott, had an appraiser come to their Baltimore home last summer. They wanted to refinance their mortgage and take advantage of the historically low interest rates.
They thought their house was worth much more than the $450,000 they paid for it in 2017. They had added a new tankless water heater that cost $5,000 and made other improvements that cost $35,000. Since the pandemic, home prices have gone up all over the country. According to Zillow.com, they have gone up 42% in Baltimore in the past five years.
But a Maryland company called 20/20 Valuations said the home was worth $472,000, so loanDepot, a mortgage lender, wouldn't give the couple a refinance loan.
Dr. Connolly said he knew why: He, his wife, and their three kids, who are 15, 12, and 9 years old, are all Black. Dr. Connolly is a history professor at Johns Hopkins University. He knows a lot about redlining and the legacy of white supremacy in American cities, and much of his research is about how race affects the housing market.
A few months after the first appraisal, the couple tried to get another refinance loan. They took down pictures of their family and had another white male Johns Hopkins professor stand in for them. The house was worth $750,000 to the second appraiser.
This week, Dr. Connolly and Dr. Mott sued loanDepot in Foothill Ranch, California, as well as 20/20 Valuations and its owner, Shane Lanham. The first appraisal was done by Mr. Lanham, who is an appraiser.
"We knew discrimination in appraisals was going on," Dr. Connolly, 44, said. "But to be told in so many words that our presence and the life we've built in our home lowers the property value? It really hits you in the gut."
Over the past two years, there has been a lot of criticism of the home appraisal industry, which uses subjective opinions to figure out how much a house is worth.
The Bureau of Labor Statistics says that more than 97 percent of home appraisers are white. Since the murder of George Floyd in the summer of 2020, when conversations about race and discrimination in America came to the forefront, dozens of Black homeowners have said that their home valuations were unfairly low because of their race. Some people have filed lawsuits, and in March, the Biden administration announced plans to change the appraisal industry and get rid of systemic bias.
Drs. Connolly and Mott live in the North Baltimore neighborhood of Homeland, which is on the National Register of Historic Places because of its good public schools and colonial architecture. White people make up most of their neighbors. Their complaint, which was filed in Maryland District Court on Monday, says that in May 2021, they asked loanDepot to refinance their mortgage. According to the complaint, the lender gave the couple a loan at a rate of 2.25 percent and told them that their home was probably now worth $550,000 or more.
20/20 Valuations was hired as a subcontractor by loanDepot to do the appraisal.
The inspection was done by Mr. Lanham himself on June 14, 2021. According to the complaint, Dr. Connolly, Dr. Mott, and their three children were home during the visit. Their house was also full of family photos, children's drawings of people with dark skin, a poster for the movie "Black Panther," and books by Black authors (Dr. Mott lectures on literature and Africana studies).
"Anyone who went to the house could have seen that it was owned by a Black family," the complaint says. The appraisal came back at just $22,000 more than what they had paid, so loanDepot turned down the couple's application.
The couple didn't agree with how Mr. Lanham came to his conclusion. Home appraisers often use the sales comparison method, in which they compare the value of a property to the prices of similar homes that have sold nearby.
In Mr. Lanham's appraisal, he looked at three similar homes with values between $435,000 and $545,000. A fourth similar home that sold for $650,000 was not used in the end.
The complaint says that the first home used would be called a "fixer-upper," but Drs. Connolly and Mott's home is not a "fixer-upper."
The second one is outside of the Homeland neighborhood, in the middle of a census block full of mostly Black homes.
In the third case, he took $50,000 off the comparison price because Dr. Connolly and Dr. Mott's house faces a busy street. The complaint says that this is too much and doesn't follow proper appraisal practices. Another $20,000 was taken off because of how well it was built.
The complaint says that all of the comparable homes chosen were of lower quality than Drs. Connolly and Mott's home, and that the appraisal was wrong when it said that their home hadn't been updated in 15 years.
According to the complaint, Mr. Lanham "cherry-picked low-value homes as comps" and, by doing so, "ignored legitimately comparable homes with much higher sales prices."
When Mr. Lanham was called on Tuesday, he wouldn't say anything.
Dr. Connolly and Dr. Mott wrote a letter to Christian Jorgensen, a lending officer at loanDepot who had been their main point of contact up to that point, questioning the appraisal. The loan officer stopped answering their calls after that, the complaint said.
When Mr. Jorgensen was asked to say something, he didn't.
After a few months, the couple asked Swift Home Loans, which worked with Rocket Mortgage, for a new loan. This time, they did a "whitewashing experiment" in which they took away signs that their home belonged to a Black family and put in signs that a white family could live there instead. They got rid of all the books by Black authors on their shelves. They asked white friends for family photos, which they put in frames around the house. They also bought art at Ikea that showed white people and put it on the walls.
An American flag given to Dr. Mott after the death of her Vietnam War veteran father 10 years ago was taken out of storage, put in a frame, and put on the mantle.
Dr. Connolly said, "We had to talk to our kids about why we were taking down all of their drawings." "It's embarrassing to get rid of your own home."
On the day of the second review, they left their home and had a white colleague answer the door. The estimate of $750,000 came from the second appraiser.
The homes chosen by the second appraiser were much more valuable than the ones chosen by Mr. Lanham. They sold for between $749,000 and $785,000. Lanham took away $50,000, or 10 percent, from the comparable homes that were not on a busy road, but the second appraiser only took away $15,000. The complaint says that the 2% change is in line with standards in the industry.
Race has always been a part of U.S. housing policy, and Black Americans are turned down for mortgages at a higher rate than other groups. Redlining was a racist housing policy that was used during the Great Depression. Its effects still lower home values in Black neighborhoods and cut off resources for communities of color.
But Dr. Mott and Dr. Connolly don't live in a Black neighborhood. Tenisha Tate-Austin and Paul Austin, a Black couple in California's Bay Area, have sued an appraiser for underestimating the value of their home by $500,000. The difference between the two appraisals is similar to what happened in their case. Mr. Austin said that this case will go to mediation in September, which is a chance to solve the problem before it goes to court.
Mr. Austin said, "We want to make sure people are held accountable."
In February, the Department of Justice did something unusual by putting out a statement of interest in the Austin case. This showed that appraisers, who are required by the Fair Housing Act of 1968 not to discriminate, can be sued if they do.
Mr. Austin said that it was a big step for President Biden and Vice President Kamala Harris to say that they want the appraisal industry to be changed. "But I think it will take a lot more lawsuits before appraisers stop undervaluing Black and brown properties," he said. "It's a part of history that shows how people value the lives of black and brown people."
The move by the Justice Department in the Austin case came a few months after Mr. Biden announced the creation of the Interagency Task Force on Property Appraisal and Valuation Equity. This group's goal is to figure out what causes appraisal bias and carry out a plan to get rid of it in the industry. Susan E. Rice, the White House's adviser on domestic policy, and Marcia L. Fudge, the secretary of Housing and Urban Development, are in charge of the task force. Senior HUD officials say that after a year, they are working to improve how the Appraisal Foundation, which sets standards for appraisers, is run.
Of course, it is not unusual for appraisals to be way off. For example, a study done in 2012 found a big difference between what was said to be the value of homes and what they actually sold for.
But discrimination in appraisals is still a problem for people who work in the industry. James Park, who is in charge of the Appraisal Subcommittee, an independent federal agency that keeps an eye on the Appraisal Foundation, said that he is very upset by the fact that accusations of unfair appraisals keep coming up.
Mr. Park said, "It's a worry, and it should be a worry for everyone in the appraisal business, as well as mortgage lenders."
John Relman, the managing partner of the law firm Relman Colfax, which represents Drs. Connolly and Mott, said, "Appraisal discrimination is sneaky because it is so complicated. But this case is different because it isn't a typical redlining case. You can't do more than what these two people have done. They did everything the market told them to do, and they put their money into a neighborhood where everyone else's property values were going up. Even so, they were still treated badly."