Fair Housing Act and Discrimination Claims Against Rocket Mortgage

I like a good § 1981 case. You don’t get that many of them.

Francesa Cheroutes, who is Black, owns a duplex in Denver, Colorado. In May, 2020, she got a mortgage loan from Rocket Mortgage, LLC (Rocket), which appraised the home as being worth $860,000. In January 2021, she sought to refinance the home, also through Rocket, and the original appraisal still came in at $860,000.

Rocket contracted with Defendant Solidifi U.S. Inc. (Solidifi) to supply an appraisal of the property, and Solidifi then hired Defendant Maverick Appraisal Group Inc. and Defendant Maksym Mykhailyna, Maverick’s owner, to complete the appraisal. Notwithstanding improvements to the property and rising property values in the neighborhood, Mr. Mykhailyna appraised the home as worth only $640,000. Ms. Cheroutes alleged that he seemed surprised to learn that she was the homeowner and that he ignored her explanations of the improvements she had made to the property. He made numerous errors in the appraisal, some of which suggested racial bias. For example, he identified the wrong school as serving the neighborhood, naming a predominantly Black school rather than the nearest one. He compared Ms. Cheroutes’s duplex to duplexes in a predominantly Black neighborhood, ignoring comparable properties in her neighborhood.

Solidifi, as an appraisal management company, exercised considerable control over Mr. Mykhailyna. It trained him and specified the standards that he was to apply. Mr. Mykhailyna deviated from those standards in tendentious ways. Notwithstanding these problems, Solidifi adopted the appraisal as its own and forwarded it to Rocket, which then offered Ms. Cheroutes a loan for only $640,000 on less favorable terms than she was expecting. She complained of discriminatory treatment to five of Rocket’s representatives, to no avail. Rocket provided assurances that it would investigate, but it did not do so. Rocket could have sought an additional appraisal. It did not do so. It relied on Solidifi’s appraisal. When Ms. Cheroutes persisted with her complaints, Rocket cancelled the loan, citing the low appraisal.

The United States brought an action under the Fair Housing Act. Ms. Cheroutes intervened, bringing the same claim, as well as one for discrimination in contracting under 42 U.S.C. § 1981. Rocket and Solidifi moved to dismiss all claims.

Over a year ago, the U.S. District Court for the District of Colorado denied the defendants’ motion for dismissal of all claims in United States v. Rocket Mortgage, LLC. Defendants claimed that they are prohibited by law from correcting an appraisal, but the regulation clearly permits obtaining multiple appraisals on the same dwelling. The Court was no more sympathetic to Solidifi’s argument that Mr. Myknailyna was not its agent because he was an independent contractor. Independent contractors can be agents. Ms. Cheroutes adequately alleged that Mr. Myknailyna acted on Solidifi’s behalf and subject to its control.

My search of the docket indicates that the parties are proceeding with discovery and no further opinions have been released the in the case. Based on this opinion, it is hard to see why the defendants are not eager to settle and move on, but there seems to be more to the story.

Rocket has countersued the U.S. Department of Housing and Urban Development (HUD). It claims that it is caught between two conflicting directives from HUD. On the one hand, Rocket claims that HUD’s regulations bar mortgage lenders like Rocket from taking action that could interfere with appraisers’ independent judgment. On the other hand, HUD is now insisting on Rocket’s authority to correct appraisals, thus interfering with the appraisers’ independent judgment.

Rocket claims to be placed between a rock and a hard place, but I’m not sure that is really so. Rocket could both respect appraisers’ independence but also ask appraisers to correct obvious mistakes, such as the ones that allegedly occurred in this case. Also, HUD and Rocket can both recognize an exception to the deference owed to appraisers’ independence in cases of alleged bias or discrimination. In such cases, like this one, it makes sense that HUD would expect Rocket to investigate.