The United States Department of Justice dealt a blow Monday to a California real estate appraiser’s attempt to have a fair housing lawsuit brought by an African American couple thrown out.
The federal agency, which shares authority for enforcement of the Fair Housing Act with the Department of Housing and Urban Development (HUD), filed a statement of interest in the case on Feb. 14.
“Combatting housing discrimination, including bias in appraisals, is a high priority across the federal government,” the DOJ’s attorneys wrote in the filing, noting that the Biden administration had established The Interagency Task Force on Property Appraisal and Valuation Equity in 2021, which includes the DOJ.
“Last year, the President ordered agencies to take ‘a comprehensive approach to advancing equity for all, including people of color and others who have been historically underserved, marginalized, and adversely affected by persistent poverty and inequality.’ He directed the federal government to address ‘[o]ngoing legacies of residential segregation and discrimination’ – including ‘a persistent undervaluation of properties owned by families of color.'”
In December 2021, Marin County homeowners Tenisha Tate-Austin and Paul Austin filed a fair housing lawsuit against active, licensed appraiser Janette Miller, her firm Miller & Perotti Real Estate Appraisals Inc. and appraisal management company AMC Links LLC, alleging fair housing and civil rights violations after another appraiser valued the Austins’ home for nearly half a million dollars more after the couple removed any indication of their race and had a white friend pose as the owner of the house.
The Austins alleged that they were ultimately able to refinance their home, located in the historically Black neighborhood of Marin City, based on the second appraisal obtained in March 2020, but “were not able to refinance on the favorable terms that had been available one month before” when Miller conducted her appraisal.
In a motion to dismiss the suit, Miller’s attorneys argued that the Fair Housing Act didn’t apply to the Austins’ property and that the suit should be tossed because the Austins “have not alleged that Miller made unavailable or denied housing opportunities based on race.”
“Plaintiffs claim that Miller performed an appraisal on a home that the Austins already owned,” Miller’s attorneys wrote. “Furthermore, the Austins admit that they were able to complete the refinance transaction. Therefore, Plaintiffs failed to allege that Miller made unavailable or denied Plaintiffs any housing opportunities.”
The FHA should not apply to a claim by a borrower against an appraiser in a refinance transaction, they wrote. Moreover, they argued that the Austins had “failed to allege sufficient facts to show that Miller had any discriminatory intent when she drafted her appraisal” and “failed to allege any specific facts to show that Miller engaged in intentional discrimination.”
But the DOJ pushed back against the appraiser’s arguments that the FHA does not apply to residential appraisers and that the plaintiffs had failed to allege a case with sufficient evidence to prove the appraiser had injured them.
“The statutory text and case law make clear that the Fair Housing Act – including those claims raised in the Plaintiffs’ complaint – applies to appraisers and appraisals,” the DOJ’s attorneys wrote.
“T]he Act directly prohibits discrimination by ‘any person or other entity’ engaged in the ‘apprais[al] of residential real property.'”
They added that “all dwellings are covered by the FHA unless specifically exempted” and that the FHA’s focus is on prohibited acts, not actors.
“This means that a person – irrespective of position or occupation – may be liable for his or her own acts that violate the FHA,” the agency’s attorneys wrote. “Courts have accordingly interpreted the Act to apply to a range of persons and entities, including appraisers.”
“[C]ourts have found that proper defendants for appraisal-related discrimination may include not only appraisers, but their employers and the lenders who relied on their valuations,” they added.
Regarding whether the plaintiffs had alleged sufficient evidence to prove their case, the DOJ said that was too high a standard at this point in the case and that the Austins only needed to “plausibly allege” that Miller and her firm discriminated in conducting the appraisal because of the Austins’ race.
In addition, the regulator said the Austins did not need to include direct evidence of discrimination in their complaint because “well-established FHA precedent” allows plaintiffs to allege and prove discrimination with circumstantial evidence.
The DOJ did not take a position on any of the other arguments by either side in the case.
In their motion to dismiss, Miller and her firm further argued that the Austins had not shown that they were harmed by Miller’s appraisal. They noted that the average interest rate for 30-year fixed-rate mortgage actually fell from 3.47 percent in February 2020 to 3.45 percent in March 2020 and therefore it was “unclear” why the Austins weren’t able to get the same or better refinancing terms based on the March 2020 appraisal.
The Austins were able to refinance their property and their lender relied on the second appraisal, not Miller’s appraisal, in making the decision to make the loan to refinance the property, the motion to dismiss pointed out, noting that no one had relied on Miller’s appraisal “in making any decisions” having to do with the Austins’ refinance.
But in a response opposing the motion to dismiss, the Austins said they relied on Miller’s appraisal in connection with their refinance application. Moreover, Miller allegedly signed a certification saying she understood that the borrower may rely on her report.
Miller’s appraisal not only caused the Austins economic damages, but also “emotional distress with attendant physical injuries, and violation of their civil rights,” the Austins’ attorneys wrote.
“The Austins also allege that they were injured by the reduction in property values – including their own and in Marin City generally – caused by defendants’ discriminatory housing practices.”
Miller’s reference to mortgage interest rates, which the Austins did not reference in their complaint, “is both irrelevant and improper” because the Austins aren’t alleging that they were injured just because of the interest rate they were offered due to Miller’s low appraisal, according to the filing
“Mortgage loan terms consist of more than just interest rates,” the filing said, adding that exactly how interest rates affect the Austins’ damages would come out in the case’s discovery phase.
The filing alleged Miller’s discriminatory appraisal hurt the Austins’ property interests by undervaluing their property on the basis of race, which hurts their “right to refinance their house on favorable terms, or sell their house for fair market value” and depresses property values in the Austins’ neighborhood, which hurts the Austins.
The Austins are not just alleging intentional discrimination but also disparate impact on African American homeowners or homebuyers based on their race.
“The complaint alleges that Miller engaged in at least four practices that have a disparate impact on African Americans: (1) focusing too narrowly on Marin City, a historically undervalued neighborhood, when selecting comps; (2) making improper adjustments to value and price per square foot from sales in nearby areas that are predominantly white; (3) considering Marin City to have a ‘distinct marketability’ despite the lack of data to support any such distinction; and (4) calculating a ‘predominate value’ for property in Marin City despite the paucity of sales data to support any such value,” the Austins’ attorneys wrote.
Regarding the discrimination claims, Miller’s attorneys said the Austins had “failed to allege sufficient facts to show that Miller engaged in racial discrimination” or that she “was motivated to discriminate against the Austins based upon their race or that Miller had discriminatory intent when she drafted the appraisal.”
Using a small number of years and a small sample size for comparable sales “fail to show an intent to discriminate” and stating that an area has a “distinct marketability” does not show that Miller discriminated against the Austins based on their race, Miller’s attorneys argued.
“It is self-evident that every geographical area would have some sort of distinct marketability,” they wrote. “If Plaintiffs’ argument is accepted, any appraiser who used the term ‘distinct marketability’ to describe a home in Marin City would be liable for racial discrimination.”
To the Austins’ allegation that Miller considered race when choosing comps, Miller’s attorneys said, “[T]here is nothing inherently racist about choosing comparable properties that are located in the same city as the Subject Property. Without any direct (or indirect) evidence of actual racial discrimination, Miller’s choice of comparable properties cannot support Plaintiffs’ claim of discrimination.”
The Austins alleged that Miller adjusted downward by 28 percent the price per square foot of homes in Marin City in comparison to comps in surrounding areas. Miller’s attorneys responded, “[R]outine adjustments to the values of comparable properties used in an appraisal does not support Plaintiffs’ argument that Miller engaged in intentional racial discrimination or evidence an intent to discriminate.”
But the Austins said that they did indeed allege facts that support that race played a role in Miller’s appraisal.
“For example, Miller’s deviation from USPAP [Uniform Standards of Professional Appraisal Practice] standards in making adjustments to value and hyper-focusing on comps with demographic similarities rather than other similarities may give rise to an inference of discrimination,” the Austins’ attorneys wrote.
“Likewise, using seemingly neutral language that may camouflage racial bias, such as Miller’s comment that Marin City has a ‘distinct marketability,’ is considered unacceptable within the industry because it may demonstrate intent to discriminate.”
Miller’s actions discourage the purchase of real estate in Marin City “because of actual or perceived racial demographics,” they added.
“Likewise, her comments and illogical adjustments to value may discourage buyers by exaggerating drawbacks of Marin City. Similarly, while no plaintiff here was a purchaser of a dwelling, each is injured by violation of [the FHA] because, among other reasons, these practices ‘tend to perpetuate, segregated housing patterns, or to discourage or obstruct choices in a community [or] neighborhood.'”
The Austins’ filing made clear that they do not have to prove that Miller “harbored animus toward African Americans.”
“A plaintiff alleging a violation of the FHA needs to prove only that the defendant treated her differently because of a protected characteristic,” the Austins’ attorneys wrote. “Proof of animus or malice is not required.”
Miller did not respond to a request for comment.