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Saying it’s committed to fair lending and “best-in-class appraisal policies and practices,” loanDepot has agreed to settle a high-profile appraisal bias lawsuit filed by a Baltimore couple who claimed their home was undervalued by more than $250,000 because they were Black.
The 2022 lawsuit attracted national attention over the couple’s claims that “whitewashing” their home — a process that included removing family photographs and artwork and replacing them with photos borrowed from white friends — raised its estimated value from $472,000 to $750,000 when they had it reappraised.
The Department of Justice and Consumer Financial Protection Bureau weighed in on the case, as did the Mortgage Bankers Association.
While the amount of the settlement remains confidential, it requires loanDepot to perform internal reviews of appraisals to detect signs of discrimination, and outlines more than a dozen policies that the lender has agreed to follow when borrowers request a reconsideration of value, or “ROV.”
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John Relman, the lead attorney representing the couple, Nathan Connolly and Shani Mott, told The New York Times that he hopes other mortgage lenders will take note of the settlement and use it as a blueprint for their own policies.
“Nobody had done this before with respect to the reconsideration of value,” Relman told the Times. “Nathan and Shani very much wanted to get best practices in place that others could follow. And loanDepot, to their credit, was willing to not just talk the talk but walk the walk.”
In a statement provided to Inman, a spokesperson for loanDepot said the company continues to deny the allegations in the lawsuit and has “made no admission of fault.”
But loanDepot is “proud of the commitments” outlined in the settlement, “which will formalize many of our existing practices and provide additional resources to help our customers in the appraisal and review process.”
The settlement does not resolve the couple’s claims against the original appraiser, Shane Lanham and his company, 20/20 Valuations LLC — or a defamation counterclaim filed by attorneys for Lanham against the homeowners.
Lanham’s appraisal “was performed in a professional manner by an experienced appraiser based on market conditions that existed at the time,” and “had nothing to do with discrimination” his attorneys argued in his defense.
The second appraisal the couple obtained when they sought to refinance their home with another lender was undertaken 7 months later, Lanham’s attorneys pointed out, and “relied on home sales that had not even occurred at the time of Mr. Lanham and 20/20 Valuations’ appraisal.”
Stories in The New York Times and ABC News defamed Lanham and exposed him to “public scorn, hatred, contempt, or ridicule,” harming his business and causing “severe emotional distress, mental anguish, and personal humiliation,” his attorneys alleged in demanding a jury trial.
On a GoFundMe page created to help Lanham cover his legal expenses, the appraiser said he does not intend to settle the case.
“I want everyone to know that this does not affect my position as I still intend to take my cases, both defense of the accusations against me and prosecution of the defamation suit, to trial,” Lanham wrote in an update Monday.
Lanham told Inman via email that he had no further comment.
In an Amicus Curiae or “friend of the court” brief in support of loanDepot, the Mortgage Bankers Association argued that appraiser independence requirements and other legal responsibilities are intended to prevent lenders from influencing or participating in the appraisal process.
That argument, which was also made by loanDepot, was disputed by the Consumer Financial Protection Bureau and the U.S. Department of Justice — the agencies tasked with interpreting and enforcing fair housing and lending laws such as the Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA)
“LoanDepot’s position — which maintains that an appraiser’s independent judgment, even if racially discriminatory, is sacrosanct — would run roughshod over federal civil rights laws, including the FHA and ECOA, and regulations promulgated to effectuate them,” the agencies said in a statement of interest filed with the U.S. District Court for the District of Maryland, where the case was filed.
LoanDepot’s “novel argument regarding appraisal independence is unsupported by any case law,” attorneys for the government maintained.
‘The SHANI laws’
For Connolly and Mott, both faculty members at Johns Hopkins University, a goal of the lawsuit was to help other alleged victims of appraisal bias.
Shani Mott
But the settlement wasn’t filed until March 22 — 10 days after Mott died of cancer at the age of 47, at the home that she and Connolly eventually refinanced with another lender.
In addition to her husband of 19 years, Mott is survived by three children ages 10 to 16, according to an obituary in The Baltimore Sun.
Nathan Connolly
Connolly told the Times that he and Mott’s three children refer to the terms of the settlement as “the SHANI laws — the Secure Home and Neighborhood Initiatives.”
The settlement requires loanDepot to “communicate clearly to applicants that they have a right to request” a reconsideration of value (ROV), and escalate requests that allege appraisal discrimination to the company’s appraisal department and fair lending group.
“At minimum, loanDepot shall offer a second appraisal when a first appraisal is deemed defective, including when it is found by loanDepot to have [indications] of bias or discrimination,” the settlement stipulates.
For applicants who have already locked their mortgage rate, loanDepot has agreed to keep it locked during the ROV process and will not charge for the ROV or a second appraisal as part of the appeal process.
The settlement also stipulates that relevant loanDepot staff and any appraisers the company hires be trained in fair housing and fair lending requirements, and prohibits the lender from contracting with appraisers whose appraisals demonstrate a “pattern of undervaluing homes owned by minority applicants or homes in minority neighborhoods.”
In a landmark 2021 study, researchers at Freddie Mac said they had confirmed the existence of an “appraisal gap” for homeowners in predominantly Latino and Black neighborhoods, where appraisals are more likely to come in below the contract price than in majority white census tracts.
The Biden administration launched an interagency initiative to combat bias in home appraisals on June 1, 2021 — the 100th anniversary of the Tulsa Race Massacre — as part of efforts to build Black wealth and narrow the racial wealth gap.
The Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) is coordinating efforts to advance equity in the appraisal process, including preventing algorithmic bias in home valuations and breaking down barriers to entry into the appraisal profession.
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