DOJ says Fair Housing Act covers appraisal discrimination

Courts DOJ Fair Housing Act Fair Lending Appraisal Mortgages

On February 14, the DOJ filed a statement of interest in a lawsuit alleging defendants violated the Fair Housing Act (FHA or the Act) by discriminating on the basis of race in connection to a residential home appraisal. The plaintiffs, a Black couple, sought to refinance their home mortgage, and received an appraisal from the defendants valued at $995,000. However, a few weeks later a second appraiser valued their home at $1,482,500. The plaintiffs alleged that their race factored into the defendants’ low valuation, which violated federal and state law, including the FHA. The defendants moved to dismiss for failure to state a claim, arguing that the FHA does not apply to residential appraisers, and that the plaintiffs failed to allege facts that make out a prima facie case at this stage of litigation.

In its statement of interest, the DOJ noted that both the agency and HUD share enforcement authority under the FHA, including addressing appraisal discrimination. The DOJ also highlighted Executive Order 13985, which directed federal agencies “to address ‘[o]ngoing legacies of residential segregation and discrimination’–including ‘a persistent undervaluation of properties owned by families of color,’” (issued in 2021 and covered by InfoBytes here), and stated that President Biden also established an interagency task force to, among other things, “‘root out discrimination in the appraisal and homebuying process.’” To illustrate that the FHA applies to residential appraisals and appraisers, the DOJ pointed to the FHA’s text and to caselaw to demonstrate that the statute applies to residential mortgages. “[B]y its plain terms, the Act directly prohibits discrimination by ‘any person or other entity’ engaged in the “apprais[al] of residential real property,” the DOJ stated, adding that the appraisal exemption under Section 3605(c) clarifies that while appraisers may consider relevant and nondiscriminatory factors, they may not discriminate on the basis of protected classes. The DOJ also disagreed with the defendants’ position that under Section 3603 the FHA is not applicable to the subject property, stating that the section referenced by the defendants was only effective until 1968 and that henceforth, “all dwellings are covered by the FHA unless specifically exempted.” Additionally, the DOJ cited caselaw, which “found that proper defendants for appraisal-related discrimination may include not only appraisers, but their employers and the lenders who relied on their valuations.” With respect to the defendants’ prima facie argument, the DOJ contended, among other things, that the FHA “simply requires that Plaintiffs allege a plausible entitlement to relief as a result of Defendants’ ‘discriminatory housing practices.’”