CO Federal Court Denies Motions to Dismiss Appraisal Discrimination Case

The U.S. District Court for the District of Colorado recently denied a national mortgage lender’s and appraisal management company’s (AMC’s) motions to dismiss complaints filed by a Black homeowner and the DOJ, alleging that the appraisal the companies ordered undervalued the homeowner’s Denver duplex on the basis of race in violation of civil rights laws.

In connection with the homeowner’s application for a refinance loan in 2021, the lender provided a loan estimate based on a property value of $860,000.  This valuation was the same as that for which the property had been appraised in 2020 in connection with the existing mortgage.  Subsequently, the lender requested an appraisal from the AMC, which contracted with an independent appraisal company and its owner (both of whom were also named as defendants) to perform the appraisal.  The lender provided a new loan estimate based on the new appraisal’s valuation of $640,000, but the homeowner ultimately did not take out the loan.

According to the homeowner’s complaint, this roughly 25% decrease in value in less than a year was inconsistent with the improvements that she had made and rising home prices in the area.  During the appraisal, the appraiser allegedly appeared surprised that the plaintiff was the homeowner and allegedly ignored her description of the improvements that she had made since the previous appraisal.  The homeowner also alleges that the appraisal contained several errors, such as listing the wrong elementary school servicing the area (one with a higher percentage of Black students) and ignoring more expensive comparable sales (in neighborhoods with higher percentages of white residents) close to the property.

In denying the lender’s motion to dismiss, the court rejected the lender’s argument that it was legally prohibited from correcting the appraisal.  Additionally, the court contended that the lender’s briefing never addressed the plaintiff’s second theory of liability that the lender could have requested a separate appraisal.

The court also rejected the AMC’s argument that it was not vicariously liable for the appraiser’s actions.  In the court’s view, the factual allegations in the complaint plausibly alleged that the appraiser acted on the AMC’s behalf in appraising the home and that the AMC exercised “control over the methods and manner it carried out the task.”  Thus, the court also denied the AMC’s motion to dismiss.  The case remains pending.