Summary
Complaint alleges that property owner lost his opportunity to refinance his property at low interest rates after receiving a lowball appraisal riddled with errors, devaluing property by more than $200,000
Today, leading civil rights firm Katz Banks Kumin announced a complaint with the U.S. Department of Housing and Urban Development (HUD) on behalf of the National Community Reinvestment Coalition (NCRC) and Terry Horton, a Black property-owner in Cincinnati, challenging discriminatory treatment that Mr. Horton suffered while trying to refinance his property in February 2022. The complaint was filed on February 23, 2022 and the Firm has also filed a related complaint on Mr. Horton’s behalf with the Consumer Financial Protection Bureau (CFPB).
Over the last decade, Mr. Horton has provided affordable housing units to Black tenants who qualify for Section 8 housing assistance. The complaint alleges that appraisal discrimination and bias by Martin Appraisal Company, Appraisal Nation and Stratton Equities last year prevented Mr. Horton from refinancing the mortgage on his property, which would have allowed him to invest in additional affordable housing projects for lower-income members of the Cincinnati community.
“No one should have to worry about whether they’re able to get a loan, or a fair appraisal of their property, because of their race,” said Terry Horton. “Discrimination denied me the ability to refinance in the way that other homeowners were able to at that time, and more importantly, it robbed me of the opportunity to invest in new projects that would have brought more safe and affordable housing to my community. I hope that by coming forward with my case, HUD will take actions to prevent this from happening to anyone else in the future, and to ensure that the appraisal process is consistent and fair to everybody, regardless of race.”
“For generations, Black Americans have been denied the ability to build and pass down intergenerational wealth because of the myriad ways in which they have suffered discrimination in the housing and lending markets. Mr. Horton’s inability to refinance his property at the lower interest rates that many were taking advantage of last year is yet another example of what this kind of discrimination looks like,” said Sharon McGowan, Partner at Katz Banks Kumin. “We are proud to represent Mr. Horton, who has contributed so much to his community by providing safe and affordable housing, and NCRC, an organization that is committed to fighting discrimination in housing and finance. We hope that our complaint will result in prompt and bold corrective action by HUD, not only for the benefit of Mr. Horton and NCRC, but also for the many other individuals who have suffered similar acts of discrimination.”
“A case like Mr. Horton’s – where the conduct of an appraiser and a lender can impede a community’s access to affordable housing – only underscores the need for a sweeping and thorough nationwide review of the appraisal industry’s practices,” said Jake Lilien, Counsel for Fair Housing Enforcement at NCRC. “Recent years have seen a mounting pile of anecdotal evidence and news reports involving individual homeowners whose ability to build family wealth was curtailed by improper and biased appraiser conduct. Our own investigation of such harms in Baltimore adds to this worrying public record, while also illustrating the need for broader research that can produce more robust statistical findings across multiple markets. Such extensive study would allow us to even more clearly understand the precise nature and extent of appraisal bias – and thus allow policymakers to identify effective, large-scale policy changes that are appropriate and targeted to address the nature of the problem.”
In February 2022, the average 30-year fixed-rate mortgage in the United States was 3.55% and like millions of other Americans looking to take advantage of these historically low interest rates, Mr. Horton sought to refinance his multi-family North Avondale property and contracted with lender Stratton Equities. These funds he hoped to obtain as a result of the refinance would have enabled Mr. Horton to pursue an opportunity with the Port of Greater Cincinnati Development Authority to revitalize and transform a vacant property into more affordable housing units for his community.
However, the appraiser hired by the lender, Martin Appraisal Company, issued a report with glaring objective and methodological errors, and as a result valued the property at only $359,000. When Mr. Horton reported these errors – including incorrect square footage and rental income – to his lender, Stratton Equities, Mr. Horton was told that the appraiser was unlikely to change its assessment, and Mr. Horton risked losing the ability to refinance at low rates if he delayed. Two later appraisals valued the property between $450,000 and $560,000.
Throughout the entire process, neither the lender, the appraiser nor the appraisal management company addressed any of the concerns that Mr. Horton flagged about the lowball appraisal, including his complaint that the low value seemed to be the product of decisions that reflected bias. After enduring frustrating months of delay and laying out extra money to secure additional appraisals, in the end, the 2% spike in interest rates between February and May 2022 rendered the refinance too expensive for him to move forward. After this experience, Mr. Horton reached out to the National Community Reinvestment Coalition, a national organization dedicated to promoting equal opportunity in housing and finance, and NCRC has been assisting Mr. Horton in addressing the discrimination that he suffered. NCRC has also raised awareness about this issue more broadly, including through its issuance of a groundbreaking report in October 2022, which used testers to expose racial bias in housing appraisals in Baltimore.
Mr. Horton’s story has emerged during a period of heightened national attention to the pervasive problem of race discrimination in housing appraisals, and increased activity by federal agencies, including HUD and CFPB, on this issue. Katz Banks Kumin is confident that HUD and CFPB will investigate these complaints thoroughly and promptly, and the firm looks forward to participating in that process with a goal of securing justice for our clients.
