CFPB, DOJ: Lenders can be held liable for discriminatory third-party appraisals

Mortgage lenders can be held liable under federal law for relying on discriminatory appraisals from third-party appraisers, the CFPB and U.S. Department of Justice said Monday. In a statement of interest filed in U.S. District Court, the agencies weighed in on a lawsuit in which a Black couple said their Baltimore home was appraised at a considerably higher value after they replaced photographs of their family at the residence with photos of white people. The couple sued the appraiser who provided a lower appraisal for the home when the family’s photographs were used, and the nonbank lender that denied a loan based on that appraisal.

Attorneys for the lender have argued the company should not be held liable because it was relying on a third-party appraiser. In their court filing, the CPFB and DOJ said that lenders can be held liable under the Federal Housing Act and Equal Credit Opportunity Act for relying on discriminatory appraisals. The company “wrongly insists that it could not comply with the FHA and ECOA’s requirements because its hands were tied by other federal laws concerning appraisal independence,” the agencies said. Rather, lenders are legally obligated not to rely on appraisals that are inaccurate or violate the law. “It is well-established that a lender is liable if it relies on an appraisal that it knows or should know to be discriminatory, and (the) defendant’s arguments to the contrary are ill-founded,” the agencies said.