Rocket Mortgage, the largest lender in the U.S., filed suit against the U.S. Department of Housing and Urban Development (HUD) last week in U.S. District Court in Colorado, claiming its company’s brand was damaged by a lawsuit that should never have applied to them.

A day after filing the civil complaint, Rocket Mortgage then filed a motion to dismiss the HUD claims against it.

The new lawsuit stems from the HUD placing part of the blame on Rocket Mortgage after a Black woman in Colorado, who was refinancing her home, implicated a house appraiser, who is white, for undervaluing her property.

In court documents, Rocket Mortgage accuses HUD of leaving the lending company powerless to exercise its authority over appraisal values. Legal documents share Rocket Mortgage’s claims that it should never have been included in the lawsuit, filed by homeowner Francesca Cheroutes, who filed her own complaint about local Colorado home appraiser Maksym Mykhailyna. Ms. Cheroutes initially filed her complaint with the Colorado Civil Rights Division in 2021.

In an interview with The New York Times, the plaintiff Ms. Cheroutes said she suspected racial bias as soon as she and her daughter met the appraiser at her home for the appraisal required for her refinancing, in January 2021. She. Said that on her front lawn, a sign for “Black Lives Matter” was prominently displayed. She also said that this appraisal followed a prior appraisal, done over the past year, plus numerous upgrades to her condo, including new gutters plus kitchen and bathroom improvements.

However, despite the prior appraisal valuation of $860,000, Mr. Mykhailyna valued the home at only $640,000. Ms. Cheroutes said in her New York Times interview that she called Rocket Mortgage over the appraisal alleging numerous errors but was told that the company was not able to investigate the appraisal. Furthermore, she said, the company told her that if she would not accept the new valuation of $640,000, she could cancel her application for a refinancing loan.

Rocket Mortgage, as noted in legal documents, also shared information with Ms. Cheroutes about how to challenge the appraisal through a legal “value reconsideration” process.

After HUD investigated the complaint, the Department of Justice (DOJ) filed a discrimination suit against Rocket Mortgage, Solidifi U.S. Inc., (the appraisal management company Rocket Mortgage hired), Chief Executive and appraiser of Maverick Appraisal Group Maksym Mykhailyna, and Maverick Appraisal Group.

However, as Rocket Mortgage argues in its lawsuit against HUD, since the company had its hands tied due to government regulations that obstructed its power over appraisal values, it should never have been part of the government’s discrimination suit.

In court documents, Rocket Mortgage says that "lenders must leave the valuation of a property securing a mortgage loan to the independent judgment of a licensed, third-party appraiser,” adding that the government nevertheless appears to “require lenders like Rocket Mortgage to interfere in appraisal independence. This puts Rocket Mortgage between the proverbial ‘rock and a hard place.’”

Prior to the lawsuit, Rocket Mortgage had approved and supplied three home loans for Ms. Cheroutes that had no appraisal problems or other issues.

The suit alleges that “the United States Department of Housing and Urban Development (“HUD”) has now announced and enforced a new interpretation of the FHA that purports to require lenders like Rocket Mortgage to interfere in appraisal independence. Under this new and conflicting approach, the government’s theory is that Rocket Mortgage has the purported “authority to correct” an allegedly discriminatory appraisal, must exercise that authority when discrimination is alleged, and is therefore liable for violations of the FHA when it fails to do so.”

In the lawsuit, Rocket Mortgage asks the court to:

• “a) Declare that the FHA does not require Rocket Mortgage to influence the independent judgment of an appraiser to “correct” or “remediate” an appraisal of residential real property perceived to be based on a consideration prohibited by the FHA, as the exercise of such influence is prohibited by TILA’s appraiser independence requirements, 15 U.S.C. § 1639e;
• b) Declare that, due to the appraisal independence requirements of 15 U.S.C. § 1639e, Rocket Mortgage does not have “control [over] or any other legal responsibility” for an independent appraiser under 24 C.F.R. § 100.7;
• c) Declare that Rocket Mortgage is not liable under the Fair Housing Act, 42 U.S.C. § 3605, for relying on an appraisal provided by an independent, third-party appraiser;
• d) Issue an order vacating HUD’s policy of holding mortgage lenders responsible for failing to correct or remediate perceived or alleged appraiser bias or discrimination in an appraisal.
• e) Issue an order awarding Rocket Mortgage its costs in this action, including attorneys’ fees.”

With its reputation on the line, Rocket Mortgage further asked the court to correct the lawsuit plus the “tightrope” regulations imposed upon the company.

“To say that the government is overreaching with its FHA claim against Rocket Mortgage in the Third-Party Appraiser Action is an understatement,” the lawsuit states. “The government’s assertion—i.e., that adhering to the legal obligation to respect appraiser independence violates the FHA—forces Rocket Mortgage onto a tightrope that is impossible to walk. It cannot simultaneously effectuate appraiser independence while exercising supervisory and corrective oversight over the same appraiser’s valuations.”