U.S. District Court Judge Gordon Gallagher is allowing an appraisal bias lawsuit brought against Rocket Mortgage to proceed, denying a motion to dismiss.

In October 2024, the U.S. Department of Justice (DOJ), on behalf of the U.S. Department of Housing and Urban Development (HUD), filed the case against Rocket Mortgage, appraisal management company Solidifi, lender/appraiser Maksym Mykhailyna, and his company, Maverick Appraisal Group.

Rocket subsequently filed suit against HUD claiming the agency “unfairly” held Rocket accountable.

The DOJ complaint alleged a Black owner of a duplex in Denver applied to refinance her mortgage with Rocket Mortgage in January 2021. A Rocket representative provided a loan estimate based on an estimated property value of $860,000, the same value for which it had been appraised in May 2020 in connection with her existing mortgage, which was also from Rocket.

Compared with her existing mortgage, the loan would have provided a lower interest rate and other more favorable terms, the complaint stated.

“Rocket contracted with defendant Solidifi to supply an appraisal of the property. Solidifi entered into an agreement with defendant Maverick Appraisal Group Inc. and defendant Mykhailyna, Maverick’s owner, to complete the appraisal on Solidifi’s behalf,” Gallagher stated in his denial of the motion to dismiss. “Pursuant to this agreement, Mykhailyna inspected [the] home; he seemed surprised that [the owner] was the owner and ignored her explanation of improvements she had made since the last appraisal. After the visit, [the owner] told her daughter that Mykhailyna’s conduct troubled her and that she was concerned that the appraisal would not fairly represent the value of her home.”

The next day, Mykhailyna submitted his appraisal to Solidifi, valuing the home at $640,000, $220,000 lower than the appraisal in May 2020.

 “This is approximately a 25 percent decrease in value in the span of eight months was inconsistent with improvements [the owner] had made and rapidly increasing home prices in the area,” the court document stated

“Multiple apparent irregularities and errors existed in the appraisal. Although Mykhailyna’s agreements with Solidifi required him to base his appraisal on comparable sales within a one-mile radius of the property, all but one of the sales he chose were outside this zone,” the document continued. “He based his appraisal exclusively on duplex sales in areas with significantly higher percentages of Black residents than [the owner’s] duplex, and he ignored higher-priced sales of duplexes that were closer to the property and in predominantly white areas. He erroneously identified the elementary school that served the property, listing a school with a significantly higher percentage of Black students than the school that served the neighborhood.”

The judge also pointed out that Mykhailyna made numerous other errors or deviations from the standards required by Solidifi, including under-counting the property’s gross living area; incorrectly stating that the property lacked a fence, attic, and energy-efficient appliances; and exceeding the standards for downward adjustments to sales comparisons.

According to court documents, Solidifi reviewed and adopted the appraisal and sent it to Rocket that same day. Rocket then used the appraisal to generate a new loan estimate consistent with the $640,000 valuation. After viewing the appraisal, the duplex owner contacted Rocket and told five different representatives that she believed the appraisal was discriminatory.

“The government and [duplex owner] each assert that Rocket could have taken several different actions to avoid reliance on the allegedly discriminatory appraisal. Among these, both allege that Rocket could have requested correction or requested a separate appraisal,” the judge said. “Despite not addressing plainly alleged theories of liability, Rocket seeks dismissal of the entire claims. Such relief would not be proper.”

The plaintiffs argued they have sufficiently alleged facts that support a finding that Solidifi is vicariously liable for the actions of its agent Mykhailyna, and the court agreed.

“A person is vicariously liable for a discriminatory housing practice by the person’s agent or employee, regardless of whether the person knew or should have known of the conduct that resulted in a discriminatory housing practice, consistent with agency law,” the court document reads.

Solidifi contended that Mykhailyna was not its agent because he was an independent contractor, but “an independent contractor can be an agent,” the judge said. “An agent need not be an employee.”

“The detailed factual allegations in the complaint indicate that, by mutual consent, Mykhailyna acted on Solidifi’s behalf in appraising [the] property and that Mykhailyna was subject to Solidifi’s control over the methods and manner it carried out the task,” the court stated. “Accordingly, the court finds that plaintiffs have sufficiently alleged Solidifi’s vicarious liability and denies its motions.”