What is Redlining?
At times there might be a situation where you might be discriminated against due to a denial or low appraisal even though you have facts of otherwise, you should learn what is redling? You should know what your rights are, along with knowing any transactions you do that you feel comfortable with, as you should not feel pressured into doing anything you do not want to do.
If at any point and time you feel that the lender or a party to the transaction is redlining, please let us know so that we may be aware as we support the rights of all everyone. If for any reason you have any concerns, please contact us. You may also seek legal counsel and contact HUD, state and local regulators and any other governing compliance body.
Reconsideration of Value
When looking to buy or sell a property, every homeowner deserves a fair process and service. Unfortunately, redlining is a discriminatory practice that has caused unnecessary financial hardships for thousands of people, particularly from minority backgrounds over the years. When this happens, a dispute appraisal may be necessary to ensure you gain the outcome you deserve. You may want to request a “Reconsideration of Value” or ROV, you should be very specific with the properties that you feel are good comparables to the subject property at hand.
Generally, whether you can provide comparables or not, the lender should then submit this request to the appraisal management company, thus allowing the appraiser to reconsider the subject property value. Perhaps the appraiser ‘missed’ a material fact that could impact the value. Typically, the appraiser will allow for any property that is prior to his inspection at the subject property, unless there are exceptions the appraiser is willing to consider. The lender may, or may not allow for a second appraisal, make sure to ask as you never know.
Despite several Federal attempts to combat redlining, the practice still burdens the mortgage application process to this day, almost a century after it started. Here’s what you need to know about redlining and how your family can respond to financial discrimination.
What Is It Redlining?
Resources such as the NYTimes, redlining is anything in housing that comes from racial discrimination. Redlining also comes from maps from the government that show where minorities live and reside and was thought of as a risky investment from various players in the industry. For instance, if certain areas had more minorities than others, or situations the bank did not want to lend on, banks would circle the designated site in red as the location to avoid lending to. This practice is known as redlining and is not an acceptable practice as everyone deserves the opportunity to obtain a loan without any predetermined biases.
Redlining is an illegal practice as it is a discriminatory behavior that sees lenders and others in the industry make decisions based on race or ethnicity, thus preventing the victims from being judged on personal creditworthiness.
The modern definition can cover a range of issues that put financial products out of reach for residents. Lower than expected appraisals are arguably one of the most common problems, and may prove to be a bit difficult at times to dispute, of course each situation is different.
Appraisals could impact buyers and sellers because they can prevent mortgage offers by dictating the price, in addition whereby the purchase contract may no longer be agreeable. It can also have a hugely negative impact for homeowners looking to refinance. Redlining is a touchy subject, and until the outcome of the case is known it might be viewed in a myriad of ways by all parties.
Claims such as having two separate appraisals on the subject property and the divergence was fairly large might be an example of redlining. There are so many factors that go into each case of this nature that even by accident can be cause for concern, so we caution making any assumptions until the final outcome of the case occurs, and any other continuations of the case. When redlining occurs, the good news is that there are options for how you can fight it and get your homeowner dreams back on track.
The history of redlining
The term redlining was coined in the 1960s, but the practice itself can be traced back to the 1930s when lenders would rule out any prospect of investing in a neighborhood by drawing red lines around it. It did affect homeowners from all backgrounds, but “risky neighborhoods” were almost exclusively predominantly Black or minority areas.
While the Community Reinvestment Act was introduced in 1977 in an attempt to rule out redlining, its impacts can still be felt. In the mid-1990s, properties in areas that had previously been redlined were worth just half of what comparable properties in other neighborhoods were worth. This made it very difficult for existing homeowners to get a fair price on appraisal while prospective buyers had experienced generations of essentially being exempt from buying properties.
Another item to consider is the Fair Housing Act, which was enacted in 1968, and is designed to stop discrimination based on race, skin color, sex, nationality, or religion. However, the problems caused by decades of inequality have resulted in a host of financial issues that have subsequently impacted the financial elements that lenders can analyze. In addition, it is to our understanding the Fair Housing Act also covers anyone that has a criminal record. However, to the best of our understanding that individuals could possibly be denied if the criminal record poses a threat to other residents. Any denials should be based on facts, and for further information we suggest you seek legal counsel.
Even today, lenders do not have to make decisions on the same terms and may impose higher rates, which can put a financial strain on homebuyers.
Low appraisals are an example of redlining because they essentially stop victims from buying properties because the appraisal value will not match the value on the contracts that you’ve agreed for the home purchase. As such, the entire home purchase could rely on this.
What to do?
The good news is that redlining of neighborhoods is illegal and to our understanding does not occur very often. Sadly, there are still examples of redlining harming homeowners.
A reconsideration of value for an appraisal can be made to challenge the value offered by the appraiser. When you plan to take this path, you can focus on the following steps if you desire.
Review the appraisal
You are entitled to a copy of the full appraisal, which should be made available by your mortgage broker or lender. From here you can analyze whether the property has been put up against comparative properties. You will want to review items like the square footage, location of properties, age of homes, condition, and nearby amenities. Local schools and other features could also impact the property’s value.
You also need to check that you have not fallen victim to permit issues. Appraisers can’t include upgrades or rooms without the permits, nor that of pergolas. Make sure to review the Seller Disclosures as a guide. Locating comparables is key to contesting value and successfully completing a dispute appraisal, your real estate agent may be able to help you with this as well.
At times, it might even be of interest to the seller to get an appraisal of their own prior to selling the property as well, just to cover all bases.
Take action
The next step could see you take one of several paths. Firstly, you should request to reconsider the valuation based on the new evidence that you have provided, ROV. If this fails, you might ask if the lender can do a second appraisal, which will hopefully result in the valuation that you feel is reflective of the property. There may be other issues than just the appraisal, but this is something to potentially go over with your lender.
Alternatively, you can pay for a new and independent appraisal yourself to see what the value might be, but more than likely the lender will not use the one you ordered. Given that you will need to pay for this, though, you might want to take this path if you feel that it will produce the results you are looking for.
Check your mortgage opportunities
One potential alternative way to turn this potential negative situation into a positive one is to seek a different lender and see if you have the same experience. It may seem odd, but call another broker/lender and see if the same results happen for the same subject property.
MortgageQuote.com might be able to help you with obtaining a mortgage for a new property, so if you are in the market for a new purchase or refinancing your property, then connect with us.
Furthermore, you can use our mortgage calculators, educational articles and debt-to-income calculators to gain a general understanding of what impact the mortgage will have on your finances. Our goal is to make sure you feel comfortable through the whole process, please note that the articles on our website are not legal advice but simple education.