HUD’s Use of Convicted Felons to Ramp Up ‘Discrimination Testing’

HUD Mulls Use of Convicted Felons to Ramp Up 'Discrimination Testing'

It wants to bootstrap released felons by allowing them to work as so-called “fair-housing testers” for the many nonprofits HUD provides grants to… If the rule is changed, the HUD-subsidized nonprofits could hire felons to ramp up sting operations against real estate brokers, leasing agents, mortgage loan officers, escrow officers, title officers, appraisers, property managers and others. 

Few would argue that society doesn’t benefit when convicted felons are rehabilitated and re-integrated. But according to a frequently cited study by the Bureau of Justice Statistics, about two-thirds of released prisoners are arrested for a new crime within 3 years, and three-quarters are arrested within 5 years. The picture is bleak.

hire felons to ramp up sting operations against real estate brokers… Enter the U.S. Department of Housing and Urban Development. It wants to bootstrap released felons by allowing them to work as so-called “fair-housing testers” for the many nonprofits HUD provides grants to. Convicted felons, including convicted perjurers and fraudsters, are currently banned from such work. If the rule is changed, the HUD-subsidized nonprofits could hire felons to ramp up sting operations against real estate brokers, leasing agents, mortgage loan officers, escrow officers, title officers, appraisers, property managers and others.

In a rulemaking notice last month in the Federal Register, HUD signaled it wants to rethink the current ban on those with prior felony convictions. The notice’s summary makes special mention of individuals convicted “merely” of perjury and fraud.

With the ban lifted, unsuspecting agents could find themselves alone in vacant dwellings or understaffed offices with undercover discrimination testers known to HUD and its grantees as having criminal convictions for assault, rape or armed robbery.

“We trust fair-housing testers to identify bias and discrimination in housing,” said HUD Secretary Marcia Fudge in a prepared statement. Her trust is of small comfort to the growing number of hapless real estate licensees entangled in HUD investigations. Many have found themselves ensnared in unending probes based on what they say are baseless complaints by shady complainants and investigators with little knowledge of appraisal methods and economic theory. They’ve discovered that even to be named in a HUD complaint is to lose. The only question is how much.

The federal agency has been encouraging commissioned salespeople and property owners to report appraisers for discrimination. But the complaints tend to only come in when value opinions don’t rise to the levels that make the transactions work. Frequent complaints, as state regulators have learned, are from serial refinancers stuck in lender debt traps and disgruntled brokers who lost commissions when appraisals didn’t hit a number.

Some appraisers have faced burdensome requests in which they were asked to furnish hundreds of appraisals to HUD, including demands to provide every appraisal completed in certain neighborhoods over a multiyear period. One source, who spoke to author Jeremy Bagott on condition of anonymity, said he has it on good authority that HUD is sitting on about 300 such complaints filed during a two-year period.

The appraiser has been appraising residential properties for 35 years. He performed a fateful appraisal in 2021. The owner had remodeled part of the home. The appraiser asked him for the costs and blueprints but was provided nothing. The appraiser was white and the homeowner was black. During the inspection, the man followed him very closely and talked to him the entire time.

“I sensed someone was filming me,” he said. There were security cameras all over the place. He counted eight. Also, the property owner was trying to put himself into every photo the appraiser took for his report. “You could tell something was going on,” said the appraiser.

The property owner later filed a complaint with a large government agency and later with HUD. (The appraiser asked that the first agency not be named, so as not to give away his identity). The homeowner had made wild, fraudulent claims against the appraiser about the latter’s behavior while at the property. He claimed the appraiser had made many racist statements to him.

“I learned that the property owner had ordered two appraisals immediately after mine,” said the appraiser. “The loan officer had planted a seed with the property owner that the home ought to appraise for $1.5 million. It turned out to be the number required to make the transaction pencil. The appraisal came in at $1.3 million. The property owner claimed he’d been shortchanged by $200,000.”

The appraiser said he wrote more than a dozen rebuttal letters to the government agency. A year and three months later, the agency dismissed the complaint. But the property owner then turned around and filed the exact same complaint with HUD. An 8-month investigation ensued, featuring three 3-hour phone calls that the appraiser likened to an interrogation. The HUD investigator asked for copies of appraisals he had done in affluent coastal areas that the HUD official broadly categorized as “white” areas.

“The HUD investigator sent me subpoena-like documents,” he said. “They did not have the power of subpoenas.” He believed it was an attempt to scare him. She threatened to seize his filing cabinets. She threatened that law-enforcement personnel in windbreakers would raid his home and office.

“They try to scare you into settling with the claimant,” said the appraiser. She repeatedly suggested that the appraiser might want to mediate with the homeowner, he said. It would make the trouble go away.

“I picked apart the complaint, accusation by accusation. The HUD investigator was an attorney who had no background in real estate valuation methods and no knowledge of what appraisers actually do. The appraiser found himself holding the investigator’s hand and having to teach her about basic concepts and methods appraisers routinely use. The investigator had been under the impression that appraisers simply selected sales comparables based on ZIP codes. Later she questioned why his sales weren’t always within one mile of the appraised property, believing she had discovered chicanery.

He began questioning the legality of the probe. “Nowhere on the complaint form,” he said, “does it instruct the complainant that he’s signing under penalty of perjury. These are not legal complaints.”

Individuals at the first government agency, the one that found no indication of racism, are now backing the appraiser.

In a court of law, there would be a discovery process. The appraiser would be able to subpoena records and testimony from the accuser. A court would not allow a witness to give an opinion on a defendant’s state of mind, such as intent or malice. Such an opinion would be pure speculation.

What he learned from the experience: “Don’t freak out. It’s not a legal process until it gets on a court docket. It will still be horrible. It will last two or three years. It will follow you the rest of your career. You may end up writing dozens and dozens of rebuttals. You may end up spending hundreds of hours to clear your name.” His advice: “If you feel there’s entrapment going on at the property, just walk away and you’ll live to appraise another day.” He says he’s currently looking for an attorney to sue for the reputational damage and the pain and suffering the fraudulent complaint has caused.

“What they’re doing to you is trying to scare you to death. Every appraisal needs to be written with the assumption that the appraisal will go before a judge, and that you will be accused of racism if the number doesn’t work for the borrower. It’s the times we are living in.”

Comments on the proposed rule allowing HUD-subsidized nonprofits to hire “testers” – who might also be called “entrapment specialists” – with criminal backgrounds are due by January 2, 2024. The notice can be viewed here.

opinion piece disclaimer
Jeremy Bagott
Image credit flickr - Lynx Lynx
Jeremy Bagott

Jeremy Bagott

Jeremy Bagott is a real estate appraiser and former newspaperman. His most recent book, “The Ichthyologist’s Guide to the Subprime Meltdown,” is a concise almanac that distills the cataclysmic financial crisis of 2007-2008 to its essence. This pithy guide to the upheaval includes essays, chronologies, roundups and key lists, weaving together the stories of the politics-infused Freddie and Fannie; the doomed Wall Street investment banks Lehman and Bear Stearns; the dereliction of duty by the Big Three credit-rating services; the mayhem caused by the shadowy nonbank lenders; and the massive government bailouts. It provides a rapid-fire succession of “ah-hah” moments as it lays out the meltdown, convulsion by convulsion.

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29 Responses

  1. Baggins Baggins says:

    https://wp-orep-cdn.s3.us-west-1.amazonaws.com/wp-content/uploads/2023/10/14142229/HUDComplaint.pdf
    From OREP. An example of the hud complaint form appraisers are getting.

    https://www.workingre.com/hud-grants-millions-to-test-for-racist-appraisers/
    With federal funding the scope and expanding footprint of ‘testing’ activities will increase.

    (article quote) In the same webinar, both McCracken and Jake Lilien, NCRC’s Counsel for Fair Housing Enforcement, urged other Fair Housing organizations to run tests on appraisers and specifically recommended additional testing in Alabama, Georgia, Louisiana, Mississippi, North Carolina, and South Carolina.
    “There are certain things I don’t want to say publicly about how we did the testing because who is to say we’re done testing appraisers? I have a feeling other groups may try to use our same practices and we don’t want appraisers to know what these practices are. So, I can’t necessarily share with you specific details about how we contacted appraisers, what excuses we gave, etc. But if you work for a Fair Housing organization, reach out to me and I’d love to talk to you,” Lilien urged.(end quote)

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  2. Avatar Kenneth says:

    Another great and spot on article by Jeremy. Every appraiser out there should be on their toes for this type of entrapment, it could happen to you. If anyone out there knows of an appraisal firm taking on these types of cases let me know. I would like to ask them a few questions. Remember you pick your clients they don’t pick you. Be smart out there.

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  3. Avatar Kimberly DeFilippis says:

    I too was the victim of a racial bias complaint. More than a year after the complaint was filed I was finally vindicated by the State of AL appraiser licensing board. In the meantime, my workload dried up. Blackballed? You tell me. I have yet to find an attorney to represent me in a civil complaint against the homeowner. Appraisers are the fall-guys and it doesn’t matter the color of your skin.

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  4. Avatar Heuristic says:

    $3 reviews, convicted felons doing DEI sting operations for gov’t GSE’s, USPOOP entrapments, AI & AVM replacing appraisers….how delightful this profession has become.

    It would be awesome if ALL licensed and certified appraisers gave everyone the middle finger for 30 days and didn’t complete any valuations. None. Nothing to the AMC’s, banks, VA, homeowners, and lawyers. Maybe then we’d get the attention we deserve and the powers that be would listen and we could get some control back of our industry.

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  5. Another good reason NOT to complete FHA assignments. I quit doing them years ago when they decided Appraisers should be inspectors. I am not going into attics and crawl spaces and testing appliances, outlets, windows. etc. They have relaxed the attic and crawl space “inspections or observations” as I understand it, so that is good. But HUD is out to get you. Martha Fudge is horrible. She has zero clue about the appraisal process. All she can think of is that we are mostly white and male as a profession and we are a bunch of racists. It will be all about tail wagging the dog. If someone does not like your value, you are screwed and labeled a racist. And we have zero support in our profession.

    Sorry way to end a career. I used to love our profession and what I did. Not any longer. It is all about running scared. The GOOD news is this. I talked to our State Board Appraiser investigator in Georgia about bias complaints….His words…While it might exist to a small degree, we cannot PROVE it….I said thank you very much..Amen to that! I know the State Board Commission Chairman as well and he is a decent guy, so I feel pretty safe. Most of my work is personal as well, so that helps. But all it takes is one bad report in the eyes of the homeowner or Agent and it could all go down hill fast.

    Be careful out there and here is to RETIREMENT!!!

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  6. Avatar Seneca says:

    Just walk away. After you do the inspection tell the lender you got sick and can’t complete the assignment. That’s my new rule.

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  7. Real estate agents, appraisers can’t get their licenses if they have been found guilty and convicted of financial or related fraud or crimes. Makes no sense to allow others with such convictions to be involved in any transactions. If agents, appraisers can’t be trusted with those convictions, neither should people involved in sting operations or real estate transactions.

    If you have an iPhone, you can video your entire inspection while also taking still photos at the same time.If you don’t, you can video and take stills from that. I would do that if I ever sensed anything odd. I haven’t been in that situation and haven’t videotaped any inspection. You could state that you do a video inspection so you don’t miss anything. Then you have to save the videos in your workfile for five years. Good to cover your butt so no one can lie about you.

    I don’t trust these private nonprofit “fair housing” organizations. They have an agenda. They need to justify their existence and work by claiming unfair housing whether there is or not. They were also chosen by Marcia Fudge of HUD who clearly has an agenda. She lied to the US and Joe Biden when she said identical homes across the street from hers owned by whites sold for more than what her home is worth only because the owners were white. I proved that was a lie by researching and giving a rough value to her home and the ones across the street. They were not identical at all.

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  8. Avatar DGK says:

    ….so I clearly understand…. an appraiser gets a single family residential FHA purchase appraisal assignment in a blighted area that is crime ridden, on a property that was originally financed by an FHA lender, and has (or is on the verge of) a foreclosure notice. The buyer was placed in the home 3 years ago when the market and neighborhood conditions were reasonably similar. You are not the appraiser that did the report 3 years ago. …. so I clearly understand…..I cannot disclose or comment on blighted conditions, crime rates, or ethnicity, and now have hundreds of words that fall into the “bias” category that I cannot use to describe the property. I must photoshop , delete, or blur any and all photos depicting skin color, hunting trophies, specific magazines on the coffee table, anything that might suggest sexual preference, religion, children, school names, family photos anywhere, and probably extending into what might be on the kitchen table suggestive of culinary preferences (like Chinese, Italian, or Middle Eastern foods), and any number of other features, conditions, or items that fill your imagination in order to avoid being labeled and being the victim of a borrower, seller, buyer, lender, or neighbor down the street complaint. I am forced to drive miles to obtain a photo of a locked gate (where the residence is not sufficiently visible) in order to prove that I was present to satisfy the “viewed the comparable” requirement (which very likely was not even possible), but I am not allowed to take a photo of my own vehicle at the site to prove the very same thing. Knowing the crucifiction would be in order if I ever claimed to have selected all my comps from the same blighted crime ridden neighborhood as the subject, so I am forced to mislead all parties associated with the transaction by selection of sales from more expensive neighborhoods so as not to be accused of being selective or bias against the borrower. So, at what point do I disclose that the seller and the borrower are white, or is that not relevant to the appraisal process unless I am black, or just how does this work in the best interest of the parties involved? If you have read this to the end, it is probably pretty obvious that….. knowing we cannot and do not disclose skin color or ethnicity in an appraisal report…… every reader has made assumptions already as to what color the parties to this scenario are likely to be. So, again, so that I am perfectly clear on the understanding, were these laws and rules written for all appraisers, or just some of us? Because now it seems we are being forced to hide or cover up things we were never guilty of anyway, just to be able to spend years and dollars to support what are very, very, misleading industry standards that suggest what is not the case, and in the 35 years I have been doing this, never were the case.

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    • Baggins Baggins says:

      The appraisal industry is shaping up to be the quintessential example of everything possible that can go wrong with bloated government bureaucracies. New scope of work; All refinance requests require home owners to acquire multiple storage units and move everything out of their house in order for the appraiser or the property data collector to review the house in an ‘unbiased manner’. Lenders are going to regret not standing up for appraisers if this plays out much further. They can kiss the days of hunting down serial refinancers or landing simple mortgage requests good by. That’s kind of what this is all about though right? Giving corporate purchasers the upper hand in residential real estate markets.

      4
  9. Avatar Kenneth says:

    I just went to Amazon.com and looked up body cameras. For about $50.00 to $200.00 you can buy a small one that the police might wear and pen it to your shirt. You can place the video in a file and keep it for 5 years on your computer, making it by the address. If the homeowner claims racism and that you said something racist ect…then you have proof of the encounter. I have been going through 2 claims of racism by the small homeowner now for 3 years. I wish I would have thought of wearing a camera back then, now every home I go to do an appraisal, “Smile your on-Canid Camera”. I am going to now protect myself and fight back, just waiting for the next claim to roll in.

    5
    • Baggins Baggins says:

      Edited by request. Can’t believe we’re talking about this. There are privacy laws to consider as well. It is a sad state of affairs if people whom are trying to work together, feel compelled to secretly record each other. Research keywords: two party consent states recording

      3
  10. Avatar Garth says:

    VerifyThis . com : Convicted Felons are not barred from serving in various US Federal Offices. The Constitution ensures eligibility with-convictions, as well. “Individual States” can exclude felons from certain local state employment.

    Conversely, being Blacklisted by lenders, GSE’s, HUD, AMCs, & etc. does kill an Appraiser’s Career & Good Character even when unjustly “Assumed Guilty” of the crime. Appraisers seem to be the main Target in the Witch Hunt. If the Career is dead, they have already Won! Realtors, going to be at very long to endless battle as others join in the lawsuits. Outcome: Guessing the Seller will Order off the Brokerage Menu with Set Pricing.
    And on it goes, the HUD’s NEWEST : Investigation into Appraisers use of inaccurate “Time Adjustments” and with Bias.

    Asking since Felons can already work in Federal Jobs, how can “this NOT happen”?
    Fun Fact ( ? )
    100 years ago, a Presidential Candidate ran for office, Libertarian Ballot while incarcerated.
    If found Guilty in those applicable US States, would Trump’s sentence be held in abeyance via The Constitution? Supposedly in a Colorado prison in March/23, Tiger King filed the paperwork to run as a Libertarian while serving a 21 Year Sentence.

    HUD’s Plan is to kill the only ” NON-Biased person in the Entire Valuation Process”. Isn’t THIS Crazy?
    Just Can not make this *** UP.
    I very much appreciate the informative Article and others published here on AB.

    3
  11. Avatar Bill Johnson says:

    On a side note, to those who received a solicitation from Smooth Appraisal, understand they are a subsidiary of True Footage. Dustin Harris from The Appraiser Coach fame is a director of appraiser education for this company (a W2 employee per his words / podcast). Not a big deal you say. Well, for a fee/steal of 30%, this company is going nationwide in attempting to corner non lender work. NON LENDER AMC ANYONE!

    Not spreading hate, but only exposing the truth regarding the fact that those attempting to help you with their left hand, may be reaching in your pocket with their right hand.

    Seek the truth.

    8
    • Yes I saw this promotion on FB. Good luck with the NON lender junk they come up with to then take a 30% referral fee! Typically my experience with obtaining my own NON lender work for years, you MUST be the one to sell those NON lenders on YOU and your work, not some 3rd party they do not know! Most of my non lender work is direct referral from someone who knows me and my work and the person they are referring me to knows that person well! I think this will fall flat on its face. Referral work is crutial in that it has to be a GOOD referral or things will look bad for all parties involved.

      5
  12. Avatar jaydee says:

    So the government is waging war against the Real Estate industry. The last bastion of America’s wealth. Keep voting for democrats and we too can be Venezuela!!!!

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  13. Avatar Unknown says:

    Does anyone know of a law firm that would take a case involving me being reported to HUD and another agency for racism? He reported me under fraudulent evidence, he slandered me as well as discrimination against me and intentional infliction of emotional distress. His entire case was all lies. Can anyone out there recommend a lawyer for me to civilly sue this homeowner? I am standing up for all of us.

    3
    • Avatar Mike says:

      Peter Christensen. peter@valuationlegal.com 805-696-2600

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      • Baggins Baggins says:

        Does OREP have a discrimination claims covered as part of their insurance? WorkingRE mentioned this in recent articles, that many EO insurers do not include this coverage. Does Landy or RICE offer that? I don’t like talking to those people, the goal of having insurance, is to never actually have to use it.

        0
  14. Avatar JohnnyQ says:

    Fudge… that pretty much sums it all up.

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  15. Avatar DGK says:

    I made a comment following the “unknown” above looking for an attorney. That comment was never posted? Not sure why, probably because it also listed the freedoms lost in the last 50 years, but the bottom line is that if the system wants to cancel you, they will. Same holds true for lawyers, though, so best of luck to you in finding one.

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    • DGK, rest assured it wasn’t on our end. We don’t remove comments from appraisers. We edit out profanities though. When you see a comment not posting, try again. Comments will either post, or will be held in moderation if you are using a new email address or username, or if you include more than 4 links in a comment. The latter is to deter spammers. Also make sure that you do not reply via email. Some are replying to the email notifications instead of replying directly to the comment on the website.

      As stated on our About page: “AppraisersBlogs does not make a habit of censoring language or even passionate disagreements. We ask posters to be civil but ultimately it is the collective conscience of the blog readers and commenters that set the tone. This is a public forum. We try very hard to follow the First Amendment to the U.S. Constitution though we have and will debar purely disruptive entities after explaining WHY. Post at your own risk of rebuttal.”

      3
    • Looks like you replied to the email notification instead of using the comment section here.

      3
  16. Avatar DGK says:

    Thanks AppraiserBlogs Team! you are correct, my bad!

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    • Baggins Baggins says:

      https://appraisersblogs.com/appraisers-you-are-damned-if-you-do-and-damned-if-you-dont/#comment-39888

      Doug, read up on this non profit group suing for violations of peoples constitutional rights. What happens every day to appraisers is often the subject of lawsuits in other industries. Obviously the appraisal industry insurers are not equipped for these tasks. They need to catch up or provide their appraisers better legal resource references and such. Working RE magazine had mention that discrimination claims are often not covered by appraisers EO insurance policies.

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      • Avatar Kimberly DeFilippis says:

        Baggins, what’s the name of that non-profit group?

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        • Baggins Baggins says:

          Hello. Right there in those links, just read through them. Judge for yourself if there is any relevant similarities between the case linked and our industry. I’m not sure if it’s the perfect fit, because they are protecting religious liberty primarily. Still somewhat aligned with the issues though. Why would a real estate appraiser, who’s very job is to honestly and accurately describe real estate, not be allowed to call a church a church? That is going to be the First Liberty legal group.
          https://firstliberty.org/about-us/

          Mr Bagott also wrote a story recently about the state stifling speech of a retired engineer because he no longer held an active state license. That one referenced a different legal group protecting speech of workers. The Institute for Justice. I have no affiliation with any people or groups mentioned. I simply read online content, and try to share relevant information.

          https://ij.org/
          https://mailchi.mp/f0a48bac0682/judge-retiree-neednt-hold-license-to-opine-on-engineering-9095282 (also has a subscribe link at the bottom.)
          https://nitter.cz/jbagott
          Full published article list. (works better on twitter if you have a login)

          0

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HUD’s Use of Convicted Felons to Ramp Up ‘Discrimination Testing’

by Jeremy Bagott time to read: 5 min
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