I know most of the details on that one and they were wrong. The explanation is too long for the forum but I can send it to you in a PM
20 Pacheco is one of a small cluster of about 20 such homes which were of relatively low quality construction, meaning rectangular boxes with no amount of design/appeal. It was built on pylons. What they did was add a second floor below the main level, thus creating a "reverse" floorplan with the main living areas on the upper level and bedrooms/baths on the lower level. But it's still a low appeal box, similar to the average budget doublewide mobile home. If you google the address you can still see the "before". I saw a pic of the after and it now resembles the home at 19 Dutton Ct, just around the corner. Same deal, they took a stilt house and built out the crawl space. Around those pylons, so you can imagine what the limitations will be on the floorplan.
Now here's the problem with that scenario: There's a distinction to be made between a 3bd house that was designed at 1100sf vs one that was designed at 2200sf. The public zone of the home (living room, dining, kitchen) etc and the bedroom/bath layouts and sizes will be different than for a home that designed to be twice the size. 8ft interior ceilings vs taller 9ft and 10ft ceilings that you find on the larger homes when built individually.
The sales history for the immediate neighborhood shows relatively low pricing when compared to the areas of custom built homes further up the hill or to the north, and much lower than the homes on the bay side of the freeway to the s/e where all the supporting services are. The problem is that there were no recent sales of that size in that neighborhood.
So the appraiser in the first situation sees what they see. But someone goes on Zillow and sees larger homes within a 1 mile or 1.5 mile radius which - on paper - look similar in size and proceed on the assumption that everything else is similar even though that's not the case. IRL, buyers in an entry level pricing tranche will put up with a lot more quirks than will a buyer in the move-up market.
Anyway, that's the house. Everything else which follows from here on out is conjecture on my part:
These stories are always based on there being a 2nd appraisal, the assumption being the higher value is always the more reasonable value. Now while I can see a lot of what's going on with the house I don't know anything about how these appraisals were engaged; however the script practically writes itself: minority borrower has complained about the first appraisal being racially biased, it was reviewed by hand at the lender (by another appraiser) and the appeal was rejected. That means the reviewer didn't see anything in the appraisal or the surrounding market to disagree with the original appraiser.
Then the loan broker takes the deal to a different lender, explains to them the situation and mentions civil rights lawsuit and HUD investigation and the lender gets the clear message. It will be likely in that scenario that the information gets passed on to the appraiser even though the lenders are prohibited from trying to influence an appraisal. So the 2nd appraiser weighs their situation and proceeds. Maybe their politics come into play , or maybe it's just a sense of self-preservation. They will tell whatever lie it takes to make the desired number and chalk it up to reparations.
And BTW, there still haven't been any sales in this area which have closed during the interim which would come anywhere close to supporting a $1.4M value for that property.
Some of these stories involve multiple appraisals, not just the two. The first one doesn't stick and the 2nd one doesn't stick but the 3rd one finally does. These loan brokers will sometimes shop the deal until it sticks.