On December 20, the Consumer Financial Protection Bureau (CFPB) and U.S. Department of Justice (DOJ) filed a complaint in a Texas federal court against Colony Ridge Development, LLC (Colony Ridge), its affiliates, and Loan Originator Services, a Texas mortgage company, for allegedly operating an illegal land sales scheme and targeting tens of thousands of Hispanic borrowers with false statements and predatory loans. Specifically, the complaint alleges Colony Ridge sells flood-prone land without water, sewer, or electrical infrastructure, and that the company sets borrowers up with loans they cannot afford. The complaint alleges that defendants engaged in unlawful discrimination by targeting Hispanics in violation of the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). In addition, the complaint alleges violation of the Dodd-Frank Act’s prohibition on unfair, deceptive or abusive acts or practices (UDAAP), and a variety of violations of the Interstate Land Sales Full Disclosure Act.

In a press release following the complaint’s filing, Alamdar S. Hamdani, U.S. Attorney for the Southern District of Texas, stated that “[u]sing 21st century social-media applications to target and mislead consumers, Colony Ridge set out to exploit something as old as America — an immigrant’s dream of owning a home.” According to the complaint, Colony Ridge advertises almost exclusively in Spanish, often in TikTok or other social media posts featuring national flags and regional music from Latin America. On Instagram, Colony Ridge encouraged prospective applicants to “CUMPLE EL SUEÑO DE SER PROPIETARIO” (FULFILL THE DREAM OF BEING AN OWNER), with an image of the United States flag. Colony Ridge also had at least one flyer that placed photos of Colony Ridge employees directly next to the flag of the Latin American country of their origin.

In these advertisements, Colony Ridge promotes its own seller financing: an easy-to-obtain loan product that requires no credit check and only a small deposit. Whereas from September 2019 through September 2022 records show that Colony Ridge initiated foreclosures on at least 30% of seller-financed lots within three years of the purchase date. Foreclosure records also show that Colony Ridge accounted for more than 92% of all foreclosures recorded in Liberty County between 2017 and 2022. The complaint alleges that Colony Ridge then “flips” the properties by repurchasing and reselling them, often at higher prices. “Foreclosure and property deed records show that Colony Ridge flipped at least 40% of all the properties it sold between September 2019 and September 2022, selling approximately 8,237 properties twice, 3,267 properties three times, and 2,067 properties four or more times in three years.”

The federal complaint further alleges:

• Colony Ridge falsely advertises that lots are all sold with the infrastructure to connect water, sewer, and electrical services. After applicants pay a non-refundable deposit, Colony Ridge then discloses, only in English, that properties may not provide those services. The Pre-Development Disclosure Notice, Intrastate Exemption Statement, and Declaration of Covenant, Conditions, and Restrictions were also only provided in English.
• Colony Ridge fails to inform borrowers of flood risk when lots have repeatedly flooded in the past. In parts of the subdivision, rain caused significant flooding, and raw sewage ran through borrowers’ property damaging their personal belongings.
• Since at least 2016, Loan Originator Services, LLC originated all of Colony Ridge’s seller-financed mortgages. Loan Originator Services failed to assess borrowers’ ability to repay and did not request proof of income from borrowers.
• Colony Ridge pressures borrowers to sign up for their high-rate loan products. Between 2017 and 2021, interest rates on Colony Ridge’s loans ranged from between 10.9% to 12.9%, while a standard loan averaged 2.35% to 4.05% during the same timeframe.

The lawsuit continues the DOJ’s and CFPB’s renewed emphasis on fair lending issues related to housing. For example, on June 29, the CFPB released its annual Fair Lending Report to Congress, discussed here, which focused on discrimination in mortgage underwriting/pricing and unlawful redlining practices, among other things. In November, two DOJ officials publicly discussed the fact that the agency is moving “full speed ahead” with redlining investigations under the interagency “Combatting Redlining Initiative” and that two dozen investigations are currently underway, as discussed here.