Feds Sue Houston-Area Developer For Alleged Mortgage Lending Scam Targeting Spanish Speakers
In the first predatory mortgage lending case ever brought by the U.S. Department of Justice, a Houston-area subdivision developer is accused of misleading tens of thousands of mainly Latino borrowers into taking out loans they could not afford to buy barely livable properties, then profiting from their foreclosures.
Colony Ridge Development LLC is accused of operating a “one-stop shop for discriminatory lending,” violating the Fair Housing Act and Equal Credit Opportunity Act, according to a DOJ press release. The lawsuit was filed by the DOJ and the Consumer Financial Protection Bureau.
The DOJ alleges Colony Ridge steered Spanish-speaking borrowers into seller-financed loans to buy flood-prone properties without verifying income or ability to pay.
The properties were often uninhabitable, lacking basic infrastructure like water, sewer and electricity, forcing many residents to sink more money into the properties to bring them up to standard, the DOJ claimed. Colony Ridge allegedly waited for borrowers to default on loans and be foreclosed upon, “purchasing the properties back for pennies on the dollar and reselling them at even higher prices to new unsuspecting borrowers,” the DOJ said.
Colony Ridge operates a 33,000-acre development known as both Terrenos Houston and Terrenos Santa Fe in Liberty County, northeast of Houston. The development is home to more than 40,000 people, the release states. It has been in operation since 2001, according to its website.
Colony Ridge CEO John Harris told Bisnow the DOJ suit has no merit.
“We were blindsided by this lawsuit and we are concerned that the Justice department would pursue this action,” Harris said in an emailed statement. “The lawsuit is baseless and both outrageous and inflammatory.”
But the DOJ pointed to statistics indicating close to 1 in 3 Colony Ridge loans failed within three years, 10 times the national rate, leading thousands of Latino borrowers to lose their homes, the release states.
Colony Ridge targeted Spanish-speaking borrowers by advertising almost exclusively in Spanish, often via TikTok or other social media postings featuring national flags and Latin American music, the release states. When it came to signing paperwork, though, Spanish was not an option, per the DOJ.
Colony Ridge “exploited language barriers by conducting most of its marketing in Spanish while offering important transaction documents only in English,” Attorney General Merrick B. Garland said in a statement.
Foreclosure and property records from September 2019 through September 2022 show Colony Ridge initiated foreclosures on at least 30% of seller-financed lots within three years of the purchase date, with most loan failures occurring even sooner, according to the release. Colony Ridge accounted for more than 92% of all foreclosures recorded in Liberty County between 2017 and 2022, according to records cited by the DOJ.
Last week, Houston Landing published results of an investigation that showed the developer reacquired 45% of the 35,000-plus properties it sold since 2012.
“Colony Ridge promised the American dream, but we allege that in reality, it has delivered a nightmare for thousands of hardworking Hispanic families who hoped to build their homes in the Terrenos Houston community,” said Assistant Attorney General Kristen Clarke of the DOJ’s Civil Rights Division.
Colony Ridge said it is delivering exactly that dream and it is eager to air out all of the facts.
“Our business thrives off customer referrals because landowners are happy and able to experience the American Dream of owning property,” Harris said in his statement. “We loan to those who have no opportunity to get a loan from anyone else and we are proud of the relationship we have developed with customers. We look forward to telling the true story of Colony Ridge.”
