The Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Justice have sued Colony Ridge, a Texas-based developer and lender, for operating an illegal land sales scheme and targeting thousands of Hispanic borrowers with false statements and predatory loans. Colony Ridge allegedly sells unsuspecting families flood-prone land without water, sewer, or electrical infrastructure, and that the company sets borrowers up to fail with loans they cannot afford. Roughly 1-in-4 Colony Ridge loans ends in foreclosure, after which the company repurchases the properties and sells them to new borrowers. The CFPB and Justice Department are seeking redress for borrowers harmed by Colony Ridge and an immediate end to its illegal practices. This is the CFPB’s first federal court lawsuit charging a defendant with violations of the Interstate Land Sales Full Disclosure Act.
The lawsuit names as defendants three Texas-based Colony Ridge affiliate companies, as well as Loan Originator Services, a nonbank mortgage company licensed to originate loans in Texas. Colony Ridge has developed more than 40,000 lots spread across an unincorporated area of Liberty County, Texas, approximately 30 miles northeast of Houston. Colony Ridge markets these subdivisions using the names “Terrenos Houston” and “Terrenos Santa Fe.”
Colony Ridge targets Spanish-speaking borrowers: it advertises almost exclusively in Spanish, often in social media posts featuring, for example, national flags and regional music from Latin America. In these advertisements, Colony Ridge promises consumers the dream of home ownership with its own seller financing: an easy-to-obtain loan product that requires no credit check and only a small deposit. The complaint alleges that Colony Ridge has lured thousands of Hispanic consumers into their predatory loan products. Foreclosure and property deed records from September 2019 through September 2022 show that Colony Ridge initiated foreclosures on at least 30% of seller-financed lots within just three years of the purchase date, with most loan failures occurring even sooner. Records also confirm that Colony Ridge accounted for more than 92% of all foreclosures recorded in Liberty County between 2017 and 2022.
Specifically, the complaint filed today alleges that Colony Ridge:
- Misleads borrowers about infrastructure on the lots it sells: Colony Ridge has falsely represented that lots in the Terrenos Houston subdivisions were sold with water, sewer, and electrical infrastructure already in place. The complaint cites numerous advertisements, including TikTok videos where the company makes claims like “Terrenos Houston tiene todos los servicios de ciudad por cada terreno” (“Terrenos Houston has all city services for each lot.”). After applicants pay a non-refundable deposit, Colony Ridge discloses the properties may not provide those services and says it only in English.
- Sells lots that flood with rain and raw sewage: The complaint alleges that Colony Ridge employees fail to inform borrowers of flood risk when lots have repeatedly flooded in the past, or falsely tells them the lots have not flooded. In fact, in parts of the Terrenos Houston subdivision, rain causes significant flooding, causing raw sewage to run through or around borrowers’ property, and damaging their personal belongings.
- Churns through borrowers in a cycle of foreclosure: When families fall behind on payments and enter foreclosure, it allows Colony Ridge to “flip” 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.
- Targets Hispanic consumers with predatory loans: Through direct-to-consumer marketing on websites, social media engagement, and telemarketing, Colony Ridge targets Hispanic consumers. Colony Ridge then exploits language barriers during its sales process and uses high-pressure sales tactics to push borrowers to obtain their loan products quickly. The loans have exorbitant interest rates. Between 2017 and 2021, interest rates on Colony Ridge’s loans ranged from between 10.9% to 12.9%, while a standard 20-year fixed rate loan averaged 2.35% to 4.05% during the same timeframe. And in extending the loan, Colony Ridge and Loan Originator Services did not collect information needed to determine if applicants can afford the loan.
- Exploits language barriers at borrowers’ expense: While Colony Ridge conducts most of its marketing activities in Spanish, when it comes to the actual transaction, it offers important documents only in English. Failing to offer borrowers accurate translations of contracts, deeds, and other documents in the language in which it conducts the sales and exploiting borrowers’ limited English proficiency violates federal law.
The CFPB alleges that defendants unlawfully discriminated against applicants on the basis of their race or national origin in violation of the Equal Credit Opportunity Act and its implementing regulation. The CFPB separately alleges that Colony Ridge engaged in unlawful deception and violated the Interstate Land Sales Full Disclosure Act and its implementing regulations. The Justice Department joined the CFPB’s claim of a violation of the Equal Credit Opportunity Act and its implementing regulation, and separately alleges that Colony Ridge violated the Fair Housing Act. The complaint seeks to stop Colony Ridge’s alleged unlawful conduct, provide redress for affected consumers, and impose a civil penalty payable to the CFPB victims relief fund. If the defendants are found liable, the amount of any restitution will be determined in the litigation in federal court.
The CFPB’s website has resources about credit discrimination and mortgages. Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).
Employees of companies who believe their company has violated federal consumer financial protection laws are encouraged to send information about what they know to whistleblower@cfpb.gov.
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