Homeownership has long been a path to financial stability for families in our country. Given the shortage of housing, many families look to borrow to buy land and install or construct a home of their own. It wasn’t too long ago that we saw widespread predatory mortgage lending that crashed our economy. The Consumer Financial Protection Bureau was created to make sure this never happens again.
Today, the CFPB and the Justice Department are bringing charges in federal court against Colony Ridge, a large housing development in Liberty County, Texas.
In 2022, we opened an investigation into the ring of companies selling and financing land lots. What we uncovered was disturbing: baiting buyers on TikTok, exploiting language barriers, and targeting borrowers with predatory loans that turned their dreams into nightmares.
Our 11-count complaint alleges that Colony Ridge is operating a sophisticated, bait-and-switch land sales scheme taking advantage of thousands of families in Texas. The company lies to buyers seeking land to build a house, falsely telling people that its lots have utility hookups and hiding the land’s history of flooding with raw sewage. Many of these buyers end up losing their investment and the place they hoped to call home.
In its Terrenos Houston development, Colony Ridge sells undeveloped lots to buyers, making false representations that they are suitable plots for building homes. Through TikTok videos and online advertisements described in our complaint, Colony Ridge lies to buyers and claims that all its lots have hookups for water, sewer, and electricity. In fact, unsuspecting buyers will face costs running into the thousands of dollars in order to connect utilities to their property.
Colony Ridge implies and sometimes directly tells borrowers the lots have no history of flooding. This is another lie – the areas are inundated during heavy rains that sometimes result in raw sewage overflowing.
It wasn’t just land sales, it was predatory lending, too. Like some of the predatory mortgage lending we saw in the run-up to the 2008 financial crisis, Colony Ridge does not ask prospective borrowers for the information it would need to determine if a buyer can afford a loan. Colony Ridge seems to make no effort to assess whether a buyer could actually make the monthly mortgage payments.
Ordinarily, companies don’t like to make loans where they expect borrowers to default. But foreclosure is a part of Colony Ridge’s business: when a family falls behind on payments and loses their property, Colony Ridge buys back the property and flips it to another unsuspecting buyer – often at a higher price.
Colony Ridge wins when its borrowers fail, and they fail in huge numbers: foreclosures on lots in the Terrenos Houston development have accounted for more than 92 percent of all foreclosures recorded in Liberty County, Texas, between 2017 and 2022. In a recent three-year period, Colony Ridge flipped at least 40 percent of all the properties it sold. It sold more than 8,000 properties twice, more than 3,000 properties three times, and more than 2,000 properties four or more times in three years.
Colony Ridge isn’t just indifferent to buyers’ financial difficulties -- it can actually profit from their failure because each foreclosure is a new opportunity to swindle another victim.
The ring of companies running Colony Ridge specifically targets victims based on their national origin and other protected characteristics. Together with the Justice Department, we uncovered facts that suggest this predatory targeting of Hispanic families with set-up-to-fail loans constituted illegal discrimination under fair lending and fair housing statutes. Colony Ridge also specifically targets Hispanic families with these lies in Spanish, but all its contract documents, and any disclosures or fine print they may contain, are written solely in English. All of this is illegal, violating federal law and regulations that have been on the books for decades.
Our lawsuit today highlights several of the CFPB’s goals. First, we will not allow lenders to illegally set borrowers up to fail, particularly in today’s housing shortage and interest rate environment. In the run-up to 2008, we saw how set-up-to-fail lending can be catastrophic when left unchecked. We have brought several actions involving different consumer lending products to stop these abuses.
Second, we are closely watching how fraud is trafficked on large platforms like TikTok, Facebook, and YouTube using behavioral targeting. We are fully prepared to use longstanding laws on the books to crack down on this fraud, and this is the first ever federal court action by the CFPB since its establishment to enforce the Interstate Land Sales and Full Disclosure Act of 1968.
More broadly, pursuant to the Fair Credit Reporting Act of 1970, we are working on rules to crack down on exploitative uses of personal data, particularly as the use of artificial intelligence and other complex computational methods spread.
Finally, we will continue to prosecute illegal, discriminatory lending practices, including predatory targeting and redlining. Since 2021, the CFPB and the Justice Department’s Civil Rights Division have taken several enforcement actions, including the first-ever redlining government settlement with a nonbank mortgage lender. Last month, the CFPB finalized a major action against Citibank for illegal national origin discrimination against credit card applicants of Armenian descent. Together, we will continue to combat the old-school illegal discrimination that is still with us, as well as the digital redlining and discrimination of the future.
Our lawsuit today is the first step to stop Colony Ridge from perpetrating this predatory scam against more victims. I want to thank the Justice Department for their partnership and to all of you for being here.