Fifteen years after the subprime mortgage crisis, the Justice Department has filed its first-ever predatory mortgage lending case. And while some of the alleged misconduct resembles unsavory practices that helped fuel the 2008 meltdown, the lawsuit also contains new twists for the social media age.
In a suit filed Wednesday in Houston,
The complaint alleges that Colony Ridge, which since 2011 has developed more than 40,000 residential lots on the outskirts of the Houston metro area, used false or misleading advertising messages on social media sites such as TikTok to lure Spanish-speaking customers.
The developer allegedly promised that its lots came with water, power and sewer services, even though many of the parcels lacked the infrastructure necessary to connect utilities.
In addition, Colony Ridge has allegedly been failing to assess customers' ability to repay the loans they use to finance land purchases. Nor has it requested proof of borrowers' income, according to the civil complaint.
"Through today's action, the Justice Department is making clear that it is equally determined to stamp out predatory lenders who take advantage of the conditions created by redlining as it is to prevent illegal redlining from happening in the first place," Assistant Attorney General for Civil Rights Kristen Clarke said at a press conference.
Colony Ridge CEO John Harris said in a written statement that the company was "blindsided" by the lawsuit, which was filed in U.S. District Court.
"The lawsuit is baseless and both outrageous and inflammatory," Harris said. "Our business thrives off customer referrals because landowners are happy and able to experience the American Dream of owning property. 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."
Also named as a defendant in the suit was a Texas-based mortgage firm called Loan Originator Services LLC. According to the complaint, that company has originated all of Colony Ridge's mortgages since 2016 and has done so, like Colony Ridge, without assessing borrowers' ability to repay.
Gayle Campbell, managing member of Loan Originator Services, said the lawsuit is the result of a misunderstanding, and that the company looks forward to explaining why the land sales are both legal and appropriate for customers.
"CFPB appears to be uninformed regarding the applicable law regarding land sales, as well as the facts surrounding Loan Originator Services' involvement," Campbell said. "And we're confident the lawsuit will be dismissed once the government comprehends what actually occurred."
The lawsuit lays out a scheme not only to lure customers with unfulfilled promises, but also to set up borrowers for failure by charging high interest rates and fees, and then to rely on frequent foreclosures to flip properties to new buyers, often at higher prices.
"Foreclosure and property deed records show that Colony Ridge flipped at least 40 percent of all the properties it sold between September 2019 and June 2023, selling approximately 8,237 properties twice, 3,267 properties three times, and 2,067 properties four or more times," the government's complaint states.
The government alleges that Colony Ridge violated the Equal Credit Opportunity Act, the Fair Housing Act, the Consumer Financial Protection Act and the Interstate Land Sales Full Disclosure Act. The Justice Department and the CFPB are seeking injunctive relief, plus penalties and redress for affected consumers.
Colony Ridge advertises its properties extensively on TikTok, Instagram, YouTube and Facebook, according to the lawsuit. "My people, achieve your American Dream here," read the translation of one Spanish-language ad on Facebook.
While the ads promised power, water and sewer services, Colony Ridge allegedly told a different story in documents that it provided to consumers after they paid a non-refundable fee, saying that the lots could be sold without the infrastructure needed to connect utilities.
Though social media companies were not named as defendants, CFPB Director Rohit Chopra said at Wednesday's news conference that the case highlights the role that targeted marketing on social media can play in facilitating bad actors.
"So while that's not part of this case, there's no question that we have to look harder at these social media companies and how they're trafficking wrongdoing," Chopra said.
