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HOUSTON — Federal authorities on Wednesday sued Houston-area developer Colony Ridge, accusing it of luring Latino home buyers into seller-financed mortgages and setting them up to default and face foreclosure.

“Colony Ridge set out to exploit something as old as America: An immigrant’s dream of owning a home,” said Alamdar S. Hamdani, the U.S. Attorney for the district that covers Houston. “As alleged in the complaint, Colony Ridge’s exploitative practice began with misleading advertisements on platforms like TikTok and often ended with families facing economic ruin. No home — and shattered dreams.”

[Houston-area development has become a right-wing lightning rod on immigration]

Colony Ridge entities developed a collection of subdivisions that cover about 33,000 acres of land 30 miles north of Houston. Those neighborhoods drew the attention of Gov. Greg Abbott and the Republican-controlled Legislature after right-wing publications claimed they are a magnet for undocumented immigrants and overrun by crime.

On Wednesday, federal authorities outlined the general workings of an alleged scheme that began with videos and ads in Spanish aimed at drawing Latino customers to visit Colony Ridge’s properties — often featuring the national flags of Latin American countries and admission into contests for gifts like a free tractor. Once a person visited the property, the developer allegedly used high-pressure sales tactics, required minimal down payments and then extended loans without assessing a buyer’s ability to repay or verifying their gross income.

The company also misrepresented facts — such as guarantees of water, electricity and sewer hook-ups — “causing borrowers to incur substantial unanticipated expenses after closing,” federal officials said.

Once a buyer fell behind on payments, the company bought the land again and repeated the process — sometimes multiple times with the same piece of property. Roughly one-in-four Colony Ridge loans ends in foreclosure, according to federal officials.

[Colony Ridge developer defends Houston-area community as state leaders vow action against it]

In all, thousands of Latinos were victims of the scheme, the government alleged — and Colony Ridge violated four federal laws surrounding fair housing, credit opportunities and consumer protections. The government is seeking injunctive relief to stop Colony Ridge’s practices, compensation for harmed consumers and penalties against the developer for the violations of federal laws.

Asked at the news conference whether there was any criminal component, Assistant Attorney General Kristen Clarke said only that Wednesday’s action was a civil action.

The lawsuit arrived a week after the Houston Landing published an investigation about Colony Ridge’s lending practices. Colony Ridge had reacquired 45% percent of the 35,000-plus properties it has sold since 2012, the investigation found by analyzing county records.

Real estate experts told the Landing that Colony Ridge’s behavior raised concerns of a predatory lending scheme.

Colony Ridge’s chief executive John Harris said Wednesday he was “blindsided” by the lawsuit, which he called “baseless and both outrageous and inflammatory.”

[After much ado about Colony Ridge, the Texas Legislature has little to show for it]

“Our business thrives off customer referrals because landowners are happy and able to experience the American Dream of owning property,” Harris said in a statement distributed by a spokesperson. “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.”

After right-wing publications portrayed the area as blighted and dangerous “magnet for illegal immigrants,” Abbott vowed to address “serious concerns” about Colony Ridge and added it to the agenda for a special legislative session called for education.

Amid the attention from state officials, the developer, Harris, rejected allegations that the development is a “magnet for illegal immigrants.” Harris said the company offered people an opportunity to achieve the American dream of owning a home.

“I know I've got people slinging mud at me,” Harris said in an October interview. “But to me that's insignificant compared to the love I get from my customers, right? The love I get from my customers means way more, affects me mentally and emotionally way more than the naysayers.”

After initially having no new policies to show for Abbott’s request to address the development, lawmakers ultimately approved a bill that allows the state to spend up to $40 million for state troopers to patrol Colony Ridge.

A spokesperson for Abbott, who this week signed the bill into law, did not respond to a request for comment about Wednesday’s federal lawsuit. Neither did Sen. Joan Huffman, R-Houston, or Rep. Jacey Jetton, R-Richmond, who authored and sponsored the bill, respectively.

State Sen. Robert Nichols, R-Jacksonville, who represents Liberty County, also did not immediately respond to a request for comment.

Domingo Garcia, national president of The League of United Latin American Citizens, said the advocacy group has asked the Liberty County district attorney’s office to launch a criminal investigation into Colony Ridge. Garcia, who learned about the company’s lending practices after reading the Houston Landing investigation, said the organization supports the Department of Justice lawsuit.

“The American dream has become the American nightmare for thousands of Hispanic immigrants who are being hit from various sides,” Garcia said. “You have politicians like Abbott using them to try to win votes and then you have exploitative developers trying to take their money and steal their dreams by foreclosing on them.”

Federal investigators found that Colony Ridge accounted for 92% of foreclosures in Liberty County between 2017 and 2022. Looking at three years preceding September 2022, investigators found that the developer had initiated foreclosure in at least 30% of seller-financed lots.

During the foreclosure proceedings, Colony Ridge would buy the property for the outstanding loan price — and with any improvements that a customer had already paid for and completed.

“In other words, Colony Ridge reimburses itself for the defaulted amount and pockets the value of any such improvements,” government officials wrote in the lawsuit.

They then allegedly flipped the property — for more money. In one example highlighted in the lawsuit, Colony Ridge sold a property in May 2020 to the first buyer for $29,580 and, after two foreclosures, to a third buyer for $64,050 in August 2021. Almost a year later, the developer foreclosed on the third buyer.

Foreclosure and property deed records reviewed by investigators showed that Colony Ridge flipped at least 40% of all properties it had sold between September 2019 and June 2023; 2,067 of those properties were sold four or more times, according to the lawsuit.

Federal officials plan to launch a public awareness campaign and will be on the ground in Liberty County to connect with people who have been affected, according to Clark, the assistant attorney general. They also opened a hotline and email to receive tips and accounts of people’s experiences with the developer.

Pooja Salhotra contributed to this story.

This article originally appeared in The Texas Tribune at https://www.texastribune.org/2023/12/20/colony-ridge-texas-federal-lawsuit-predatory-lending/.

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