On Wednesday, the U.S. Department of Justice announced a first-of-its-kind lawsuit against Colony Ridge, claiming the Houston-area developer operated an illegal land sales scheme and defrauded Hispanic borrowers through TikTok.
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The developer of the subdivisions that cover about 33,000 acres of land about 30 miles north of Houston allegedly used Spanish videos to target prospective Latino buyers. It markets these subdivisions using the names "Terrenos Houston" and "Terrenos Santa Fe."
Once a person visited the property, Colony Ridge allegedly used high-pressure sales tactics, required minimal down payments, and extended loans without assessing a buyer's ability to repay or verify their gross income.
The DOJ said the homes ended up having poor water, sewer, and electrical infrastructure, and payment plans were hard to keep up with. In some cases, interest rates were nearly 13%.
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, federal authorities described at a Wednesday news conference.
An investigation found roughly 30% of Colony Ridge's lots were being foreclosed within three years of purchase. It accounted for 92% of all foreclosures in Liberty County between 2017 and 2022.
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Specifically, the lawsuit alleges that Colony Ridge:
- Misleads borrowers about infrastructure on the lots it sells: The developer allegedly advertises almost exclusively in Spanish, often in TikTok or other social media posts featuring national flags and regional music from Latin America. In the advertisements, Colony Ridge would promise consumers the dream of homeownership with its own seller financing: an easy-to-obtain loan product that requires no credit check and only a small deposit. "Terrenos Houston has all city services for each lot," the company is said to have also claimed in Spanish. It would only be after applicants paid a non-refundable deposit that the company disclosed in English that those services may not be provided.
- Sells lots that flood with rain and raw sewage: The company is also accused of failing to inform borrowers of flood risk in lots that have flooded in the past. The suit claims rain causes significant flooding in parts of the Terrenos Houston subdivision, causing raw sewage to run through or around the property.
- Targets Hispanic consumers with predatory loans: Colony Ridge allegedly used high-pressure sales tactics to push borrowers to obtain their loan product quickly. The interest on their loans ranged from 10.9% to 12.9% between 2017 and 2021 when the standard 20-year fixed rate loan averaged 2.35% to 4.05% during that time, the lawsuit continues. They apparently would also not collect the information needed to determine if the borrowers could afford the loan.
- Churns through borrowers in a cycle of foreclosure: When families would fall behind on payments and enter foreclosure, the company would "flip" the properties by repurchasing and reselling them, often at higher prices.
- Exploits language barriers at borrowers' expense: The suit alleges that while Colony Ridgew would do most of its marketing activities in Spanish, it would switch to English when it came to the actual transaction and important documents.
"Colony Ridge set out to exploit something as old as America: An immigrant's dream of owning a home," Alamdar S. Hamdani, the U.S. Attorney for the Houston district, said. "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."
Colony Ridge's chief executive, John Harris, said Wednesday he was "blindsided" by the lawsuit, which he called "baseless and both outrageous and inflammatory."
"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 spokesman. "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."
The Texas Tribune contributed to this report.