Loans

Fed lawsuit paints a picture of predatory mortgage lending in the age of social media


In a lawsuit filed Wednesday in Houston, the Justice Department and the Consumer Financial Protection Bureau accused Colony Ridge Development LLC of running a “bait-and-switch” land sale scheme that provided predatory loans to Hispanic immigrants.

Bloomberg

Fifteen years after the subprime mortgage crisis, the Department of Justice filed its first predatory mortgage lending case. While some of the alleged misconduct is similar to the abhorrent practices that fueled the 2008 economic collapse, the lawsuit also contains new twists for the social media age.

In a lawsuit filed Wednesday in Houston, Ministry of Justice The Consumer Financial Protection Bureau accused Colony Ridge Development LLC of operating a bait-and-switch land sale scheme that provided predatory loans to Hispanic immigrants.

The indictment alleges that since 2011, Colony Ridge, which has developed more than 40,000 residential sites in suburban areas of the Houston metropolitan area, used false or misleading advertising messages on social media sites such as TikTok to attract Spanish-speaking customers.

Developers apparently promised that their lots would have water, electric and sewer services, even though many of the lots lacked the infrastructure needed to hook up to utilities.

Additionally, according to the civil complaint, Colony Ridge allegedly failed to assess a customer’s ability to repay loans used to purchase land and failed to require borrowers to provide proof of income.

“With today’s action, the Department of Justice is making clear that it is equally determined to stamp out predatory lenders who take advantage of the conditions redlining creates,” said the Assistant Attorney General for Civil Affairs, which was designed to prevent illegal redlining in the first place. Happened. Christine Clark said at a press conference.

Colony Ridge CEO John Harris said in a written statement that the company was “blindsided” by the lawsuit filed in U.S. District Court.

“This lawsuit is baseless, outrageous and inflammatory,” Harris said. “Our business thrives on customer referrals because landowners are happy and able to experience the American dream of owning property. We extend our support to Providing loans to those who would not otherwise have access to them.” “We are proud of the relationships we have built with our customers. We look forward to telling the true story of Colony Ridge.”

Also named in the lawsuit is a Texas mortgage company called Loan Originator Services LLC. According to the indictment, the company originated all of Colony Ridge’s mortgages since 2016 and, like Colony Ridge, made the mortgages without evaluating the borrowers. Pay back ability.

Gayle Campbell, managing member of Loan Originator Services, said the lawsuit was the result of a misunderstanding and the company looked forward to explaining why the land sale was both legal and appropriate for its clients.

“The CFPB appears to be unaware of the applicable law regarding the land sale and the facts regarding the involvement of the loan origination services company,” Campbell said. “We believe the lawsuit will be dismissed once the government learns what actually occurred.”

Colonial Ridge has recently attracted attention from conservative mediaThe commission focused on crime within the complex it develops, as well as allegations of marketing properties to undocumented immigrants. The developer’s business practices had received scant attention before the Justice Department and CFPB filed the lawsuit on Wednesday.

The lawsuit lays out a scheme that not only lures customers with unfulfilled promises but also sets borrowers up for failure by charging high interest rates and fees, then relying on frequent foreclosures to flip the properties to new buyers, often at high prices. higher.

“Foreclosure and property deed records show that Colony Ridge flipped at least 40% of all properties sold between September 2019 and June 2023, with approximately 8,237 properties sold twice, 3,267 properties sold three times, and 2,067 properties sold three times. The property was sold four or more times,” the government’s reported 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 Department of Justice and the CFPB are seeking injunctive relief as well as penalties and damages for affected consumers.

According to the lawsuit, Colony Ridge primarily advertises its properties on TikTok, Instagram, YouTube and Facebook. A Spanish ad on Facebook translated as: “My people, live your American dream here.”

While the ads promised electric, water and sewer service, documents Colony Ridge allegedly provided to consumers after paying a non-refundable fee told a different story, saying the lots could be used without utility hookups. Sold with required infrastructure.

Although social media companies were not named as defendants, CFPB Director Rohit Chopra said at a news conference Wednesday that the case highlights the role that targeted marketing on social media plays in facilitating bad actors.

“So while it’s not part of this case, there’s no question that we have to take a closer look at these social media companies and how they traffic in wrongdoing,” Chopra said.





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