Developer Colony Ridge to pay $68M in DOJ, Texas settlement

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• Key insight: The settlement resolves allegations of discrimination, predatory lending and a land sale scheme that targeted Hispanic immigrants.
• What’s at stake: Colony Ridge will pay $48 million to improve infrastructure — particularly flood control measures — and $20 million two law enforcement officers and a police substation. No money is earmarked for harmed borrowers, who have a high bar for relief under a default avoidance plan.
• Expert quote: “This DOJ will go after all lenders, financiers, and land developers who participate in schemes which ultimately encourage illegal immigration,” said Harmeet K. Dhillon, assistant attorney general in the DOJ’s Civil Rights Division.

The Justice Department, Consumer Financial Protection Bureau and state of Texas reached a $68 million settlement with Houston developer Colony Ridge Development LLC to resolve a lawsuit alleging discrimination and predatory lending in a scheme that resulted in one loan in four going into foreclosure. 

On Tuesday, the DOJ, CFPB and Texas Attorney General’s Office filed a settlement agreement and joint motion to dismiss claims against Colony Ridge and its affiliates in the U.S. District Court for the Southern District of Texas. 

A lawsuit filed against the developer in 2023 describes how Colony Ridge marketed easy financing and no credit checks to Hispanic consumers without requesting any documentation or ability to repay the loans. Regulators alleged Colony Ridge sold vacant lots that lacked the infrastructure to connect to water, power and sewer services. Colony Ridge also allegedly made misrepresentations about flood risks and utility access. 

Regulators described a scheme in which Colony Ridge set up borrowers for failure by charging high interest rates and fees, and then relied on frequent foreclosures to flip properties to new buyers, often at higher prices. The company has developed more than 40,000 residential lots on the outskirts of Houston over more than a decade. 

Under the settlement, the developer will pay $48 million for infrastructure improvements, including flood control, roads, sewage and waste management. Of that amount, Colony Ridge agreed to commit $18 million “to reduce and prevent flooding, including drainage, stormwater, and related infrastructure,” for specific developments.

In an unusual move, another $20 million will go toward increased law enforcement in the developer’s subdivisions. Specifically, Colony Ridge agreed to fund construction of a Texas Department of Public Safety and/or a County Constable substation within its subdivision called Terrenos Houston. It also will fund at least two additional full-time law enforcement officers to patrol the development.

Further, the agreement states that Colony Ridge will “purchase law enforcement equipment, gear, and vehicles for items and services associated with the property owners of Colony Ridge” and provide “additional delegated immigration enforcement authority from the federal government to the Liberty County Sheriff’s Office and Liberty County Constable offices.”

However, none of the money under the settlement is specifically earmarked for restitution to harmed customers. Instead, borrowers have significant requirements in order to obtain relief through a default avoidance plan that regulators said was aimed at helping borrowers in foreclosure.

Colony Ridge drew media attention that focused on crime in the subdivisions it developed, and allegations that the parcels were marketed to undocumented immigrants. 

Harmeet K. Dhillon, assistant attorney general in the DOJ’s Civil Rights Division, said the federal government will target companies that support illegal immigration. The lawsuit, which was brought under the Biden administration, had initially highlighted Colony Ridge’s discriminatory practices and sought to impose a civil penalty to pay for victims’ relief. 

The settlement does not include any specific money for harmed consumers. Instead, the current DOJ said its focus is on illegal immigrants. 

“This DOJ will go after all lenders, financiers, and land developers who participate in schemes which ultimately encourage illegal immigration,” Dhillon said in a press release. Dhillon has faced significant scrutiny and backlash for her handling of Immigration and Customs Enforcement actions, including her refusal to open a civil rights investigation into the fatal shooting last month of Renee Good in Minneapolis.

“Intentionally targeting vulnerable borrowers with the American dream of homeownership and then trapping them in a predatory scheme is not only wrong, it also violates our civil rights laws,” Dhillon said in the DOJ press release. “The changes required by this settlement will promote public safety, and affordable and sustainable  homeownership in America, key priorities for this administration.”

The settlement resolves allegations of predatory financing, and deceptive sales and marketing practices, for conduct that violated the Equal Credit Opportunity Act and the Fair Housing Act, the DOJ said. 

Colony Ridge’s CEO John Harris did not respond to a request for comment. The developer denied any wrongdoing and agreed to the settlement to resolve the litigation, according to the agreement.  The CFPB did not respond to a request for comment. 

Colony Ridge was accused of failing to assess customers’ ability to repay the loans used to finance the land purchases. The company allegedly did not request proof of borrowers’ income, according to the civil complaint.

Under the settlement, Colony Ridge must establish a written foreclosure policy “to meaningfully reduce the number and frequency of foreclosures and deeds in lieu of foreclosures,” according to the agreement. The company is prohibited from foreclosing on any borrower without first completing a good-faith evaluation of the borrower for relief under a default avoidance plan.

The default avoidance plan requires Colony Ridge to create an individualized assessment of any borrowers currently facing foreclosure to determine if they are eligible for relief. But the bar is high for eligible relief. Borrowers in foreclosure must have made 12 consecutive, full, on-time payments in the last 5 years; at least $10,000 in improvements to the property in the past 18 months; and installed utility taps to physically connect their property to water, sewer or gas mains.

The company can provide various forms of relief, including 0% forbearance periods; short-term, interest-free loans to borrowers for unpaid taxes, or other similar debts; no-cost or low-cost refinancing; and no-cost methods for borrowers to transfer notes to outside buyers.

Colony Ridge also must hire a compliance specialist to ensure truthful advertising, provide clear pre-sale disclosures about property conditions and costs, and ensure compliance with all county permitting and construction requirements. 

The developer also must create underwriting standards that, at a minimum, consider a borrowers’ income, assets, and debt, and ability to repay the loan, as required by law. Finally, Colony Ridge also must address harm to borrowers’ credit caused by negative credit reports. 

One of the original allegations was that the developer only provided actual mortgage documents, including the application and required disclosures in English, despite many of the borrowers’ limited English language skills.