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A federal lawsuit against a Texas-based developer and lender accused of providing predatory loans on thousands of undeveloped lots to Hispanic buyers underscores the need to provide information to borrowers with limited English proficiency in their preferred language, regulators and consumer advocates say.
The Dec. 20 lawsuit alleges that New Caney, Texas-based developer Colony Ridge Development LLC markets “flood-prone land without water, sewer, or electrical infrastructure,” in Spanish, and that its mortgage affiliate “sets borrowers up to fail with loans they cannot afford,” providing important documents in English.
In a statement, Colony Ridge CEO John Harris called the lawsuit “baseless,” “outrageous” and “inflammatory.”
“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,” Harris said. “We look forward to telling the true story of Colony Ridge.”
In their joint lawsuit, the Consumer Financial Protection Bureau and Department of Justice allege that Colony Ridge and its affiliated companies “exploited language barriers by conducting most of its marketing in Spanish while offering important transaction documents only in English.”
The lawsuit claims Colony Ridge violated the Equal Credit Opportunity Act by targeting Hispanic consumers with a predatory loan product, and violated the Consumer Financial Protection Act of 2010 by making deceptive representations to consumers.
Colony Ridge is the developer of more than 40,000 lots 30 miles northeast of Houston in unincorporated Liberty County, marketing the subdivisions as “Terrenos Houston” and “Terrenos Santa Fe.” The company is registered as a mortgage lender and loan servicer in Texas, sponsoring eight mortgage loan originators, according to records maintained by the Nationwide Multistate Licensing System.
The government alleges that when buyers end up in foreclosure, Colony Ridge is often able to repurchase their lots and sell them again, often at higher prices. The lawsuit claims Colony Ridge flipped at least 40 percent of properties it sold between September 2019 and September 2022, reselling thousands of lots two, three and even four times.
“Colony Ridge’s exploitative practice began with misleading advertising on platforms like TikTok and often ended with families facing economic ruin, no home and shattered dreams,” Alamdar Hamdani, U.S. Attorney for the Southern District of Texas, said in a statement.
Nicole Cabañez, Skadden Fellow at the National Consumer Law Center, said in a statement that the group is “thrilled that the Department of Justice and the CFPB have taken this critical step to protect consumers with limited English proficiency from abuse. However, consumers with limited English proficiency will continue to be vulnerable to these scams so long as mainstream mortgage lenders continue to refuse to accommodate them.”
The Federal Housing Administration (FHA) and Fannie Mae and Freddie Mac’s regulator, the Federal Housing Finance Agency, require that mortgage lenders ask prospective borrowers what language they prefer. FHA makes translated mortgage forms and model documents available in multiple languages, including Chinese, Korean, Spanish, Tagalog and Vietnamese.
The government acknowledged in its lawsuit that Colony Ridge notaries “verbally review the Pre-Closing documents obtained from the Loan Originator Services software with the consumer, in Spanish if that is the consumer’s primary language.”
But regulators say that the verbal review “is not an exact translation of the Pre-Closing documents from English to Spanish and, therefore, does not adequately convey the terms and conditions of the loan to consumers.”
Last year Guaranteed Rate announced that it had expanded its Spanish language access program to include loan disclosures that describe loan terms and fees, allowing the company to take borrowers from application through closing in Spanish.
Maxwell, which provides technology to hundreds of mortgage lenders, banks and credit unions, says its “Español” mortgage solution lets borrowers complete mortgage applications in Spanish or English, providing the ability to switch back and forth between languages.
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