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Carlos Mauricio Jarquin eagerly awaits the day he can recoup the thousands of dollars he lost on a dream in Colony Ridge.

But he has no idea whether that day will ever come.

Jarquin is one of tens of thousands of Latino residents who over the past decade bought a piece of land in the Liberty County development northeast of Houston. They took out high-interest loans with the developer, worked multiple jobs and prayed that regular payments would ensure they would attain their goal of homeownership.

But they were set up to fail, government officials allege in a federal lawsuit.

In December, the Department of Justice and the Consumer Financial Protection Bureau sued Colony Ridge, accusing the developer of targeting Latino borrowers with false statements and predatory loans. The lawsuit affirms a recent Houston Landing investigation that examined the sprawling subdivision’s business practices.

Jarquin, who poured $40,000 into his dream of homeownership before falling behind on payments after he broke his leg, hopes the court will force Colony Ridge to pay damages, allowing him and others to rebuild. 

“We fell for the publicity. They made us dream,” Jarquin said in Spanish. “So when we started our land and everything, people believed their dreams could become reality. I fell for the publicity.”

As the government’s investigation continues, here is what you need to know about the lawsuit, experts’ opinions on its likelihood of success, and what to expect going forward.

What does the lawsuit say?

The lawsuit, part of the DOJ’s Combating Redlining Initiative, lays out a bait-and-switch land sale scheme in which Colony Ridge targets potential buyers with advertising almost exclusively in Spanish, featuring Latin American flags and regional music from Latin America. 

The lawsuit alleges the company was able to lure tens of thousands of vulnerable Latino borrowers by offering properties for minimal down payments and above-average interest rates. Unlike traditional lenders who go through a background and credit check to determine whether borrowers can afford a loan, federal officials say Colony Ridge goes through no such process, which contributes to an “extraordinary” foreclosure rate.

The lawsuit, the first predatory mortgage lending case brought by the Justice Department, also accuses Colony Ridge of exploiting language barriers during the sales process, using high-pressure sales tactics and misrepresenting or omitting the costs of connecting utilities on lots for sale. 

The government is seeking to halt the lending practices, provide relief for those harmed by them and impose a civil penalty on the developers.

What do experts say? 

Lending experts the Landing spoke with said Colony Ridge’s business practices are discriminatory and violate federal consumer protection laws.

Cathy Lesser Mansfield, a professor of law at Case Western Reserve University and former policy analyst for the Consumer Financial Protection Bureau, said Colony Ridge is engaging in reverse redlining by advertising almost exclusively in Spanish and charging above-average interest rates.

While redlining is the practice of denying credit to people because of their race or ethnicity, reverse redlining is the practice of offering credit to historically disadvantaged people, but under terms that are less favorable than those offered to white borrowers in similar economic circumstances.

“What makes this (discriminatory) is when you target a certain group to treat them worse than what would be the norm of the industry,” said Winnie Taylor, professor of law at Cornell Law School and former member of the Federal Trade Commission’s Consumer Advisory Council.

When deciding whether to offer a loan, banks, credit unions and mortgage companies examine someone’s finances: how much of their income goes toward debt, how much money they have leftover each month after major expenses and their payment history. The process is called mortgage underwriting, and borrowers deemed a credit risk are oftentimes subject to high interest rates.

The only requirements to obtain a loan through Colony Ridge, however, are self-reported income and a down payment, according to the lawsuit and interviews with company officials.

How then, can Colony Ridge determine its level of risk, Mansfield wonders. 

“If you don’t do any underwriting, you’re putting both people who should be getting a lower rate and people who are definitely going to fail into these more expensive loans,” she said.

Mansfield also agreed that Colony Ridge’s high foreclosure rate is indicative of predatory lending. 

At least 30 percent of all seller-financed lots sold between 2019 and 2022 were foreclosed on within three years of their purchase, 15 times the national average, federal officials wrote in their lawsuit. 

“Thirty percent is an exorbitantly high foreclosure rate and it means that the loans were unaffordable from the get go,” Mansfield said.

Taylor, the Cornell professor, said Colony Ridge appears to employ a strategy of trying to get as many people through the door as possible and waiting for them to default.

John Harris, president and CEO of Colony Ridge, told the Landing his company’s practice of offering land to buyers with little to no credit history creates opportunities where there are none.

“We have a housing crisis. Housing is something that everybody needs and it’s in short supply and it’s expensive,” said Judith Fox, an emeritus law professor at Notre Dame University. “We’re not selling people watches here that maybe they could live without. We’re selling people a basic human need and doing it in such a way that we know that we’re taking advantage of them.”

How will this case play out?

A judge or jury could rule in favor of the government, the lawsuit could be dismissed entirely, or a settlement could be reached.

It’s up to the court to weigh the evidence and decide whether Colony Ridge is offering “a beneficial service to people of lesser means or profiting by setting up their lending practices in a certain way,” Taylor said. 

Will residents receive any compensation?

Lending discrimination cases typically result in a sizable settlement and a promise from defendants that they will halt their discriminatory behavior, experts told the Landing. 

Should the government and Colony Ridge come to a settlement, it’s likely that a remediation fund will be established.

A judge or jury could also award damages if no settlement is reached. 

Fox, a former member of the CFPB’s Consumer Advisory Board, predicts few borrowers will actually see relief because of the conceivable difficulties associated with tracking down current and former Colony Ridge residents.

What’s the timeline?

These cases typically take years to play out, Fox said. She predicts that it will take the government six months to a year to secure a settlement. The case will take longer to resolve if it goes to trial, she added.

What are advocates asking of the government?

Advocates want the federal government to take steps to ensure no one is left out of the process. 

Alain Cisneros, an organizer with FIEL, said the immigrant-led advocacy group met with federal officials last month and shared their recommendations. Top of mind is setting up a physical space where disaffected residents can get questions answered and help logging claims. 

“The majority of people living there don’t have access to computers or laptops, or even a good internet connection,” Cisneros said. “That’s going to reduce the number of claims, and people might get frustrated and decide not to place a claim at all.”  

Cisneros said organizers or federal officials need to go door-to-door, as many Colony Ridge residents do not have access to transportation. A questionnaire will also help residents figure out if they are eligible for relief or they have a strong case, he added. 

Simplifying the process and requiring as little paperwork as possible can also help current and former residents who didn’t understand or keep their full contracts, Cisneros said. 

But before residents agree to submit their information, Cisneros thinks the DOJ needs to ensure that those who cooperate with the lawsuit will not be at risk of deportation.

“People are scared of government agencies because of this, but we want them to lose that fear and defend their right to housing,” he said.

Cisneros hopes that FIEL and other organizations can act as a bridge between the DOJ and residents.  

How have previous cases played out?

In 2000, federal officials accused New York State’s largest home-equity loan company at the time of approving and funding loans to African-American women with higher broker fees than white men of similar means. 

Delta Funding Corporation also allegedly provided loans without evaluating whether borrowers could afford them and instead relief upon the equity in borrowers’ homes.

“Prudent underwriting criteria, such as debt-to-income ratios, residual income and repayment history would have indicated that the borrower likely would have difficulty repaying the loan,” federal officials said in a news release. “Delta’s practice of approving loans without regard to borrowers’ ability to repay exposed borrowers to unwarranted risk of default and foreclosure.”

Though the company admitted no wrongdoing as part of a settlement, it agreed to halt many of its practices and a $7.25 million remediation fund was created.

In a more recent case, a Bronx-area car dealership and its general manager agreed to pay $1.5 million to settle Federal Trade Commission charges that they discriminated against African-American and Hispanic car buyers by charging them higher markups and fees. 

The case against Colony Ridge is atypical in that federal officials chose not to settle before announcing their complaint, said Taylor of Cornell Law School. 

Taylor said prosecutors may feel that they have a uniquely strong case and can prove many of their allegations in court.

“I’m wondering if the notion here is that, ‘Let’s go to court. Let’s have litigation here,’” Taylor said.

Who can you reach out to? 

Anyone who believes they have been harmed by Colony Ridge’s lending practices can contact the Justice Department’s Housing Discrimination Hotline at 1-833-591-0291; press 1 for English, then 3 for fair lending and then 1 for Colony Ridge Lawsuit to leave a message. 

Callers should press 2 for the Spanish Hotline, then 3 for fair lending and then 1 for Colony Ridge Lawsuit to leave a message. Borrowers can also send an email to ColonyRidge.Lawsuit@usdoj.gov. 

Si ha sido perjudicado por las prácticas crediticias de Colony Ridge, llama al departamento de justicia: 1-833-591-0291.

Oprima 2 para español y luego 3 para discriminacion de prestamos, y 1 para dejar un mensaje sobre la demanda contra Colony Ridge.

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