Fifteen years after the subprime mortgage disaster, the Justice Division has filed its first-ever predatory mortgage lending case. And whereas among the alleged misconduct resembles unsavory practices that helped gas the 2008 meltdown, the lawsuit additionally incorporates new twists for the social media age.
In a go well with filed Wednesday in Houston,
The grievance alleges that Colony Ridge, which since 2011 has developed greater than 40,000 residential heaps on the outskirts of the Houston metro space, used false or deceptive promoting messages on social media websites equivalent to TikTok to lure Spanish-speaking prospects.
The developer allegedly promised that its heaps got here with water, energy and sewer providers, though lots of the parcels lacked the infrastructure needed to attach utilities.
As well as, Colony Ridge has allegedly been failing to evaluate prospects’ means to repay the loans they use to finance land purchases. Nor has it requested proof of debtors’ revenue, in response to the grievance.
“By way of at this time’s motion, the Justice Division is making clear that it’s equally decided to stamp out predatory lenders who benefit from the situations created by redlining as it’s to stop unlawful redlining from taking place within the first place,” Assistant Lawyer Common for Civil Rights Kristen Clarke mentioned at a press convention.
Colony Ridge didn’t instantly reply to requests for touch upon the civil lawsuit, which was filed in U.S. District Courtroom.
Additionally named as a defendant within the go well with was a Texas-based mortgage agency known as Mortgage Originator Companies LLC. In keeping with the grievance, that firm has originated all of Colony Ridge’s mortgages since 2016 and has achieved so, like Colony Ridge, with out assessing debtors’ means to repay.
Gayle Campbell, managing member of Mortgage Originator Companies, mentioned the lawsuit is the results of a misunderstanding, and that the corporate seems ahead to explaining why the land gross sales are each authorized and applicable for purchasers.
“CFPB seems to be uninformed relating to the relevant regulation relating to land gross sales, in addition to the info surrounding Mortgage Originator Companies’ involvement,” Campbell mentioned. “And we’re assured the lawsuit shall be dismissed as soon as the federal government comprehends what really occurred.”
The lawsuit lays out a scheme not solely to lure prospects with unfulfilled guarantees, but additionally to arrange debtors for failure by charging excessive rates of interest and charges, after which to depend on frequent foreclosures to flip properties to new patrons, typically at greater costs.
“Foreclosures and property deed information present that Colony Ridge flipped a minimum of 40 % of all of the properties it offered between September 2019 and June 2023, promoting roughly 8,237 properties twice, 3,267 properties thrice, and a pair of,067 properties 4 or extra occasions,” the federal government’s grievance states.
The federal government alleges that Colony Ridge violated the Equal Credit score Alternative Act, the Honest Housing Act and the Client Monetary Safety Act and the Interstate Land Gross sales Full Disclosure Act. The Justice Division and the CFPB are in search of injunctive reduction, plus penalties and redress for affected shoppers.
Colony Ridge advertises its properties extensively on TikTok, Instagram, YouTube and Fb, in response to the lawsuit. “My folks, obtain your American Dream right here,” learn the interpretation of 1 Spanish-language advert on Fb.
Whereas the advertisements promised energy, water and sewer providers, Colony Ridge allegedly instructed a special story in paperwork that it supplied to shoppers after they paid a non-refundable payment, saying that the heaps might be offered with out the infrastructure wanted to attach utilities.
Although social media corporations weren’t named as defendants, CFPB Director Rohit Chopra mentioned at Wednesday’s information convention that the case highlights the position that focused advertising and marketing on social media can play in facilitating unhealthy actors.
“So whereas that is not a part of this case, there isn’t any query that we now have to look tougher at these social media corporations and the way they’re trafficking wrongdoing,” Chopra mentioned.