On 3/14/24, Texas Attorney General Ken Paxton filed a 48-page lawsuit against Colony Ridge, its owners and affiliates. The lawsuit, filed in United States District Court, alleges the defendants engaged in a variety of deceptive practices that violated the:

• Texas Deceptive Trade Practices Act
• Fraud in Real Estate Transactions Act
• Consumer Financial Protection Act of 2010
• Interstate Land Sales Full Disclosure Act.

The lawsuit claims that the sprawling community a few minutes northeast of Houston in Liberty County is based on a foundation of “false, misleading and deceptive sales, marketing and lending practices.”

The lawsuit comes on the heels of a request by the entire Republican Congressional delegation for Paxton to investigate Colony Ridge. Paxton subsequently wrote a letter to Governor Greg Abbott, Speaker Dave Phelan and Lieutenant Governor Dan Patrick. That letter outlined results of a preliminary investigation for a special session of the Texas Legislature to consider last year.

Although the legislature took no substantial action against Colony Ridge, the U.S. Department of Justice (DOJ) did. It sued Colony Ridge for predatory lending practices, bait-and-switch advertising and more. The charges filed today by the Texas Attorney General reinforce and amplify the DOJ allegations.

Business Model Allegedly Based on Foreclosures

Specifically, the suit claims that, “Colony Ridge targets foreign-born and Hispanic consumers with limited or no access to credit with promises of cheap, ready-to-build land and financing without proof of income. And Colony Ridge lies in a multitude of ways about the conditions that those buyers will experience on the property.”

The AG further claims, “Many of those conditions, once discovered, preclude the buyer from actually making any practical use of the land. The result is that the buyer, having discovered that they cannot meaningfully use the land, defaults on the land financing at jaw-dropping rates.”

“Colony Ridge then forecloses on the buyer, re-possesses the land having lost nothing, and then turns around and sells the same land again to another unsuspecting buyer with the same deceptive set of misrepresentations.”

As a result, the lawsuit claims Colony Ridge foreclosure rates were 50X higher than the 2023 national average.

Paxton Lawsuit

The lawsuit meticulously documents how the Colony Ridge business model allegedly incentivizes foreclosures. According to Paxton, Colony Ridge routinely repurchases lots through foreclosure and resells them at higher prices that reflect the value of improvements previous buyers have made.

Marketing in Spanish with Legal Papers in English

The lawsuit goes into detail about marketing practices that exploit Hispanic buyers’ often poor understanding of the English language and U.S. laws. Marketing reportedly takes place in Spanish, but closing documents are in English in small print, with only a brief verbal Spanish summary that omits key details.

Fake Social-Media Listings

Paxton also alleges that marketing lured buyers through fake social media accounts using fake listings under fake names. Colony Ridge routinely provided cell phones to its sales representatives with multiple SIM cards, each linked to the fake property listings around the Houston area.

If a potential buyer expressed interest, their contact information got forwarded to Colony Ridge, even if they were not looking for land in Colony Ridge. Said another way, the fake listings were used to cast a wider net for potential buyers.

Services Promised, but Not Included

Allegedly, advertisements claimed the lots included services such as water, electricity and drainage when they did not. They also claimed that the available services would save buyers thousands of dollars compared to septic systems.

Instead, says the lawsuit, “…consumers are responsible for spending thousands (even tens of thousands) of dollars to set up city services because access, contrary to Colony Ridge’s representations, is not readily available. Further, many consumers must wait over a year for city service installation, belying Colony Ridge’s claims that lots are readily accessible for all city services.”

The lawsuit frequently quotes Colony Ridge training manuals for its employees, suggesting a systematic approach to alleged violations. Many employees apparently provided insight into their employers’ practices.

Returns Promised, but Not Allowed

“Colony Ridge compounds misrepresentations at closing by informing concerned consumers that Colony Ridge will take back lots from buyers who can no longer afford their mortgage payments,” says the lawsuit. But if a buyer tries returning a property due to hardship, they are then told “returns are not allowed.”

Delivery Promised at Closing, but Often Delayed Year or More

The lawsuit claims Colony Ridge allegedly delivers property to the buyer as of the date of closing. However, buyers report that they have had to wait up to two years to take possession. “Colony Ridge does not allow them onto the land for any purpose, including clearing illegally-dumped trash or debris, leveling, or putting in culverts,” claims the lawsuit.

Clients Asked to Sign Illegal Waivers

Paragraph 70 states that contracts contain an illegal deceptive-trade-practices waiver. On paper, the waiver purports to allow Colony Ridge to avoid a whole range of consumer claims ranging from fraud to Deceptive-Trade-Practice-Act (DPTA)-based claims. However, under DPTA, contracts may not contain such waivers. Says the lawsuit, “This waiver provision is a per-se DTPA violation.”

Taxes Not Prorated as Promised

In Paragraph 71, Paxton says that Colony Ridge told buyers that property taxes would be prorated as of the date of the closing. But deeds state that consumers are liable for ALL taxes from the current year, and even any increased taxes from previous years.

Flooding Problems Not Disclosed

Section E (Paragraphs 73-79) talks about undisclosed flooding problems.

Unfortunately for many surrounding residents, the lawsuit does not seek a remedy for Colony Ridge drainage/flooding impacts beyond the boundaries of the community.

Developer Used POA Fees to Fund Expansion, not Improve Neighborhoods

Section F (Paragraphs 80-85) discusses how a property owner association (POA) controlled by the developer collects high fees without delivering any services that improve the community.

Instead, the El Norte POA (one of the defendants) “exists to deceive consumers into paying money to benefit their communities when, in truth, it merely serves to feed Defendants’ expansionist goals for the future.”

Four Counts All Allege Deceptive Trade Practices

Starting on Page 30, the lawsuit lists four counts against the various defendants. They allege:

• Violations of the Deceptive Trade Practices Act.
• Fraud in Real Estate Transactions.
• Consumer Financial Protection Act violations.
• Interstate Land Sales Act violations.

Millions in Penalties Sought

The lawsuit alleges that such practices have affected thousands of buyers. The State of Texas seeks civil penalties up to $1 million dollars per day during which such violations continue. It also seeks $10,000 per violation and an additional amount of $250,000 if alleged victims were 65 or older.

Other “Asks”

Beginning on Page 44/Paragraph 145, the lawsuit lays out what it requests from the court – an order:

• Declaring Defendants’ conduct in violation of the laws above
• Enjoining Defendants from:
  • Creating fake social-media accounts
  • Using false or misleading images within social media
  • Falsely representing the location of lots within advertisements
  • Not selling lots as advertised
  • Failing to provide accurate translations of documents
  • Misrepresenting the condition of lots for sale
  • Advertising that POA membership includes services or confers benefits
  • Collecting any delinquent POA funds
  • Foreclosing on any lien on real property for unpaid amounts due to any Colony Ridge POA
  • Transferring, moving, concealing, spending, or withdrawing POA funds
  • Collecting or spending funds from real property owners in any Colony Ridge subdivision, unless such funds are to be spent only for the benefit of the residents of that specific Colony Ridge subdivision.
• Directing;
  • The recission or reformation of contracts where necessary to redress injury to consumers
  • Defendants to make full restitution to all consumers who have suffered losses as a result of the acts and practices alleged
  • Defendants to pay the State appropriate civil penalties pursuant to the CFPA and the DTPA
  • Defendants to pay the State’s investigative and litigation costs.

For a listing of previous posts involving Colony Ridge, see History of Heartbreak.

Posted by Bob Rehak on 3/15/24

2390 Days since Hurricane Harvey

The thoughts expressed in this post represent opinions on matters of public concern and safety. They are protected by the First Amendment of the US Constitution and the Anti-SLAPP Statute of the Great State of Texas.