DOJ, Texas Settle Claims Against Developer and Lender Over Discriminatory Land Sales and Financing to Hispanic Borrowers

The DOJ and the State of Texas entered into a consent order to resolve pending enforcement actions against a land developer and its affiliated lender over an alleged predatory land sales and mortgage financing scheme directed at Hispanic borrowers.

As previously written about here, the developer offered seller-financed lots for construction of homes.  They allegedly directed their marketing towards Hispanic consumers, advertised predominantly in Spanish, and regularly featured flags from Latin American countries in their advertising and in their offices.  The defendants allegedly misled borrowers about the properties, including misrepresenting that the land had existing sewer, water, and electrical infrastructure—when it often did not—and by misrepresenting flooding risks.  The lender offered financing with interest rates around 10.9% to 12.9%, compared to prevailing rates at the time which averaged around 2.4% to 4%.  The lender also allegedly did not analyze the borrowers’ ability to repay the loans, and—despite advertising in Spanish—sale and financing documents and disclosures were provided solely in English.  Often due to the high interest rates and the additional unexpected expenses needed to prepare the land for home construction (e.g., installing utility infrastructure; flood mitigation), borrowers defaulted at very high rates.  The developer would allegedly repurchase the properties at foreclosure for a low price and then repeat the cycle with new buyers.

The settlement does not require payment of any civil money penalties.  Among other things, the defendants agreed to:

• Spend $48 million on general infrastructure improvements and repairs for the developments, including a minimum of $18 million for drainage and flood control;
• Spend $20 million on additional law enforcement personnel, facilities, and equipment;
• Not develop any new subdivisions for three years;
• Hire a compliance specialist to oversee adherence to the settlement;
• Develop new underwriting standards to confirm borrowers’ ability to repay;
• Implement plans to prevent or reduce defaults and foreclosures;
• Make various documents and disclosures available to consumers in both English and Spanish;
• Offer all future borrowers the option to rescind their purchase up through the due date for their second payment after closing; and
• Other reporting, recordkeeping, and compliance enhancements related to employee training, advertising, non-discrimination, and other aspects of the business.

Additionally, some terms of the settlement touch on immigration-related issues, including: requiring that law enforcement personnel operating in the developments have delegated immigration enforcement authority from the federal government; requiring that purchasers provide certain forms of identification; and obligating the defendants to work with law enforcement to confirm that buyers are not known members of any transnational criminal organization.  In announcing the settlement, the head of the DOJ’s Civil Rights Division stated that the defendants’ conduct violated civil rights laws, and also noted that the “DOJ will go after all lenders, financiers, and land developers who participate in schemes which ultimately encourage illegal immigration.”