A Texas federal judge formally closed a Biden-era lawsuit alleging reverse redlining in a Houston-area development after the U.S. Department of Justice reached a $68 million deal that he says is untethered to the complaint and risks harm to the people claimed to be affected.

U.S. District Judge Alfred H. Bennett penned an order Tuesday in which he approved a joint dismissal request from the DOJ and Colony Ridge Development LLC and allowed their settlement to proceed without the court's oversight. While Judge Bennett in a hearing earlier this month expressed his concerns with the deal and refused to give it the court's blessing, Tuesday's dismissal order gave Judge Bennett space to describe how the allocation of settlement money "bears little relationship" to the initial claims.

"The settlement agreement addresses issues not pled and provides relief not sought," Judge Bennett wrote.

The federal government filed suit against Colony Ridge in late 2023, accusing the developer of luring Hispanic residents north of Houston to take out predatory high-interest loans with no regard for their ability to pay back — known as reverse redlining — which resulted in a cycle of foreclosures. The government also alleged borrowers were misled about the utilities and infrastructure of the homes they were buying.

A $68 million deal was struck this past February. The DOJ said in a statement at the time that the deal "will go after all lenders, financiers, and land developers who participate in schemes which ultimately encourage illegal immigration," and Texas Attorney General Ken Paxton framed it as a "victory stopping Colony Ridge's illegal alien haven."

Under the deal, $48 million is allocated toward infrastructure improvement and $20 million is marked for law enforcement, particularly immigration enforcement aid. Housing advocacy groups criticized the terms of the deal, saying it provides no relief to consumers and subjects the residents to heightened surveillance and potential detention or deportation for some.

Judge Bennett's rebuke on Tuesday largely mirrored that of the groups. The jurist spent about a page in the order detailing the historical background and purpose of the Federal Housing Act and the Equal Credit Opportunity Act — which the suit originally brought claims under. But the deal, he said, does not remedy the alleged misconduct.

"The court finds it difficult to reconcile the Department of Justice's endorsement of this settlement agreement with the statutory purposes of the FHA and ECOA, which the Department of Justice is entrusted to enforce," Judge Bennett wrote.

He noted that the initial complaint did not seek funding for infrastructure improvements or allege failures in policing or immigration enforcement. Pointing to the amici arguments, he said Hispanic borrowers may be further marginalized by increased immigration enforcement.

Considering the infrastructure improvements, the judge said the benefits lean toward Colony Ridge given the potential increase in value or desirability of the properties, and do nothing for borrowers who went through foreclosure and were displaced from their homes.

Judge Bennett added that borrowers who are locked into "insidiously" high interest rates are not addressed. In a footnote, the judge acknowledged that the record only contains allegations, not evidence, but said the size of the deal "speaks for itself and reflects Colony Ridge's recognition of potential exposure arising from the conduct alleged."

As for credit relief or default avoidance, the deal "stops short" in only requiring the developer to prepare written proposals to reduce the number and frequency of foreclosures, the judge said.

"A promise to propose is not remediation, and a plan to formulate relief is not relief delivered. What is left is a remedy without teeth and commitment without consequence," Judge Bennett said. He acknowledged that the parties are free to resolve the suit on whatever terms they desire, but said the court would not give the deal its "imprimatur."

The developer has defended the deal terms, saying customers can remove all negative credit reporting associated with defaulted loans from the development and can obtain interest-free loans from Colony Ridge for unpaid taxes, property owners' association dues and other debts. In the hearing earlier this month, in response to the judge questioning the deal's funding for law enforcement and immigration enforcement, the DOJ argued it had learned of residents' public safety concerns through interviews and discovery.

Counsel for the DOJ did not immediately provide comment. Counsel for Colony Ridge did not immediately respond to a request for comment Wednesday afternoon.

The federal government is represented by Harmeet K. Dhillon, Carrie Pagnucco and Varda Hussain of the U.S. Department of Justice's Civil Rights Division.

Texas is represented by Rob Farquharson, Joselyn R. Mathews, Daniel Zwart, Kaylie Buettner, Meredith Spillane, Clara Carleton, Scott Froman and Matthew Childrey of the Texas Office of the Attorney General.

Colony Ridge and its affiliates are represented by Judd E. Stone II, Christopher D. Hilton, Ari Cuenin, Michael R. Abrams and Alexander M. Dvorscak of Stone Hilton PLLC, Philip H. Hilder, Q. Tate Williams and Stephanie K. McGuire of Hilder & Associates PC and Jason Ray of Riggs & Ray PC.

The housing advocacy groups are represented by Sasha Samberg-Champion of the National Fair Housing Alliance, Yiyang Wu and Nicholas Abbott of Relman Colfax PLLC and Janell M. Byrd-Chichester.

The cases are Consumer Financial Protection Bureau v. Colony Ridge Development LLC et al., case number 4:23-cv-04729, and Texas v. Colony Ridge Development LLC et al., case number 4:24-cv-00941, in the U.S. District Court for the Southern District of Texas.

--Editing by Marygrace Anderson.