DENVER — Colorado Attorney General John Suthers announced today that a Denver District Court judge has ordered a Centennial mortgage broker and his mortgage brokerage companies to pay nearly $1 million in civil penalties, consumer restitution and disgorgement for engaging in deceptive advertising and fraudulent loan-origination practices. The ruling against Leo Shifrin and his companies also bars them from engaging in loan origination in Colorado. The judge also awarded the Office of the Attorney General attorneys fees and costs related to prosecuting the case.
The Office of the Attorney General reached a consent decree with another individual involved in the businesses, Jerry Johnson, shortly before trial that also provides for a $1 million judgment and precludes him from engaging in loan origination. The companies involved in the mortgage brokerage activities were Mortgage Planning & Lending Specialists, Ltd., Jupiter Lending, Shifrin, Inc., CBA, Inc., and Wholesale Mortgage Lending. These companies operated out of an office located at 11551 E. Arapahoe Road in Centennial.
“This ruling is a victory for Colorado consumers who had relied on these mortgage brokers to put them in loans with low interest rates.” Suthers said. “In most cases, the low teaser rates these and other companies used to draw people in lasted a month and not years. This verdict is as much a victory for affected consumers as it is a statement that my office has and will continue to aggressively prosecute individuals and companies engaged in mortgage fraud.”
According to the complaint the state filed against Shifrin, Johnson and their companies in February 2008, the defendants defrauded consumers between 2004 and 2007 through the use of deceptive advertisements and failing to disclose important details during the loan-origination process. As a result of the defendants’ conduct, Colorado consumers ended up with “option ARM” loans* — which are considerably riskier than traditional adjustable rate mortgages. Traditional adjustable rate mortgages have a fixed rate for one to five years before transitioning to an adjustable rate. Option ARM loans typically only have a low fixed introductory rate for one to three months before assuming an adjustable interest rate.
Through the advertisements used to solicit customers and the dealings they had with consumers, the defendants failed to make required disclosures about loan terms and failed to clearly describe the loan program consumers were enrolling in. The court found that defendants lured borrowers into their offices with hundreds of advertisements printed in The Denver Post and The Rocky Mountain News that featured low teaser rates. The court found that defendants misrepresented and failed to disclose that these low teaser rates only lasted for a few months and then would quickly escalate upwards thereafter. The court additionally found that borrowers who thought that their low rate of 1 percent to 3.25 percent would last anywhere from one to five years were surprised to learn that it was rapidly escalating on a monthly basis. Most borrowers quickly refinanced out of these loans, thereby incurring a prepayment penalty, after learning the true terms of their loans.
This judgment is the latest in a string of mortgage and foreclosure fraud cases the Office of the Attorney General has successfully resolved in favor of consumers. For more information on the Office of the Attorney General’s work to combat foreclosure and mortgage fraud, visit the office’s Mortgage Fraud Information Center.
* Although the borrower retains the “option” of continuing to make low monthly payments with an option ARM loan, any difference between the payment and the interest actually accruing on the loan is added to the principal — a process known as negative amortization. According to industry estimates, as much as 85 percent of option ARM borrowers make only the minimum payment. When the interest added reaches a certain level (usually 110 percent of the principal loan balance) the loan recasts and the borrower is responsible for a fully amortized monthly payment.