Five People Charged in $14 Million Mortgage Fraud

admin —  May 8, 2009 — 1 Comment

Paul J. Zaleski, 60, formerly of Richmond, Illinois; Michael Pembroke, 45, Twin Lakes, Wisconsin; John F. Hochrek, Jr., 48, Spring Grove, Illinois; Patricia Lynn Kay, 47, Kenosha, Wisconsin and Robert Farrell, 29, formerly of Richmond, Illinois have been charged in a twenty-four count indictment with wire fraud and money laundering in connection with a mortgage fraud scheme.

According to the indictment Zaleski, is alleged to be the leader and organizer of the scheme. He is charged with 17 counts of wire fraud in violation of Title 18, United States Code, Section 1343 and five counts of money laundering in violation of Title 18, United States Code, Sections 1956 and 1957. Pembroke and Kay are each charged with five counts of wire fraud and one count of money laundering. Hochrek is charged with seven counts of wire fraud, and Farrell, with six counts of wire fraud. If convicted, each defendant faces up to 20 years in prison for each wire fraud offense and up to 30 years in prison for each money laundering offense.

The indictment alleges that Zaleski orchestrated the purchase of at least 40 real estate properties by straw buyers who were led to believe that they were acting as members of an investment group. In order to secure mortgage loans, Zaleski and Farrell, working as loan originators at First Security Financial Services in Kenosha, Wisconsin, prepared fraudulent loan applications in the names of the buyers. The applications contained, among other false representations, inflated appraisals, some of which were prepared by Hochrek. The purpose of the scheme was to funnel mortgage funds to Silver Creek Investments, Northpointe Development and Lakeside Property Management, all shell companies that were controlled by Zaleski, Pembroke and Kay.

The indictment also alleges that fraudulently obtained funds were subsequently laundered in transactions that involved the inducement of straw buyers and the purchase of additional properties.

Over the course of a two year period, numerous mortgage lenders advanced more than $14 million in fraudulently procured funds, at least $2 million of which was deposited into accounts for the shell companies. The loans subsequently went into default and foreclosure.

An initial appearance for Pembroke, Hochrek and Kay has been scheduled for May 14, 2009 before Judge William E. Callahan, Jr. Zaleski and Farrell have been arrested in California and are awaiting return to Wisconsin.

The case was investigated by Internal Revenue Service, Criminal Investigation Division and the Federal Bureau of Investigation. The case is being prosecuted by Assistant U.S. Attorney Carol L. Kraft.

According to Acting United States Attorney Michelle Jacobs “this case, and others like it, have serious ramifications not only for the defrauded lenders but also for the residents of the neighborhood where the properties are located. This demonstrates the commitment we all share to protect consumers from fraud and help to ensure the integrity of the mortgage market and other credit markets“. She also commended the work of the law enforcement agencies involved in this lengthy investigation.

It should be noted that an indictment is merely the formal method of charging an individual and does not constitute inference of his or her guilt. An individual is presumed innocent until such time, if ever, that the government establishes his or her guilt beyond a reasonable doubt.

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One response to Five People Charged in $14 Million Mortgage Fraud

  1. This is a another example of the FBI witch hunt against Mortgage Brokers.

    You mean to tell me the “straw buyers” didn’t read or understand ANYTHING…maybe they weren’t “straw buyers” but people who wanted to cash in on the rising housing market.

    These “investors”knew what they were doing and in order to save their butt they complained to the FBI.

    The housing market busted, the values declined just like everyone else’s property homes did across America.

    Did the indictment point out that every so called “straw buyer” made money, did not file tax returns reporting that each one was involved in “cash” paying jobs and basically were cheating the IRS.

    Out of the alledged 2 million deposited in the company accounts,over 1.75 million went to pay mortgages and update the properties.

    Does the indictment state that some properties were bought and sold and made a profit of over 150k in less than 6 months.No the FBI knew about those properties but failed to mention that. The reason the “investors” kept buying properties was because they were making money. When the market fell, they had to blame somebody…why not the broker.

    Also did they report the income they received on their taxes. No.

    Is anybody that stupid that they would go through the loan process, have a lawyer present at closing, sign 55 pages, have them all explained to them by a lawyer,read over the application containing information that THEY provided to the borker, and then say they were “induced” to sign them.

    The only way I would do something like that is if I had a gun to my head.

    Also,during the time period of the investigation, mortgage brokers were bombarded by banks offering “no doc”,”stated income”,”no income verification” loan programs.

    These programs were designed for clients that did not report their income properly on their tax returns…how can stating a reasonable income for the employment stated,verified by the underwriter with the borrower, and backed up by a CPA letter stating that the borrower filed as a schelude C be fraud on the part of the broker ?

    Did the FBI, or Grand Jury read the underwriting notes that CLEARLY point out that EACH appraisal was reviewed by an independent appraiser for review purposes…to the point of having SEVERAL separate appraisals done.

    If you have 3 professional licensed appraisers looking at the same property and the conclusion was that the value of the property was within 2% of each appraisal…how can that be fraud ?

    Did the FBI or Grand Jury READ the underwriter’s verifications. Everything on a loan application was verified by a third party.

    Did anyone ever hear of a seller credit whereby the seller, in order to sell the house, will issue a credit at closing,somtimes the proceeds go to a remodeling company, clearly showing it on the HUD closing statement.

    As a underwriter,we did not care what the seller did what their share of the money. If they wanted to give their entire proceeds to the homeless, it was alright.

    I know we did a mortgage for a taco vendor doing business on Lawrence Ave. in Chicago. He did not even have a social security number. To verify income,management accpeted a polaroid of him selling tacos.

    Wall Street and the wholesale lender packaging these mortgages and selling them were the real reason for this mess, not the brokers.

    I’m sick and tired of being sick and tired of all of the blame being put on people who took pride on helping their clients only to have the FBI and the Feds say..” wait a minute, what you did ,WE think was wrong…even though the Banks and lenders verified all information on the appplications and every application that resulted in a closing went through a painstaking quality control process.

    There is no way that these brokers would do loans worth 14 mil without the banks noticing something was awray.

    No, the “straw buyers” who were probably in reality a bunch of “investors” tried to “save their butt” because they knew THEY would be in trouble because THEY provided the broker with the information, and the value of the homes were less than the mortgage…like it hasn’t happened to you or your neighbor…declining home values.

    I’m sick of this fraud stuff. We all lost..period.

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