The former owner of a defunct Maplewood mortgage brokerage was charged Monday in a Minneapolis federal court with conspiracy to commit mortgage fraud involving the conversion of apartment buildings into condominiums.
Chad Wegscheider, 37, formerly of White Bear Lake, was charged by way of a felony information rather than an indictment, a procedure that generally indicates that a plea bargain will follow.
According to prosecutors, Wegscheider and an unidentified person conspired in a scheme to enter into purchase agreements for apartment buildings in Minnesota and Wisconsin that would be converted into condos. They allegedly paid for buildings by tricking mortgage companies into lending money to unqualified borrowers whom they'd recruited in advance and who agreed to buy condos at inflated prices.
Authorities say the scheme, which took place between June of 2006 and 2008, created a pool of funds to pay for the buildings and produced more than $5 million in "excess funds."
A federal lawsuit in 2008 identified a Hastings couple, James and Teresa Hoffman, as leaders in the alleged scheme.
The FBI accused them in an affidavit of selling dozens of condos in Rochester, Sauk Rapids and Spicer "at substantial profit" to a handful of buyers who never intended to live there and never really had to pay for them.
Instead, the couple supplied the buyers' downpayments, propped up their bank accounts and falsified their mortgage applications, the FBI alleged in an affidavit used to obtain a search warrant. They then used rent from the condos to cover the straw buyers' mortgage payments, the affidavit said.
But the Hoffmans allegedly started using those funds for other purposes. The mortgages went into default, leaving the straw buyers holding the bag, according to the FBI.
The Hoffmans have not been charged. James Hoffman's attorney, Peter Wold, declined to comment on Wegscheider. It's unclear if Teresa Hoffman has an attorney; she could not be reached.
U.S. District Judge David Doty issued an injunction in 2008 to keep the Hoffmans and their associates from engaging in other fraud or getting rid of assets. Doty also appointed a receiver to take control of the Hoffmans' businesses.
Wold said at the time that Hoffman believes he did nothing illegal. "Jim Hoffman has been threatened with this investigation for many, many, many months," Wold said. "And he is anxious to defend himself with good faith if they do charge him."
According to the FBI, Hoffman directed the buyers to Minnesota One Mortgage, a defunct firm previously owned and run by Chad Wegscheider. The FBI alleged that he and another man acted as brokers for the buyers and helped prepare false loan applications.
Dan Browning • 612-673-4493