Washington Federal Bank for Savings, 2869 S. Archer Ave., was shut down in December 2017 for “unsafe or unsound practices” days after its president was found dead in what was ruled a suicide. A federal audit later uncovered an $82.6 million fraud at the bank.

Washington Federal Bank for Savings, 2869 S. Archer Ave., was shut down in December 2017 for “unsafe or unsound practices” days after its president was found dead in what was ruled a suicide. A federal audit later uncovered an $82.6 million fraud at the bank.

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Disbarred southwest suburban lawyer caught up in Bridgeport bank failure probe

Federal investigators have been talking with disbarred attorney John Farano Jr. about the collapse of clout-heavy Washington Federal Bank for Savings.

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A disbarred southwest suburban lawyer who spent seven years in prison in a mortgage-fraud scheme is now entangled in the investigation of a failed Bridgeport bank whose president was found dead in a customer’s bedroom as federal regulators rushed to shut down the bank over massive fraud.

It’s unclear why federal investigators have been talking with the disbarred attorney John Farano Jr., about the collapse of Washington Federal Bank for Savings.

The bank, which had long ties to the 11th Ward Regular Democratic Organization that’s long been the Daley family’s base of power, had been run by Farano’s longtime friend John F. Gembara.

Farano got out of prison last July on his fraud conviction, which didn’t involve Gembara’s bank.

Since then, he’s been fighting a foreclosure lawsuit on a $274,400 mortgage he got from Gembara’s bank 13 years ago for four condominiums in Worth.

That was the only outstanding loan he had from Washington Federal, according to Farano, who says he repaid another mortgage last fall on his former law office in Palos Hills.

Records show Farano and his partners, including his late father, also got 25 other loans from Gembara’s bank over the past two decades. He says those all have been repaid.

Washington Federal didn’t file any documents with the Cook County recorder of deeds office to show that 11 of his loans were ever released — either repaid or forgiven and thus are no longer owed.

“Whatever loans I had, the federal government knows I paid them off,” says Farano, 57, who lives in Justice. “I wonder why [Gembara] didn’t release my loans. This guy had bad bookkeeping, or he kept the money.”

Farano, who remains on supervised release as part of his sentence in the mortgage fraud case, says he has spoken with federal officials and isn’t a target of the investigation into the failed bank.

According to his lawyer, Ivan Tomic, “Farano’s not looked at as a target but a victim.”

In some cases, Washington Federal made loans without requiring any collateral or appraisals of the properties, the Sun-Times has reported — and sometimes didn’t require borrowers to actually repay the money.

Assistant U.S. Attorney Brian Netols, the prosecutor in the ongoing federal investigation of the bank, has said in court that he expects “many” people will face criminal charges over a massive fraud scheme at the bank.

Robert M. Kowalski.

Robert M. Kowalski.

Provided

Criminal charges so far have been filed against Gembara’s friend Robert M. Kowalski, a lawyer and developer who filed for bankruptcy after federal regulators said he owed $27 million on loans he got from the bank. Kowalski, who, like Farano, says he repaid the loans and blames Gembara for failing to record that, has been accused of hiding assets from the bankruptcy court.

The federal investigation has centered on Gembara’s board of directors: his sister Janice Weston, who was also the bank’s vice president; George Kozdemba, a retired electrician for the Metropolitan Water Reclamation District of Greater Chicago; William Mahon, a deputy commissioner with the city of Chicago’s Department of Streets and Sanitation; and Lester Stepien, comptroller of a Chicago meatpacking company. Stepien is believed to be cooperating with federal investigators.

The U.S. attorney’s office didn’t respond to requests for comment.

Netols also prosecuted Farano, who was convicted in 2011 of wire fraud, mail fraud and theft of public funds for his role in a mortgage theft scheme that involved buying and selling residential properties in Englewood and other low-income neighborhoods.

Farano and six others were convicted in the fraud scheme that ran from 2002 to 2004. They bought dilapidated homes from the U.S. Department of Housing and Urban Development, inflating the value of the homes with rigged appraisals, then falsely inflated the incomes of prospective buyers so they’d qualify for loans to buy the homes even if they couldn’t actually afford to make the payments.

Farano also was found guilty of continuing to collect government-subsidized Section 8 rent payments from tenants living in the properties, which he no longer owned.

Besides his nine-year prison sentence, Farano was ordered to pay more than $1.1 million in restitution to Wells Fargo Bank, National City Bank and HUD, among others. The amount of restitution later was reduced to $372,180, which court records show has been paid.

The money for the repayments included $150,000 that came from F & D Services Inc., which Farano formed with his former law partner Patrick J. Doherty. Federal officials discovered F & D had $300,000 in assets, but Doherty maintained he was sole owner of the company. Doherty eventually agreed to give $150,000 towards Farano’s restitution.

Farano was in prison in 2014 when Gembara’s bank sued F & D Services, saying the company, Farano and Doherty had failed to repay a $400,000 mortgage they got in 2006 for apartments in the 7100 block of West 107th Street in Worth.

Farano didn’t appear in court, and a Cook County judge entered a default judgment ordering Farano to pay $228,740, which he says he never did.

It appears the bank never recovered any of that money and never took title to the property, which is now owned by a company for which Doherty’s wife is listed as manager.

Doherty ended up suing Gembara and the bank, saying he discovered the bank had amended the mortgage without his knowledge. He says someone forged his signature and maybe also Farano’s on the document, which increased the amount of the loan to $500,000.

Doherty says he subsequently overpaid the loan by as much as $200,000.

In 2016, a Cook County judge dismissed Doherty’s lawsuit. He appealed that ruling to the Illinois Appellate Court.

On Dec. 3, 2017, with the case still pending, Gembara was found dead, with a rope around his neck, in the master bedroom of the Park Ridge home of bank customer Marek Matczuk, a contractor who owed Washington Federal $2.8 million, according to public records.

The Park Ridge home of Marek Matczuk, a Washington Federal Bank for Savings customer, where bank president and CEO John F. Gembara was found dead on Dec. 3, 2017.

The Park Ridge home of a Washington Federal Bank for Savings customer where bank chief John F. Gembara was found dead. The homeowner told police in the northwest suburb that Gembara said he “needed to hide due to ‘troubles’ at the bank.”

Kevin Tanaka / Sun-Times file

Soon after, federal regulators shut down the bank. They turned over its deposits to Royal Savings Bank and some of its loans to other companies — those included the mortgage in the pending foreclosure case against Farano and his ex-wife.

Bank regulators got Doherty’s lawsuit transferred to federal court, where the case is still pending.

Farano says he was unaware of Doherty’s lawsuit or Doherty’s claims that their signatures might have been forged on a bank document involving the loan that Doherty says has been repaid when his wife’s company obtained a loan from Chase.

In the foreclosure case involving the four condos in Worth, Farano and his lawyer tried to settle, but that was rejected. That case was over a $274,400 loan that his company JFJ Realty got from Washington Federal in 2007.

Regulators turned over that loan to Amos Financial LLC, which says Farano’s company stopped making payments shortly after Gembara died and that it still owes $272,823.

Amos is suing Farano’s company and his ex-wife Cheryl Farano, who now owns the property. Farano transferred the property to her shortly via a quitclaim deed before he went on trial for fraud.

Farano says his late father, a former Chicago police officer who became a developer, had a longstanding relationship with Washington Federal, the neighborhood bank that Gembara’s grandfather founded in 1913. The bank passed onto his son Emil Gembara, who turned it over to his son John Gembara about 20 years ago.

“My dad dealt with that bank for 30 years,” Farano says. Of Gembara, he says, “I’ve known him since I was a teenager.”

Gembara was living on Chicago’s Southwest Side when he bought a piece of land in Palos Hills from Farano’s father in December 2002, records show. Farano says his dad built a house on that lot for Gembara, his wife and two daughters. Gembara’s widow sold the home last year.

Read the Sun-Times investigation

The first story in the Sun-Times investigation of the failed Bridgeport bank Washington Federal Bank for Savings, published March 4, 2018.

The first story in the Sun-Times investigation of the failed Bridgeport bank Washington Federal Bank for Savings, published March 4, 2018.

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