The people we elect to public office should set a higher standard for conduct than ordinary citizens. If we are to trust them to make laws governing the rest of us, we should be able to rely on them to follow the rules rather than gaming the system to their advantage. Unfortunately, that’s not the world we live in. Many California lawmakers got caught up in the mania of the housing bubble, and when their faith in ever-increasing house prices was shaken, their ethics went on sabbatical.
In the boom years, several California legislators bought homes but are now having trouble keeping up with mortgages or avoiding big losses.
By Patrick McGreevy, Los Angeles Times — August 6, 2012
SACRAMENTO — State lawmakers typically keep modest quarters near the Capitol to use when they’re in town, with help from their tax-free expense allowance of $28,000 a year.
Since state lawmakers are term limited, and since they are supposed to be residents of their home districts, buying a house is a speculative play on real estate values. They could rent a house with their tax-free expense allowance and be very comfortable.
Assemblyman Tony Mendoza bought a three-bedroom home instead, paying $463,000 for it after his 2006 election.
“If you bought property, property values would go higher,” said the Democrat, whose main home is in Artesia. “So I figured as soon as I get there [Sacramento], I will buy the house.“
That’s the brilliant logic this guy used when considering a $463,000 investment? And we elected this guy to public office?
But now he is one of at least 10 legislators who didn’t fare well in a real estate climate that once showed no sign of cooling. The housing market tanked, the recession lingered and legislators’ pay was cut.
Unlike some predecessors who made handsome profits on second residences in Sacramento or in their districts before the downturn, these lawmakers have found themselves unable to pay their mortgages or stuck with homes that would sell at a loss, or both.
Being termed-out in 2004 was certainly a blessing to some who cashed out at the top of the bubble.
At least five have endured foreclosures or short sales. The others have hung on; to do so, at least three have depended on people who work for them — and in Mendoza’s case, on a campaign donor as well.
It sounds shady, but I don’t have a problem with politicians going to their campaign donors for help as long as such assistance is within contribution guidelines. This is money voluntarily given. I may not think the cause is very worthy, but apparently, those people do. If this is buying favors from the politician, then I have a real problem with it.
What I do think is very wrong is renting a room to an employee who the politician gives a raise. That’s a kickback. Politicians should not be allowed to have financial dealings with anyone in their employ.
As Mendoza nears the end of his final Assembly term, he says he owes $150,000 more on his Sacramento home than it’s worth. A longtime campaign contributor, Cecy Groom, who is also his accountant, rounded up investments of $42,000 to help him keep the home on Soaring Hawk Lane.
In filings required by the state, Mendoza reported receiving $6,000 each from Groom’s daughter and Beatriz Ricartti, a Los Angeles businesswoman who subsequently donated to Mendoza’s political coffers. Covina physician Shura Moreno invested $30,000.
Moreno is under investigation by the Los Angeles County district attorney’s office, and five employees of his East Los Angeles medical clinic await trial on charges of defrauding the state’s Medi-Cal system, prescription fraud and other offenses.
“I was totally shocked by that,” Mendoza said.
That looks really, really bad. Why did Moreno give the $30,000 if not for special favors?
Moreno would say only that he is not interested in taking over ownership of Mendoza’s house.
The lawmaker also rented a room in the house to fellow legislators and to Gabriella Villanueva, whom he hired in November 2010 as a legislative assistant for $60,000 a year. Villanueva paid him $500 a month in rent.
Villanueva said there was no tie between Mendoza’s giving her a job and her decision to rent from him,
and she has since moved out, although she would not say when. She was hired just before a legislative pay cut was to take effect.
What a convenient time to hire a new employee and take her on as a boarder.
Mendoza has attributed his financial troubles partly to a salary cut, which cost him about $20,000. “I was paying the mortgage with that,” said Mendoza, whose annual compensation now is $123,000, including the tax-free per diem.
After taxes, that $20,000 a year was about $1,200 per month. He was not paying the mortgage with that. He was probably cut off from the housing ATM machine which stopped any Ponzi borrowing. That really would change his lifestyle.
He said he wants to avoid losing his house and the money he has put into it: “If I break even, I will be happy.”
If I were $150,000 underwater, I would be happy to break even too. Idiot.
At least two other legislators are getting help with personal finances by renting to their aides, their financial disclosures show.
Assemblywoman Mary Hayashi (D-Hayward) and her husband bought a home in Castro Valley, in the Bay Area, for $698,0000 in 2004. When they put it on the market for $499,000 last year, it didn’t sell.
The pair’s residence today is in Hayward, also in the Bay Area. Hayashi legislative aide Christopher Parmon and his husband, Chabot College Chancellor Joel Kinnamon, occupy the Castro Valley house.
Parmon said he asked to live there. The couple began renting in February 2010, less than a month after Hayashi gave Parmon a $7,500 raise, lifting his salary 10% to $82,440.
Parmon said the raise was unrelated to his move to his boss’ property and declined to say how much it costs to live in the home. Hayashi’s financial disclosures show Kinnamon paid her between $10,000 and $100,000 in rent last year.
Does that lie pass the giggle test? Does anyone on the planet believe the raise was not tied directly to bailing the boss out?
Apparently, drowning in debt and corruption is the least of Ms. Hayashi’s problems.
Hayashi, who in January pleaded no contest to shoplifting charges, did not return calls for comment.
Assemblyman Richard Gordon (D-Menlo Park) has an employee renting a San Francisco condo he bought for $680,000 four years ago. The county assessed the home’s value last year at $560,000.
The employee, field representative Joey Vaughn, pays Gordon more than $10,000 a year to live there. The lawmaker said he rents to Vaughn because he is trustworthy.
Westminster Republican Van Tran chose a different route out of his dilemma. He estimates that he and his wife lost $300,000 on their second home in a short sale when he completed his Assembly term in 2010. His bank also lost money, although Tran said he could not recall how much.
Tran said the $783,000 Sacramento house seemed a safe investment after his election in 2004.
He gambled and lost. I doubt he lost $300,000. The bank probably lost much of that, particularly on a 2004 purchase that might have been 100% financed.
But by the time he moved back to Orange County six years later, he could not sell it for what he owed.
But “geographically, physically and financially,” he said, “it was untenable to hold onto the house.”
It was a dumb investment gone bad. Why would he hold it?
Assemblywoman Alyson Huber lost a million-dollar home to foreclosure in June. She said she could not afford two mortgages — one on that house, which she and her husband built in 2006, and one on another home they bought for $520,000 when they split up.
Congratulations! She lost twice!
The Democrat from El Dorado Hills, in the Sacramento area, said her husband stopped paying on the first home soon after she moved into the second one because it was worth less than they owed.
“I was legally obligated to pay,” the lawmaker acknowledged. But “I could not afford to pay his mortgage.”
And she got stuck with the bill.
Tim Huber did not return calls from The Times.
Former Democratic Assemblyman Mervyn Dymally of Compton left office in late 2008 and lost his Sacramento home to foreclosure seven months later, leaving unpaid debt and costs of $177,000, according to county records.
When he left town, he walked away from everything, including the debt on his underwater home.
In August 2009, the records also show, former Democratic Assemblyman Ed Chavez of La Puente had his Sacramento home foreclosed upon. His unpaid debt and costs were $302,000.
Neither official returned calls for comment.
Saving the worst for last…
One former state lawmaker defaulted twice. U.S. Rep. Laura Richardson, a Long Beach Democrat, walked away from her debt on a $535,000 home in Sacramento after she left the Assembly for Congress. The house was sold at auction but was returned to Richardson after she complained to her lender, Washington Mutual.
The congresswoman defaulted again and unloaded the property last year in a short sale for $320,000.
She walked away from a bad investment, used her influence as a Congresswoman to get special treatment from her lender, then she defaulted again and left the FDIC holding the bag. I imagine she voted for the tax forgiveness bill when it went through Congress.
All these politicians succumb to their own greed. They bought houses when they knew their time in Sacramento was limited for the sole purpose of making a profit on the sale. Their bad behavior in the aftermath is a microcosm of what everyone else is doing to game the system for whatever they can get.
Despite their believes to the contrary, they are not savvy real estate investors.
If you count the HELOC money, it was a good investment.
Perhaps the California legislators weren’t such bad investors. If they HELOCed the money like a Ponzi, they gained all the profit, and the bank ate all the losses. I don’t have access to their mortgage information to find out. However, I do have access to the records of thousands of Ponzis here in Orange County. Today’s featured property was owned by a guy who more than doubled his mortgage and sold the house to the bank at the peak. Other than losing the house, it worked out well for him.
- On 5/1/2002 this property was purchased for $299,000. The owner used a $239,200 first mortgage and a $59,800 down payment.
- On 3/18/2005 he refinanced with a $499,999 first mortgage.
- On 7/20/200, right at the peak, he obtained a $88,250 stand-alone second.
- Total property debt was $588,249. Total mortgage equity withdrawal was $349,049.
Perhaps it was a good investment after all.
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Proprietary OC Housing News home purchase analysis
$449,900 …….. Asking Price
$299,000 ………. Purchase Price
5/1/2002 ………. Purchase Date
$150,900 ………. Gross Gain (Loss)
($23,920) ………… Commissions and Costs at 8%
$126,980 ………. Net Gain (Loss)
50.5% ………. Gross Percent Change
42.5% ………. Net Percent Change
3.9% ………… Annual Appreciation
Cost of Home Ownership
$449,900 …….. Asking Price
$15,747 ………… 3.5% Down FHA Financing
3.64% …………. Mortgage Interest Rate
30 ……………… Number of Years
$434,154 …….. Mortgage
$113,739 ………. Income Requirement
$1,984 ………… Monthly Mortgage Payment
$390 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$112 ………… Homeowners Insurance at 0.3%
$452 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
$2,938 ………. Monthly Cash Outlays
($299) ………. Tax Savings
($667) ………. Equity Hidden in Payment
$19 ………….. Lost Income to Down Payment
$132 ………….. Maintenance and Replacement Reserves
$2,124 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$5,999 ………… Furnishing and Move In at 1% + $1,500
$5,999 ………… Closing Costs at 1% + $1,500
$4,342 ………… Interest Points
$15,747 ………… Down Payment
$32,086 ………. Total Cash Costs
$32,500 ………. Emergency Cash Reserves
$64,586 ………. Total Savings Needed
The property above is available for sale on the MLS.Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
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