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.
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Proprietary Irvine Housing News home purchase analysis
$300,000 …….. Asking Price
$565,000 ………. Purchase Price
3/31/2007 ………. Purchase Date
($265,000) ………. Gross Gain (Loss)
($45,200) ………… Commissions and Costs at 8%
($310,200) ………. Net Gain (Loss)
-46.9% ………. Gross Percent Change
-54.9% ………. Net Percent Change
-11.3% ………… Annual Appreciation
Cost of Home Ownership
$300,000 …….. Asking Price
$10,500 ………… 3.5% Down FHA Financing
3.65% …………. Mortgage Interest Rate
30 ……………… Number of Years
$289,500 …….. Mortgage
$88,177 ………. Income Requirement
$1,324 ………… Monthly Mortgage Payment
$260 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$75 ………… Homeowners Insurance at 0.3%
$302 ………… Private Mortgage Insurance
$317 ………… Homeowners Association Fees
$2,278 ………. Monthly Cash Outlays
($200) ………. Tax Savings
($444) ………. Equity Hidden in Payment
$13 ………….. Lost Income to Down Payment
$58 ………….. Maintenance and Replacement Reserves
$1,705 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$4,500 ………… Furnishing and Move In at 1% + $1,500
$4,500 ………… Closing Costs at 1% + $1,500
$2,895 ………… Interest Points
$10,500 ………… Down Payment
$22,395 ………. Total Cash Costs
$26,100 ………. Emergency Cash Reserves
$48,495 ………. Total Savings Needed
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