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Rangel had no-interest loan for 10 years, attorney says
He denies that powerful congressman got special deal on mortgage
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Published: September 6, 2008
WASHINGTON
Rep. Charles Rangel, a powerful House committee chairman, paid no mortgage interest on a beach-resort property for more than 10 years, his attorney said yesterday.
The New York congressman's attorney, Lanny Davis, said that Rangel got his no-interest deal for the villa in the Dominican Republic because he was an original buyer in the resort development, and in the early days after Rangel's purchase in 1987, the rental income it generated failed to meet expectations.
Jose Oliva, the director of the Punta Cana Yacht Club, issued a letter saying that it initially charged interest on the loans to Rangel and a small group of fellow investors called "Pioneers," but after two years the company stopped charging interest because of the lower-than-expected rental income. The removal of interest charges was extended only to the foreign investors, Oliva said.
Earlier yesterday, Davis said that Rangel paid no interest at all on the mortgage, but later said that company records show that interest was paid in the first two years.
Davis said that Rangel did not know until very recently that he had not been charged interest for more than 10 years.
"Mr. Rangel received no special preference," Davis said.
Rangel, the Democratic chairman of the Ways and Means tax-writing committee, has come under scrutiny for his vacation property and apartments that he rents in his home district of Harlem. Davis said that Rangel failed to report rental income from the resort property on his taxes, but did not realize that it was necessary because of the way the deal was structured.
Davis said it is unlikely that Rangel owes back taxes under the federal tax code, although he may owe a small amount to New York State, on unreported rental income of about $75,000.
"It is my understanding that over the 20-year time period there is not likely to be federal tax liability by Mr. Rangel because of offsetting depreciation expenses and tax credits. Therefore, whatever amendments might be necessary do not involve the federal tax code," said Davis.
Republicans call Rangel ethically challenged and have attempted to censure him. Even an unintentional tax error is highly embarrassing for Rangel, because he is chairman of the committee charged with updating the nation's complicated tax code.
News of Rangel's no-interest mortgage comes on the heels of damaging reports that two other powerful figures in Congress, Sens. Chris Dodd, D-Conn., and Kent Conrad, D-N.D., got preferential mortgages with lower interest rates through a "VIP" program for friends of former Countrywide CEO Angelo Mozilo. Dodd heads the Senate Banking Committee.
Rangel bought the beach house 20 years ago for about $80,000, with a down payment of $28,000. Instead of making payments himself for the property, Rangel used his share of collective rental money generated by the resort to pay down the mortgage, according to his attorney.
Rental income from the property was used directly to pay the mortgage, so Rangel never made mortgage payments himself, Davis said. Only once, in 2001, did Rangel receive money directly, when the company mistakenly wired him $2,000 in rental income rather than applying that, as it had before and after, to the mortgage.
The mortgage debt of slightly more than $50,000 was paid off fully in 2003, Davis said, and rental income was also used later to pay for a $22,000 home-improvement project. That second loan did include interest payments totaling about $1,100, the lawyer said.
Rangel's personal finances have come under scrutiny and spawned a House ethics-committee inquiry, leading to a showdown last month on the House floor between Rangel and Republicans.
The ethics committee is examining Rangel's use of four rent-controlled apartments in Harlem, including one that was used for campaign work. This week, the New York Post raised questions about Rangel's beach villa, which it dubbed his "cash cow." The New York Times reported yesterday that Rangel failed to report rental income on the property.
Rangel's attorney said he received no sweetheart deal or favoritism in purchasing or renting out the beach house, because it was essentially a financial investment made in a real-estate development project.
Currently, Rangel owes no money on the property and has about a $700 credit, Davis said.
"He invested $100,000 over 20 years with a net return of .7 percent as of June 2008," Davis said. "Some cash cow."
Yet by their accounting, Rangel parlayed a $28,000 down payment into a vacation home worth 10 times that or more today -- not unheard of over a 20-year period of real-estate boom-and-bust cycles, but certainly very fortunate.
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