Punta Cana Yacht Club director Jose Oliva issued a letter stating that they 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 in the day, the congressman's lawyer said Rangel paid no interest at all on the mortgage, but later said company records show there was interest paid in the first two years.
Davis said Rangel did not know until very recently he had not been charged interest for more than a decade.
"Mr. Rangel received no special preference," said Davis.
The Democratic chairman of the Ways and Means tax-writing committee has come under scrutiny for his vacation property and apartments he rents in his home district of Harlem.
Davis said Rangel failed to report rental income from the resort property on his taxes, but didn't realize it was necessary because of the way the deal was structured.
Davis said it is unlikely the congressman owes any 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 sought to censure the 78-year-old lawmaker. Even an unintentional tax error is highly embarrassing for Rangel, since he chairs 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, Senators 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 lawyer.
Rental income from the property was used directly to pay the mortgage, so Rangel never made any 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.
The congressman'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 Friday that Rangel failed to report rental income on the property.
Rangel's lawyer 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," said Davis. "Some cash cow."
Yet by their accounting, Rangel parlayed a $28,000 down payment into a vacation home worth ten 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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