So you thought the problem of Barack and Michelle Obamas’ 2005 mansion purchase was dead and buried.

Well, not any more.

A reader of my website who is a tax accountant of many years, one who specializes in criminal matters, says he believes the Obamas have a tax problem.

Simply put, the allocation of purchase price between the Obamas’ lot and the lot next door, which were both owned by the same couple and had long been sold together, makes no sense unless the amount paid for the lot adjoining the Obamas’ by the wife of now convicted political fixer Tony Rezko was specifically meant as a favor to the Obamas so that they could afford their mansion.

If so, the difference between what Ms. Rezko paid for the side lot and what it was actually worth would be construed by the IRS as income to the Obamas.  After looking at the Obamas’ tax return for 2005, my source was able to say that in his opinion they did not declare any such income, and therefore did not pay taxes on it.

Barack Obama once called the house purchase a boneheaded mistake, but my source believes it is worse than that.

Much worse. If Barack Obama were to attain the White House, this problem could be devastating for the Democratic Party, says my source.

That is why he wants this information made public now.

Here are the specifics.

On June 15, 2005 , Barack and Michelle Obama bought a landmark mansion on Chicago’s South Side for $1.65 million.

The lot next door was sold the same day for $625,000 to Rita Rezko, wife of Antoin “Tony” Rezko.

Tony Rezko was at that time under investigation for fraud and influence peddling, for which he was eventually convicted.

The specifics of these sale transactions were reported by the Chicago Tribune in an article published November 1, 2006 .

The information on the sale is also available online at the website of the Cook County Recorder of Deeds.

According to the Tribune, the Obamas’ price was “some $300,000 less than the asking price.”

The Rezko property, the article said, was purchased for “the full … asking price.”

That means the previous owners were paid $2.275 million for the two properties.

It is reasonable to assume, then, that when the previous owners listed the properties for sale, their asking price for the two was $2. 575 million or thereabouts.

How that total amount became the two amounts is what is at issue here.

Obama claimed in a long interview with Chicago media on March 14, 2008, as Tony Rezko was about to go to trial, that the sellers had tried to sell the house and adjoining lot together, but were not receiving offers as a result of the high price.

The sellers, he said, had already listed the properties separately by the time he and Michelle became serious about making an offer, and that the house, along with its lot, was listed for $1.9 million.

I understand from knowledgeable sources

that the multiple listing service for the area may have the records to confirm this assertion, but I do not have access to those kinds of records.

Archpundit, an Illinois  blogger and strong Obama supporter, somehow obtained access to 94 pages of related documents (pdf) he posted earlier this year, which contain documentation of the $1.9 million listing in January of 2005.  No earlier listings were printed.

Taking Obama at his word, we are led to believe that the sellers are the ones who allocated the $2.5 million or so that they wanted, in total, between the two properties. Since we do not have access to the original calculation and who made it, we can only try to determine if the allocation made at the time was reasonable.

Intrinsic Value

An empty lot only has value to a developer, or a developer’s wife, if he can build on it and sell for a profit.

Could the Rezkos have done that?

The Obamas’ house is in is an official landmark district, and I learned from a Senior Permit Reviewer at the Landmarks Division of the Chicago Department of Planning and Development that any construction in that district must be approved by the Commission on Chicago Landmarks.

She said the Commission makes sure that the construction conforms to the look and feel of the neighboring structures.

That means, for the district in question, that the structure could not be a high rise.

A one-unit home is a possibility, but would have to be very expensive in order to ensure a profit.

A small condominium building or several town houses might be a possibility, given the proper zoning, but they would also have to be expensive.

Of course, expensive is the norm for that neighborhood.

I am not an expert on real estate development, but it does seem that there might be potential for some profit in building on the empty lot bought by Rita Rezko.

The property, after 1,500 square feet was sold to the Obamas (see below), has changed hands twice since Rita Rezko bought it. According to the Cook County Recorder’s website, Rita Rezko sold the property on 12/28/06 for $575,000 to 5050 S Greenwood LLC.

Bloomberg reported on February 18, 2008 that the buyer’s name was Michael Sreenan.

5050 S Greenwood LLC sold the property to John D. and Marjorie S. Poulos on 3/17/08 for $675,000.

I do not know these people, nor do I know their relationship, if any, to the Rezkos.

If they do have business or personal relationships with Tony Rezko, these would not be the kind of arm’s length transactions that would ensure a market price for the property.

Comparison of Naked Land Values

It is common in the real estate industry to separate the house vs. land value from a total purchase price by assuming that 75% of the price is attributable to the house and 25% to the land.

And 25% of the $1.65 million that the Obamas paid for their house and land is $412,500.

By this test, the Rezko property should have been priced at less than that amount, as it had less square footage.   Instead, Rita Rezko paid one and a half times as much.

Assessment Associated with a Subsequent Transaction

Again from the 11/1/06  Tribune article (and also from the Recorder’s Office’s online records), we know that on January 11, 2006  the Obamas bought a strip of the Rezko lot that adjoined their property.

As the Tribune describes the transaction,

Using a standard formula, Obama’s appraiser estimated the 1,500-square-foot portion at a market value of $40,500.

But Obama felt it would be fair to pay the Rezkos $104,500, or a sixth of their original $625,000 purchase price, because he was acquiring a sixth of their land.

If an assessor valued 1/6 of the property at $40,500, wouldn’t that mean the market value assessment of the whole Rezko property at that time would be $40,500 x 6 = $243,000? Admittedly, the valuation of a strip of land may be lower because it is such a small portion of a property, but could that possibility account for the huge difference between the two values?The Times of London created a handy graphic to help visualize the properties and the transactions (extracted from this pdf file): 

Relative Assessed Values

The Cook County Assessor’s website shows only the current assessed values of the two properties, but by a call to the office I was able to find out the 2005 assessments for tax purposes. Be aware that assessed values for taxes in Chicago  are not anywhere near the market value.

I am only concerned here with the relative values, which should give us some indication whether the allocation of purchase prices between the two properties might have been reasonable.

The allocation between the two properties at the time of the listing was about 75% for the house and its lot ($1.9 million), and 25% for the adjoining lot ($625,000). That is very much out of kilter from the allocation above, based on assessed values.

What the Obamas Could Afford

At the time, the Obamas’ finances were good, but not good enough to buy a $2.5 million mansion.

The 11/1/06  Tribune article reports that the Obamas obtained a $1.32 million mortgage on their property (the information is also available on the Recorder’s Office website).

That means their down payment was $330,000 ($1.65 million - $1.32 million).

A venerable institution like the Northern Trust, which lent the Obamas the money, would never have engaged in any of the risky practices that later caused the housing market crash.

Therefore, they would have applied a formula to determine what the Obamas could afford to pay for their home, based primarily on the size of the down payment.

Apparently, the magic number turned out to be $1.65 million.

The Obamas wanted the mansion.

But the sellers, as we saw, wanted more for the two lots than the Obamas could afford or were willing to pay.

Who Determined the Relative Prices and How?

According to Obama’s 3/16/08 Chicago  media interview, he played no part in the determination of the properties’ prices.

The sellers have refused to speak to the media.

A member of the Obama campaign spoke with the husband of the couple, and exchanged emails, portions of which were shared with a Bloomberg reporter, who wrote on February 18, 2008,

The e-mail says that the sellers “did not offer or give the Obamas a ‘discount’ on the house price on the basis of or in relation to the price offered and accepted on the lot.” It also says that “in the course of the negotiation over the sales price,” Obama and his wife, Michelle, “made several offers until the one accepted at $1.65 million, and that this was the best offer [the sellers] received on the house.”…

The e-mail between [the seller] and the campaign adviser also says that the sellers had “stipulated that the closing dates for the two properties were to be the same.”

But no statement has been made public by the sellers about how the price allocation between the two properties was made, or when, or whether anyone influenced that calculation.Obama seems to believe that what he said at his 3/16/08 press conference with Chicago media is all he ever has to say on this subject.Neither of the Rezkos has spoken publicly about these land deals. But Tony Rezko was convicted in early June of 2008 for fraud and influence peddling by the office of U.S. Attorney Patrick Fitzgerald.

Presumably, that office is now negotiating with Rezko as to whether he will testify against any of his cohorts and any other information he can provide for further investigations by that office.Barack Obama has not been implicated in any of the wrongdoing for which Rezko was convicted, but might Rezko be tempted to reveal his side of this transaction? He was an experienced developer.

He was broke, $50 million in debt, and living on borrowed money at the time of the 2005 purchase, according to ABC News’ The Blotter on March 5, 2008. According to the article, Rita Rezko made only $37,500 per year, six months after the purchase and,

Rezko’s bleak financial picture raises the question of how the Rezkos were able to buy a vacant lot adjoining the home of Sen. Barack Obama in 2005, at a time Rezko says he was already in deep debt…

How were the Rezkos able to make the down payment, and qualify for the loan, on the lot?

The same story may give us a clue:

[Rezko] said he had an ongoing relationship with Nadhmi Auchi, a London-based Iraqi billionaire convicted on French fraud charges, who Rezko described as a close friend and business associate.

Did the “ongoing relationship” between Rezko and the Iraqi-born Auchi involve money changing hands prior to the purchase of the lot next to the Obamas?

It did in 2007, according to now retired Sun-Times columnist Robert Novak.

On February 28, 2008 Novak reported that Rezko “got $3.5 million from Auchi’s company in April 2007.”

In other words, did foreign money enable a U.S. Senator to buy his mansion?There could also be Senate ethical considerations for Senator Obama, if he did not disclose a benefit to him, as required by Chapter 5 of the Senate Ethics Manual (pdf).Judicial Watch has already filed ethics complaints over the house purchase, in regard to what it considers preferential treatment for Obama in obtaining the mortgage on the property.

From the press release:

Judicial Watch, the public interest group that investigates and prosecutes government corruption, announced today [date not given] that it has filed separate complaints with the Federal Election Commission (FEC) and the U.S. Senate Ethics Committee against Senator Barack Obama for allegedly accepting a below-market rate mortgage loan in 2005 not available to the general consumer.

Patrick Fitzgerald sent a former Illinois governor to prison.

He brought down the top aide of a sitting vice president of the United States.

He continues to investigate Rezko and his partners’ actions to determine if there were more illegalities, especially whether the sitting Illinois governor could be involved. He may be interested in what Rezko has to say about this property purchase next door to a U.S. Senator, now a presidential candidate.

And Rezko may be willing to talk, in exchange for a more lenient sentence, scheduled to be handed down on September 3, 2008.

• Our TexasDarlin pointed out the favorable treatment the Obamas received compared to the “neglected slums” of their impoverished neighbors in unimaginably horrific “public” housing that Obama helped privatize so that his rich longtime buddies — like Tony Rezko and Allison Davis — could scoop up tens of millions of dollars of taxpayers’ money while the properties were left in such disrepair that many became uninhabitable.
• LisaB addressed the mysterious payments of property taxes for the Obamas.
• Now, Flopping Aces resurrects the mystery of Iraqi billionaire Nadhmi Auchi who helped an in-debt Tony Rezko (in exchange for what?) around the time Rezko somehow managed to help the Obamas buy their mansion:
  

  While there is no evidence that the bank in question had a program like Countrywide did, it sure does smell like political favoritism. Not as big of a deal as Johnson’s, Dodd’s, and Conrad’s, but you combine that with Tony Rezko’s involvement in the house deal when Rezko did not have the money to buy the property (at which point Iraqi financier Auchi comes in) and you get a fishy smell.

Ah. Nadhmi Auchi. Flopping Aces, a few months ago, reported:

Who is Auchi? He is an associate of Saddam’s who gave Rezko some big bucks and soon after receiving those big bucks Rezko helped Obama purchase a new home by buying the empty lot next to it at the same time. Auchi was convicted of fraud in France and was banned from entering the US in 2005. …

How in debt is Tony Rezko? During his federal trial, in March 2008, it was reported he is $50 million in debt. In fact, ABC News used this headline, which I cited in my story, “ABC News: Rezko $50 million in debt [Updated x3]“:

Rezko In Debt $50 Million; How Did He Afford Obama Lot?
Court Transcript Says Rezko Depends on Family Handouts of $7,500 a Month

In the same story, I wrote:

[F]rom the ABC News summary: Rezko “told the judge he had no current source of income, saying his last business deal involving a proposed power plant in Iraq had been cancelled.” That venture involved convicted Iraqi billionaire Nadhmi Auchi. See Larry Johnson’s story, “Will Rezko Blow Up Obama?“

Of course, the Rezko scandal hasn’t derailed Obama, so protected by the media. If the Clintons were similarly indebted to an indicted (and now convicted) slumlord who bilked taxpayers out of hundreds of millions of dollars, you’d hear the story ad nauseum.

Here’s more from my March story that owed much to ABC investigative reporter Brian Ross’s digging — including the laughable purchase of the adjacent lot by Mrs. Rezko, who had no financial means and obviously couldn’t rely on her heavily in-debt husband — which begs the QUESTION: Who supplied the money that enabled the Rezkos to make possible the purchase of the Obamas’ $1.6 million mansion?

Rezko’s bleak financial picture raises the question of how the Rezkos were able to buy a vacant lot adjoining the home of Sen. Barack Obama in 2005, at a time Rezko says he was already in deep debt.

Rezko also reveals in the testimony, before Judge Amy St. Eve on Jan. 16, 2007, that he already knew he was under federal investigation at the time of the land purchase and had hired a criminal defense attorney to deal with the “feds.”

Obama says he sought Rezko’s help because the house he wanted to buy in Chicago’s Hyde Park came with an adjoining lot the seller wanted to sell at the same time.

Unable to afford it himself, Obama says Mrs. Rezko bought it for $625,000, and then later sold a strip of the lot back to Obama so he would have a larger yard. Obama says he paid Mrs. Rezko a fair market price. …

Here’s a bit more from the ABC News story:

… Mrs. Rezko makes $37,500 a year.

[...]

According to the transcript, Mrs. Rezko sold the vacant lot a few weeks before the hearing, with all proceeds going to pay previous debts.

Asked how he was able to pay his lawyer, Joseph Duffy, Rezko said family and some unnamed “friends” were paying his legal bills.

Duffy told the judge, “Mr. Rezko has not provided us any money since his indictment.”

Rezko told the judge he had no current source of income, saying his last business deal involving a proposed power plant in Iraq had been cancelled.

He said he had an ongoing relationship with Nadhmi Auchi, a London-based Iraqi billionaire convicted on French fraud charges, who Rezko described as a close friend and business associate. …

Okay, you “professional” journalists — like Politico’s Ben Smith who calls the Washington Post story “padded” and is done with it:

– Tell me how the Rezkos got the money to enable the Obamas to buy the mansion they couldn’t afford.

– Tell me that Nadhmi Auchi’s money didn’t give the Rezkos the funds they needed to buy the vacant lot required for the Obamas to close the sale on the mansion.

– Tell me what Nadhmi Auchi got out of helping Tony Rezko. Billionaires don’t get that rich by helping desperate businessmen who are under federal indictment and facing long prison sentences.

– Tell me that major Obama campaign contributor Susan Crown, on the Board of Directors of Northern Trust mortgage company since 1997, didn’t make a phone call or two to make sure the Obamas got a favorable mortgage loan.

– Tell me why Barack Obama promised Maytag workers he’d fight for their jobs and took their hard-earned money for his campaign, then turned around and got a big donation from Maytag board member Lester Crown (as well as his family and friends), but never said a word to Crown about saving those workers’ jobs?

And, while we’re at it:

– Tell me why state senator puppetmaster Emil Jones put Barack Obama on the state senate pensions committee for three months, during which time that committee defeated an effort to consolidate state pensions? At the same time that Tony Rezko was fighting the consolidation because it would have defeated his schemes for dipping into individual minority-owned pension management companies.

Dear readers, if you want to know more about Nadhmi Auchi and Tony Rezko, click here. We’ve been on these stories since last year.

Again: If Nadhmi Auchi were involved with Hillary Clinton, every American would know his name and his sordid dealings with Saddam Hussein, his conviction in France, and his billionaire status.

But it’s rare that a journalist gets to write about stories like these, let alone get any prominent coverage of his or her story.

However, shortly, we will reveal additional details about the membership of the Chicago-headquartered billionaire Crown family on the board of directors of Northern Trust, which granted the Obamas their advantageous loan. Crown family members have been major donors to Obama’s campaigns, and serve on his elite fundraisers group for his presidential campaign.

Among the most disturbing stories of Obama’s many efforts to give political and legislative advantages to the Crown family’s holdings, Senate candidate Barack Obama promised Illinois’ Maytag workers he’d work to protect their jobs — and took campaign donations from the beleagured workers — but then met with Lester Crown, on the board of directors of Maytag, to take his campaign donations. Crown later told the press that Obama never raised the workers’ fate with him. The machinists lost their jobs to Maytag’s Mexican plant. From my story, “Machinists’ Union TELLS It Like It Is ,” quoting a must-read article at TradingMarkets.com, “Obama’s fundraising, rhetoric collide: Union says senator did little to save jobs“:

Obama had a special connection to Maytag: Lester Crown, one of the company’s directors and biggest investors whose family, records show, has raised tens of thousands of dollars for Obama’s campaigns since 2003. But Crown says Obama never raised the fate of the Galesburg plant with him, …

These are the ties that bind:

Barack Obama plays the “populist” routine in his campaign speeches, but he delivers to his billionaire benefactors, not the common working stiffs who are losing their jobs and their homes.

Now for a quick round-up of bloggers’ reports on the Obamas’ “sweetheart” home mortgage from Northern Trust, on whose board a billionaire member of the Crown family sits:

Hot Air blog:

Barack Obama’s home loan has more questionable aspects than just the Tony Rezko connections, according to the Washington Post. After ten years as a prominent Chicago politician and in his first year in the Senate, Obama got a $1.32 million loan below market rates without paying the normal extra fees — a rate which saved him $300 per month on his mortgage. Obama managed to do this despite the extraordinarily large mortgage and his lack of history with the lender:

The couple wanted to step up from their $415,000 condo. They chose a house with six bedrooms, four fireplaces, a four-car garage and 5 1/2 baths, including a double steam shower and a marble powder room. It had a wine cellar, a music room, a library, a solarium, beveled glass doors and a granite-floored kitchen.

The Obamas had no prior relationship with Northern Trust when they applied for the loan. They received an oral commitment on Feb. 4, 2005, and locked in the rate of 5.625 percent, the campaign said. On that date, HSH data show, the average rate in Chicago for a 30-year fixed-rate jumbo loan with no points was about 5.94 percent. [...]

Thus far, no evidence has arisen that the Obamas took advantage of a “Friends of Angelo” program, as Chris Dodd and Kent Conrad did with Countrywide. However, the difference in rates — especially for such a large mortgage — gives the appearance of a political favor, at the very least. Combined with the Tony Rezko’s financial involvement in the deal, at a time when Rezko had little income other than that from a shady Iraqi financier and fraudster, and it looks as though people in Chicago really wanted to see the Obamas move into that house.

Northern Trust has helped out Barack Obama in other ways … their employees have donated $71,000 to Obama’s campaigns. When Obama rejected public financing, were these donations the kind that he insisted represented the moral equivalent of the system he championed until he found that he could outraise and outspend his opponents?

Obama has spent plenty of time castigating credit lenders in this campaign for their capricious practices and bad management. He has rung the populist bell. …

The Swamp, Chicago Tribune’s blog — which generally downplays the importance of the WaPo story:

[C]oming as it does after all the disclosures of the erstwhile Friends of Angelo program at Countrywide Financial which apparently benefited some members of Congress and at least one former member of the Obama campaign team, James Johnson, who headed up Obama’s vice presidential selection process until stepping down because of the scandalette, this story about Obama’s mortgage is certainly worth knowing about.

Redstate.com blog:

Obama, caught off-guard about Johnson’s sweetheart Countrywide deals, initially tried to defend his vice presidential talent scout. But, Obama threw Johnson, under the bus, just a few days after Johnson’s Countrywide sweetheart deals came to light.

Obama is spinning his sweetheart mortgage deal as the lender competing for Obama’s business:

Obama spokesman Ben LaBolt said the rate was adjusted to account for a competing offer from another lender and other factors.

[. . .]

The Obama campaign called the rate “consistent with Northern Trust policies, and it reflected the base rate set for that period discounted to address the competition for the account and other opportunities, such as personal financial services, that the relationship would bring to Northern Trust.”

It’s those “other factors” and “other opportunities” that worry me. Those “factors” and “opportunities” could be anything, including special access to a grateful U.S. Senator or a President.

Presidents, and U.S. Senators, need to avoid the appearance of impropriety. As with Obama’s relationship with the crook, Antoin Rezko, Obama’s judgment once again failed both Obama and America.