The complex structure of a real estate transaction in Kendall County last December left House Speaker Dennis Hastert with a seven-figure profit and in prime position to reap further benefits as the exurban region west of Chicago continues its prairie-fire growth boosted by a Hastert-backed federally funded proposed highway.
Instead of cash, Hastert (R-Ill.) took most of his share of the proceeds in land, some of it less than 2 miles from the parcels he and two partners in a land trust sold for nearly $5 million to a developer who plans to build more than 1,500 homes and commercial space on the property near Little Rock and Galena roads in Plano.
Hastert received five-eighths of the proceeds of the sale, which worked out to a profit of more than $1.5 million for him on property that he and his partners accumulated in a little more than three years.
All told, Hastert and his partners in Little Rock Trust No. 225 received property valued at $3.8million, plus cash, said Dallas Ingemunson, a partner in the trust and Hastert's personal attorney, as well as the Kendall County Republican chairman.
Hastert's share of the proceeds includes a one-third interest in a 126-acre property on Miller Road, just south of the Robert Arthur Land Co.'s planned development, according to his congressional financial disclosure form released last week. The Little Rock land trust acquired the farm for $3.1million, Ingemunson said.Hastert also received 275 acres of property overlooking the Mississippi River in Eastman, Wis., for which he paid $756,000.
The partners partially took payment in land because federal law allows capital gains taxes to be deferred when a business or investment property is swapped for another business or real estate.
The partners are responsible for capital gains tax on the cash portion of the transaction, Ingemunson said.
Thomas Klatt, the third partner in the Little Rock trust, said the group would like to immediately put the Miller Road farm up for sale but must hold on to it for a year under provisions of the tax code."It's not far from the action," Klatt said of the Miller Road farm.
"That's how it works out here in the country. The place is booming."
Looks like the deal promises yet even greater returns after netting Hastert millions and a retirement home overlooking the Mississippi River in Wisconsin to boot according to this report.
Another interesting aspect of this story is the fact that Ingemunson, in addition to being a close Republican supporter of Hastert's, is also his personal attorney. The rules of professional conduct for attorneys generally frown on attorneys participating in business ventures with their clients because of the attending conflicts of interest which can arise in such situations, although they can be undertaken with the client's informed consent.
Under Model Rule 1.8(a), an attorney should not enter into a business transaction with a client unless: (1) the transaction and terms . . . are fair and reasonable to the client and fully disclosed . . . in writing . . . in a manner which can be reasonably understood by the client; (2) the client is given a reasonable opportunity to seek the advice of independent counsel . . . ; and (3) the client consents [to the transaction] in writing. The focus of Model Rule 1.8 is to prevent a lawyer from overreaching in a situation where he or she would have a superior bargaining position or prevent a situation where he or she could “exert undue influence to secure favorable terms in a transaction.”
There are circumstances, however, where the attorney can't represent the client even if he has the client's consent. Under Model Rule 1.7(b), “[a] lawyer shall not represent a client if the representation may be materially limited by the lawyer’s own interests.” However, such representation is permitted when: “(1) the lawyer reasonably believes the representation will not be adversely affected; and (2) the client consents after consultation.” If a lawyer has a reasonable belief that the representation would be limited by his or her own interests, the lawyer should conclude that the client should not agree to the representation under the circumstances.