In 2009 Menlo Park filed a lawsuit against the couple, Jeremy and Theresa Salcedo, to buy back the house at 25 Riordan Place without also acquiring the couple's debts.
The total cost for the city? At least $518,500. The settlement approved by the council on March 5 allows the city to buy back the home for $400,000, as well as pay $18,500 owed in property taxes. In addition, City Attorney Bill McClure estimated that pursuing the lawsuit had cost taxpayers $100,000, and said he did not yet know how much money would be required to get the house ready to sell again.
Under the BMR program, the city can only re-sell the property for $285,000 to $367,000.
"I think I speak for everyone when I say this makes me livid," said Councilwoman Cat Carlton, in reference to the couple taking out loans against the house even though BMR regulations prohibit refinancing. "In two years they forgot? They forgot they can't do this?"
As for the money the couple acquired by refinancing, it's long gone, leaving the city no assets to go after apart from the house, according to Mr. McClure.
Ms. Carlton and Vice Mayor Ray Mueller said the couple should face criminal charges, although the city attorney said that to date, after he provided information to the police department and district attorney, his research indicated the case belonged in civil court.
Other suggestions included seeing whether the city could sell the property at market rate, then use the funds to acquire other, less valuable homes for the BMR program.
The case has resulted in changes to the BMR program. Apparently a mistake in the agreement signed by the Salcedos provided a loophole for lenders to allow the couple to borrow against the home; Mr. McClure said an audit of the program had found no other instances of refinancing, and the program now has added layers of review.