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Washington • Sen. Mike Lee sold his home in a short sale two years ago to a friend and then rented a home nearby from the same man, a neighbor, federal contractor and campaign donor.

Lee was forced to forfeit his down payment and sell his sprawling million-dollar Alpine home — at a big loss to his mortgage bank, J.P. Morgan Chase — in 2011 after he was elected to the Senate and couldn't afford the payments.

The buyer, property records show, was Ron McMillan, an author and co-founder of VitalSmarts LLC, an organizational consulting firm.

Soon after, Lee began renting a home less than a quarter mile from his lost "dream home," and county records show McMillan is the owner.

Asked Tuesday about the arrangement, Lee said the rental from McMillan wasn't part of the short-sale in which his two-story home on Quail Hollow Circle was sold.

"We negotiated that separately," Lee said as he left the Capitol to head to a Judiciary Committee hearing.

The senator didn't elaborate about the negotiation but said that he does pay fair-market rent to McMillan and sees the agreement as aboveboard., an online housing company, estimates the rent for Lee's current home — a 14-year-old, single-story four-bedroom house on one-half acre, at around $2,200 a month.

Pressed about the federal contractor aspect, Lee demurred.

"I know almost nothing about his business," Lee said.

VitalSmarts raked in about $2 million in federal contracts during fiscal year 2010 through 2011.

The contracts came from various government departments and agencies — ranging from the Environmental Protection Agency to the Department of Defense — and for the most part, they were all non-competitive accounts, meaning the government did not look elsewhere for another vendor.

A year after McMillan bought Lee's home for about $720,000 — Lee originally bought it for $1.1 million — McMillan's federal contracts dropped. He made about $215,000 in fiscal 2012, according to federal records, with the largest part of that coming from sales of books and pamphlets.

Lee's office said the senator and McMillan were acquaintances and neighbors but didn't know each other before moving into the area.

McMillan and his wife donated $7,200 to Lee's campaign during his 2010 election to the Senate.

Lee had mentioned his "friend" McMillan and his books during a Senate floor debate in 2011 about the need to work together and pass a budget. McMillan's company promoted the comment on social media.

McMillan was out of the country Tuesday and unavailable for comment, his office said. His wife, Bonnie, said through VitalSmarts that they met the Lee family when they moved to the neighborhood and are renting their previous home to the Lees at fair-market value. The Lee family is free to end the rental agreement at any time, Bonnie McMillan said.

VitalSmarts said that it has no association with Lee and all federal contracts secured in recent years have "had absolutely no connection" with Lee.

Michael Josephson, founder of the Los Angeles-based Josephson Institute, which teaches ethics for business executives and public officials, says what the senator has done may be completely "aboveboard."

"At the same time, it's a deal that by its very nature opens up the question of at least an appearance of impropriety," Josephson said.

The ethicist says the deal seems "imprudent" for a public figure.

Lee, who had clerked for Supreme Court Justice Samuel Alito and served as general counsel for then-Gov. Jon Huntsman, bought his home when he was a private-sector attorney making hundreds of thousands of dollars a year. When he ran for the Senate, which pays its members a $174,000 salary, Lee said previously, he knew he'd have to sell.

But then the real estate market tanked and Lee's former law firm went bankrupt, still owing him a large sum, he said.

In a deal with his bank, Lee sold his home for $720,000 and the bank took the hit and Lee lost his "significant" down payment.

"It certainly is something that is painful to go through and I know a lot of people are going through it, and I feel for those who have had to go through it," Lee said last year.

"It's not fun. It's not something any of us would have chosen. But you do what you have to do when income doesn't match your outlays. You have to pare your outlays down."

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