In Uncategorized on 05/06/2014 at 17:00

No, not a University of Minnesota sports team, but rather University of Minnesota Law School’s Ronald M. Mankoff Tax Clinic, who get a tip of the ol’ Stetson from The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, Mark V. Holmes.

The Golden Gopher Tax Clinicians win a small-claimer for Mohamed Kadir, 2014 T. C. Sum. Op. 43, filed 5/6/14.

Mo is a homeowner swindled during the Great Home Mortgage Fraud of the early 2000s. He refinanced, seeking lower payments, but got nailed with a neg am mortgage where the outstanding principal balance increased unless big paydowns were made. For an explanation of the neg am (negative amortization) mortgages, see 2014 T. C. Sum. Op. 43, at p. 4, Footnote 3. It’s like paying only the minimum on your credit card balance, except it’s worse.

Mo has another problem: he doesn’t speak English very well “(at trial the court used a translator who spoke Kadir’s native Oromo)”, 2014 T. C. Sum. Op. 43, at p. 3. No, I didn’t know where that language is spoken, either, until I looked it up. Oromo, I have learned, is an Afro-Asiatic language, of the Cushitic branch, and is the most widely spoken language in Ethiopia. Good job by the Minnesota clinicians in finding a speaker thereof equally proficient in English, although “…the Court directly observed the difficulty of translating ‘negative amortization’ into Oromo.” 2014 T. C. Sum. Op. 43, at p. 4, footnote 3.

Mo defaults, of course, but the Housing Preservation Project lawyers in St Paul stave off foreclosure, and sue the lenders for fraud. The Preservationists get Mo a cheaper rate, but as part of the settlement, Mo gets $10K from the lead lender, which he has to pay in two pieces to each of the former servicers of the fraudulent loan.

So at the direction of his Preservationist lawyer, Mo takes a $10K check to his bank, deposits it, and writes two checks to the servicers.

Of course, Mo gets a 1099-MISC for the $10K, and another for $35K, the written-down portion of the fraudulent mortgage. IRS didn’t mention the latter in the SNOD they sent Mo, but they argue cancellation-of-debt at the trial, and that’s too late, so Judge Holmes isn’t hearing it.

No mention made of the Section 108(h) bailout for underwater mortgagors in effect in 2009, when all this happened, but we’ll leave that for now. Maybe the mortgaged house wasn’t Mo’s principal residence.

Mo’s argument, via the Minnesota clinicians and his interpreter, is that he’s like a mailman who picks up a check and delivers it. No one would claim the mailman had income from that transaction.

And this is a step transaction. Mo got the $10K, but the settlement agreement obligated him to pay it immediately to the two servicers, to whom he had no prior obligation, and his lawyer told him he had to do it, so he did.

And Mo’s Preservationist lawyer convincingly testified that the fraudulent lender was concerned how to get money to the two servicers, who were going to be out some fee money under the new mortgage deal.

Thus, no debt of Mo’s was paid by means of the $10K, and he was just a mailman.

Good job, Minnesotans.





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