In Uncategorized on 11/26/2018 at 17:14

The Conundrum Tsunami

George A. Valanos & Frederica D. Valanos, Docket No. 29176-14, filed 11/26/18, thought they’d gotten valid subordinations from the two holders of the three deeds of trust (or maybe they’re mortgages or something in-between) on their historic Dumbarton Ave. house in Our Nation’s Capital.

Of course, they never mentioned insurance proceeds, so IRS wants partial summary J knocking out “joy forever,” since if the mortgagees (or trustees) can glom the insurance proceeds, then goodbye tax deduction, per Sec. 1.170A-14(g)(6)(ii).

That sends Judge Gustafson off on a classic Judge Gustafson conundrum tear (or is it conundra?), with a long soak in Palmolive (the case, not the soap; see my blogpost “No Joy Forever – Because Golsen,” 10/11/17). Judge Gustafson, mildly steamed that 1 Cir let Gordo and Lorna Kaufman play the “so remote as to be negligible” gambit when their lenders didn’t relinquish the condemnation or casualty booty, lowered the cliché in Palmolive, played Golsen in Chicago, and wiped out the deduction.

But in today’s designated hitter on DC law, there are numerous real property questions undreamt-of in the philosophies of the Valanos’ attorneys and IRS’ counsel. What is a DC mortgage? Is a DC mortgage a conveyance of title determinable or a lien or something in-between? What does the DC recording statute do for an unrecordable instrument attached to a recordable one? Must subordinations (whatever they are) be recorded separately? Can one cure a defective recorded instrument nunc pro tunc? What if a holder of two deeds of trust or mortgages signs only one subordination agreement? What is an assignment of insurance proceeds in a mortgage-deed of trust; is it a present right or a future interest (no proceeds without casualty loss and collection from insurer: don’t ask, I got one of those right now)? What rights (if any) have third parties who buy one of these mortgages or deeds of trust?

Oh, and by the way, must a subordination agreement use the precise word “subordinate”? In my young day, our motto was “Suborn, but never subordinate.” Just kidding.

Seriously, I’m only scratching the surface of Judge Gustafson’s law review article on DC mortgage law.

There’s lots of “somber reasoning” but no “copious citation of precedent,” largely because the parties didn’t provide any, and he isn’t going to.

“We find inadequate legal authority in the Commissioner’s and petitioners’ filings to enable us to conclude whether the purported subordinations…were effective under D.C. law, and we will not sua sponte undertake such research and analysis to decide this motion for partial summary judgment.” Order, at p. 21.

So after 27 pages of digging through DC statutes and the Section 170 regs, with a bow to Palmolive, Judge Gustafson unloads nineteen (count ‘em, nineteen) questions for the midterm exam, answers due December 21.

He may bring doughnuts and coffee to calendar call, draft your papers for you and visit you in the slammer to try your case, but he’s not doing your research for you.

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