In Uncategorized on 04/09/2020 at 18:04

We New York dirt lawyers well know the provisions of Article 14 of our Real Property Law, the Property Condition Disclosure Act. That enactment requires a seller of residential real property to give the purchaser a property condition disclosure statement (the “PCDS” referred to hereinabove, as my sequestered-in-style colleagues would say), or pay a mulct in lieu thereof.  A NY PCDS goes into exhaustive and exhausting detail about every condition of the property, inside and out, and is the buyer’s blueprint for a lawsuit. My form contract of sale awards the buyer the 500 Georges the statute requires, doesn’t represent that today is Thursday, and wishes the buyer a soldier’s farewell.

I don’t know if CA has a like mulct for non-compliance, but the sellers sure should have paid it, in Charles P. Littlejohn And Maxine M. Littlejohn, 2020 T. C. Memo. 42, filed 4/9/20.

This is another unsubstantiated deductions case. But I found it so reminiscent of single-family house purchases I’ve seen, or heard about. Charles and Maxine claim they were defrauded and robbed when their MacMansion fell apart.

Charles “…has a law degree and previously taught law at the Southern California Institute of Law in Santa Barbara.” 2020 T. C. Memo. 42, at p. 3. Ex-Ch J Michael B (“Iron Mike”) Thornton doesn’t say what Charles taught, but somehow I doubt that real property, tax, and trial techniques were on the menu.

There’s some back-and-fill about deductions for the two rental jobs Charles ran for Maxine, but given “the voluminous materials petitioners have provided,” 2020 T. C. Memo. 43, at p. 19, ex-Ch J Iron Mike manages to Cohanize a few kopeks for Charles over what IRS allowed. “Bearing heavily against petitioners, who have created this evidentiary quagmire, we conclude that they have substantiated one-half of the total amounts that they report as payments” for some repairs. 2020 T. C. Memo. 43, at pp. 19-20.

Depreciation also comes in for a healthy helping of skepticism from ex-Ch J Iron Mike. Charles isn’t sure what Maxine’s basis is in one of the rental jobs. ”Petitioners contend that they are unable to produce all their receipts for the improvements to the Oak Hill property because, they say, most of their records, which had been stored on shelves in the [MacMansion] garage, were destroyed when the garage roof collapsed…. Consequently, petitioners assert, on the basis of Mr. Littlejohn’s testimony we should find that the cost of the improvements was at least $600,000. We are unpersuaded.” 2020 T. C. Memo. 43, at p. 23.

And it seems a lot of records did survive the Fall of the House of Littlejohn. “Notwithstanding petitioners’ claims about the destruction of their records, as noted they have in fact produced a great many documents in an effort to substantiate the cost of certain improvements and repairs to the Oak Hill property. These documents purport to substantiate a great many expenditures over a period stretching from January 1, 1997, to March 8, 2007. These documents obviously were not destroyed by the garage roof’s collapse in December 2007. Petitioners have not explained the selective availability of these documents or even exactly what documents they contend are missing from this period. Nor have they explained the absence of records for expenditures after December 2007, when the garage roof collapsed.” 2020 T. C. Memo. 43, at pp. 23-24.

While Charles and Maxine aren’t doing so well on ex-Ch J Iron Mike’s track, they’re running strong in the Taishoff Good Excuse Sweepstakes.

But the best comes when Charles and Maxine claim the theft loss for fraudulent reps in the CA iteration of the PCDS in the MacMansion deal.

Ex-Ch J Iron Mike reads CA law as requiring criminal theft before Section 165 comes in play. But all Charles and Maxine have is a default judgment for $150K against a contractor who did some pre-closing work. And a big settlement from seller and realtor.

Besides, civil default judgments, no matter what they allege, don’t establish criminal liability, at least in CA. CA lawyers, see 2020 T. C. Memo. 43, at pp. 31-32.

Anyway, at least in CA, failure to disclose defects in a building isn’t criminal. The only criminal cases are where contractors took money and absconded or diverted the money elsewhere than to the job. Mere commercial defaults aren’t criminal, unless you can prove intent.

Maybe Charles didn’t teach contract law either.

And for you valuation fans, check out Charles’ and Maxine’s trusty expert, whom I’ll call Andy. Andy knocked down the before-FMV of the MacMansion by $1,755,000. “Questioned at trial about this $1,755,000 discount, [Andy] offered no detailed explanation but rather stated that it was a ‘pretty close ball park’.” 2020 T. C. Memo. 43, at p. 41.

There’s more, but ex-Ch J Iron Mike draws the curtain. “In short, [Andy]’s expert report, based on unexplained assumptions and third-hand information, is insufficient to substantiate petitioners’ claimed theft loss. The record contains no other competent evidence by which to reliably measure or estimate the amount of any supposed theft loss.” 2020 T. C. Memo. 43, at p. 44.

Of course IRS has the Boss Hoss sign-off stiped in, and Charles’ and Maxine’s CPA just filled in the forms with what the clients gave him.

And we can stop here.




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