Attorney-at-Law

NOTEWORTHY

In Uncategorized on 06/13/2022 at 16:06

It’s an interesting argument, so I give the trusty attorneys for Ronald W. Howland, Jr. and Marilee R. Howland, T. C. Memo. 2022-60, filed 6/13/22, a Taishoff “good try.” Ron and Marilee had a pair of mortgages on their principal residence, which were both within the Section 163(h) Qualified Residence Interest cutoffs for year at issue. Ron and Marilee got foreclosed by both mortgagees, but the junior mortgagee was first past the post.

Judge Christian N. (“Speedy”) Weiler unpacks the timeline, but at close of play it’s how to whack up the $321K net that the junior received out of the foreclosure sale. Ron and Marilee argue that the mortgage foreclosure concluded in a sale of the residence for the amount realized by the foreclosing mortgagee; the note, which the mortgage secured, provides that payments are applied first to interest, then to principal; that the amount of interest computed in the foreclosure proceeding was $100K; and therefore they have a $100K interest deduction.

There’s case law that says no, but those cases apply where the debtor is insolvent, and there’s no showing Ron and Marilee were insolvent at the time.

The case goes up on stipulated facts (Rule 122). No trial.

Judge Speedy Weiler: “The record before us is silent as to how [junior] applied the funds received and whether petitioners owe any remaining principal balance. These facts (if favorable) could support a finding that petitioners in fact paid home mortgage interest (in some amount)— rather than repaying principal balance. However, statements in briefs do not constitute evidence. Pertinent facts missing from the stipulation merely mean that the party bearing the burden of proof has failed to sustain the burden of showing them.

“Petitioners bear the burden of proof and must show, by a preponderance of the evidence, that they are entitled to a home mortgage interest deduction of $103,498, or some other amount. For the reasons discussed above, we conclude that petitioners have failed to meet their burden.” T. C. Memo. 2022-60, at pp. 7-8. (Citations omitted).

Taishoff says, excuse me, Judge, but you have the judgment of foreclosure and sale. A Court of unchallenged jurisdiction has computed and characterized the numbers. The junior mortgagee and Ron and Marilee have a written agreement which tells the junior mortgagee how to apply them. After interest, whatever is left is principal. What the junior mortgagee writes in their books is nothing to the point. Whether the junior mortgagee seeks a judgment against Ron and Marilee for any shortfall, or even whether or not a shortfall is due and owing, is likewise nothing to the point. A contract is a contract.

Word to trusty attorneys: Reargue, then appeal.

Oh, and Ron and Marilee avoid chops on good-faith reliance.

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