I thought it was in the master cylinder. If your prop valve has the residual valve, I'd say you're good to go there.
What size bore does the MC have? What disc calipers are you using? Have you adjusted the rear brakes correctly?
Seems to me you don't have enough fluid in the MC to actuate the brakes as they are. That's either because you have too small of a MC bore, too big brake calipers, or mis-adjusted rear brake shoes.
Do the brakes pump up?