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In re Denaro
Citations: 556 B.R. 86; 2016 Bankr. LEXIS 3047; 2016 WL 4411281Docket: 15-11352 CLB
Court: United States Bankruptcy Court, W.D. New York; August 5, 2016; Us Bankruptcy; United States Bankruptcy Court
The court is addressing the replacement value of a manufactured home owned by James and Jennifer Denaro, which is relevant to the distribution to a partially secured creditor, 21st Mortgage Corporation, under the Denaros' Chapter 13 bankruptcy plan. The Denaros bought a modular home in 2011 and secured a loan with a security interest in the home only, not the underlying real estate. After defaulting, they filed for Chapter 13 bankruptcy on June 23, 2015, proposing to pay $18,000 to 21st Mortgage Corporation, despite the creditor's claim of $28,844.50. The creditor contested the valuation, asserting that the Denaros undervalued the collateral, and objected to the confirmation of any plan that did not fully satisfy the debt. Under Section 1322(b)(2) of the Bankruptcy Code, the Denaros can modify the rights of 21st Mortgage since it holds a security interest only in the modular home. However, they must propose a plan where the value of property distributed to the creditor is at least equal to the allowed amount of the secured claim, as defined in 11 U.S.C. 506. This section allows a "cram down," whereby the secured claim can be reduced to the value of the collateral, which the Supreme Court defined as replacement value in Associates Commercial Corp. v. Rash. The court has ruled that the Denaros must pay the value of the mobile home, leading to a scheduled valuation hearing. However, the parties have agreed to submit appraisals in writing instead, waiving cross-examination rights. The court will review the submitted appraisal reports, including one from a remarketing manager for 21st Mortgage Corporation, to determine the home's value. The report assigns a base value of $30,900 to the property, suggesting a reduction of $2,500 for necessary repairs and an increase of $9,100 for delivery and setup, resulting in a total replacement value of $37,500. The debtor’s counsel submitted a Residential Broker Price Opinion from Cash Realty Auctions LLC, which analyzed three comparable modular home sales and provided adjusted sales prices of $18,900, $22,000, and $27,000. Ultimately, the report concluded a current value of $19,500 for the property, without addressing delivery and setup costs. Under 11 U.S.C. 506(a)(2), the value of personal property should be determined based on replacement value as of the petition filing date, excluding costs of sale or marketing. For personal use property, replacement value reflects the retail price considering the property's age and condition, independent of additional costs like delivery and setup. The creditor’s appraisal, which factors in delivery and setup, is not compliant with this statute, while the debtor's appraisal lacks sufficient justification for its proposed value. Despite the debtor's appraisal methodology being acceptable, the court finds no basis for the suggested reduction and instead adopts the average adjusted sales price of $22,633 for the modular home. The ruling acknowledges that both appraisals exhibit significant deficiencies, particularly the creditor’s unsupported base value assessment. The court defers any further issues regarding the debtor's Chapter 13 plan to a subsequent confirmation hearing, aligning with precedents from other bankruptcy courts.