Real Property Notes Blog

When is Value Determined in a Chapter 13 Case?

Should valuation of real property be considered as of the petition (filing) date?  The confirmation date? Some date in between?  The issue can be important; property can deteriorate or rise in value between the filing of a bankruptcy case and the date of confirmation, especially if the two are separated by a long period of time.

In In re Fuqua, the gap was nearly three years from the date of filing until the date of the confirmation hearing.  The debtor had two investment properties she proposed to “cram down” to fair market value; however, in the three years since filing the properties had risen considerably in value.  The debtor proposed to use the value as of the filing date as the cramdown value; the creditors objected.

In an opinion that reviewed the varying positions of courts having considered the issue, the Bankruptcy Court for the Eastern District of Michigan held that, under the circumstances, valuation should be at or near confirmation, not as of the date of filing.

Debtor Who Lives in half of Duplex can Modify Mortage—and possibly condominium lien

In In re Colcord, the debtor resided in half of a duplex and rented out the other half.  She had a mortgage on the duplex. She filed a Chapter 13 bankruptcy case and proposed in the plan to “cram down” the debt to the value of the the duplex, which is significantly lower than the balance due on the mortgage. The mortgagee objected, arguing that 11 USC Sec 1322(b)(2) prohibits a debtor from modifying a mortgage secured only by the debtor’s principal residence.

The court held that, because part of the property is not the debtor’s principal residence (e.g., the half of the duplex occupied by the tenant), the mortgage could be modified.  The court note that, among other things, the debtor could not claim a principal residence exemption on taxes on the tenant-occupied half of the duplex as evidence that the mortgage was secured by more than the debtor’s principal residence.

The Michigan Condominium Act provides that, when a co-owner is delinquent on assessments and owns more than one unit in the condominium project, the association may record a lien against ALL of the units, even though some of them may not be delinquent.  The downside of doing so is that, if the debtor files a Chapter 13 case, the condominium lien might be modified or crammed down to fair market value.

© Steve Sowell 2018