In re: Iftikhar, No. 10-54579 SLJ (Bankr. ND Calif., March 15, 2011).
In this case, the bankruptcy court considered the issue of the value of the debtors' real property and the effect on a second mortgage on the property.
The debtors filed a petition under Chapter 13, then filed a Motion with the court to Value Collateral and Avoid Second Lien, in order to value their property at $630,000. The property is encumbered by a deed of trust held by Kandour Capital Corporation for $674,000, and a second lien with Wells Fargo Bank for $125,000.
If the property was valued at the $630,000 that the debtors claim, the effect would be that Wells Fargo's lien would be entirely unsecured and would "strip off" in bankruptcy. Wells Fargo, on the other hand, claimed that the property was worth $770,000.
At trial, the bankruptcy court determined that the property was valued at $690,000, meaning that Wells Fargo still has some collateral in the property. The court determined the value of the property using the standard "fair market value" analysis, meaning the price which a willing seller would agree to pay a willing buyer after the property has been exposed to the market for a reasonable amount of time. This is a complex factual inquiry, requiring the court to compare similar properties, and considering factors such as the age and condition of the home and its cosmetic and structural status.
The court rejected the proposed valuation by the debtors because it was based on a valuation by a real estate agent, not a licensed appraiser. The agent gave no specific explanation or standard for his calculation. Additionally, the proposed valuation by Wells Fargo was more closely related to the value of similar sales considered by the court, and was therefore considered more scientific and objective.
