The problem of accurately estimating the value of real estate when fling a bankruptcy case is a long running theme here — its something that keeps cropping up again and again.
A good illustration of this is a recent Chapter 13 bankruptcy case decided by Judge Deasy in New Hampshire.
The Roy case concerns a parcel of land in Exeter that presently has some office and industrial buildings on it, although they are in need of expensive repairs.
The property also has a lot of liens against it — $723,000 by the judge’s count. These include a bank mortgage for $444,000, a second bank mortgage for $198,000, and then two smaller attachments arising out of lawsuits against Mr. Roy.
Valuation is an important issue in a case like this, because if the debtor can show the value is less than the first mortgage ($444K in this case), the remaining liens can be stripped as part of his Chapter 13 reorganization.
So the debtor had an appraiser testify that the property was worth $120,000. The bank then came in to court with an appraisal that showed the parcel was worth $525,000. That’s a big difference!
The two appraisers obviously came from diffrent angles and used different methods to get such widely varying amounts. One thing they both agreed on –sort of– was that the existing buildings could be raised and the property sold as raw land.
The judge ultimately focused on this aspect (the competing valuations for demolition to raw land were only off by about $90K), and found the value of the parcel to be $265,000 — enough to strip away all the liens except the bank’s first mortgage.
This case is a good example of the necessity to get good property valuations before heading to bankruptcy court in New Hampshire — and even then, get a good lawyer, because you may be in for a fight!
By Doug Beaton