An always tricky area of bankruptcy law involves the method used to value a debtor’s real estate.
Typically, one of the worst ways to justify the value of real estate is to just refer to the tax assessor’s valuation on a property tax bill. These values are notoriously out of date and often bear little relation to the reality of the current market.
On this score, bankruptcy judge Melvin Hoffman agrees. In the Darosa case, Judge Hoffman wrote that he would not accept tax assessments as evidence of value in a motion to lift the automatic stay. In that case, a lender was trying to resume foreclosure proceedings after Darosa filed a Chapter 7 bankruptcy case. This procedure calls for a hearing before the judge where the lender, among other things, must prove the current value of the property and compare it with the loan balance.
The lender’s attorney provided only a tax assessment value, and was rebuked for doing so, as the judge would not accept its reliability. Later, he did accept a written “drive-by” appraisal from a real estate broker as a fair estimate of the market value of the Darosas’ home.
It is also interesting to note that in the same opinion, Judge Hoffman made very negative comments on the use of the popular Zillow service to value properties. The judge was skeptical of the Zillow site for several reasons, including the fact that users change the home values as they go by typing in alternate data concerning the property.
The bottom line: a written opinion of a home’s value provided by a real estate professional still sems like the most reliable form of evidence if you are headed to bankruptcy court.
By Doug Beaton