IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

SUPPLEMENTAL MEMORANDUM OPINION AS TO VALUE

OF AVOIDED LIEN

This Opinion supplements the Court's Memorandum Opinion and Order dated July 24, 2002,1

as corrected and reissued this date,2 and should be read together with it. The issue remaining for

decision is the allocation of value between Citifinancial's avoided lien on the mobile home and its

non-avoided lien on the real estate as contemplated by In re Rubia3 and this Court's prior

1 Dkt. 60.

2 Dkt. 77. The opinion was revised due to typographical errata.

3 257 B.R. 324 (10th Cir. BAP 2001), aff'd 23 Fed. Appx. 968 (10th Cir. 2001).

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Memorandum Opinion.4 The real estate and the mobile home are referred to together herein as the

“Property.” As noted previously, the value to be allocated between the mobile home and the real

estate is limited to the amount of Citifinancial's claim at the date of filing – $36,460.72.5  

On February 4, 2003, the Court held an evidentiary hearing on the apportionment of value

between the real property in which the Trustee claims no interest and the mobile home subject to the

avoided lien. No live testimony was presented. Instead, the parties stipulated to the admission of

several documentary exhibits, choosing to rely on written appraisal reports. These reports included

three commissioned appraisals6 and Sedgwick County's property data listing showing appraised

values for the Property for tax years 1998, 1999, and 2000.7 Counsel also advised the Court that the

debtor has claimed the Property exempt as his homestead, that there has been no reaffirmation

agreement, and that the debtor continues to make his regular payments on the indebtedness. The Court

took the matter under advisement.

Because the valuation issue is dependent upon the appraisal information before it, the Court

will summarize the various appraisals. The Trustee relies on an appraisal prepared for Citifinancial

dated July 27, 2000 (“the Hopkins Appraisal”)8, shortly before Citifinancial made its loan to the

4 Because the debtor has continued to make regular payments on the property during the pendency of these proceedings, the Court's decision will determine the amount of those payments that will be paid to and retained by the Trustee for the benefit of the bankruptcy estate.

5 In re Rubia, 257 B.R. at 328.

6 Ex. 4, Ex. 6, and Ex. A.

7 Ex. 5.

8 Ex. 4.

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debtor and before debtor filed bankruptcy.9 According to the Hopkins Appraisal, the total value of

the Property on a cost basis, and after depreciating the improvements by 10 percent, was $69,835.

Of this cost, the land contributed value of $6,000. The depreciated value of the improvements (which

included the mobile home, a detached garage, and other site improvements) was $63,335. Subtracting

the value of the garage and other site improvements in which the trustee claimed no interest, the cost

basis value of the mobile home alone was $58,655. After subtracting depreciation of 10%, the cost

basis value of the mobile home was fixed at $53,509.50.10 Under the Hopkins Appraisal, then, the

value of the mobile home contributes 76.62% of the total cost-basis value of the Property.11

This percentage allocation is consistent with the Sedgwick County Appraiser's proportionate

values for the land and improvements for tax purposes. According to the property data listing for tax

year 2000, the improvements contributed 75.38% of the total appraised value of the Property.12

After this adversary proceeding was filed, the Trustee and Citifinancial each commissioned

current appraisals of the Property. The Trustee's appraisal is dated January 25, 2003 (“the Kelly

Appraisal”)13 and Citifinancial's appraisal is dated January 31, 2003 (“the Bannon Appraisal”).14 The

Kelly Appraisal fixed a total cost basis value of the Property at $68,567. Employing a cost basis

approach, Kelly valued the land at $15,000. The cost basis of the mobile home alone was $55,955

9 Debtor executed the note and security agreement in favor of Citifinancial on August 9, 2000 (Ex. 1) and filed bankruptcy on August 29, 2000.

10 The Court has included the depreciated value of the gas fireplace ($720) in the total value of the

mobile home. The Hopkins Appraisal valued the fireplace separately as one of the site improvements. See Ex. 4.

11 $53,509.50 ÷ $69,835 = .7662.

12 See Ex. 5 (32,470 ÷ 43,070 = .7538).

13 Ex. 6.

14 Ex. A.

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and the net value, less a depreciation rate of 33%, was $37,321.98 on a cost basis.15 Under the Kelly

Appraisal, the value of the mobile home amounts to 54.43% of the total cost-basis value of the

Property.16

Both the Hopkins and Kelly appraisals were made by licensed appraisers and presented on

the Uniform Residential Appraisal Report form (“URAR”) which this Court routinely sees in its day

to day work. The Bannon appraisal, however, was presented as a letter from Mr. Bannon, who is

also a licensed appraiser, and three fax transmissions from mobile home dealers. No attempt to “cost

out” the whole property as is customarily done on the URAR was made. In fairness, this approach is

consistent with the Court's order in the Memorandum Opinion that the parties appear and present

evidence concerning the “relative value of the mobile home as if it had been severed from the realty

and the realty itself after such hypothetical removal.” 17 Apparently using the data received from the

three dealers, Bannon estimated the value of the Property based upon three alternative scenarios,18

ultimately valuing the Property as a whole at $30,000 and the value of the Property minus the mobile

home at $15,000, thus yielding a 50% allocation of value to the mobile home.

In fixing the value of the avoided lien, this Court must be guided by the Bankruptcy Code and

the teachings of Associates Commercial Corp. v. Rash.19 11 U.S.C. § 506(a) directs that in

determining the amount of an allowed secured claim, the court is to determine the value of the property

15 See Ex. 6 ($55,955 x .667 = $37,321.98).

16 $37,321.98 ÷ $68,567 = .5443.

17 Dkt. 60, p. 13.

18 Ex. A.

19 520 U.S. 953, 117 S.Ct. 1879, 138 L.Ed. 2d 148 (1997) (Value of secured claim in context of chapter

13 case where debtor intended to retain Kenworth tractor truck for use in freight hauling business was replacement value standard).

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securing the claim. Both Rash and the Code recognize that there will be instances, as here, where

there will be only a partial interest in the property pledged as collateral.20 Section 506 requires the

Court to consider certain factors: “Such value shall be determined in light of the purpose of the

valuation and of the proposed disposition or use of such property . . . .21 Rash, in turn, states that the

proposed use or disposition of the property is of “paramount importance” to the valuation question.22

Based on the record presented, the court finds that the debtor intends to retain possession and

use of the Property as his primary residence. He makes regular payments on the indebtedness and as

near as the Court can tell, is not in default. The value of the property to be retained should be

determined as of August 29, 2000, the date of filing bankruptcy.23 The Court previously instructed

counsel to appear and present evidence concerning the value of the mobile home and real estate as if

the mobile home had been severed. Nothing in the record at that time suggested that the debtor

intended to retain the Property, although the debtor had claimed the mobile home as his homestead.24

Because the parties now stipulate that the debtor intends to retain the Property, the Court believes the

Rash valuation principles employed in determining the value of collateral to be retained in a chapter

13 plan should be applied here. Thus, the Hopkins appraisal, having been made shortly before the

case was filed, is the best evidence upon which to base this determination. Buttressing this conclusion

is the fact that an apportionment of values using the tax appraisal figures yields a virtually identical

20 520 U.S. at 961.

21 11 U.S.C. § 506(a).

22 520 U.S. at 962.

23 Under Rubia, the value of the avoided lien (i.e. the mobile home) is limited by the amount of

Citifinancial's claim against the debtor on the petition date. 257 B.R. at 328.

24 Dkt. 51.

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allocation between the Property and the mobile home (76.62 % v. 75.38%). These appraisals are

simply more relevant to the issue for decision than are the Kelly or Bannon offerings.

Therefore, the value of the mobile home comprises 76% of the total value of the Property. The

Court concludes that the value of the avoided lien preserved for the benefit of the estate is $27,710.15

($36,460.72 x 76% = $27,710.15). Citifinancial is ordered to turnover to the Trustee 76% of any

payments received on its claim after the date of the debtor's bankruptcy petition, and the Trustee shall

be entitled to collect 76% of the scheduled payments made thereafter until the Trustee has collected

the principal amount of $27,710.15. The value of Citifinancial's mortgage on the real estate shall be

reduced by the sum of $27,710.15 so that its claim (secured by the debtor's real property) is secured

by the remaining $8,750.57, plus interest accruing thereon until paid.

A Judgment on Decision rendering final relief as set forth in the Court's Memorandum Opinion

and this Supplemental Memorandum Opinion will issue this day.

IT IS SO ORDERED.

Dated this 12th day of March, 2003.

_________________________________________ 
ROBERT E. NUGENT

CHIEF BANKRUPTCY JUDGE

UNITED STATES BANKRUPTCY COURT

DISTRICT OF KANSAS

CERTIFICATE OF SERVICE

The undersigned certifies that copies of the Supplemental Memorandum Opinion were deposited in the United States mail, postage prepaid on this 12th day of March, 2003, to the following:

U.S. Trustee                                      Citifinancial

500 Epic Center                                  760 N. Tyler Rd

301 N. Main                                      P.O. Box 9504

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William H. Zimmerman, Jr.

Case, Moses, Zimmerman & Wilson, P.A.

150 N. Main, Suite 400

Wichita, KS 67202

Kevin M. Lyons

6145 Grandview St.

Merriam, KS 66202

Bradley L. Farney

McCaffree Financial Corp

4701 W. 110th St.

Overland Park, KS 66211

Tammy M. Martin

310 West Central, #110

Wichita, KS 67202-1004

J. Michael Morris

301 N. Main

Suite 1600

Wichita, KS 67202

___________________________________

Janet Swonger,

Judicial Assistant

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