Secured Claim Reduced By $242K After Valuation of Collateral; Lien Avoidance Issue Postponed Until Confirmation Hearing

Secured Claim Reduced By $242K After Valuation of Collateral; Lien Avoidance Issue Postponed Until Confirmation Hearing

In In re Rodríguez, a secured creditor filed a fully secured proof of claim for $572,986.23. Pursuant to sections 506(a)(1) and (d) of the Bankruptcy Code, the debtors sought an order fixing the fair market value of the collateral at $195,000.

The debtors also sought to avoid the mortgage on the property to the extent the mortgage secures a claim greater than the value of the property. The mortgagee objected, claiming the property has a fair market value of $390,000.

Each party submitted expert testimony, both of which coincided that using comparable sales was the best methodology to establish the property’s value. However, the two experts differed in their determination of which sales were comparable.

The U.S. Bankruptcy Court for the Eastern District of New York concluded that neither expert accurately valued the property because each relied on comparable sales that are dissimilar from the property.

In the end, the court assigned the property a value of $330,000, finding that figure to be the most realistic and consistent with the testimony of both experts.

The court thus allowed the mortgagee’s secured claim in the amount of $330,000. As to lien avoidance, the court reasoned that the authority for such relief was not provided under Section 506, bur rather under Section 1325(a)(5), which sets forth the requirements for confirmation of a Chapter 13 plan.

As such, the court postponed consideration of the request for lien avoidance until the confirmation hearing.