In re Creekside Senior Apartments, LP
477 B.R. 40
6th Cir. BAP2012Background
- Bankruptcy court valued the LIHTC properties including the remaining tax credits under §506(a).
- Debtors and general partners challenged the valuation, including a Valuation Objection and a Motion In Limine.
- Bank holds a first mortgage on the LIHTC properties; LURAs run with the land and restrict rents.
- Tax credits are tied to the property and, under §42(d)(7), transfer with the property upon sale; they are ownership rights of the owner, not separate collateral.
- Bank’s appraisals included the remaining tax credits; Debtors’ appraisal excluded them.
- Bankruptcy court determined the Bank’s valuations were more credible and included the remaining tax credits in the §506(a) secured claim; final values were set for each property.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether remaining LIHTC credits can be included in §506(a) valuation. | Debtors: credits are not property of the Debtors’ estates or collateral. | Bank: credits run with the LIHTC property and affect value; cannot be separated from ownership. | Yes; credits are part of value to determine secured claim. |
| Whether the court properly weighed the Bank’s appraisals over the Debtors’ appraisals. | Debtors: court should give equal or greater weight to Debtors’ numbers. | Bank: Bank’s appraisals more accurately reflect market conditions. | Court did not abuse its discretion; bank’s valuation adopted. |
| Whether the Valuation Objection and Motion In Limine were correctly denied. | Debtors: evidence on remaining credits is unreliable/irrelevant. | Bank: credits influence value and are admissible; weight is for the court. | Denied; evidence relevant and weightable, not excludable. |
| Whether USPAP compliance impacted admissibility of the Bank’s appraisal. | Debtors: appraiser used extraordinary assumptions; not USPAP-compliant. | Bank: methodology acceptable; USPAP compliance affects weight, not admissibility. | No reversible error; gatekeeping proper, weight determined by court. |
| Whether the court erred in considering the tax credits given they are allocated to limited partners. | Debtors: tax credits should not be considered as collateral value. | Credits run with the land and affect value; ownership remains with Debtor. | Credits properly included in value under §506(a). |
Key Cases Cited
- Rainbow Apartments v. III. Prop. Tax Appeal Bd., 326 Ill.App.3d 1105 (Ill.App.3d 2001) (tax credits affect property value and should be considered in value)
- Randall v. Loftsgaarden, 478 U.S. 647 (U.S. 1986) (tax benefits cannot be treated as income; distinction between tax credits and cash income)
- In re Buckland, 123 B.R. 573 (Bankr.S.D.Ohio 1991) (courts may weigh appraisal credibility; not bound to accept reports)
- In re Smith, 267 B.R. 568 (Bankr.S.D.Ohio 2001) (valuation involves weighing conflicting appraisals; not exact science)
- In re Rodriguez (Chase Manhattan Mortg. Corp.), 272 B.R. 54 (D. Conn. 2002) (final order under §506(a) when valuation used in plan confirmation)
- Brice Rd. Devs., L.L.C. v. Gen. Electric Credit Equities, Inc., 392 B.R. 274 (6th Cir. BAP 2008) (mixed questions of law and fact; de novo review for legal conclusions)
- Solis v. Laurelbrook Sanitarium and School, Inc., 642 F.3d 518 (6th Cir. 2011) (standard for legal review of factual findings; de novo for legal conclusions)
- Harriss Commercial Corp. v. Rash, 520 U.S. 953 (1997) (two-step §506(a) valuation; price a willing buyer would pay)