468 B.R. 776
Bankr. D.S.C.2012Background
- Debtors filed a Chapter 13 petition and schedules on Oct 19, 2011, listing the property value at $110,000.
- GMAC holds the first mortgage; Suntrust holds a second mortgage with a listed claim of $24,625, and GMAC's claim is listed at $127,694.95.
- Debtors proposed to value the property under §506 at $110,000 and to value Suntrust's lien at zero and avoid it under §506(d).
- Suntrust objected, arguing that because Suntrust’s mortgage is partially secured, the debtor cannot strip or void the lien under §1322(b)(2).
- At the hearing, GMAC’s exact lien amount was not proven by claim; the court relied on debtor’s estimate of about $129,000 for the first mortgage, and two appraisals were submitted.
- The court must determine the secured status under §506(a)(1) and whether the debtor may strip Suntrust’s lien while retaining the residence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Reliability of distressed-sale comparables under §506 | Suntrust: use of foreclosures distorts value; lien cannot be stripped if property value exceeds senior debt. | Streets: fair market value for retention should reflect arm's-length comparable sales, not foreclosure/ distressed sales. | Property value found above $129,000; Suntrust lien cannot be stripped; objection sustained. |
Key Cases Cited
- Assocs. Commercial Corp. v. Rash, 520 U.S. 953 (U.S. 1997) (valuation depends on the debtor's proposed use)
- In re Balbus, 933 F.2d 246 (4th Cir. 1991) (valuation must reflect debtor's proposed use of collateral)
- In re Coker, 973 F.2d 258 (4th Cir. 1992) (debtor-retention posture governs valuation; no hypothetical sale costs)