Michael R. Evans and Tonya S. Evans

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re
Michael R. Evans
Tonya S. Evans
Debtor
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Case No. 05-23330
Chapter 13
Judge Burton Perlman
DECISION AND ORDER
RE: OBJECTION TO CONFIRMATION OF CHAPTER 13 PLAN
Fifth Third Bank (hereafter “Bank”) has filed an objection to
confirmation of debtors’ chapter 13 plan. 	Its objection raises the
question of valuation of debtors’ residence. 	Valuation is critical
because 	Bank 	holds 	both 	a 	first 	and 	second 	mortgage 	on 	debtors’
residence. 	Debtors’ plan provides for monthly payments to the Bank
on the first mortgage. 	The plan provides, however, that the Bank’s
second 	mortgage 	be 	paid 	as 	an 	unsecured 	claim. 	Bank, 	to 	the
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: July 19, 2006
____________________________________________________________
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contrary, contends that there is sufficient equity in the residence
property that its second mortgage should be treated as secured.
The matter came on for hearing before the court on April 26,
2006, at which time evidence was taken and exhibits admitted. 	The
witnesses 	who 	testified 	were 	debtor 	Michael 	R. 	Evans, 	Peggy 	L.
King, 	expert 	witness 	for 	debtors, 	and 	Ms. 	Countryman, 	expert
witness for the Bank.
Evans testified that his residence, the subject property, 	is
at 239 Liberty Street, Peebles, Ohio, 	that it was bought in 1998,
and the purchase price was $42,500.00. 	Debtors obtained a second
mortgage on the real estate on or about February 26, 2000. 	At that
time, 	Evans 	thought 	that 	the 	value 	was 	about 	$50,000.00. 	He
testified that because some repairs are required, he now values the
property at $45,000.00.
The expert for each of the parties supplied appraisal reports
which 	are 	in 	evidence. 	In 	each 	instance, 	the 	appraised 	value 	is
based upon comparable sales which have been adjusted by the expert
submitting 	them. 	By 	adjustment, 	we 	mean, 	amounts 	were 	added 	or
deducted 	from 	the 	purchase 	price 	on 	account 	of 	the 	appraiser’s
opinion that certain features of the comparable sale were better or
worse than those features in the subject property. In each report
the appraiser has selected three properties which are deemed to be
relevant to the appraisal by that appraiser.
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After 	reviewing 	the 	appraisal 	reports 	by 	both 	experts, 	our
attention 	focused 	particularly 	on 	a 	comparable 	in 	the 	Countryman
report. 	It 	was 	for 	the 	house 	next 	door 	to 	the 	subject 	property.
The subject property is at 239 Liberty Street in Peebles, while the
next 	door 	property 	is 	227 	Liberty 	Street 	in 	Peebles. 	King,
debtors’ expert appraiser, testified that in the appraisal process
she 	looks 	for 	comparable 	property 	in 	the 	neighborhood. 	Yet 	here
was a sale of the house next door to the subject property and the
date 	of 	the 	sale 	was 	later 	than 	that 	of 	any 	of 	the 	other
comparables 	by 	either 	appraiser. 	This 	Court 	has 	difficulty
understanding why King should not have selected the property at 227
Liberty 	Street 	as 	a 	comparable, 	and 	then 	made 	adjustments 	as 	she
did with the properties she did select. 	In her testimony she did
not explain why she did not select 227 Liberty Street as one of her
comparables.
We base our conclusions on Countryman’s adjustment of the sale
price of the property at 227 Liberty Street and discount the other
two 	properties 	utilized 	by 	Countryman. 	The 	second 	one 	is 	half 	a
mile 	away 	from 	the 	subject 	property 	and 	that 	distance 	may 	have 	a
significant 	impact 	on 	value. 	Countryman’s 	third 	sale 	is 	outside
the town in the township, at a distance considerably further from
the 	subject 	residence 	than 	any 	of 	the 	other 	comparables. 	We
therefore 	discount 	Countryman’s 	third 	property 	as 	a 	valid
comparable.
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After 	adjustment, 	Countryman 	arrived 	at 	an 	adjusted 	sales
price for the property at 227 Liberty Street of $59,500.00.
After 	our 	review 	of 	the 	evidence, 	it 	is 	our 	conclusion 	that
the fair market value for the subject property is $57,000.00. 	We
arrive at this conclusion on the basis of Countryman’s adjustment
sale 	price 	for 	the 	house 	next 	door 	to 	the 	subject 	property, 	that
at 	227 	Liberty 	Street. 	We 	make 	a 	further 	deduction 	of 	$2,500.00
from the adjusted sale price arrived at by Countryman for the 227
Liberty Street property because the evidence at the hearing showed
that 	there 	were 	problems 	with 	drywall 	and 	roof 	leaks 	in 	debtors’
back 	porch. 	An 	allowance 	for 	correction 	of 	these 	conditions 	is
called for, and a fair magnitude of that allowance in view of the
Court is $2,500.00.
We discount the appraisal evidence put forward by the debtors’
appraiser, King, for it seems to us that her credibility is called
into question by her failure to utilize as a comparable sale that
of the house next door.
As we stated at the onset, confirmation of debtors’ Chapter 13
Plan 	turns 	on 	valuation 	of 	the 	subject 	property. 	Bank’s 	first
mortgage 	is 	in 	the 	amount 	of 	approximately 	$46,000.00. 	If 	the
value of the subject property were less than that amount, debtors’
would be justified in their plan in treating the second mortgage of
the Bank as unsecured. 	That is, debtors’ could strip the lien of
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the second mortgage of the Bank since there would be no equity to
which the lien could attach. 	See In re Lane, 280 Fed. 3rd 663(6th
Circuit 2002). 	By the same authority, however, if there is equity
to which the lien of the second mortgage can attach, the lien may
not 	be 	stripped, 	the 	second 	mortgage 	may 	not 	be 	treated 	as
unsecured, and the plan cannot be confirmed. 	We have arrived at a
valuation 	of 	the 	subject 	property 	of 	$57,000.00, 	and 	we 	conclude
that 	there 	is 	equity 	to 	which 	the 	second 	mortgage 	can 	attach.
Debtors’ Chapter 13 plan, therefore, may not be confirmed.
IT IS SO ORDERED.
Copies to:
Michael R. Evans
239 Liberty Street
Peebles, OH 45660
Tonya S. Evans
239 Liberty Street
Peebles, OH 45660
David Kruer, Esq.
800 Gallia Street, Suite 28
Portsmouth, OH 45662
Laura R. Faulkner
John Day, Jr.
525 Vine Street, Suite 800
Cincinnati, OH 45202
Margaret A. Burks
36 E. Fourth Street, #700
Cincinnati, OH 45202
Office of the U.S. Trustee
36 E. Seventh Street, Ste 2050
Cincinnati, OH 45202
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