Elbert E. Haskins, II and Melissa A. Haskins

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Case 1:06-bk-14252 Doc27 Filed 04/19/07 Entered 04/20/07 13:53:53 Desc Main
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This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southem District of Ohio.

sided Ladnver——

- April 19, 2 Burton Perlman
Dated p 9, 2007 United States Bankruptcy Judge

IT SS SO ORDERED.

UN TED STATES BANKRUPICY OOURT
SOUTHERN DF SITRICr OF GHO
VESTERN Di VI SION

In Re Case No. 06- 14252

Elbert E. Haskins, II
Melissa A. Haskins

Chapter 13

Judge Burton Perl man
Desco Federal Credit Union ~
Obj ect or
vs.

Elbert E. Haskins, II
Melissa A. Haskins

Debt ors/ Respondent s

DECI SION AND

In this Chapter 13 case, debtors have presented a plan in

1See Lane v. Western Interstate Bancorp (In re Lane) 280 F.3d
663 	(6th 	Cir. 	2002) 	at 	p. 	644 	saying: 	“If 	the 	lien 	were 	only
partially under water (i.e. if the second mortgagee’s claim had a
secured 	component, 	being 	unsecured 	only 	in 	part), 	the 	Supreme
Court’s 	decision 	in 	Nobelman 	v. 	American 	Savings 	Bank, 	508 	U.S.
324, 	113 	S. 	Ct. 	2106, 	124 	L. 	Ed.2d 	228 	(1993), 	teaches 	that 	the
right of the lienholder would not be subject to modification.”
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which they propose to treat Desco Federal Credit Union (“Desco”),
holder 	of 	a 	second 	mortgage 	on 	debtors’ 	residence, 	as 	unsecured.
Desco 	has 	filed 	an 	Objection 	to 	Confirmation 	of 	the 	Plan 	on 	the
basis that its claim must be treated as secured.
The matter came on for hearing before the Court on March 13,
2007, at which time Desco placed a number of exhibits into evidence
and 	offered 	the 	testimony 	of 	an 	appraisal 	expert, 	Robert 	E.
Gambill. 	Debtors did not present the testimony of an appraiser.
The 	parties 	stipulated 	that 	the 	balance 	owing 	on 	the 	first
mortgage 	claim 	was 	$101,429.03. 	The 	balance 	owing 	Desco 	is
$45,852.51, 	the 	amount 	being 	secured 	by 	a 	second 	mortgage. 	The
question 	then 	becomes 	whether 	the 	fair 	market 	value 	of 	the
residence 	exceeds 	$101,429.03. 	If 	it 	does 	by 	any 	amount 	then
Desco’s entire claim must be treated as secured and its objection
to confirmation sustained. 1 If it does not, then Desco’s claim can
be treated as unsecured, and the plan confirmed.
Debtors entered into the agreement extending a loan to them by
Desco 	on 	January 	10, 	2006. 	Debtors’ 	bankruptcy 	case 	was 	filed
November 30, 2006.
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The history of the events leading up to the loan by Desco is
part 	of 	the 	record. 	Debtors 	applied 	for 	a 	second 	mortgage 	with
Desco late in 2005. 	Desco ordered an appraisal which was made by
Steve 	Clevenger, 	dated 	December 	14, 	2005. 	His 	valuation 	was
$134,500.00. 	This was an internal appraisal made by Desco. 	Desco
found 	it 	insufficient 	to 	warrant 	extending 	the 	loan 	sought 	by
debtors. 	Debtor Melissa Haskins then contacted Desco and secured
Desco’s agreement that debtors have an outside appraisal. 	This was
done 	by 	an 	appraiser 	hired 	by 	debtors 	named 	Ken 	Rase. 	His
appraisal dated December 29, 2005, was $142,400.00. 	This appraisal
met the criteria required by Desco in order to extend the loan, and
the loan was made.
At the hearing, Desco presented a qualified appraiser, Robert
E. 	Gambill. 	His 	valuation, 	based 	upon 	an 	analysis 	of 	comparable
sales, 	was 	$105,000.00. 	(Both 	the 	Clevenger 	and 	Rase 	appraisals
also were based on comparable sales.)
While debtors did not present the testimony of an appraiser,
evidently 	they 	had 	hired 	one, 	Peggy 	King, 	who 	did 	a 	written
appraisal for them, arriving at a valuation of $97,600.00. 	While
King did not testify, she did prepare a written report, and Desco
placed that report in evidence.
King 	had 	used 	three 	comparable 	sales 	in 	arriving 	at 	her
appraisal. 	One of them was at 166 Crull Street, West Portsmouth,
Ohio. 	Gambill 	also 	used 	that 	same 	property 	as 	one 	of 	his
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comparable sales. 	Gambill credibly explained why his valuation of
the property at 166 Crull Street at $106,109.00 was more valid than
that 	of 	King, 	whose 	valuation 	was 	$97,800.00. 	Indeed, 	the 	Court
found that the testimony of Gambill was persuasive, and we accept
his 	valuation 	of 	the 	property. 	It 	follows, 	therefore, 	that 	the
objection of Desco to debtors’ plan will be sustained.
As an alternative basis for its objection, Desco argues that
debtors’ 	plan 	has 	not 	been 	proposed 	in 	good 	faith 	and 	therefore
violates §1325(a)(3). 	In support of this contention, Desco says:
“The 	loan 	was 	made 	based 	upon 	strong
assertions 	by 	the 	debtors 	that 	the 	value 	of
their 	real 	estate 	was 	sufficient 	to 	secure
repayment 	to 	Desco. 	The 	position 	of 	the
debtors in asserting just eleven months later
that no equity attaches to the second mortgage
loan is not done in good faith....”
The Court finds this contention insupportable. 	The appraisal upon
which the loan was based was obtained with the consent of Desco, an
experienced financial institution, which had been making mortgage
loans 	for 	a 	long 	time. 	Desco 	has 	given 	the 	Court 	no 	reason 	to
believe 	that 	the 	current 	appraiser 	employed 	by 	debtors 	was 	not
competent. 	It 	is 	odd 	to 	hear 	this 	argument 	being 	presented 	by 	a
financial institution which had an appraisal made December 14, 2005
for $134,500.00 and at the hearing on March 13, 2007 presented its
appraisal evidence at $105,000.00.
Finally, 	at 	the 	hearing 	debtors 	contended 	that 	the 	evidence
showed that they had money on deposit with Desco. They say further
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that 	Desco 	could 	assert 	a 	right 	of 	setoff 	against 	that 	deposit.
Further, 	they 	say 	that 	setoffs 	are 	secured 	claims 	pursuant 	to
§506(a). 	Therefore, 	say 	debtors, 	they 	can 	modify 	Desco’s 	rights
because Desco was not secured solely by residential real estate as
required by 11 U.S.C. §1322(b)(2). 	The Court finds this contention
without merit.
At 11 U.S.C. §553(a), the statute states that creditors have
a right “to offset a mutual debt.” 	It cannot be said that in the
present circumstances a mutual debt is to be found with regard to
debtors’ savings account and the mortgage loan. 	There is a mutual
debt 	in 	regard 	to 	debtors’ 	residence 	and 	the 	mortgage 	loan 	made
thereon, 	but 	clearly 	the 	parties 	did 	not 	intend 	that 	cash 	on
deposit at Desco by the debtors could in any way be related to the
mortgage 	transaction. 	Any 	right 	of 	setoff 	that 	Desco 	may 	have
would be limited to any cash on deposit at Desco by debtors. 	The
element of mutuality is absent between the residence loan and any
right that Desco may have to setoff against money on deposit with
it.
That Desco has a right of setoff against savings or checking
balances of debtors at Desco, does not mean that Desco’s mortgage
loan is secured by collateral other than real estate. 	The import
of 	§506(a) 	vis-a-vis 	setoffs 	is 	that 	a 	creditor 	with 	a 	right 	to
setoff 	in 	an 	appropriate 	case 	may 	assert 	the 	right 	as 	a 	secured
claim. 	Desco is not here making such an assertion. 	Section 506(a)
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is simply inapplicable. 	This position is reinforced by cases where
the 	anti-modification 	provision 	in 	§1322(b)(2) 	is 	held 	still
effective 	if 	the 	mortgage 	instrument 	itself 	extends 	to 	personal
property. 	Allied 	Credit 	Corp. 	v. 	Davis 	(In 	re 	Davis) 	989 	F.2d
208(6th Cir. 1993); In re Fernandos 402 F.3d 147(3rd Cir. 2005); In
re Harris 167 B.R. 813 (Bankr. D.S.C. 1994); In Re Ireland 137 B.R.
65 (Bankr. M.D.Fla. 1992).
Desco’s objection to debtors’ plan is sustained.
SO ORDERED.
Copies to:
Margaret A. Burks
Chapter 13 Trustee
36 E. 4th Street, Suite 900
Cincinnati, OH 45202
John A. Schuh, Esq.
2662 Madison Road, Suite 300
Cincinnati, OH 45208
Nick Zingarelli, Esq.
Attorney for Debtor
800 Gallia Street, Suite 28
Portsmouth, OH 45662
Melissa Haskins
1429 8th Street
West Portsmouth, OH 45663
Elbert E. Haskins, II
1429 8th Street
West Portsmouth, OH 45663
United States Trustee
36 E. 7th Street, Suite 2050
Cincinnati, OH 45202
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