Douglas Eugene Gehring and Beth Ann Gehring

OCR transcription for search; preserved printed pages are authoritative

The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below.

Russ Kendig
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO

EASTERN DIVISION
IN RE: ) CHAPTER 7
)
DOUGLAS EUGENE GEHRING ) CASE NO. 11-60611
AND BETH ANN GEHRING )
, ) JUDGE RUSS KENDIG
Debtors.
) MEMORANDUM OF OPINION
)
)

Debtors request authority to redeem a 2007 Chevrolet Malibu under 11 U.S.C. § 722.
The Huntington National Bank (“Huntington”) opposes the redemption. The court held a
hearing on June 20, 2011. Nicole L. Rohr represented Debtors and Beth Ann Schenz
represented Huntington. Following submission of Huntington’s appraisal, the parties agreed
to allow the court to decide the matter on the papers.

The court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334 and the general
order of reference entered in this district on July 16, 1984. Venue in this district and division
is proper pursuant to 28 U.S.C. § 1409. This is a core proceeding under 28 U.S.C.

§ 157(b)(2)(O). The following constitutes the court’s findings of fact and conclusions of law
pursuant to Federal Rule of Bankruptcy Procedure 7052.

As stated above, the court is deciding this on the competing appraisals submitted by
the parties per the parties’ consent. While contested valuations sometimes result in full
evidentiary hearings. economic considerations may warrant less, rather than more, litigation.
The manner in which a court decides a matter on the papers may not follow the exact route
an evidentiary hearing would travel. Either party may request an evidentiary hearing and it

is held without question.

The contention between the parties is the value of the car, a 2007 Chevrolet Malibu.
When Debtors filed the motion, they provided a condition report from 722 Redemption
Funding, Inc. (“722 Redemption”), the proposed financier of the redemption, indicating the
value was $5,858.00. This was based on the February 2011 edition of Edmunds Dealer
Retail for the Ohio Region. This valuation does not indicate which trim level is applicable,

"Penorn Doc 23. FILED 07/01/11 ENTERED 07/01/11 09:41:20 Page1of4

LS, LS Fleet, LT, SS, or LTZ. According to Edmunds, the applicable trim creates variations
in excess of $3,500.00 for the starting point.

This standard form is used repeatedly by 722 Redemption. It is particularly
unhelpful. It does not indicate the trim, which 1s the key starting point. Then, it includes a
host of check boxes for features. This is worse than unhelpful in many cases. Some, many,
or all of the features may be standard on a particular trim. This sets the court off on a goose
chase to determine which of these features are standard on the particular trim (which is not
provided) to determine if the feature adds to the value of the vehicle or if it is misleading as

already included in the value for the trim.

The form follows with a detailed condition analysis. Sadly, this analysis is followed
by language that the person signing the form may have seen the car or may not have seen the
car and, if not, took the word of an unspecified person as to the condition. The form then
leaves no place to indicate whether the car was physically seen or not and, if not, who

actually provided the information.

To be perfectly blunt, both the form and its routine execution are awful.

On the day of the hearing, Debtors filed an additional appraisal from Skipco Auto
Auction supporting their valuation. According to that appraisal, the car is a four door LE
model with a four cylinder engine and 91,219 miles. Unfortunately, there is no such thing
as an LE trim for a 2007 Malibu. Skipco provides a base value of $6,500.00 for the vehicle,
then deducts $775.00 in repair costs, to arrive at an actual value of $5,725.00.

Huntington provided a report from The Doan Group valuing the car, based on fair
market value, at $9,240.00. The Doan Group arrived at this figure after deducting $1,125.00
for repairs. This report was thorough in relating a personal inspection and observation. Alas,
the report does not indicate the trim of the vehicle or any options for a vehicle of this trim.

Both Skipco and The Doan Group agree that adjustments are necessary for repairs
and note similar items: a large crack in the windshield, tires that need replaced, and a
worn/stained interior. The real difference in the parties’ valuations lies in the starting value
of the vehicle. Huntington has a starting value of more than $10,000.00 while Debtors’

starting value is $6,500.00.

Section 722 permits a debtor to redeem personal property by paying the allowed
secured claim. The amount is determined under 11 U.S.C. § 506(a)(1), which states that the
claim is secured “to the extent of the value... in such property.” Section 506(a)(2) provides
more concrete valuation guidance, directing court’s to use “replacement value .. . as of the
date of filing . . . without deduction for costs of sale or marketing.” If the property is
purchased for personal, family or household uses, as redeemable property is under section
722, replacement value is further defined as “the price a retail merchant would charge for
property of that kind considering the age and condition of the property at the time value is

determined.” 11 U.S.C. § 506(a)(2).

With this in mind, the proper redemption value in this case will be the value that most
closely approximates the selling price a retailer dealer would charge for a similar vehicle.
Many courts view the retail price of a like vehicle to be the starting point:

Although its is now almost five years since the effective
date of BAPCPA, no consensus has emerged in the case
law interpreting § 506(a)(2) as to how replacement value
for motor vehicles should be determined. The results
reached ultimately seem to depend, not entirely surpri-
singly, on the overall record a court is presented with in a
particular case. See In re Morales, 387 B.R. 36 (Bankr. C.D.

11-60611-rk Doc 23 FILED 07/01/11 ENTERED 07/01/11 09:41:20 Page 2 of 4

Cal. 2008) (replacement value should be calculated as of the
petition date by adjusting Kelley Blue Book or N.A.D.A.
Guide retail values for a like vehicle); In re Eddins,

355 B.R. 849 (Bankr. W.D. Okla.2006) (Chapter 13 cram-
down of non—910 vehicle; N.A.D.A. Guide retail value is
starting point); In re Brown, C/A No. 06-00197-JW, 2006
Bankr. LEXIS 713, 2006 WL 3692609 (Bankr. D.S.C.,
April 24, 2006) (court rejects debtor's market reports
evidence in favor of creditor's appraiser's report);

In re Feagans, No. 06—20049, 2006 WL 6654576, 2006
Bankr. LEXIS 2872 (Bankr. D.Kan., October 18, 2006)
(court rejects creditor's N.A.D.A. Guide valuation in

favor of creditor's proffered opinion testimony from car
salesperson as to what she would sell vehicle for on lot);
In re Mayland, Bankr. No. 06—10283, 2006 Bankr. LEXIS
967 at *5, 2006 WL 1476927 at *2 (Bankr. M.D.N.C.,
May 26, 2006) (starting point for determining replace-
ment value under § 506(a)(2) is 90% of the retail value of
the vehicle listed by the N.A.D.A. Guide, explaining that
adjustments still need to be made to the prices printed in the
N.A.D.A. Guide, such as for reconditioning costs incurred
to put a vehicle into saleable condition).

In re Pearsall, 441 B.R. 267, 270-71 (Bankr. N.D. Ohio 2010) (concluding that the “most
probative evidence of the value of the vehicle for redemption purposes . . . is the actual
circumstances of its acquisition” which occurred less than one month before filing). The
court agrees that the retail price is a starting point and follows the line of courts which
conclude that certain expenses, including reconditioning, must be factored into the
calculations. Debtors’ car is not “showroom” ready. Certain expenditures are required to
bring the car up to retail price. As a result, the prices used by retailers, which reflect these
additional charges, are inflated and do not represent the replacement value of this car.

The identified concerns with Debtors’ appraisals renders them less persuasive. The
722 Redemption appraisal does not identify the trim level, while the Skipco appraisal
misidentifies the trim. Since trim is a key indicator of value, these deficiencies are material.
Huntington’s appraisal is based on personal inspection. One of the pictures attached to the
appraisal clearly shows that the car is an LS model and the court is convinced that The Doan
Group valuation is likely to be the most accurate. Neither party has argued, and the court
does not consider, the timing of the date of valuation. This could be significant given the

recent, unusual rising market in used cars.

Further, upon review of both NADA and Edmunds, the court finds Huntington’s
valuation more closely reflects the price a retailer would charge. NADA lists a clean retail
base price of $11,800.00 before factoring in mileage or condition. Edmunds.com shows a
dealer retail base price of $10,020 before condition or mileage adjustments. Consequently,
Huntington’s starting point of $10,365.00 is well within these parameters. Debtors have not
provided any support for their lower starting value or the substantial differences in the
valuations presented. Consequently, the court will accept Huntington’s value of $9,240.00
as the appropriate redemption value for the 2007 Chevy Malibu.

The court sincerely seeks to provide litigants guidance other than “stay offmy lawn!”
The most helpful and necessary information is: (1) year, (2) model, (3) trim, (4) options,

(5) mileage, (6) condition, and (7) the basis, e.g. inspection or third party report, upon which
the person makes the evaluation. This may be supplemented with arguments and evidence
concerning variations or adjustments from retail price relating for conditioning expenses and

the like.

11-60611-rk Doc 23 FILED 07/01/11 ENTERED 07/01/11 09:41:20 Page 3 of 4

An order shall be issued forthwith.
# # #

Service List:

Nicole Rohr
Beth Ann Schenz

11-60611-rk Doc 23 FILED 07/01/11 ENTERED 07/01/11 09:41:20 Page 4 of 4