In re Hammers, Case No. 18-80602-TRC
| Decision Date | 21 August 2018 |
| Docket Number | Case No. 18-80602-TRC |
| Parties | IN RE: HAMMERS, BUCK LEON Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Oklahoma |
The following is ORDERED:
Before the Court is Creditor National Livestock Credit Corporation's Motion for Relief form Automatic Stay and/or Abandonment of Property (Docket Entry 14), Creditor First United Bank and Trust Co.'s Limited Response (Docket Entry 31), and Debtor's Objection (Docket Entry 32). The Court held an evidentiary hearing on this matter on August 8, 2018. After a review of the record, and weighing the relevant factors, the Court herein enters its findings of fact and conclusions of law, holding that relief from the stay should be granted and the subject real and personal property abandoned.
Debtor filed this individual chapter 11 case on June 5, 2018. No trustee has been appointed. Prior to filing this case, the District Court of Bryan County, Oklahoma, CJ-2017-142, entered in rem and in personam judgments against Debtor, and an in rem only judgment against his ex-wife, Jody Hammers, on creditor First United Bank and Trust Co.'s ("First United") foreclosure action. First United held the first mortgage on Debtor's and Jody Hammer's real estate in Bryan County, a lien on all of Debtor's equipment, additions, replacements and substitutions, and proceeds, and a purchase money security interest in a John Deere 6420 4x4. Movant Creditor National Livestock Credit Corp. ("NLCC") held a second mortgage on a portion of Debtor and Jody's real estate. First United's judgment on separate notes as of September 5, 2017, is as follows: (i) $297,856.26 plus interest of 6% per annum; (ii) $188,771.80 plus interest of 4.5% per annum; and (iii) $84,035.25 plus interest of 6% per annum. The judgment also awarded First United late fees and postjudgment interest. First United was also awarded a judgment against Debtor on the equipment and John Deere 4x4 for $46,854.13 plus interest of 5.7% per annum. Movant NLCC was awarded judgment of $558,298.75 plus interest after December 31, 2017 at $113.21 per day until paid, and its fees, costs and attorney fees. The state court ordered foreclosure of First United's first mortgage on all of the Bryan County real estate. It also ordered foreclosure on NLCC's second mortgage against the same real estate, with the exception of Jody's half-interest in a portion of that real estate known as the "House and Five Acres," address of RR1, Box 667, Caddo, OK. Debtor was also ordered to turn over possession of collateral to First United and/or NLCC.
Sheriff's appraisers appraised the House and Five Acres at $207,500, and the remaining real estate in Bryan County at $648,500. On May 11, 2018, the Bryan County Sheriff conducteda sale of the properties. NLCC purchased the real estate for $750,000 and the House and Five Acres for $195,000. The hearing to confirm the Sheriff's Sale was scheduled for June 5, 2018. Debtor filed bankruptcy that morning.
NLCC filed its motion to lift the stay on June 11, 2018, alleging that its claim combined with First United's exceeds the value of Debtor's real estate and personal property. NLCC argues that Debtor has no equity, that its position is being eroded as First United's judgment accrues interest, that some of the collateral securing Debtor's notes has disappeared, and that its costs are increasing as it has force-placed insurance on the home due to Debtor's failure to insure. NLCC estimated that Debtor's remaining equipment is valued at $92,000. NLCC is maintaining the insurance on the house and outbuildings, and believes that the roof of the house was damaged but not repaired. Debtor did not dispute the claim that some collateral is missing, nor that the house is not being insured by Debtor. However, Debtor states NLCC and First United are adequately protected by his real estate and mineral interests. He wants time to present a plan of liquidation that will maximize the value of his assets for his creditors.
The focus of the hearing was on the value of Debtor's Bryan County real estate mortgaged to First United and NLCC, and possible mineral interests. Roger Spears, a state-certified general appraiser, of Southwest Valuation Service, testified on behalf of NLCC. His written appraisals with photographs of the subject properties were submitted to the Court. As of August 2, 2018, Spears appraised Debtor and Jody's house at $290,000. Spear's appraisal includes this description of the condition of the house: Spears stated that his appraisal did not include costs of selling the home which typically average 6% of the purchase price. Spears alsoappraised a tract containing 408.24 acres. The highest and best use of this land was considered to be agricultural, specifically pasture land. Using the Cost Approach, Spears appraised this land at $916,000, buildings at $39,500, for a total value of $955,000. Using the Sales Comparison Approach, Spears arrived at a value for the land and buildings of $960,000. These appraisals were of surface rights only, with $0 value included for minerals. Spears was not provided a title opinion on these properties so he was unable to evaluate Debtor's claim that he owns the mineral rights in 80 acres of this tract. The only evidence of ownership Spears reviewed was the deed. Spears admitted that if Debtor does own the mineral rights, the value of the real estate may possibly increase.
Larry Adams testified on Debtor's behalf. Adams is a geologist and oil and gas consultant who formerly worked for the Oklahoma Corporation Commission. He is familiar with oil and gas drilling in the state of Oklahoma. He stated that mineral interests are much more valuable than surface rights. The highest value he is aware of for mineral rights in Oklahoma is in Blaine County where some interests have sold for $30,000 an acre. Adams is aware of some horizontal drilling activity for gas in Atoka County. Debtor's property abuts Atoka County. To support his estimate of the potential value of mineral interests in this area, Adams submitted an exhibit he obtained from the Oklahoma Corporation Commission. The exhibit is titled "Application for Tax Rebate" which Adams explained is an intent to drill in Atoka County, filed in December of 2016 by Newfield Exploration Midcontinent Inc., the operator of wells in Atoka County. The application includes information from 2014 reflecting significant gas production in wells Adams estimated to be located approximately 15 miles from Debtor's property. Adams estimated that mineral interests purchased in an unproven area in Atoka County would be worth at least $1,500 to $2,000 or more per acre. He described Debtor'sclaimed mineral interest as unproven and undeveloped. He also submitted an exhibit obtained from the Oklahoma Corporation Commission regarding existing wells located more closely to Debtor's property than the Newfield wells. It indicated significant production of natural gas from those wells, making those mineral interests very valuable.
Debtor's Schedule A lists 80 acres of mineral interests in Bryan County, with a value of $400,000. NLCC submitted an audio transcription of Debtor's testimony at his 341 meeting, held July 30, 2018. Debtor stated that he based this valuation upon his attorney's knowledge of oil and gas drilling in Oklahoma, not upon a formal appraisal. His mineral interests in Bryan County are not leased, nor does he have any drilling activity on this acreage. He stated that he has the property for sale but has had but one offer to purchase the 429 acres for $1,200,000, which is less than the list price of $1,600,000. The offer was from an unknown person, and Debtor did not regard it as a serious offer because there was no follow up. When asked about the location of the 80 acres of minerals in the 408.24 tract, Debtor stated that he had no idea of the...
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