In re Rott
| Decision Date | 20 April 1987 |
| Docket Number | Bankruptcy No. 87-05098. |
| Citation | 73 BR 366 |
| Parties | In re Arlon ROTT and Rhodell Rott, Debtors. |
| Court | U.S. Bankruptcy Court — District of North Dakota |
Daniel Wentz, Fargo, N.D., for debtors.
Mark Weber, Minneapolis, Minn., Paul Scheerer, Minneapolis, Minn., Jon Brakke, Fargo, N.D., for Aetna Life, John Levine, Kim Anderson.
Wayne Drewes, Fargo, N.D., trustee.
The matters before the court include a section 506 valuation hearing on farm real estate mortgaged to Aetna Insurance Company (Aetna) and a Chapter 12 confirmation, both brought on by the debtors, Arlon and Rhodell Rott (Debtors), who filed Chapter 12 on January 29, 1987. The initial plan was filed on January 29, 1987, and the amended plan now under considerations was filed March 3, 1987. Aetna and the U.S. Trustee both filed their written objections to the plan, as originally filed, and continue to persist in their objections as to the amended plan. A hearing was held before the undersigned on March 4, 1987, at which time evidence was introduced concerning both the real estate valuation and the ability of the amended plan to be confirmed. The court finds the material facts to be as follows:
Findings of Fact
1.
The Debtors and Aetna both introduced evidence from their respective expert appraisers regarding the real estate valuation. Preparatory to determining the value of real estate which the Debtors propose to keep under their plan, the court will determine the value of property which the Debtors propose to give back to Aetna.
The East Half of Section 16, Township 137 North, Range 64 West, is denoted as "Tract "A" by Don Doll (Doll), the Debtors' appraiser, and as "Parcel 1" by W. Gordon Christianson (Christianson), Aetna's appraiser. This property is valued by both parties at approximately $200.00 per acre for a total value of $63,400.00.
The other parcel which the Debtors propose to turn back to Aetna, "Tract C"/"Parcel # 2", consists of 634 acres described as the Northeast Quarter of Section 14, Township 133 North, Range 61 West, and the South Two-thirds of the Northeast Quarter, the South Two-thirds of the East Half of the Northwest Quarter, the Southwest Quarter, and the Southeast Quarter, Section 13, Township 133 North, Range 61 West. This property, which is inferior in quality to Tract A/Parcel 1 contains 67.2% crop land, with the remainder as pasture and wasteland. Pasture and wasteland is generally less valuable than cropland. Doll valued this property at $200.00 per acre. Christianson valued the 426 crop land acres at $150.00 per acre and the 208 acres of pasture land at $100.00 per acre, for a total valuation of $84,700.00. Although neither appraiser was able to find sales minimally comparable to this property, Christianson relied on USDA officers, soil conservation officials, the county director of tax equalization, and his own estimates of value in making his appraisal of this real estate. This land is subject to wind and water erosion and is Class II and III crop land, with the non-crop land being Class III and IV. Although Doll appraised this land at $200.00 per acre, the court believes that Christianson's appraisal is more reflective of the property's value. Thus, the court concludes that the value of Tract C/Parcel 2 is $84,700.00.
The remaining 1,213 acres are referred to as "Tract B" by Doll and "Parcels 3, 4, 5, and 6" by Christianson. This property, which the Debtors propose to keep under the plan, is located within a twelve square mile area approximately 35 miles from Tract C/Parcel 2.
Doll, pursuant to the Debtors' attorney's instructions, appraised Tract B as an entire tract, although there are four non-contiguous parcels within that tract. Doll then made a downward adjustment of the value of this tract because larger tracts have less potential buyers, and sell for a lesser price on the market, than do smaller tracts the size of most of the comparables used by the appraisers. When asked why the property cannot be split into separate parcels, Doll stated that economic feasibility dictates that it be sold as a single farm. The court notes that only one of forty-two comparables examined by Doll approaches the size of Tract B, that being 1,400 acres of neighboring farmland formerly owned by the Debtors' brother, Virgil Rott, and presently owned by Connecticut General Life Insurance Company. The Connecticut General sale is pending, and not yet consummated. Although Connecticut General apparently believes that the Virgil Rott property is best sold as one unit, the court believes that the highest value for Tract B would be realized by selling the property in four separate parcels, as appraised by Christianson.
Due to the fact that Doll appraised Tract B as a single unit, did not assign values to individual portions of it, and did not indicate how much he reduced the value of the tract because of its large size, the court is inclined to rely more heavily on the appraisal analysis and comparables used by Christianson in placing values on the four individual parcels contained in Tract B. Nevertheless, Doll's appraisal and testimony is helpful in making appropriate adjustments to Christianson's appraisal.
Doll believes that the Connecticut General property is very comparable to Tract B and that, were the sale consummated, and had a lis pendens not been filed against it, this sale would certainly be the most relevant comparable which he has found. Although the sale is still pending, it is nevertheless a good indicator of the value of farmland in Tract B, particularly neighboring Parcels 3, 4, and 5. The lis pendens and the large size of the Connecticut General property may tend to somewhat depress the sale price. Because of these factors, the court will not place as much reliance on this comparable as did Doll. However, in appraising Parcels 4 and 5, the court will average this comparable in with the five other most significant comparables used by Doll in appraising Tract B which were also used by Christianson in appraising Parcels 4 and 5. The improvements and buildings on the Connecticut General property, which were later withdrawn from the pending sale, are similar to those of the Debtors'. The value of 1,400 acres of Connecticut General property is $200,000.00, or $143.00 per acre.
Christianson used five comparables in appraising Parcels 4 and 5. He adjusted these comparables for quality and for a decline in land values of ten percent per year since the date the comparables sold. Christianson did not indicate how he arrived at the ten percent value decline. Doll, however, did a detailed comparison of land sales in the area which have occurred during the past year, and concluded that the land values are declining at the rate of two percent per month. Doll further testified that stressful land market conditions exist in the Debtors' neighborhood, thus contributing to the rapid decline. Doll's observation of these stressful market conditions is further substantiated by the fact that one-fourth of the farmland in a seventeen section area containing Tract B would have been on the market within a year's time, were the Debtors' property to be sold. Thus, the court believes it appropriate to adjust Christianson's comparables downward at the rate of two percent per month. Based upon the evidence before it, the court arrives at the value of Parcels 4 and 5 as follows:
Per The Value After
Date Acre Quality In Making 2% Per Month
Sale Sale Relation To And Quality Adjustment
Comparable Occurred Price Parcel 4 Parcel 5 Parcel 4 Parcel 5
37 1-18-76 $352 10% 20% $234 $208
38 2-02-87 $219 20% 10% $258 $237
39 2-02-87 $232 5% 5% $236 $216
41 1-02-87 $323 10% 20% $279 $248
45 2-02-87 $175 40% 30% $241 $224
Conn.Gen
Prop. pending $140 $143 $143
Average value of adjusted comparables and the value
of subject property for purposes of this hearing. $232 $213
Based on the above analysis, the court finds that Parcel 4, described as the North Half of Section 27, Township 136 North, Range 64 West, a total of 316 acres, is valued at $232.00 per acre or $73,312.00. Parcel 5, described as the South Half and South 100 acres of the North Half, Section 17, Township 136 North, Range 64 West, a total of 417 acres, is valued at $213.00 per acre for a total value of $88,821.00.
Parcel 3 includes the Northeast Quarter of Section 29 and the Northwest Quarter of Section 28. This land has, until recent years, been irrigated by the Debtors. However, the land is not suited for continuing irrigation because adverse salt buildup is occurring. Christianson recognizes that the land may not be suited for continuous irrigation, but still appraised the land as irrigated acreage, at $350.00 per acre. The sole comparable was a quarter of land located approximately 40 miles from the subject site. Christianson testified that were the land to be appraised as dry land, it would be valued at $300 per acre, or a little less. Based upon the quality, location, and percent crop land of Parcel 3 in relation to Parcel 5, and as compared to comparables relied upon by the appraisers, the court concludes that the bare real estate value of this property is $250.00 per acre for a total value of $80,000.00. This parcel also contains the Debtors' house, bins, sheds, and other buildings, having a contributory value of $25,000.00 for a total value of $105,000.00.
The remaining parcel, Parcel 6, described as the Southeast Quarter of Section 11, Township 136 North, Range 64 West, appears to be the finest land owned by the Debtors. Christianson appraised this...
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