In re Spacek, Bankruptcy No. 88-13513FM.
| Decision Date | 26 March 1990 |
| Docket Number | Bankruptcy No. 88-13513FM. |
| Parties | In re Reinard A. SPACEK, Debtor. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Texas |
Mitchell R. Bearden, Bearden & Johnson, P.C., Austin, Tex., for debtor.
Allan I. Schneider, Schneider, Krugler & Kleinschmidt, Giddings, Tex., for creditor.
A contested hearing was held on March 13, 1990, concerning the value of the surface and mineral estates of this Debtor in a 172.479 acre tract of land out of the J.Y. Wallace League Abstract 22, and the Claiborne Lawrence League Abstract 189, approximately 14 miles north of Giddings, Lee County, Texas (the "Property"). The purpose of the valuation is for use in the Debtor's Plan of Reorganization in which the Debtor proposes retaining the Property and paying the secured creditor the value of its secured interest.
This Court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b) and (d) and the standing Order of Reference in this District. Further, pursuant to 28 U.S.C. § 157(b)(2)(B) this matter is a core proceeding.
Section 506(a) of the Bankruptcy Code allows this Court to determine the value of the secured creditor's interest in this estate's interest in the Property. This estate owns fee simple title to the Property. The lender, First National Bank of Giddings, ("Bank") has a first deed of trust lien upon the Property as well as a security interest in all income produced from the Property. A valuation under § 506(a) must be made in light of the purpose of the valuation and the proposed disposition or use of the Property, and in conjunction with any hearing on such disposition or use or on a plan affecting the creditor's interest. 11 U.S.C. § 506(a). Such is the case here as the valuation is in conjunction with the Debtor's Plan which seeks to retain full ownership of the Property and pay to Bank the full value of its interest in the Debtor's interest in the Property.
Recent Fifth Circuit cases such as Sandy Ridge Development Corporation v. Louisiana National Bank, 881 F.2d 1346 (1989) are not of significant assistance in the instant case as it provides no guidance as to the manner of valuation to use in any particular situation. That is clearly left to the Courts to develop on a case-by-case basis.
Recently, this Court in its opinion in In re Robert E. Peerman, 109 B.R. 718 (Bankr.W.D.Tex.1989), cited with favor the opinion of Judge Lief Clark in In re Raylin Development Co., Vol. III, Issue 6, The Texas Bankruptcy Court Reporter, 490 (Nov. 1989) for the proper manner of valuing real property when it is being returned to a creditor under a plan. Since the Property was going back to the creditor, the appropriate procedure was to value the Property in the creditor's hands. The Court felt it appropriate to require the secured creditor to give a credit upon its claim to the bankruptcy estate roughly equal to what it would have been able to receive through disposition of the collateral in the most commercially reasonable manner practical under the circumstances. In re American Kitchen Foods, Inc., 2 B.C.D. 715 (Bankr.D.Me.1976). In Raylin, Judge Clark determined the most commercially reasonable manner for the secured lender to dispose of the property was for it to act as developer. This was also found appropriate by this Court in Peerman partially upon the reasoning that unsecured creditors, and therefore the estate as well, "have a right to expect, to count on, and to benefit from prudent disposition by undersecured creditors of their collateral." In re Raylin Co., supra at 492. What is important to this case is that both Peerman and Raylin stand for the proposition that valuation is to be made on a case-by-case basis; to-wit, even though the secured creditors got their collateral back, liquidation value was not found to be the appropriate valuation standard due to the particular facts and circumstances of those particular cases. Also, in both cases since the property was being returned, the courts found it appropriate to deduct anticipated costs of sale in determining the proper value of the creditor's interest in the estate's interest in the property.
Here, we have the opposite situation. The Debtor is going to keep the Property. Clearly, liquidation value is not relevant as the Property is not being liquidated. Further, since the Debtor's Plan provides for it to retain the Property, the value of Bank's interest in the Debtor's interest in the Property should be determined without regard for the hypothetical costs that may be incurred by Bank if it gets the Property back. Why? Because it is not getting the Property back. Valuation under § 506 must be with a view to the proposed disposition of the Property. This Court specifically declines to follow the line of cases represented by In re Malody, 102 B.R. 745 (9th Cir. BAP.1989) and In re Coby, 109 B.R. 963 (Bankr.D.Nev.1990). Those cases basically provide that even when the property is being retained by the Debtor "the appropriate value is the value of the property in the creditor's hands, i.e. how much would the creditor receive upon liquidation." Coby, supra at 964. If valuation in the hands of the creditor is the appropriate standard when the Debtor is keeping and operating the Property, then it is difficult for this Court to think of a situation when valuation in the hands of the creditor would not be the standard. This is contra Congressional intent that value be "determined on a case-by-case basis taking into account the facts of each case and the competing interest in the case." H.R.Rep. No. 595, 95th Cong., First Sess....
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