Opinion
NOT FOR PUBLICATION
ORDER ON MOTION TO VALUE
PETER W. BOWIE, Bankruptcy Judge
Debtor has brought a motion to value her real property pursuant to Rule 3012, Federal Rules of Bankruptcy Procedure. She contends the property was worth $785,000 around the date of filing, and that the property is encumbered by a first note and deed of trust securing a debt of $816,637.44. There is a second position note and trust deed for a debt of $79,670. Then there is the third position note and trust deed for $20,000 held by Mr. Perez. Mr. Perez has opposed the debtor's motion, contending the property is worth much more than $785,000 and, therefore, his security interest is not avoidable.
Debtor called Mr. Sault to testify as a real estate appraiser. He testified that in his opinion the property was worth $785,000 as of September 14, 2009. The petition was filed May 18, 2009, about 4 months before Mr. Sault's date of value. He testified that in his opinion the property would have declined in value about one percent per month in the interim between filing and his date of value.
On both direct and cross examination, Mr. Sault explained that he valued the property as a single family residence, and used the sales comparison approach. He testified he did not know the home was used as a bed and breakfast operation, or that there were 3 rooms available for paying guests. Nor did he value the working organic farming operation on the bulk of the property, covering more than 7-1/2 acres. Instead, he made significant adjustments to comparables with "superior" landscaping. He testified he did not consider the farming operation at all in valuing the property, nor the crops or any farm equipment or irrigation equipment. He stated that all of that required a personal property appraisal, which he did not do. He did not consider the farming operation at all, he did not count the number of workers, had no knowledge of the volume of production or sales, and none of the comparable sales he used were working farms.
Ms. Peterson testified that the property is a working organic farm that was damaged by wildfire. The irrigation system had to be replaced on 10 acres, which are farmed on a year-round basis, employing 10-12 workers continuously. Produce is sold at at least 5 area farmers' markets, plus gourmet markets, and in the past was shipped nationally. Ms. Peterson testified that at the time she filed she could not afford to pay both the workers and her bills, so she paid the workers. She believes the farm can make it, and is producing over $3,000 net per week after paying labor, which she needs to pay mortgages and utilities. She offered information concerning what she paid in labor, taxes and other bills in May - June of 2009, and also her tax return showing a loss. She also attempted to put value on her acreage by referring to what she heard nearby acreage was offered at.
What debtor did not do - indeed, neither side did - was offer any supportable opinion of the market value of the property as a commercial farming operation. Mr. Perez called Mr. Owsley as a witness. He testified he is a commercial real estate broker. He looked at the property and saw a successful farming operation. But he is not an appraiser, and could only state that he thought Mr. Sault's value was low. He had not looked at any sales comps.
The foregoing leaves the Court unable to set a value on the property. Debtor argues it was not making money when she filed, but that begs the question of what it was worth on the open market when considering the highest and best use of the property. Perhaps at the date of filing no one would be able to outperform the debtor's productivity. Or maybe the farm would have been worth substantially more to someone else. That is why competent appraisals involving determinations of highest and best use are important in any valuation. That is not to denigrate Mr. Sault or Mr. Owsley. As the latter testified, Mr. Sault is a professional, and so far as the record shows, he did what he was asked to do - opine on the value of a single family residence situated on approximately 10 acres. Commercial farming operations and personal property valuations were not performed. Nor was any analysis of the bed and breakfast operation. It is possible that the highest and best use of the property is as a single family residence, but the record before the Court is inadequate. Mr. Sault testified the zoning for the property was single family residence, so he chose to value it that way.
Conclusion
Debtor brought this motion to value, and has the burden of establishing a value. For the reasons stated, the Court finds and concludes that debtor has failed to meet her burden. Accordingly, the motion is denied without prejudice.
IT IS SO ORDERED.