Opinion
NOT FOR PUBLICATION
ORDER ON MOTION TO VALUE RESIDENCE, AVOID JUNIOR TRUST DEED, AND ON MOTION FOR RELIEF FROM STAY
PETER W. BOWIE, Chief Judge United States Bankruptcy Court
These matters came on regularly for evidentiary hearing. Debtor asks the court to value the subject property at $200,000, which is less than the amount of the senior lien on the property. At the hearing, the parties stipulated that at the time of filing the petition, the senior lender was owed $218,004.63. If the value of the property is less than the senior debt, then there is no collateral value to which the second trust deed can attach under 11 U.S.C. § 506(a), and the second lien could be avoided through completion and discharge in a Chapter 13 plan. The amount owing on the second lien at time of filing was scheduled by the debtor at $95,000.
The holders of the second lien, Walter R. Harman & Mary N. Harman, Trustees for the Harman Family Trust, oppose debtor's efforts to avoid their lien, and they also seek relief from the automatic stay to proceed to foreclosure for nonpayment.
At the evidentiary hearing, debtor offered the testimony of Ian appraiser, Mr. Dicker, who opined that the value of the property as of February 15, 2010 was $200,000. The petition was filed October 21, 2009. Mr. Dicker testified he performed an external examination by drive-by, both of the subject and the comparables he chose. He recognized that the zoning for the area was Central Commercial, while the "subject property is a single-family home that has been converted into a commercial storefront. It has been grandfathered into current zoning."
Mr. Dicker testified that the scope of his assessment of the subject property was for its use as a single family residence. He recognized that it is a small residence on an above-average size lot of almost 14,000 square feet. His understanding was that the property has 768 square feet of gross living area. Consistent with the scope of his appraisal of the property as a single family residence, all of his comparable sales were residences, located off major thoroughfares, not in commercial zones, and in the Chula Vista area.
The creditor's appraiser, Mr. Brock, opined that the highest and best use of the property was commercial use, such as a used car lot or small service business. Mr. Brock's opinion of value was $300,000, and his date of value was January 11, 2010. Interestingly, the pictures taken by both appraisers reflect a two-story property. It appears, however, that Mr. Dicker did not 'include any of the first floor space as part of the gross living area. Mr. Brock testified that he did both an external and internal examination of the property and he measured the spaces. on the first floor there is an office of 360 square feet and a [280 square foot carport. He measured the second floor as having 781 square feet of gross living area. When he visited the property, it was a fully functioning used car operation with approximately 40 vehicles on the lot. Debtor testified that it has since been closed down for nonpayment of rent.
Mr. Brock's comparable sales were very different from Mr. Dicker's. As noted, Mr. Dicker's were all residences, and all were in the Chula Vista area. Mr. Brock's were all commercial properties and were 3 to 13.65 miles away from the subject property. Mr. Brock testified, however, that after determining highest and best use, he sought comparables with similar structure and lot size in areas of similar zoning, neighborhood, economic climate and competing neighborhood demographics. So while the distance was a consideration, he concluded it was overcome by the similarities listed.
Based on a review of the testimony of both appraisers and consideration of their appraisals, the Court is persuaded that the highest and best use of the property is for a used car lot or Small service-type business. The above-average lot size, coupled with commercial zoning, urges commercial use of the property. the Court also notes that if residential were to be the highest use of the property, it has a significant amount - 50% or more -6f more gross living area than Mr. Dicker included in his analysis. Arguably, that factor alone would adjust his opinion bf value to an amount in excess of $218,005.
The Court finds and concludes that the market value of the subject property, at its highest and best use, is approximately $300,000. The applicable statute, 11 U.S.C. § 1322(b)(2), provides in relevant part:
(b) ... the plan may -
(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence ....
Review of the language of the statute brings forth an interesting issue not directly focused on by either party, and touched on only obliquely in the questioning of the debtor and Mr. Brock. The significance of the issue is as follows: Because of the value of the property the Court has found - $300,000 - there is value to which the second trust deed attaches. Therefore, if the property is the "debtor's principal residence", then the rights of the second trust deed holder cannot be modified. In re Nobelman, 508 U.S. 324 (1993). No part of the second trust deed obligation would be avoidable in Chapter 13. However, if the property is not the debtor's principal residence, then the debtor is empowered by § 1322 to modify the rights of the secured creditor. That would permit the debtor to split the Harman Trust claim into two parts, secured and unsecured.
At the evidentiary hearing, it was brought out that the address debtor listed on his petition was 1353 5 Street, imperial Beach, California, while the subject property is at 1169 3
Avenue, Chula Vista. Debtor testified that the Imperial Beach address is where his wife and son live, and he lives there from time to time when he is in town. He hires out to work out of town, so is not always around. Interestingly, he claimed on the stand that the Chula Vista address was his residence, that he inherited it from his mother, and that he went there from time i:o time when he was in town. As noted, if it is his primary residence, he cannot avoid any part of the security interest held |Dy the Harman Trust. Conversely, the creditor pressed debtor to acknowledge that it was not his primary residence. If it is not, then a portion of the Herman Trust claim may be treated as unsecured in a Chapter 13 plan.
Because the parties have not addressed this issue, they should be afforded the opportunity to do so. Accordingly, the Court will give notice of a status conference to allow the parties to advise the Court how they choose to proceed to resolve this issue.
Meanwhile, as noted at the outset, the Harman Trust has moved for relief from the stay to proceed with foreclosure because debtor has not made post-petition payments on the debt. Debtor requested a hearing in conjunction with the lien strip motion, but did not otherwise counter any of the creditor's factual assertions. Accordingly, the Court finds and concludes that relief from stay should be, and hereby is, granted for cause, for lack of adequate protection because debtor has not made post-petition payments to the creditor. Even if the secured portion of the debt were reduced in accordance with the foregoing discussion, debtor's failure to make any of the payments on this debt leave the creditor without adequate protection. It is noted, in passing, that debtor testified he received rent from the operator of the used car lot as recently as December 2009, which would have been the cash collateral of the lender.
For all the foregoing reasons, the Court fixes the value of the subject property at $300,000 as of the petition date. Therefore, the security interest of the Harman Trust is not avoidable in its entirety. Whether it is avoidable in part depends on resolution of the remaining issue. However, because the debtor has not made post-petition payments on the Harman Trust obligation, relief from the automatic stay is granted.
IT IS SO ORDERED.