Opinion
Case No. 02-12228.
October 7, 2002
Gerald Ketchum, Dyersburg, TN, Attorney for Debtor.
Stephen Hughes, Milan, TN, Attorney for Washington Mutual Finance.
Tim Ivy, Jackson, TN, Chapter 13 Trustee.
MEMORANDUM OPINION AND ORDER RE DEBTORS' "MOTION TO AMEND PLAN TO CHANGE CREDITOR FROM SECURED TO UNSECURED"
The Court conducted a hearing on the Debtors' "Motion to Amend Plan to Change Creditor from Secured to Unsecured" on September 5, 2002. FED. R. BANKR. P. 9014. Pursuant to 28 U.S.C. § 157(b)(2), this is a core proceeding. After reviewing the testimony from the hearing and the record as a whole, the Court makes the following findings of facts and conclusions of law. FED. R. BANKR. P. 7052.
I. FINDINGS OF FACT
The facts in this case are rather simple and straightforward. The debtors in this case, Jerry and Marie Walker ("Walkers"), filed their chapter 13 petition on May 20, 2002. At the time of filing their bankruptcy petition, the Walkers anticipated having enough equity in their home to secure Washington Mutual Finance's first and second mortgages on their primary residence. As a result, the Walkers included Washington Mutual in their proposed plan as a secured home mortgage creditor for both the first and second mortgages.
Since filing their proposed plan, the Walkers have discovered that there is not sufficient equity in the house to secure the second mortgage. Consequently, on June 21, 2002, the Walkers filed a motion seeking to amend their plan to move Washington Mutual Finance from a secured creditor to an unsecured creditor.
The Walkers submitted a 2001 tax appraisal for their property which valued the house and $33,600.00. Washington Mutual submitted an appraisal done on February 4, 2000, which valued the house at $45,000.00. As of the date of filing, the payoff on the first mortgage was $42,540.85. The payoff on the second mortgage, as of the date of filing, was $6,100.96.
II. CONCLUSIONS OF LAW
In the case of Hodge v. Advanta Finance Co. (In re Hodge), No. 00-12910-GHB, Adv. No. 00-5268-GHB, slip op. (Bankr. W.D. Tenn. October 25, 2002), this Court held the following:
. . . [I]f the first mortgage on a piece of property is equal to or larger than the fair market value of that property, then any other mortgage on the property is entirely unsecured and may be avoided. A mortgagee who is entirely unsecured is not entitled to be treated as a secured creditor in a Chapter 13 debtor's plan. If a mortgage is partially secured and partially unsecured, i.e., the value of the property is less than the total amount of the mortgage, the debtor is not allowed to modify the rights of that mortgagee under 11 U.S.C. § 1322. For purposes of determining the fair market value of a piece of property, it is the value of the property at the time the bankruptcy petition is filed and not the time the loan is incurred. In re McCarron, 242 BR. 479, 482 (Bankr. W.D. Mo. 2000); U.S. v. Zolgar, 126 B.R. 53, 57 (N.D. Ill. 1991).
Hodge, No. 00-12910-GHB, slip op. at 8 (Bankr. W.D. Tenn. October 7, 2002) (citations omitted). In the case at bar, the appraisal Washington Mutual submitted was completed at the time the loan was incurred. As the Court found in Hodge, this is not the proper value. Instead, the Court will rely on the 2001 tax appraisal value submitted by the Walkers. Although this appraisal was conducted pre-petition, it was completed closer in time to the filing of the petition than Washington Mutual's and the Court must therefore conclude that it is a more accurate assessment of the property's value at the time the petition was filed.
III. ORDER
It is therefore ORDERED that the Debtors' "Motion to Amend Plan to Change Creditor from Secured to Unsecured" is GRANTED. It is so ordered.