If Congress passes the statute permitting “cram down” of residential mortgages, courts will likely see an increase in hearings where the bankruptcy court will need to determine the value of the debtor’s residence.  In a typical valuation hearing, the debtor and the lender both present expert witnesses who have appraised the property and testify as to the value of the residence.  Currently, such hearings are infrequent.  Chapter 13 trustees and the courts are developing new procedures to handle the increased number of valuation hearings.

Marge Burks, the Chapter 13 Trustee for the Southern District of Ohio in Cincinnati, announced several procedures to deal with the increased valuation hearings.  First, they will NOT adjourn any confirmation hearings in order to accommodate parties that have not yet completed an appraisal by the date of the hearing.  According to the local bankruptcy rule, if no agreement is reached as to value at the conclusion of the meeting of creditors, an “appraisal shall be conducted within six (6) days of the meeting of creditors.”  Second, if there is an objection filed by the mortgage holder as to valuation of the real property, all parties will meet at the trustee’s office at least seven (7) to fourteen (14) days prior to the confirmation hearing and attempt to resolve the differences in value.  If no agreement is reached, the Court will hear the objection at the scheduled confirmation hearing. Appraisers for both the mortgage holder and the debtors must be present at the confirmation hearing and prepared to go forward at that time with their evidence. Third, when conducting the valuation hearing the court will allow twenty (20) minutes for each side to present their case.

The trustee is holding the lender’s feet to the fire with these rules. It essentially requires lenders to attend all first meetings of creditors and to have an appraisal performed only a few days later.  Following the proposed procedures will be a significant challenge and increase the costs of contesting value.

If you have any questions on this information, please contact David H. Yunghans, Esq., an associate focused on bankruptcy located in the Cincinnati office of Weltman, Weinberg & Reis Co., L.P.A. David can be reached at (513) 723-2211 or via e-mail at dyunghans@weltman.com.

For more information on bankruptcy legislation, visit our bankruptcy blog at http://WWRbankruptcy.com. In addition to discussions and updates on the upcoming legislation, we highlight changes we see in court procedures as well as different features in the proposed legislation that may directly affect you and your company. We comment on the possible interpretations the courts may give to the statutes as well as how they could affect your business and what options may exist to deal with them. We invite you to partner with WWR in this blog by reading and sharing with us your questions, concerns, and observations in each article’s comment section or on our Contact page. WWR is committed to helping you navigate through these challenging times.

Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation.  The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship.  Contact any of our offices or visit our website at www.weltman.com for more bankruptcy related information or www.realestatedefaultgroup.com for more real estate related information, company facts and attorney profiles.