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.
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