MEREDITH S. GRABILL, Bankruptcy Judge.
This Court held an evidentiary hearing on January 30, 2020, to address the Objection to Confirmation of Plan ("
Now, after considering the arguments of counsel, the witness's testimony, the exhibits, and the remainder of the record before it, this Court determines that PPW has not carried its burden in objecting to its treatment as an unsecured creditor in the Debtors' plan of reorganization. Therefore, and for the reasons discussed more fully below, the Court OVERRULES PPW's objection.
This Court has jurisdiction to grant the relief provided for herein pursuant to 28 U.S.C. § 1334 and the Order of Reference of the District Court dated April 11, 1990. The matters presently before the Court constitute core proceedings that this Court may hear and determine on a final basis under 28 U.S.C. § 157(b).
Notice of both PPW's Objection and the Debtors' Response was sufficient and constituted the best notice practicable. All persons affected by this Memorandum Opinion and Order were afforded a full and fair opportunity to be heard prior to and during the evidentiary hearing. Notice of the relief granted herein has been given to all persons affected by this decision and is in full compliance with due process.
The Debtors filed for bankruptcy relief under chapter 13 of the Bankruptcy Code on July 16, 2019. The Debtors own three pieces of immovable property at issue in the matters currently before the Court.
PPW represents that it holds two different promissory notes signed by Mr. Hoggatt on November 3, 2017, in the original and principal sums of $80,000 and $10,000. [ECF Doc. 58]. Movant asserts that both loans are in default with $80,000 and $8,200 due, respectively, plus reasonable attorney's fees. [ECF Doc. 58]. Both notes, PPW further states, are secured by mortgages on Debtors' immovable property. Hr'g Tr. 15:39-15:50; [ECF Doc. 58]. But PPW has not filed a proof of claim for either amount nor has it provided copies of those promissory notes or security agreements for this Court, either at the hearing or elsewhere in its filings.
Though the Debtors do not challenge the validity or amount of those debts, see Hr'g Tr. 15:06-15:15, the parties do dispute which, if any, of the Debtors' properties are encumbered. PPW contends that both of its mortgages are secured by all three properties listed above: the Debtors' Residence, the 17 Acres, and the 15 Acres. Debtors, however, contend that the lien on the Residence is invalid, and that the 17 Acres and 15 Acres are already fully encumbered by superior liens.
As to their Residence, Mr. Hoggatt testified that he signed the mortgages with PPW, but that his spouse, Mrs. Hoggatt, did not. Hr'g Tr. 15:39-15:50. In the Debtors' Response, they rely on Louisiana Civil Code Article 2347 to argue that PPW therefore does not have a valid lien over the Debtors' community property, which includes the Residence.
The Debtors then, through Mr. Hoggatt's testimony and an exhibit provided to the Court, presented evidence concerning the value of the two other properties, the 17 Acres and 15 Acres that Mr. Hoggatt holds as his separate property. The Debtors commissioned an appraisal from a private company, Hartzog and Associates Appraisers, which was completed December 17, 2019. [Ex. 1]; Hr'g Tr. 13:34-14:08. Considering both plots of land together as one 31.92-acre tract, Hartzog and Associates determined that the properties together have a combined market value of $88,500. [Ex. 1]. Debtors offered the full appraisal report at the hearing, PPW did not object to its admission, and the Court admitted it into evidence. [Ex. 1].
PPW, in its Objection and in counsel's arguments at the hearing, referenced a prior Sheriff's appraisal that, according to their Objection, valued the 17 Acres at $73,000 and the 15 Acres at $64,411.80. [ECF Doc. 58]; Hr'g Tr. 9:40-10:06. But that Sheriff's appraisal was not attached to PPW's Objection. Nor was the Sheriff's appraisal, or any testimony about its estimates, offered at the hearing or otherwise made a part of the record before this Court. Ultimately, PPW provided no evidence of any competing assessment of the properties to rebut the private appraiser's methods or challenge their reliability. Accordingly, for the purposes of resolving PPW's Objection, this Court accepts the Debtors' uncontradicted valuation of $88,500 as the true and accurate value of the 17 Acres and 15 Acres combined.
The Debtors also produced a mortgage certificate issued by the Deputy Clerk of Court and the Ex-Officio Recorder of Mortgages in Washington Parish, Louisiana, that lists all "mortgages, liens, judgments, or other instruments" encumbering the 17 Acres as of November 11, 2019. [Ex. 2]. That certificate includes a record of a Collateral Mortgage issued to Gulf Coast Bank and Trust Company in the original principal amount of $285,000, dated June 10, 2013. [Ex. 2]. Mr. Hoggatt similarly testified that he believed Gulf Coast had a lien on this property for approximately $276,000, Hr'g Tr. 10:45-10:50, and the Debtors' Schedule D estimates that Gulf Coast has a claim for $260,000, [ECF Doc. 3].
Mr. Hoggatt also testified that "the other piece of property" had a mortgage on it with Citizens Savings Bank for around $20,000. Hr'g Tr. 18:35-46. Consistent with that representation, Citizens Savings Bank has filed Proof of Claim No. 8, asserting a claim against the estate for $19,797.27, with an attached security agreement purporting to encumber the 15 Acres.
"A creditor objecting to confirmation has the initial burden of proof in supporting its objection." In re Blevins, 150 B.R. 444, 446 (Bankr. W.D. Ark. 1992) (overruling creditor's objection to confirmation when creditor submitted "no credible evidence concerning valuation"); see also 5 COLLIER ON BANKRUPTCY ¶ 1324.01 (16th ed. 2019) ("Generally, the burden of going forward with evidence and the ultimate burden of proof is borne by the party objecting to confirmation"). Here, PPW has made conclusory assertions that it holds secured claims against the Debtors' property, but has not provided any evidence of those security agreements. PPW did not offer any mortgage agreements with the Debtors as evidence at the hearing, nor has it otherwise made them a part of the record before this Court. PPW also has not filed a proof of claim. Because there is no evidence before this Court that PPW has a valid, perfected security interest in the Residence or the 15 Acres, the Court concludes that PPW has not met its burden of supporting its objection to the Debtors' treatment of its claim as unsecured by those two properties in their proposed plan of reorganization.
The only evidence before this court that PPW has a lien on the Debtors' immovable property comes from the Mortgage Certificate provided by the Debtors. That document does reflect that PPW holds two mortgages, both executed on November 3, 2017, that are secured by the 17 Acres. But it is well established that a creditor is secured "only to the extent of the value of the collateral; its claim over and above the value of the [collateral is] unsecured." Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 956 (1997) (citing 11 U.S.C. § 506(a)). "In general, the amount of debt secured by senior liens must be deducted in determining the extent to which a junior creditor holds an interest in the estate's interest in the collateral and, hence, the extent to which the junior creditor holds a secured claim." 4 COLLIER ON BANKRUPTCY ¶ 506.03 (16th ed. 2019); see also In re Union Meeting Partners, 178 B.R. 664, 677-78 (Bankr. E.D. Pa. 1995) (calculating amount of secured lien by subtracting the value of prior liens from the value of the property serving as collateral).
Here, PPW has provided no evidence to dispute the Debtors' representations that the 17 Acres is fully encumbered by a superior lien, and therefore, that the entire amount of PPW's claim should be treated as unsecured in the plan under § 506(a). As the Mortgage Certificate reflects and Mr. Hoggatt's testimony similarly represented, Gulf Coast has mortgage lien on this same property in the principal amount of $285,000. Gulf Coast's proof of claim declares that $190,955.76 of this is still due and owing, and is secured by the 17 Acres by mortgage recorded June 11, 2013, four years before Mr. Hoggatt signed with PPW. [Claim 22-1]; see also LA. STAT. ANN. § 10:9-322 ("Conflicting perfected security interests . . . in the same collateral rank according to priority in time of filing or perfection").
PPW, similarly, offers no evidence to contradict the appraisal that the Debtors commissioned for the 17 Acres and did not object to the appraisal's admission as evidence. Notably, the appraisal in question considered the 17 Acres and 15 Acres in combination, and no testimony or other evidence addressed what portion of that value was attributable to the 17 Acres.
For these reasons, PPW's Objection is OVERRULED. The Debtors are instructed to amend their schedules and plan as necessary to reflect their most recent knowledge of their property and the claims against the estate. This Court reserves determination on confirmation of Debtors' chapter 13 plan for the confirmation hearing currently scheduled for Wednesday, March 11, 2020.
