KATHARINE M. SAMSON, Bankruptcy Judge.
Before the Court is the Objection to Pre-Petition Secured Claim (Dkt. No. 9) filed by Debtor Robert A. Munro and the Objection to Confirmation (Dkt. No. 19) filed by Creditor 21st Mortgage Corporation. The Court held a hearing on the objections on April 13, 2017, and took the matters under advisement. Dkt. Nos. 45, 46. Having considered the arguments and evidence in this case, the Court sustains in part and overrules in part both objections.
The Court has jurisdiction over the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B), (K) and (L).
Robert A. Munro filed a petition for Chapter 13 bankruptcy relief on January 11, 2017. Dkt. No. 1. Munro scheduled his interest in a 2013 Southern Estates 32 × 58 Mobile Home, valued at $40,000. Dkt. No. 4 at 3. Concurrently with his petition and schedules, Munro objected to the secured claim of 21st Mortgage Corporation ("21st Mortgage"), proposing to pay the value of its collateral plus 5% interest. Dkt. No. 9 at 1. On February 2, 2017, 21st Mortgage filed a proof of claim for a prepetition debt of $84,132.51 secured by Munro's mobile home and valuing its collateral at the amount of its debt. Claim 2-1. On February 6, 2017, 21st Mortgage amended its proof of claim. Claim 2-2. On February 9, 2017, 21st Mortgage objected to confirmation of Munro's plan of reorganization, arguing that Munro had undervalued its collateral. Dkt. No. 19 at 1.
On April 13, 2017, the Court held a hearing on both objections and heard testimony from Munro and William Pendergraft, 21st Mortgage's appraiser. Dkt. Nos. 45, 46. Munro testified that his home was worth about $50,000 and elaborated as to its condition. Dkt. No. 49 at 7, 10. He also offered, as exhibits to his testimony, printouts from 21st Mortgage's website showing the value of other similar mobile homes. Dkt. No. 49 at 7-8. 21st Mortgage objected to these exhibits as unauthenticated hearsay; Munro countered that the printouts were statements of a party opponent and that Munro could authenticate them because he had personally observed them on 21st Mortgage's website. Dkt. No. 49 at 8-9. The Court reserved ruling on the admissibility of the exhibits and allowed Munro to proffer his evidence. Dkt. No. 49 at 9. Pendergraft was admitted, without objection, to testify as an expert in the area of mobile home appraisals. Dkt. No. 49 at 21. Pendergraft testified that, based on the cost of necessary repairs, the condition of the mobile home, and the additional components and accessories,
The pivotal question in resolving both the objection to claim and objection to confirmation is the value of 21st Mortgage's collateral, but before the Court may determine a value, it must first determine the admissibility of certain evidence related to valuation.
"The Federal Rules of Evidence . . . apply in cases under the [Bankruptcy] Code." Fed. R. Bankr. P. 9017. And as a preliminary matter, the Court finds that the evidence proffered by Munro is relevant to these objections.
Munro seeks to admit into evidence, as exhibits to his testimony, printouts from a website operated by 21st Mortgage related to the sale of manufactured homes similar to Munro's. 21st Mortgage objected arguing that the exhibits were unauthenticated hearsay. Munro argued that the exhibits were not hearsay because they are statements of a party opponent and that he could authenticate the exhibits because he had personally observed them on 21st Mortgage's website. The Court marked Munro's exhibits but reserved ruling on their admissibility until now. Munro's proffered evidence includes valuations for five manufactured homes. Dkt. No. 43.
"As a general matter, a document must be authenticated through the submission of extrinsic evidence unless such document falls within a class of `self-authenticating' documents enumerated in Rule 902 of the Federal Rules of Evidence." U.S. ex rel. Wuestenhoefer v. Jefferson, No. 4:10cv12, 2014 WL 7185428, at *8 (N.D. Miss. Dec. 16, 2014). Munro has not argued this evidence is self-authenticating, and the Court does not find it to be.
Willis v. Allstate Ins. Co., No. 2:13cv60, 2014 WL 4702204, at *2 (S.D. Miss. Sept. 22, 2014). A "witness with knowledge" may testify "that an item is what it claims to be." Fed. R. Evid. 901(b)(1).
Munro testified that he visited the website himself and printed the exhibits from the website. This satisfies the authentication requirement. See Osborn v. Butler, 712 F.Supp.2d 1134, 1146 (D. Idaho 2010) (holding that "the standard for admissibility under [Federal Rule of Evidence] 901(a)" was satisfied "because [the affiant] explain[ed] that he printed the website, gave the website address, and represented that it had not been altered or changed from the form maintained at the website address").
"`Hearsay' means a statement
Fed. R. Evid. 801(d)(2). The Court finds that the values listed for the manufactured homes are statements within the meaning of Federal Rule of Evidence 801. Further, the Court finds that because 21st Mortgage did not contest that it is the owner of the website,
Having found that Munro's exhibits are properly authenticated and not hearsay, the Court admits them into evidence.
Valuation of collateral pursuant to § 1325(a)(5) is governed by § 506(a), which provides that "in a case under chapter 7 or 13, such value with respect to personal property securing an allowed claim shall be determined based on the replacement value of such property as of the date of the filing of the petition without deduction for costs of sale or marketing." 11 U.S.C. § 506(a)(2). Further, "[w]ith respect to property acquired for personal, family, or household purposes, replacement value shall mean the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined." Id.
The parties do not dispute that the manufactured home securing the loan to 21st Mortgage, which Munro is currently using as his residence, is personal property, acquired for personal, family, or household purposes. Thus, the Court must determine "the price a retail merchant would charge" for a manufactured home of the same type, age, and condition as Munro's. Id.
Property valuation "outside the actual marketplace is inherently inexact," and courts must often assign weight to conflicting valuation testimony in accordance with the credibility and qualifications of the parties' expert witnesses. In re Grind Coffee & Nosh, LLC, No. 11-50011, 2011 WL 1301357, at *6 (Bankr. S.D. Miss. Apr. 4, 2011) (quoting Rushton v. Comm'r, 498 F.2d 88, 95 (5th Cir. 1974)). But a "bankruptcy court is not bound by valuation opinions or reports submitted by appraisers" and may: (1) "form its own opinion as to the value of property in bankruptcy proceedings"; (2) "accept an appraisal in its entirety"; or (3) "choose to give weight to only those portions of an appraisal that assist the Court in its determination." Id. (internal citations omitted).
Having admitted the exhibits offered by Munro into evidence, the Court finds that they demonstrate values of manufactured homes too dissimilar to Munro's to be of much probative value. The five homes in the exhibits are all of different configurations with different features. See Dkt. No. 43. Further, the methods used to reach those values are not in evidence, and the Court, therefore, cannot determine whether it would agree with those valuations. The Court, however, accepts Munro's testimony that his home is worth $50,000 as probative but not conclusive evidence of value. See LaCombe v. A-T-O, Inc., 679 F.2d 431, 433 (5th Cir. 1982) (acknowledging "general principle . . . that the owner of property is qualified by his ownership alone to testify as to its value").
Pendergraft, 21st Mortgage's expert appraiser, testified that the home is worth $71,347. Pendergraft reached this valuation using the National Appraisal System ("NAS") form with the National Automobile Dealers Association ("NADA") price guide to come up with a base value for Munro's home. Dkt. No. 49 at 17. "Courts have favored the use of the NADA guide and the NAS to determine the replacement value of manufactured homes." In re Thornton, No. 15-6762-RLM-13, 2016 WL 3092280, at *3 (Bankr. S.D. Ind. May 23, 2016) (listing cases). And this Court has similarly favored this valuation method in the past.
Id. at *2. The Court accepts Pendergraft's valuation as supported by his testimony, with some minor exceptions.
First, the Court questioned Pendergraft at the hearing about the absence of a bill of sale related to certain add-ons, "[t]he AC unit, skirting and steps." Dkt. 49 at 35-36. The bill of sale was not attached to 21st Mortgage's proof of claim, and Pendergraft testified that he never saw an invoice showing these items were sold with the manufactured home but included them in his valuation because 21st Mortgage told him they had been purchased along with the home. This is quintessential hearsay, and the Court finds that 21st Mortgage has produced no evidence showing that these items should be included in the value of its collateral. Therefore, the Court will exclude them from its finding of value. Pendergraft valued the air conditioning unit at $894, the skirting at $366.08, and the steps at $101. Dkt. No. 44 at 19. The Court, therefore, subtracts $1361.08 from Pendergraft's valuation.
Second, the Court disagrees with the repair costs assigned by Pendergraft, finding that they are greatly undervalued. Both Munro and Pendergraft testified that the home was in good condition but in need of some repairs. See Dkt. No. 49 at 15, 23. In his appraisal report, Pendergraft listed the total cost for repairs to the home at $2,245. Dkt. No. 44 at 17. Based on the itemized amounts in the appraisal report, however, the Court finds Pendergraft's estimated repair amount should be $2,400. The itemized repairs include releveling the home ($650), patching the roof and resealing the vents ($350), replacing the microwave ($350), painting the ceiling of the utility room and nook ($75), painting the ceiling of the second bathroom ($75), replacing the breaker box ($700), and servicing the air conditioning unit ($200). Dkt. No. 44 at 17. Pendergraft testified about the repairs:
Dkt. No. 49 at 23-24. Pendergraft further testified that in his opinion, the repair estimates listed in his report were reasonable and that they had come from the NADA, which estimates the cost of repairs based on information provided by "lenders, sales centers and appraisers." Dkt. No. 49 at 24-25. On cross-examination, Pendergraft testified that he was not certified in any kind of mold inspection and that he had not called anyone in to perform a mold inspection to determine the extent of any damage. Dkt. No. 49 at 27. In his view, "[t]he most common way to correct the mold in one of these homes. A lot of people will use a water bleach solution and then spray it with . . . primer. That kills mold." Dkt. No. 49 at 28-29. Pendergraft further testified that he had not gone on the roof of the home to inspect it and had not talked to any roofers about what any repairs might cost. Dkt. No. 49 at 28. Munro testified that he had never called anyone to inspect the roof either, but that for the air conditioning unit, he had already "paid a couple thousand to have it charged and recharged and gone over and the problem wasn't resolved." Dkt. No. 49 at 14.
In the Court's experience and based on the testimony of Munro and Pendergraft about the necessary repairs, the Court finds the estimated repair costs to be insufficient to resolve and remediate the undisputed problems with the home. See In re Sweeney, 556 B.R. 208, 217-18 (Bankr. E.D.N.C. 2016) (finding repair estimate to be insufficient because appraiser "did not check to see if, or at least did not report whether" more than cosmetic repairs were necessary when testimony and photographs showed more extensive repairs likely to be necessary). Therefore, using the corrected estimated repair coast, the Court will multiply the overall repair estimate by four, increasing the repair cost to $9,600.
After reducing the value of the home for the unproven cost of the add-ons ($1,361.08) and the increased cost of repairs ($9,600 - $2,245), the Court finds that Munro's home and 21st Mortgage's collateral has a value of $62,630.92.
Dkt. No. 49 at 25-26.
