FOR THE NORTHERN DISTRICT OF CALIFORNIA
GEORGE HARVEY SMITH, No. 1-88-00920
Memorandum of Decision
The issue before the Court is the valuation of the debtor's real property for purposes of
section 1225(a)(5)(B)(ii) of the Bankruptcy Code. The debtor's Chapter 12 plan provides for
a value of $195,000.00; the Farmer's Home Administration has submitted an appraisal fixing the
value at $270,000.00.
The judicial valuation of this property is not easily made. The FHA's appraisal is detailed,
meticulous and impressive. The evidence presented by the debtor was scanty, unprofessional,
and "folksy." Nonetheless, after hearing all the testimony the Court is left with the belief that the
value of the property is something less than the figure urged by the FHA.
The items of evidence which stand out in the Court's mind as the most compelling are the
photographs of the property taken during a recent flood, which was a bad but by no means
record flood. The photographs show the structures on the property completely inundated, with
water almost to the roof line of some buildings. While the FHA's appraiser realized that much
of the property is subject to flooding, the degree of flooding seemed to take him by surprise and
indicated to the Court that his appraisal should be discounted somewhat.
How much to discount the FHA appraisal is not an easy determination. While the Court
agrees with the market data approach used by the FHA appraiser, it also agrees with the
common-sense approach of the debtor's witnesses that the numerous problems with the property,
including flooding, possible septic problems, and lack of permits for the improvements, make the
property unattractive to buyers in general.
Taking all of the testimony and evidence into account, the Court finds that the value of the
property is $225,000.00. The Court will confirm a plan incorporating this value which otherwise
meets the requirements of section 1225. The Court makes no ruling at present as to the six
percent interest rate proposed in the debtor's plan.
Counsel for the debtor shall submit a form of order denying confirmation of the plan, but
fixing the value of the property at $225,000.00 for purposes of any amended plan expeditiously
brought before the Court. The order shall recite the valuation of the farm equipment made on
the record. Counsel for the FHA shall approve the form of the order.
Dated: March 6, 1989 __________________________