Entered on Docket

October 26, 2010

GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

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2 Signed and Filed: October 25, 2010

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4 ________________________________________
DENNIS MONTALI
5 U.S. Bankruptcy Judge
________________________________________
6 UNITED STATES BANKRUPTCY COURT
7 NORTHERN DISTRICT OF CALIFORNIA
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In re ) Bankruptcy Case
9 ) No. 10-31259DM
FREDERICK CARROLL BOWLES, )
10 )
Debtor. ) Chapter 13
11 ___________________________________)
12 MEMORANDUM DECISION ON MOTION TO VALUE COLLATERAL
AND AVOID JUNIOR LIEN
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I. Introduction
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On August 25, 2010, the court conducted a trial on the motion
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(“Motion To Value”) of Fredrick Carroll Bowles (“Debtor”), to
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value property located on Corbett Avenue in San Francisco (the
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“Property”) and to avoid the lien of Pacific Service Credit Union
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(“Pacific”). Debtor appeared and was represented by Dean L.
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Woerner, his attorney; Pacific appeared and was represented by Ivo
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Keller, one of its attorneys.
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Following the submission of evidence and closing arguments,
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the court requested further briefing to address the issue that the
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Property was not held in Debtor’s name, but rather in the name of
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a trust. The parties responded to the court’s inquiry and
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submitted supplemental memoranda.
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For the reasons explained below, the court will grant
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Debtor’s Motion To Value subject to Pacific’s right to request a
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 1 further evidentiary hearing.
2 II. Discussion1
3 A. Valuation
4 Except for the title issue that required further briefing and
5 is discussed below, the sole question for trial on the Motion To
6 Value was whether the Property is of a value such that Pacific is
7 “out of the money,” and its junior lien can be avoided as provided
8 in the court’s Guidelines For Valuing and Avoiding Liens
9 (“Guidelines”).2 If the value of the Property is such that any
10 portion of Pacific’s lien is secured, its lien may not be avoided
11 because the Property is Debtor’s residence and Pacific is
12 protected by 11 U.S.C. § 1322(b)(2). If no portion of Pacific’s
13 debt is secured by actual value in the Property, the lien can be
14 adversely affected under Zimmer v. PSB Lending Corp. (In re
15 Zimmer), 313 F.3d 1220 (9th Cir. 2002).
16 Debtor called as its expert on the value of the Property
17 Kathleen R. Parker (“Parker”), a certified real estate appraiser.
18 Pacific called as its expert Howard M. Steiermann (“Steiermann”),
19 a certified general real estate appraiser.
20 Because of the unhabitable condition of the Property
21 described in detail in the papers, Parker was unable to find
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The following discussion constitutes the court's findings
23 of fact and conclusions of law. Fed. R. Bankr. P. 7052(a).
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Pacific argued that Debtor could not avoid its lien because
he caused the Property's decline in value by making alterations
25 without proper permits and by intentionally removing or destroying
various components of the structure. It offered no authority to
26 support this argument so that court dismisses it without
elaboration. Perhaps on different facts, such as a showing of
27 bad faith, the argument would have merit; that is not the case
here.
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 1 satisfactory comparable properties in the relevant time period or
2 in the area where the Property is located. While she would have
3 preferred to have located such comparable uninhabitable
4 properties, she resorted to an alternative wherein she made her
5 best judgment as to the Property’s post-repair condition, assuming
6 a cost she estimated to bring the Property up to average quality.
7 With that adjustment, she then compared the Property to six
8 comparables, concluding that the Property had a value as of April
9 17, 2010, of $480,000.
10 Steiermann was able to identify comparables that were in poor
11 condition such that he did not need to make the type of analysis
12 that Parker did. Two of his three comparables closed escrow after
13 Parker’s day of appraisal, and she could not have known of them.
14 His third comparable was still a listing and had not closed escrow
15 as of the date of his report.
16 Based upon his analysis, Steiermann valued the Property as of
17 August 10, 2010, at $565,000. As noted, if Steiermann’s value is
18 accepted by the court, Pacific is in the money by a small amount
19 since the senior deed of trust on the Property secures an
20 obligation of at least $557,209.
21 While the court would have preferred to compare unhabitable
22 properties with similarly unhabitable properties, it lacks
23 confidence in Steiermann’s approach and believes Parker’s analysis
24 is more reliable. First, Steiermann admitted to making an
25 incorrect calculation of square footage of the structure located
26 on the Property. While he tended to minimize that error,
27 contending that it would not affect his valuation, the court does
28 not accept that explanation. More specifically, Steiermann said

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 1 that the Property had a gross living area of 1,894 square feet; on
2 cross-examination he admitted the error. Parker’s calculation
3 showed a gross living area of 1,546 square feet.
4 On redirect examination Steiermann contended that the
5 structure had a gross living area of 1,645 square feet, down 250
6 square feet from his calculation. This represents a reduction of
7 gross living area by more than 13%. While the court does not
8 believe a 13% reduction in Steiermann’s valuation of $550,000
9 would necessarily be appropriate, some downward adjustment would
10 be required.
11 Steiermann also relied on at least one comparable that had
12 not closed escrow. In the court’s experience that is not an
13 acceptable practice and in fact may even be contrary to generally
14 accepted appraisal principles. Thus, if the court eliminates the
15 third comparable that leaves Steiermann with only two compared to
16 Parker’s six. Based upon the foregoing questions about the
17 accuracy of Steiermann’s appraisal and the more limited
18 comparisons, the court cannot accept his valuation.
19 From the foregoing the court finds that Parker’s appraisal is
20 more credible notwithstanding the alternative methodology she
21 applied. However, based upon that methodology, the court believes
22 it would be appropriate to adjust her valuation upward slightly to
23 $500,000. Thus, the court finds that the Property was worth
24 $500,000 on August 25, 2010, entitling Debtor to avoid Pacific’s
25 lien.
26 B. The Trust Issues
27 On August 29, 2010, based on information discovered in the
28 Steiermann appraisal, the court entered a docket text order

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 1 observing that title to the Property was held by a trust (and not
2 by Debtor). The court directed Debtor to file a supplement
3 clarifying the status of the title, and requested the parties to
4 address the issue of whether Debtor could strip the lien of
5 Pacific if he did not hold title on the petition date or the date
6 the Motion to Value was filed.
7 On September 8, 2010, Debtor filed a declaration indicating
8 that he (as an individual) reacquired title to the Property by a
9 deed executed on September 7, 2010, and recorded on September 8,
10 2010. Debtor explained that he initially acquired title to the
11 Property by a grant deed dated July 24, 2002, and recorded on
12 August 1, 2002. On November 28, 2005, he executed an “Individual
13 Grant Deed” conveying title to himself as Trustee of the Bowles
14 Trust (established on October 11, 2001); that grant deed was
15 recorded on November 14, 2008. On October 29, 2008, Debtor
16 (acting as trustee for the Bowles Trust) executed a grant deed
17 conveying title to Equity Holding Corporation, as Trustee for The
18 Corbett Land Trust; that grant deed was also recorded on November
19 14, 2008.
20 Debtor was the settlor of the Bowles Trust and was designated
21 as the sole beneficiary during his lifetime, and as trustee of the
22 Bowles Trust, he could be paid all net income and as much of the
23 principal “necessary for my support, care, health, maintenance,
24 and happiness.” The Bowles Trust instruments provided that Debtor
25 (as settlor/trustor) would occupy any principal residence (without
26 payment of rent) and have discretion over decisions to sell such a
27 residence. On November 28, 2005, he executed an amendment to the
28 Bowles Trust Agreement declaring the Property as his principal

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 1 residence.
2 The Bowles Trust was the sole beneficiary of The Corbett Land
3 Trust, and the trust agreement for The Corbett Land Trust provided
4 that the trustee would hold legal and equitable title to the
5 Property, but that the beneficiary (Bowles Trust) would have a
6 “power of direction to the Trustee” regarding the Property and the
7 right to manage and control the Property. Paragraph 11 provided
8 that the trustee would “on the written direction” of the
9 beneficiary, “make and execute contracts or deeds for the
10 purchase, or sale” of the Property. As noted previously, the
11 Corbett Land Trust reconveyed title to the Property to Debtor,
12 individually, after the April 8, 2010, petition date.
13 Pacific argued in its supplemental brief that Debtor could
14 not strip its lien on the Property because the debtor’s estate did
15 not have an interest in the Property on the petition date or on
16 the date the Motion to Value was filed. It cites 11 U.S.C. §
17 506(a) and Federal Rule of Bankruptcy Procedure 3012, which allow
18 a court to determine the value of a lien “on property in which the
19 estate has an interest.” Neither section 506(a) or Rule 3012,
20 however, place a time limit on when the estate may acquire its
21 interest in the subject property.
22 To the contrary, the Bankruptcy Code provides that property
23 acquired by a chapter 13 debtor after the petition date (but
24 before closing, dismissal or conversion of the case) becomes
25 property of the estate. 11 U.S.C. § 1306(a). Thus, the estate
26 held an interest in the Property –- at the latest –- when the
27 Trustee of The Corbett Land Trust conveyed title to Debtor
28 individually. Thus, even if the court denied the pending Motion

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 1 to Value, Debtor could file another motion to value under section
2 506(a) as the Property is now property of the estate.
3 Normally property held in a revocable trust with the debtor
4 as beneficiary, even with spendthrift provisions, is not insulated
5 from a debtor’s creditors. See In re Cutter, 398 B.R. 6, (9th Cir.
6 BAP 2008). But here there is a trust holding a beneficial
7 interest in a second trust. Neither party addressed the issue
8 directly in the supplemental briefing, and Debtor mooted the issue
9 by reacquiring title.
10 Be that as it may, Pacific has the right to contest the value
11 of the Property at the time Debtor reacquired it. While the court
12 doubts that the Property’s value increased in the interval between
13 the appraisals and the date of Debtor’s reacquisition of title,
14 that is a fact that Pacific has a right to consider and to act
15 upon. The court will only grant the Motion to Value if Pacific
16 declines the invitation to revisit the question of value as of the
17 later date.
18 III. Conclusion
19 Pacific may decide to try again to present evidence to
20 protect its lien from being avoided. The court will give it
21 fourteen (14) days from the date of this Memorandum Decision to
22 file a notice of intention to retry the matter. If it does not
23 file such a notice, counsel for Debtor may submit an order
24 avoiding Pacific’s lien for the reasons set forth in this
25 Memorandum Decision and in accordance with the Guidelines.
26 If, however, Pacific timely expresses an intention to retry
27 the matter, then counsel for both parties should meet and confer
28 and contact the court’s Courtroom Deputy (Ms. Lorena Parada (415-

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 1 268-2323) to set a date for trial. They should also stipulate to
2 a deadline for exchanging any updated appraisals and follow the
3 procedures in this court’s June 10, 2010 Scheduling Order For
4 Evidentiary Hearing On Motion To Value/Avoid Lien for the
5 presentation of any additional expert testimony.
6 **END OF MEMORANDUM DECISION**
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