United States District Court, D. Maryland
[Copyrighted Material Omitted]
United States Bankruptcy Court Case No. 12-27809.
For Patrick Prangley, Appellant: Michelle Ericka Stawinski, LEAD ATTORNEY, Law Office of Michelle E Stawinski, Riverdale, MD.
For Monica Ferrari Cokinos, Appellee: Amy K Kline, LEAD ATTORNEY, The Creditors Firm, Reisterstown, MD; Jonathan P Morgan, LEAD ATTORNEY, Morgan Rose, LLC, Rockville, MD.
For Janet M. Nesse, Trustee: Janet M Nesse, LEAD ATTORNEY, Stinson Leonard Street LLP, Washington, DC.
Paul W. Grimm, United States District Judge.
Appellant--Creditor Patrick Prangley (" Prangley" ) raises four challenges to the bankruptcy court's decision to strip two judicial liens encumbering the residential property of Appellee--Debtor Monica Ferrari Cokinos (" Cokinos" ) in their entirety pursuant to 11 U.S.C. § 522(f). The effect of avoiding his lien deprives Prangley of post-petition recourse against Cokinos's property and converts his secured claim into an unsecured claim. The bankruptcy court found the parties' experts equally credible and valued Cokinos's property at the midpoint between their appraisals, even though Cokinos's appraisal did not express an opinion as to the property's value on the date of the petition, September 28, 2012 (the " Petition Date" ). In the absence of evidence to show that the expert's valuation, which expresses an opinion as to the property's value sixteen days later, also fairly values the property as of the Petition Date, it is not relevant for the purposes of determining value on the Petition Date. Additionally, I find that the bankruptcy court incorrectly allowed the avoidance of the liens in their entirety. I therefore vacate the relevant orders and remand the case with instructions for further proceedings.
Cokinos filed a voluntary petition for bankruptcy protection under Chapter 7 of the Bankruptcy Code on September 28, 2012. Docket, In re Cokinos, No. 12-27809 (Bankr. D. Md.). She lived at 2279 Dunster Lane, Rockville, MD 20854 (the " Property), see Feb. 21, 2013 Hr'g Tr. 50-51 (" Tr." ), Appellant's Br. App. R6, ECF No. 5-6, and took out two mortgages on the Property from parties not relevant to this appeal, both secured by a single Deed of Trust. Subsequently, the Circuit Court of Maryland for Montgomery County entered two judicial liens encumbering the Property, one to CitiBank and one to Prangley, for reasons not clear from the record. See Sched. D, ECF No. 1-2. Cokinos moved to avoid both liens, ECF No. 1-10 (the " CitiBank Motion" ) & ECF No. 1-4 (the " Prangley Motion" ). The CitiBank Motion was unopposed, but
Prangley filed a timely opposition, ECF No. 1-17. The two motions were consolidated for hearing. At the outset of the hearing, the parties stipulated that the exemptions and liens on the Property totaled $589,706.04, and stipulated to certain evidentiary matters discussed below. Tr. 4-5. During the hearing, the bankruptcy court heard testimony from Cokinos's expert, Paul D'Anna, and Prangley's expert, Jennifer Horn, each of whom prepared appraisals of the Property.
A. Summary of the Legal Issues Presented
Section 522(a)(2) of the Bankruptcy Code requires the bankruptcy court to determine the Property's value using the fair market value as of the Petition Date. See 11 U.S.C. § 522(a)(2). While nothing in the Bankruptcy Code restricts the bankruptcy court from determining what evidence is relevant for this purpose, whatever evidence is admitted must establish the Property's value as of the Petition Date. Where this critical nexus is missing, the evidence is insufficient. Cf. Reconco v. Partners for Payment Relief De III, LLC (In re Reconco),
No. 13-10564-RGM, 2014 WL 1295721, at *3 (Bankr. E.D. Va. Mar. 31, 2014) (noting that the record did not support an inference that value assigned on the appraiser's valuation date should be related back to the petition date). The Horn Appraisal, though signed on December 9, 2012, used a valuation date  of September 28, 2012--the same as the Petition Date. Horn Appraisal 5, Appellant's Br. App. R13, ECF No. 5-13. The D'Anna Appraisal, signed on October 16, 2012, used a valuation date of October 14, 2012--sixteen days after the Petition Date--and was based on an evaluation of comparable properties that were sold after the Petition Date. D'Anna Appraisal 4, Appellant's Br. App. R8, ECF No. 5-8.
Once the bankruptcy court has determined the Property's value as of the Petition Date, it calculates the extent of avoidance under § 522(f)(2)(A). This is done by subtracting from the Property's value any exemptions and consensual liens (usually mortgages), leaving the remainder " for the partial satisfaction of [the] judicial lien[s]." E. Cambridge Sav. Bank v. Silveira (In re Silveira), 141 F.3d 34, 36 (1st Cir. 1998). Even though the remainder might be de minimis, it nevertheless may be significant because any remainder would allow a creditor, such as Prangley, to retain a secured claim against Cokinos and also may allow for post-petition recourse against the Property. See 11 U.S.C. § § 522(c), 524.
B. Competing Testimony
At the hearing, Cokinos called Paul D'Anna, an experienced residential appraiser but first-time expert witness. Tr. 9. D'Anna appraised the Property at $545,000 as of October 14, 2012, sixteen days after the Petition Date. D'Anna Appraisal 4. Prangley called Jennifer Horn, who has been an appraiser since 2001 and, like D'Anna, never previously testified as an expert witness. Tr. 59. Horn's appraisal valued the ...