Bankruptcy appraisals

When you file for bankruptcy, you must provide the court with a total financial snapshot of your current income, debt and other obligations. While establishing values for most of these things is relatively easy, determining the current value of your home can be challenging. A bankruptcy appraisal is the best way to prove to the court that your value, as written in your bankruptcy documents, is accurate. Sactown Appraisals has experience, credibility and industry reputation which we know as an appraiser are critical to the bankruptcy judge in accepting or rejecting your home valuation as accurate.

Local attorneys report that most trustees overseeing chapter 7 and 13 bankruptcies will accept a simple broker’s opinion of value (BPO) or even a Zestimate.This means chances are you will not be required to get an actual real estate appraisal which helps keep your overall costs down and expedite the process; however, you should understand when it may be appropriate to obtain an appraisal.

Appraisals are sometimes necessary when determining the secured status of a claim under section 506(a) and (b) of the bankruptcy code, or when avoiding a judicial lien under section 522(f).

Under section 506, a secured claim (e.g. a mortgage, an equity line or a tax lien) is only secured to the extent of the value of the property.  For example, a house with a first mortgage balance of $400,000 and a second mortgage balance of $50,000 that is worth only $385,000. An appraisal would be used to make the case that the second mortgage is unsecured, and therefore its lien can be removed and it is treated as a general unsecured claim, which is much lower on the pecking order.

There are many nuances and caveats to how this works, but generally, an appraisal is only necessary where value is likely to be in real dispute. This is when you or your attorney needs to hire the services of an experienced professional real estate appraiser to estimate the fair market value, of the home.

According to local attorneys, Judges will not accept a Zestimate or BPO for something like this even where the creditor does not object.  This is likely due to the fact that BPOs are not considered accurate enough for federally secured mortgages (FNMA) and Zillow publishes its own comparison of actual sales prices vs. their Zestimates which reveals an alarming rate of inaccuracy.

That said, in cases where the value makes a difference, having a qualified appraiser who can give clear testimony can be extremely important.   The appraisal should include a well-supported, professional report that is defensible in court. State and Federal laws require that the appraiser and the appraisal process must be independent from any influence, coercion or pressure. This ensures that the appraiser remains a truly independent third party.

In many cases the date of the “current value” differs from the actual inspection date of the appraisal.  This requires a retrospective appraisal with an “effective date” and value estimate corresponding to the bankruptcy filing or some other relevant date in the past, depending on the case. we have the experience dealing with the complexities of assessing the value of a property under these difficult circumstances.

Appraisal type much like the appraisal required for getting a mortgage loan, a bankruptcy appraisal report establishes an opinion of your home’s fair market value. by comparing your home to between three and six recent house sales in your neighborhood, the appraiser uses factual data to support the value certified in the report. While the certified appraiser establishes a specific market value of your home, like all appraisals, the resulting number is an opinion of value.

Significance Bankruptcy reform legislation adopted in 2005 makes the bankruptcy appraisal highly important in whether the court approves you for a Chapter 7 liquidation bankruptcy or requires you to file a Chapter 13 debt repayment bankruptcy. Although a Chapter 13 bankruptcy requires that you work out a repayment plan with creditors, it is easier to keep your home, since you are not seeking total liquidation of all assets, and possibly have second mortgage or other liens be declared unsecured debts if you have no equity after subtracting your first mortgage balance. You can also protect some of your equity, but the amount depends on your state’s exempt property laws. The bankruptcy appraisal and the judge’s belief in its accuracy may influence whether you can keep or lose your home.

Bankruptcy court authority the bankruptcy judge has final authority for all proceedings, including accepting or rejecting your home appraisal report and value. This authority to make or break your bankruptcy petition makes it crucial that the person or firm performing your bankruptcy appraisal prepare a thorough, detailed and strongly supported report. Typically, bankruptcy judges will only accept state-licensed appraisers with a proven history of preparing accurate appraisals. The court recognizes the importance of a strongly supported appraisal, as should you and your attorney, to permit a successful bankruptcy filing.

At Sactown appraisals we are experienced to perform bankruptcy appraisals, we are a highly experienced, well-respected appraiser company, with a proven history of creating high-quality bankruptcy appraisals, in the Sacramento area and surrounding counties. Choosing an appraiser who specializes in performing bankruptcy appraisals is a wise option. Veteran bankruptcy judges tend to be more comfortable receiving appraisal reports from appraisers that understand the process and the significance of preparing a fully supported real estate appraisal for bankruptcy proceedings.