Fifth Circuit Addresses Valuation of Mobile Home

Posted by NCBRC - September 18, 2018

Delivery and set-up costs are not included in the valuation of a mobile home under section 506(a). 21st Mortgage Corp. v. Glenn, No. 17-60533 (5th Cir. Aug. 13, 2018).

Kayla Glenn elected to retain her mobile home and pay it off with 5% interest through her chapter 13 bankruptcy. 21st Mortgage objected to Ms. Glenn’s proposed plan based on her valuation of the property as not including the cost of delivery and set-up. The bankruptcy court confirmed the plan and the district court affirmed. 21st Mortgage appealed.

The Fifth Circuit began with the plain language of section 506(a)(2) which provides that personal property be valued according to its replacement value “without deduction for costs of sale or marketing.” It read this provision in conjunction with section 506(a)(1) which instructs that valuation of property take into consideration the “proposed disposition or use of such property.”

21st Mortgage argued that because section 506(a)(2) specifically allows costs of sale and marketing to be included in the valuation of property, it follows that the costs of set-up and delivery should likewise be included in that amount. The Fifth Circuit disagreed and noted that by so holding, it was in agreement with all other courts that have addressed the issue.

The Fifth Circuit relied heavily on Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997), where the Supreme Court stated a “replacement-value” standard in cases where, as here, the debtor sought to “cram down” property under section 1325(a)(5)(B). The Court in Rash explained that replacement value should not include the value of items the debtor does not receive when she retains the property. Under the reasoning of Rash, the circuit court differentiated between the costs of sale and marketing which are repeat costs, and the costs of set-up and delivery which are one-time costs. Like sales taxes and service agreements, set-up and delivery are separate from the property’s replacement value.

The court concluded that “considering the property at issue under § 506(a)(2)’s specific replacement-value standard and in light of the property’s ‘proposed disposition or use,’ we hold that delivery and setup costs of a mobile home retained by a debtor must be excluded from the mobile home’s valuation under § 506(a) of the Bankruptcy Code.”

Glenn 5th Cir Aug 2018

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