Frederick Carroll Bowles

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	) Bankruptcy Case
) No. 10-31259DM
FREDERICK CARROLL BOWLES, 	)
)
Debtor. 	) Chapter 13
___________________________________)
MEMORANDUM DECISION ON MOTION TO VALUE COLLATERAL
AND AVOID JUNIOR LIEN
I. 	Introduction
On August 25, 2010, the court conducted a trial on the motion
(“Motion To Value”) of Fredrick Carroll Bowles (“Debtor”), to
value property located on Corbett Avenue in San Francisco (the
“Property”) and to avoid the lien of Pacific Service Credit Union
(“Pacific”). 	Debtor appeared and was represented by Dean L.
Woerner, his attorney; Pacific appeared and was represented by Ivo
Keller, one of its attorneys.
Following the submission of evidence and closing arguments,
the court requested further briefing to address the issue that the
Property was not held in Debtor’s name, but rather in the name of
a trust. 	The parties responded to the court’s inquiry and
submitted supplemental memoranda.
For the reasons explained below, the court will grant
Debtor’s Motion To Value subject to Pacific’s right to request a
Signed and Filed: October 25, 2010
________________________________________
DENNIS MONTALI
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
October 26, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 10-31259 Doc# 50 Filed: 10/25/10 Entered: 10/26/10 16:08:11 Page 1 of 8

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1 The following discussion constitutes the court's findings
of fact and conclusions of law. 	Fed. R. Bankr. P. 7052(a).
2 Pacific argued that Debtor could not avoid its lien because
he caused the Property's decline in value by making alterations
without proper permits and by intentionally removing or destroying
various components of the structure. 	It offered no authority to
support this argument so that court dismisses it without
elaboration. 	Perhaps on different facts, such as a showing of
bad faith, the argument would have merit; that is not the case
here.
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further evidentiary hearing.
II. Discussion 1
A. 	Valuation
Except for the title issue that required further briefing and
is discussed below, the sole question for trial on the Motion To
Value was whether the Property is of a value such that Pacific is
“out of the money,” and its junior lien can be avoided as provided
in the court’s Guidelines For Valuing and Avoiding Liens
(“Guidelines”). 2 	If the value of the Property is such that any
portion of Pacific’s lien is secured, its lien may not be avoided
because the Property is Debtor’s residence and Pacific is
protected by 11 U.S.C. § 1322(b)(2). 	If no portion of Pacific’s
debt is secured by actual value in the Property, the lien can be
adversely affected under Zimmer v. PSB Lending Corp. (In re
Zimmer), 313 F.3d 1220 (9th Cir. 2002).
Debtor called as its expert on the value of the Property
Kathleen R. Parker (“Parker”), a certified real estate appraiser.
Pacific called as its expert Howard M. Steiermann (“Steiermann”),
a certified general real estate appraiser.
Because of the unhabitable condition of the Property
described in detail in the papers, Parker was unable to find
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satisfactory comparable properties in the relevant time period or
in the area where the Property is located. 	While she would have
preferred to have located such comparable uninhabitable
properties, she resorted to an alternative wherein she made her
best judgment as to the Property’s post-repair condition, assuming
a cost she estimated to bring the Property up to average quality.
With that adjustment, she then compared the Property to six
comparables, concluding that the Property had a value as of April
17, 2010, of $480,000.
Steiermann was able to identify comparables that were in poor
condition such that he did not need to make the type of analysis
that Parker did. 	Two of his three comparables closed escrow after
Parker’s day of appraisal, and she could not have known of them.
His third comparable was still a listing and had not closed escrow
as of the date of his report.
Based upon his analysis, Steiermann valued the Property as of
August 10, 2010, at $565,000. 	As noted, if Steiermann’s value is
accepted by the court, Pacific is in the money by a small amount
since the senior deed of trust on the Property secures an
obligation of at least $557,209.
While the court would have preferred to compare unhabitable
properties with similarly unhabitable properties, it lacks
confidence in Steiermann’s approach and believes Parker’s analysis
is more reliable. 	First, Steiermann admitted to making an
incorrect calculation of square footage of the structure located
on the Property. 	While he tended to minimize that error,
contending that it would not affect his valuation, the court does
not accept that explanation. 	More specifically, Steiermann said
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that the Property had a gross living area of 1,894 square feet; on
cross-examination he admitted the error. 	Parker’s calculation
showed a gross living area of 1,546 square feet.
On redirect examination Steiermann contended that the
structure had a gross living area of 1,645 square feet, down 250
square feet from his calculation. 	This represents a reduction of
gross living area by more than 13%. 	While the court does not
believe a 13% reduction in Steiermann’s valuation of $550,000
would necessarily be appropriate, some downward adjustment would
be required.
Steiermann also relied on at least one comparable that had
not closed escrow. 	In the court’s experience that is not an
acceptable practice and in fact may even be contrary to generally
accepted appraisal principles. 	Thus, if the court eliminates the
third comparable that leaves Steiermann with only two compared to
Parker’s six. 	Based upon the foregoing questions about the
accuracy of Steiermann’s appraisal and the more limited
comparisons, the court cannot accept his valuation.
From the foregoing the court finds that Parker’s appraisal is
more credible notwithstanding the alternative methodology she
applied. 	However, based upon that methodology, the court believes
it would be appropriate to adjust her valuation upward slightly to
$500,000. 	Thus, the court finds that the Property was worth
$500,000 on August 25, 2010, entitling Debtor to avoid Pacific’s
lien.
B. 	The Trust Issues
On August 29, 2010, based on information discovered in the
Steiermann appraisal, the court entered a docket text order
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observing that title to the Property was held by a trust (and not
by Debtor). 	The court directed Debtor to file a supplement
clarifying the status of the title, and requested the parties to
address the issue of whether Debtor could strip the lien of
Pacific if he did not hold title on the petition date or the date
the Motion to Value was filed.
On September 8, 2010, Debtor filed a declaration indicating
that he (as an individual) reacquired title to the Property by a
deed executed on September 7, 2010, and recorded on September 8,
2010. 	Debtor explained that he initially acquired title to the
Property by a grant deed dated July 24, 2002, and recorded on
August 1, 2002. 	On November 28, 2005, he executed an “Individual
Grant Deed” conveying title to himself as Trustee of the Bowles
Trust (established on October 11, 2001); that grant deed was
recorded on November 14, 2008. 	On October 29, 2008, Debtor
(acting as trustee for the Bowles Trust) executed a grant deed
conveying title to Equity Holding Corporation, as Trustee for The
Corbett Land Trust; that grant deed was also recorded on November
14, 2008.
Debtor was the settlor of the Bowles Trust and was designated
as the sole beneficiary during his lifetime, and as trustee of the
Bowles Trust, he could be paid all net income and as much of the
principal “necessary for my support, care, health, maintenance,
and happiness.” 	The Bowles Trust instruments provided that Debtor
(as settlor/trustor) would occupy any principal residence (without
payment of rent) and have discretion over decisions to sell such a
residence. 	On November 28, 2005, he executed an amendment to the
Bowles Trust Agreement declaring the Property as his principal
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residence.
The Bowles Trust was the sole beneficiary of The Corbett Land
Trust, and the trust agreement for The Corbett Land Trust provided
that the trustee would hold legal and equitable title to the
Property, but that the beneficiary (Bowles Trust) would have a
“power of direction to the Trustee” regarding the Property and the
right to manage and control the Property. 	Paragraph 11 provided
that the trustee would “on the written direction” of the
beneficiary, “make and execute contracts or deeds for the
purchase, or sale” of the Property. 	As noted previously, the
Corbett Land Trust reconveyed title to the Property to Debtor,
individually, after the April 8, 2010, petition date.
Pacific argued in its supplemental brief that Debtor could
not strip its lien on the Property because the debtor’s estate did
not have an interest in the Property on the petition date or on
the date the Motion to Value was filed. 	It cites 11 U.S.C. §
506(a) and Federal Rule of Bankruptcy Procedure 3012, which allow
a court to determine the value of a lien “on property in which the
estate has an interest.” 	Neither section 506(a) or Rule 3012,
however, place a time limit on when the estate may acquire its
interest in the subject property.
To the contrary, the Bankruptcy Code provides that property
acquired by a chapter 13 debtor after the petition date (but
before closing, dismissal or conversion of the case) becomes
property of the estate. 	11 U.S.C. § 1306(a). 	Thus, the estate
held an interest in the Property –- at the latest –- when the
Trustee of The Corbett Land Trust conveyed title to Debtor
individually. 	Thus, even if the court denied the pending Motion
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to Value, Debtor could file another motion to value under section
506(a) as the Property is now property of the estate.
Normally property held in a revocable trust with the debtor
as beneficiary, even with spendthrift provisions, is not insulated
from a debtor’s creditors. See In re Cutter, 398 B.R. 6, (9th Cir.
BAP 2008). 	But here there is a trust holding a beneficial
interest in a second trust. 	Neither party addressed the issue
directly in the supplemental briefing, and Debtor mooted the issue
by reacquiring title.
Be that as it may, Pacific has the right to contest the value
of the Property at the time Debtor reacquired it. 	While the court
doubts that the Property’s value increased in the interval between
the appraisals and the date of Debtor’s reacquisition of title,
that is a fact that Pacific has a right to consider and to act
upon. 	The court will only grant the Motion to Value if Pacific
declines the invitation to revisit the question of value as of the
later date.
III. 	Conclusion
Pacific may decide to try again to present evidence to
protect its lien from being avoided. 	The court will give it
fourteen (14) days from the date of this Memorandum Decision to
file a notice of intention to retry the matter. 	If it does not
file such a notice, counsel for Debtor may submit an order
avoiding Pacific’s lien for the reasons set forth in this
Memorandum Decision and in accordance with the Guidelines.
If, however, Pacific timely expresses an intention to retry
the matter, then counsel for both parties should meet and confer
and contact the court’s Courtroom Deputy (Ms. Lorena Parada (415-
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268-2323) to set a date for trial. 	They should also stipulate to
a deadline for exchanging any updated appraisals and follow the
procedures in this court’s June 10, 2010 Scheduling Order For
Evidentiary Hearing On Motion To Value/Avoid Lien for the
presentation of any additional expert testimony.
**END OF MEMORANDUM DECISION**
Case: 10-31259 Doc# 50 Filed: 10/25/10 Entered: 10/26/10 16:08:11 Page 8 of 8