Eva Lopez Araujo

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
EVA LOPEZ ARAUJO,
Debtor
.
Bankruptcy Case
No. 11-30078DM
Chapter 13
MEMORANDUM DECISION ON
DEBTOR’S MOTION SETTING PROPERTY VALUE
I. 	INTRODUCTION
Before the court is a Motion Setting Property Value (“Motion”)
filed by Debtor Eva Lopez Araujo (“Debtor”) on May 18, 2011, to
determine the value of personal property securing an allowed claim. The
personal property at issue is a 2006 Toyota Sienna LE (the “Vehicle”).
The secured creditor, Travis Credit Union (“Travis”), holds a
consensual lien secured by the Vehicle.
Debtor is seeking to confirm a chapter 13 plan and is attempting
to “cram down” Travis’s claim to the current value of the vehicle,
pursuant to 11 U.S.C. § 506(a). 1 Travis objected to Debtor’s proposed
1 Reference to the “Bankruptcy Code” is to the Bankruptcy Reform Act of
Signed and Filed: July 26, 2011
________________________________________
DENNIS MONTALI
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
July 27, 2011
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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value of the Vehicle and objected to confirmation of the plan. 	Debtor
filed a Motion Setting Property Value (“Motion”) to have the court
determine the value of the Vehicle.
By the Motion, Debtor seeks an order fixing the retail value of
the Vehicle in the amount of $5,700. In support of its Motion, Debtor
filed a Memorandum of Points and Authorities in Support of Motion
Setting Property Value (“Debtor’s Memorandum”), and two declarations:
one by Jason Honaker, the attorney for Debtor (“Honaker Declaration”),
and one by Anthony Martinez, an ASE Certified Automobile Technician
(“Martinez Declaration”). 	In response to the Motion, Travis filed an
Opposition to Motion Setting Property Value (“Opposition”), and a
declaration by Wm. Gary Moffat, an employee of Remarketing Services of
America who appraises vehicles (“Moffat Declaration”).
The parties agreed to submit the matter on the papers, waiving any
right to cross examine adverse witnesses.
II. 	FACTS 2
Debtor filed a voluntary petition for relief under chapter 13 on
January 7, 2011 (“Petition Date”). 	Travis holds a consensual lien on
the Vehicle in the amount of $14,242.43 as of the Petition Date.
Debtor initially estimated the value of the Vehicle at $6,500 on her
Schedule B. 	Travis filed a proof of claim and objected to confirmation
of Debtor’s chapter 13 plan on the basis that the correct value of the
1978, as amended, 11 U.S.C. § 101, et seq. 	Unless otherwise indicated,
references to statutory sections are to sections of the
Bankruptcy Code.
2 The following discussion constitutes the court’s findings of facts and
conclusions of law. 	Fed. R. Bankr. P. 7052(a).
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Vehicle was $14,465. 	In the Motion, Debtor claimed that the correct
value of the Vehicle was $5,700.
A. 	Debtor’s Valuation
Debtor, in her Memorandum, claimed a value for the Vehicle and
relied on repair and maintenance cost information provided in the
Martinez Declaration. 	In that declaration, Anthony Martinez recounted
the findings of his inspection of the Vehicle. 	Martinez stated that
the Vehicle had a variety of cosmetic and mechanical issues that needed
to be addressed including misaligned bumpers, worn brake pads and
rotors, and he noted that wheel realignment was necessary. 	Martinez
concluded that the Vehicle required $2,675 worth of repairs and
maintenance.
Debtor’s Memorandum first considered and rejected a valuation of
the Vehicle derived from the Kelley Blue Book website (“KBB website”).
Debtor examined the KBB website’s valuation data for a similar vehicle
sold at retail and a similar vehicle in “Average” condition sold
between private parties. 	Debtor ultimately determined that the website
Edmunds.com provided more reliable valuation data than the KBB website.
Debtor stated that Edmunds.com valued the Vehicle at a “Dealer Retail”
“True Market Value” price of $8,411 in “Average” condition. 	Debtor did
not provide a description of what qualities Edmunds.com uses to
determine that a vehicle is in “Average” condition. 	Debtor then
assumed that the $2,675 in needed repairs would render the Vehicle in
“Average” condition and subtracted the repair cost from the starting
price of $8,411 to arrive at a value of $5,736. 	In sum, Debtor claimed
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the appropriate replacement value of the Vehicle is $5,736. 3
B. 	Travis’s Valuation
In its Opposition, Travis claimed that the correct replacement
value of the Vehicle is $14,645. 	Travis relied on the Kelley Blue Book
Official Car Guide, January 2011 edition, for its valuation. 	Travis
submitted its Opposition before it had an opportunity to appraise the
Vehicle, but thereafter filed the declaration of Moffat, who appraised
the value of the Vehicle at $10,500. 	In arriving at that valuation, he
used a repair estimate of $1,377.53; searched the website Cars.com for
similarly situated vehicles for sale; and reviewed the N.A.D.A. Guide
and Kelley Blue Book (“KBB”) for valuation data. 	Moffat listed the
steps he used to reach his appraisal value but did not describe the
nature of the steps or how they contributed to the appraised value.
Four exhibits were attached to the Moffat Declaration, but two of the
exhibits, a print-out of the Cars.com website, purportedly showing
similar vehicles for sale, and a print-out of the KBB website, were
illegible and are unhelpful. 	This court’s law clerk requested that
Travis provide legible copies of the exhibits, but the replacement
exhibits were still illegible and remained unhelpful.
III. 	DISCUSSION
3 There is a discrepancy regarding what value the Debtor claimed the
Vehicle is worth. 	In her Memorandum, Debtor “requests that the court
enter an order valuing the Siena at $5,736,” but then states in the
next sentence that she will modify her chapter 13 confirmation plan
“[u]pon obtaining an order valuing the vehicle at $5,700.”
Additionally, the Motion requested the court determine the value of the
Vehicle at $5,700. 	However, the court will use the $5,736 amount that
Debtor reached in its Memorandum using the Edmunds.com valuation data
as Debtor’s claimed valuation, because there appears to be no basis for
the $5,700 value.
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The parties have provided competing valuations of the Vehicle;
Debtor claimed the Vehicle should be valued at $5,736 and Travis
claimed the Vehicle should be valued at $10,500. 	Neither side was
wholly persuasive and for the following reasons the court finds that
proper replacement value of the Vehicle is $9,433.50.
Section 506(a) of the Bankruptcy Code describes the extent to
which secured claims are allowed and the method of valuing a secured
claim. 	§ 506(a). 	More specifically, § 506(a)(2) provides:
If the debtor is an individual in a case under chapter 7 or 13,
such value with respect to personal property securing an allowed
claim shall be determined based on the replacement value of such
property as of the date of the filing of the petition without
deduction for costs of sale or marketing. 	§ 506(a)(2).
Section 506(a)(2) continues to define the replacement value of personal
property as “the price a retail merchant would charge for property of
that kind considering the age and condition of the property at the time
value is determined.” § 506(a)(2). 	Unfortunately, “no consensus has
emerged in the case law interpreting § 506(a)(2) as to how replacement
value for motor vehicles should be determined.” In re Pearsall, 441
B.R. 267, 270 (Bankr. N.D. Ohio 2010).
Courts have employed a variety of vehicle valuation methods under
§ 506(a)(2), and presently the Ninth Circuit has not established a
uniform method. 	See In re Ayres, 2010 Bankr. LEXIS 519 at *13 (Bankr.
N.D. Cal. February 16, 2010) (collecting cases detailing vehicle
valuation and describing the state of the law in the Ninth Circuit).
However, in In re Morales, the United States Bankruptcy Court for the
Central District of California determined that retail value should be
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calculated “by adjusting the Kelley Blue Book or N.A.D.A. Guide retail
value for a like vehicle by a reasonable amount in light of the
evidence presented regarding the condition of the vehicle or any other
relevant factors.” In re Morales, 387 B.R. 36, 45 (Bankr. C.D. Cal.
2008).
The vehicle valuation authorities referenced in In re Morales
compile and include in their publications data regarding various types
of sales including “private sale” and “dealer retail.” In re Ayres,
2010 Bankr. LEXIS at *16. 	It is important to note that the “dealer
retail” price used in the valuation authorities is not equivalent to
the term “the price a retail merchant would charge” as used in §
506(a)(2); rather, the “Bankruptcy Code’s definition of ‘retail’
includes an adjustment for the age and condition of the vehicle; KBB
defines ‘retail’ as the price for a vehicle that is in ‘excellent
condition’ with the provision that less than 5% of vehicles for sale
qualify as excellent.” In re Anda-Ramirez, 359 B.R. 794, 797 (10th Cir.
BAP 2007); accord In re Morales, 387 B.R. at 45-46.
Thus, the retail values provided in the valuation authorities do
not correlate exactly to the Bankruptcy Code’s use of “retail.” 	As a
result, courts must adjust the valuation authorities’ retail value “to
account for the vehicles [sic] mileage and other condition, or other
applicable factors.” In re Ayres, 2010 Bankr. LEXIS at *17. 	Evidence
supporting an adjustment may be introduced by way of declaration,
testimony, vehicle advertisements, expert or appraisal reports, and
private party values, as appropriate. 	In re Morales, 387 B.R. at 46
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(internal citations omitted). 	Conversely, rather than adjust the
retail value to account for a vehicle’s particular condition, courts
have utilized the “private sale” valuation, which values vehicles based
on variable conditions, i.e. private sale values are provided for
vehicles in conditions other than “excellent condition.” See In re De
Anda-Ramirez, 359 B.R. at 798 (finding an absence of clear error in a
lower court’s use of private party values).
However, according to the court in In re Morales, the retail
values, and not the private party values, are the appropriate starting
points because the text of § 506(a)(2) refers to “the price a retail
merchant would charge” and does not refer to the price a private party
would charge. 	In re Morales, 387 B.R. at 46. 	The language of §
506(a)(2) provides further support for the use of retail values rather
than private party values in the first sentence that states replacement
value should be calculated “without deduction for costs of sale or
marketing.” § 506(a)(2); In re Morales, 387 B.R. at 46. 	Although
“replacement value” is modified with respect to property acquired for
personal use in the second sentence of § 506(a)(2), the rule regarding
costs of sale or marketing is not modified and is therefore still
applicable. 	§ 506(a)(2); In re Morales, 387 B.R. at 46. 	Consequently,
in contrast to private party values, “the retail value better
approximates a price that includes the ‘costs of sale and marketing,’”
even if downward adjustments must be made to accommodate a less then
excellent or optimal condition of a vehicle. 	In re Morales, 387 B.R.
at 46.
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Neither party provided sufficient information to accurately
determine the retail value of the Vehicle. 	Debtor relied on a
valuation from Edmunds.com for a vehicle in “Average” condition sold at
a “dealer retail” price, but neglected to describe what qualities
Edmunds.com considers typical of a vehicle in “Average” condition. 4
Additionally, Debtor did not describe the Edmunds.com criteria for a
vehicle in “Rough” condition, 5 the quality below “Average.” In sum,
Debtor made a conclusory determination that Edmunds.com produced the
most accurate valuation and did not sufficiently establish why the
Vehicle, as is, failed to satisfy the criteria for “Average” condition.
Travis’s valuation is no improvement over Debtor’s. 	Travis’s
valuation consists primarily of the Moffat Declaration, which was made
after Travis had the opportunity to appraise the Vehicle. 	The Moffat
Declaration failed to describe in detail the methodology used to reach
the appraised value of $10,500; two of the attached exhibits were
4 According to Edmunds.com when a vehicle is in “Average” condition:
Vehicle may have a few mechanical and/or cosmetic problems and may
require a considerable amount of reconditioning. 	Exterior paint
has some dullness. 	Vehicle may have a considerable amount of
scratches or dings. Interior material is slightly worn and faded.
Tires have some usable tread remaining. 	Vehicle has a clean title
and has the ability to pass an emissions inspection. Edmunds.com,
2006 Toyota Sienna Minivan – Prices with Options,
http://www.edmunds.com/ toyota/sienna/2006/tmv-
appraise.html?sub=minivan&style=100604394 (last visited July 26,
2011).
5 Edmunds.com provides that a vehicle in “Rough” condition has
“[s]everal mechanical and/or cosmetic problems requiring significant
repairs. 	Tires may need to be replaced. 	Vehicle may need minor
repairs to pass an emissions inspection, but it has a clean title.”
Edmunds.com, 2006 Toyota Sienna Minivan – Prices with Options,
http://www.edmunds.com/toyota/sienna/2006/tmvappraise.html?sub=minivan&
style=
100604394 (last visited July 26, 2011).
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illegible; and photographs contained in another exhibit were so poor in
quality that they were unhelpful.
One reason for the discrepancy in valuations is that the parties
disagree over what features are standard for the Toyota Sienna LE trim.
Specifically, in the N.A.D.A. Guide valuation included in the Moffat
Declaration a “Luggage Rack,” valued at $75; a “Power Sliding Door,”
valued at $225; and a “Power Third Row Seat,” valued at $225, are
included as optional equipment that increase the value of the Vehicle.
Debtor argued that the equipment listed as optional was in fact
standard equipment for the LE trim. 	According to the brochure for the
2006 Toyota Sienna, available on the Toyota website and referenced in
the Honaker Declaration, the LE trim standard equipment includes a
“Luggage Rack,” but a “Passenger-Side Power Sliding Door” is a piece of
optional equipment. 	A “Power Third Row Seat” is not an available
option. 	Thus, the N.A.D.A. Guide valuation must be decreased from a
“Clean Retail” price of $13,300 by $300, the value of the standard or
unavailable equipment initially included. 	Although N.A.D.A. Guide
values a “Power Sliding Door” at $225, KBB only values a “Power Sliding
Door” at $35.
To summarize, Debtor, utilizing the Edmunds.com “Average” “Dealer
Retail” valuation price and subtracting a repair estimate from that
valuation, claimed the replacement value of the Vehicle as of the
Petition Date was $5,736. 	Travis, on the opinion of a vehicle
appraiser who considered a repair estimate, similarly situated vehicles
listed for sale, KBB value, and N.A.D.A. Guide value, claimed the
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replacement value of the Vehicle was $10,500. 	Additionally, according
to the valuation authorities, the retail value of the Vehicle when sold
from a dealer are as follows: the KBB retail value of the Vehicle is
$12,210; the N.A.D.A. Guide retail value of the Vehicle is $13,000; and
the Edmunds.com “Dealer Retail” value of the vehicle in “Average”
condition is $8,634. 6
Although at least one bankruptcy court in the Ninth Circuit has
relied on Edmunds.com for vehicle valuation data, the standard is to
utilize either KBB or the N.A.D.A. Guide. 	See In re Morales, 387 B.R.
at 45 (stating that vehicle valuation is determined using either KBB or
N.A.D.A. Guide); compare In re Ayres, 2010 Bankr. LEXIS at *16 (using
N.A.D.A. Guide and Edmunds.com to determine value). 	In this case,
because KBB and N.A.D.A. Guide are explicitly referenced in In re
Morales and the Edmunds.com valuation, $8,636, is inexplicably
disparate from the KBB valuation of $12,210 and the N.A.D.A. Guide
valuation of $13,000, the court will determine the value of the Vehicle
utilizing the KBB and N.A.D.A.
Guide valuations. 7
6 These valuations include, respectively, KBB’s valuation of $35 for a
“Power Sliding Door,” N.A.D.A. Guide’s valuation of $225 for a “Power
Sliding Door,” and Edmunds.com’s valuation of $223 for a “Power Sliding
Door.”
7 Although the court in In re Morales specifically identified the Kelley
Blue Book and N.A.D.A. Guide as the authoritative references for
establishing value, other courts have employed the data provided by the
valuation website Edmunds.com when establishing the value of a vehicle.
See In re Gehring, 2011 Bankr. LEXIS 2555 at *2, *7, No. 11-60611
(Bankr. N.D. Ohio July 1, 2011); In re Ayres, 2010 Bankr. LEXIS 519 at
*20-21, No. 09-56695 (Bankr. N.D. Cal. February 16, 2010). 	But see In
re Guerra, 2008 Bankr. LEXIS 4303 at *5 n. 4, No. 08-10219-B-13 (Bankr.
E.D. Cal. August 7, 2008) (refusing to consider a print-out detailing
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First, consideration of the KBB retail price requires that the
price must be adjusted downward to reflect discrepancies between the
KBB retail price and the retail price employed by the Bankruptcy Code.
In re Penny, 2011 WL 204888 at *2-*3. 	The price must be adjusted
downward to reflect a vehicle that is not in excellent or optimal
condition and to reflect that the KBB retail price represents the
dealer’s asking price, not its sale price. 	Id. 	Both parties agree
that the Vehicle is not in perfect condition; each side presented
differing repair estimates for the vehicle. 	Travis’s repair estimate
only contemplates superficial repairs to remove scratches, dents, etc.,
and does not address mechanical issues. 	Debtor’s repair estimate
includes both superficial repairs to the Vehicle’s appearance and
mechanical repairs, and therefore Debtor’s repair estimate will be
utilized because it is the more thorough evaluation of the Vehicle’s
necessary repairs. 	Thus, KBB’s retail price for the Vehicle, $12,210,
must be reduced by the cost of repairs to make the Vehicle optimal,
$2,675, to $9,535. 	This new valuation must be reduced further to
reflect the final price of the vehicle, not merely the dealer’s asking
price. 	Neither party provided evidence of the average difference
between dealers’ asking price and the ultimate sale price, therefore
the court, in accordance with other courts’ practices, adjusts the
valuation data from Edmunds.com attached to a declaration because the
court determined it was inadmissible hearsay and lacked foundation as
an expert opinion). 	Nevertheless, this court will only consider the
valuation guides recognized as authorities in In re Morales, and finds
them to be admissible evidence under Federal Rule of Evidence 803(17).
See In re Penny, 2011 WL 204888 at *17 (admitting into evidence
valuation data from KBB because the values supplied “are based on
actual transactions occurring in relevant regional markets”).
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retail value by 5%, to $9,058.25. 	In re Penny, 2011 WL 204888 at *3.
See In re Morales, 387 B.R. at 42, 45.
Second, consideration of the N.A.D.A. Guide’s “Clean Retail” price
requires that the price must be adjusted downward in the same manner
the KBB retail price was. 	Therefore, N.A.D.A. Guide’s retail price for
the Vehicle, after downward adjustments for necessary repairs and to
reduce asking price to sale price, is $9,808.75. 8
The court’s analysis produces two potential valuations for the
Vehicle: $9,058.25 and $9,808.75. 	The court in In re Morales was not
faced with competing values from KBB and N.A.D.A. Guide and thus did
not address how to reconcile a discrepancy between the valuations. 	In
re Morales, 387 B.R. at 48. 	However, the court in In re Morales
ultimately determined the retail value of the vehicle by computing the
average of the KBB value and advertised retail prices for similar
vehicles. 9 Id. 	Thus, utilizing the averaging computation employed in
In re Morales, and recognizing the arbitrariness of the process, this
court determines that the retail value of the Vehicle is the $9,433.50,
the average of the KBB retail value, $9,058.25, and the N.A.D.A. Guide
retail value, $9,808.75.
IV. 	CONCLUSION
For the foregoing reasons, the court sets the replacement value of
8 This number was reached by reducing the retail price of $13,000 by the
repair costs of $2,675 for a total of $10,325. 	That number was then
reduced by 5% to reflect the difference between asking price and the
ultimate sale price: $10,325 less $516.25 for a total of $9,808.75.
9 In performing its calculations the court acknowledged that § 506(a)(2)
is prone to arbitrary results. 	In re Morales, 387 B.R. at 48.
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Debtor’s 2006 Toyota Sienna LE at $9,433.50 for the purposes of §
506(a)(2). 	Counsel for Debtor should submit a form of order consistent
with this Memorandum Decision and should comply with B.L.R. 9021-1 and
B.L.R. 9022-1.
* * END OF MEMORANDUM OF DECISION * *
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