United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
MARVIN E. ASPEN, District Judge.
Appellant Brendan Mortgage, Inc. ("Brendan") filed this appeal challenging the bankruptcy court's ruling in an adversary proceeding concerning the nature and extent of Brendan's lien on the residence of Appellees Daryl A. Hall and Tonja Hall ("Debtors"). On May 7, 2012, Debtors filed an adversary proceeding to determine the status of Brendan's lien on their property. On July 3, 2013, the United States Bankruptcy Court for the Northern District of Illinois ruled that the lien was wholly unsecured and stripped off the lien. Brendan argues that the bankruptcy court erred in determining that the lien was wholly unsecured and in stripping off the lien. For the following reasons, we affirm the bankruptcy court's decision.
The underlying facts and procedural context are detailed in the bankruptcy court's July 3, 2013 opinion. In re Hall, 495 B.R. 393, 395 (Bankr. N.D.Ill. 2013). For purposes of this ruling, we summarize the pertinent facts.
On February 28, 2012, Debtors filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. Id. On May 7, 2012, Debtors filed an adversary proceeding to strip Brendan's lien on the Debtors' principal residence in Chicago, Illinois ("Property"). (Adv. Dkt. No. 1.) The Debtors' Chapter 13 bankruptcy plan was confirmed on March 28, 2013. (3/28/13 Order Confirming Chapter 13 Plan, Adv. Dkt. No. 15-10.)
The Property was saddled with three mortgages on the petition date. The first mortgage, held by Bank of America, N.A., is valued at $131, 018. The second mortgage, held by CitiFinancial, is valued at $19, 778. Brendan Financial holds the third mortgage, valued at $125, 017.74. In re Hall, 495 B.R. at 395. As discussed below, the bankruptcy court ultimately concluded that "the aggregate value of the first and second liens-$150, 796-exceeds the value of the Property." Id.
As to valuation of the Property, on February 11, 2012, Diane Howard first appraised the Property for $150, 000 using the sales comparison approach and $156, 000 using the cost comparison approach. (Debtors' 2/11/12 Appraisal, Adv. Dkt. No. 15-10 at 4.) The Debtors listed the value of their property as $150, 000 on the schedule they filed on May 7, 2012. Id. They then submitted an appraisal by Thomas M. Collins, who only used the sales comparison approach and valued the Property at $145, 000 as of August 10, 2012. In re Hall, 495 B.R. at 395.
Brendan Financial submitted an appraisal completed by Michael Nunn who determined that the value of the Property as of September 23, 2012 was $197, 600, using the cost approach to valuation, and $151, 000, using the sales comparison approach. Id.
At an evidentiary hearing held on October 4, 2012, Collins and Nunn testified and described their respective research methods, qualifications, and conclusions. Id. The bankruptcy court was able "to evaluate the credibility and demeanor of both appraisers during extensive testimony, and to observe their composure, confidence, and consistency in responding to questions on cross-examination and on redirect." Id.
The bankruptcy court determined that Collins' August appraisal was the most credible valuation and determined that the Property was worth $145, 000. Id. at 397. Given that this valuation fell below the $150, 796 value of the first two mortgages, the bankruptcy court found "there was no equity to which Brendan Financial's lien can attach" and that it was thus wholly unsecured. Id. The bankruptcy court then stripped off Brendan's lien on the Property but still allowed the possibility that the lien would remain intact if the Debtors failed to complete their Chapter 13 plan.
STANDARD OF REVIEW
We will review the bankruptcy court's findings of fact for clear error and will review de novo its conclusions of law. Stamat v. Neary, 635 F.3d 974, 979 (7th Cir. 2011) (citing In re Resource Tech. Corp., 624 F.3d 376, 382 (7th Cir. 2010)). Mixed questions of law and fact are reviewed de novo. Stamat, 635 F.3d at 979 (citing Mungo v. Taylor, 355 F.3d 969, 974 (7th Cir. 2004)); but see In re Griffin Trading Co., 683 F.3d 819, 824 (7th Cir. 2012) ("These are both mixed questions of fact and law that the bankruptcy court addressed in its first decision, and so our review is only for clear error.") (citing Levenstein v. Salafsky, 414 F.3d 767, 773 (7th Cir. 2005)); Ojeda v. Goldberg, 599 F.3d 712, 716 (7th Cir. 2010) ("Justifiable reliance is a mixed question of law and fact and is reviewed for clear error."). When reviewing mixed questions of law and fact de novo, courts in this circuit have bifurcated the factual presuppositions and legal conclusions involved and reviewed the factual premises for clear error and legal conclusions of the lower court de novo. See Brendan Mortg. Inc. v. Lanum, Nos. 13 C 5589, 13 C 5642, 2013 WL 6634012, at *3 (N.D. Ill.Dec. 16, 2013) ("Valuation is a mixed question of law and fact, with the bankruptcy court's factual premises subject to review for clear error and its legal conclusions subject to de novo review."); Cathcart v. Wachovia Mort., No. 04 C 1236, 2005 WL 756208, at *2 (S.D. Ind. Feb. 22, 2005) ("Valuation is a mixed question of law and fact, ' and thus the lower court's factual premises are subject to review on a clearly erroneous standard, and the legal conclusions [are] subject to de novo review.'") (quoting In re Stembridge, 394 F.3d 383, 385 (5th Cir. 2004)).
The clearly erroneous standard postulates that "[i]f the bankruptcy court's account of the evidence is plausible in light of the record viewed in its entirety, we will not reverse its factual findings even if we would have weighed the evidence differently.'" Freeland v. Enodis Corp., 540 F.3d 721, 729 (7th Cir. ...