Bankruptcy and Appraisals, What You Need to Know

BankruptcyLocal 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. Our team of certified and experienced appraisers at Aladdin Appraisal has considerable experience dealing with the complexities of assessing the value of a property under these difficult circumstances.

Our approach: A bankruptcy is usually one of the most upsetting and difficult times in a person’s life. we understand the need to handle these situations with the utmost care and will work hard to provide you with the best possible experience.  We are bound by the ethics provision within the Uniform Standards of Professional Appraisal Practice (USPAP) which means you are assured the highest level of confidentiality, guaranteeing you the utmost discretion. In addition, we provide you with a comprehensive appraisal report that meets or exceeds requirements of the courts, IRS and other various agencies.

By working with Aladdin Appraisal rest assured that you will get the best in professional service and courtesy, while also receiving the highest quality appraisal reports.  Our Senior Staff Appraiser, Adam Wiener, CRA will complete or personally review your appraisal.  Our extensive experience includes dealing with local and prestigious law firms in the Greater Boston area.  We welcome your telephone call or email and invite you to ask any questions you might have about the process.

Tags: Bankruptcy, bankruptcy appraisal, bankruptcy appraiser, appraisal, appraiser, Zillow, zestimate, BPO, Brokers opinion of Value, Boston Attorney

If you found this article helpful or informative, I would be grateful if you would like and share it with others. And please let me know if there is any real estate or appraisal related topics that you are interested in. – Adam

2 thoughts on “Bankruptcy and Appraisals, What You Need to Know

  1. Adam,

    Thank you for this article. I am a sole proprietor fee appraiser in California and googled to try to find an answer to a question about bankruptcy appraisals.

    I received a request a few years ago from a homeowner to complete an appraisal of her house, per her attorney’s instructions, as of the date of her bankruptcy filing; after I completed the report, I received a multi-page addendum (appearing to me to have been of the attorney’s design) that the attorney said I was required by the court to sign – it included multiple incorrect statements and I refused to sign it and asked the attorney to please refer me to the code dictating what needed to be included; I never received a reply. The next time I received an appraisal request that the homeowner said was regarding bankruptcy, I asked up-front for that attorney’s contact information and then asked that attorney whether an addendum would be required and if I could please review it beforehand; it was much simpler and I had no qualms about signing it.

    Has it been your experience to be asked to sign an addendum after completing a bankruptcy appraisal?

    Thanks again!

    1. Hey Jennider,

      It is good to chat with another appraiser willing to step outside the Fannie Mae box and do non-lender work.

      To answer your question, No I have never been given any type of addendum. What state are you in?

      In your story, I applaud your refusing to sign. I am curious exactly what did it say in the addendum, or what do you think was the lawyer’s strategic intention of that “addendum” was? I wonder if it is a state specific thing since the next attorney had one as well.

      If so and there is certain language required in your state that is missing from your report, if it were me, I would fix my reports to include all that language, that way I get to control it.

      I also recommend that you never work for the homeowner. I always have the attorney hire me and pay me. For three reasons
      Repeat orders. I have a contract and the terms included are that he total appraisal fee is due upon completion of the inspection before I type.
      They are used to paying consultants and expert witnesses and I charge $200/hr for deposition or court fee with a 4 hr min. prepaid. I also keep track of and bill for telephone communication, emails, research any time spent with a 0.25 hour minimum
      I believe that there is more weight given by a judge to the vendor of an officer of the court than a homeowner and that reason has convinced attorneys to hire me

      I use ACI’s GPAR (general purpose appraisal report) form. It has a section with a decent scope of work limiting conditions and assumptions. I add in their USPAP Page and a block of comments at the beginning of the addendum.

      1. What is USPAP (since I refer to it below)
      2. Errors and Omissions (comment says I get to determine significance and impact if any on value
      3. Disclosure Required by USPAP (Standard 1-2(g) and Standard 2-1(c)) Hypothetical COndition
      4. Disclosure Required by USPAP (Standard 2-1(c)) extraordinary assumption

      If you have more questions, please don’t hesitate to reach out.

      You may also visit our fb page at


What do you think?

© 2014 - Aladdin Appraisal. All Rights Reserved. Powered by Wordpress and Design by We Create Web Designs
%d bloggers like this: