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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

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