While many people only see the glamorous, large Chapter 11 cases filed in the Delaware Bankruptcy Court, the Court still handles individual bankruptcies – treating them with just as much respect as any other case. On July 8, 2016, the chief bankruptcy judge, Brendan L. Shannon, issued an opinion valuing the mobile home of Ms. Anita Barnard. A copy of the Opinion is available here. This was a situation when the valuation methodology was agreed upon – yet there are still some judgment calls.
Case law in this jurisdiction teaches, that the NADA Retail Value Guidebook for Manufactured and Mobile Homes (“NADA”) method is the proper resource for mobile home valuations. Opinion at *1. The case law then requires that, for cram-down purposes, a formula is applied to determine the appropriate interest rate – Prime plus 1-3 percent. While lenders will always aim for the top, the borrower will, naturally, aim for the lowest possible rate. This is exactly what happened here.
While Judge Shannon does not provide extensive analysis of why he selected the rate he did, he ultimately held that “based on the record” the lower of the proposed rates was appropriate. Opinion at *3. I can’t help but wonder – if the lender had sought a more moderate rate, rather than going for the max, would they have received it? This is likely a question that will never be answered, as what lender would voluntarily reduce their demand – and thus the perceived strength of their position.