In re Investors Lending Group, LLC, 489 B.R. 307 (Bankr. S.D. Ga. 2013)


The secured lender was judicially estopped from objecting to the valuation of parcels of land that the debtor proposed to surrender to the secured creditor through its plan of reorganization because the debtor used the valuations provided by the secured lender’s appraiser.


The debtor made loans that were secured by non-owner occupied and commercial real estate. On the petition date, the debtor listed approximately 75 separate parcels of property to which it either acted as lender or landlord. Twelve of the properties secured loans made by the Bank of Ozarks. The debtor filed a plan of reorganization that allowed the debtor to retain all of the property pledged to Bank of Ozarks, and Bank of Ozarks would retain its lien on the properties. Bank of Ozarks objected to the debtor’s plan of reorganization, arguing that because the debtor intended to maintain possession of the properties, the replacement, or fair market value of the properties, should be used to calculate the value of the collateral. By using the fair market value, Bank of Ozarks argued that its claim would be oversecured and some of the property should be released to it. The debtor and the unsecured creditors’ committee then filed a joint plan of reorganization that altered the debtor’s prior plan because the joint plan proposed to surrender five of the 12 properties to Bank of Ozarks to satisfy the bank’s claim. Bank of Ozarks objected to the joint plan, arguing that the debtor and creditors’ committee overvalued the properties, and the debtor was not surrendering enough value to satisfy Bank of Ozark’s claim. To settle this objection, the debtor agreed to surrender seven of the 12 properties.


Section 1129(b)(2)(a) allows the debtor to confirm a plan of reorganization over   a creditor’s objection if the debtor provides the secured creditor the “indubitable equivalent” of its claim. The court found that when a debtor proposes to surrender collateral in satisfaction of the creditor’s claim, it is proper to use the foreclosure or liquidation value, not the fair market value. However, because Bank of Ozarks had agreed to the debtor’s proposed release of certain collateral in exchange for full satisfaction of its claim, Bank of Ozarks was judicially estopped from challenging the debtor’s valuation method. Bank of Ozarks proposed the fair market values, and the debtor used those values when calculating the value of  the properties surrendered. Accordingly, the court held that Bank of Ozarks was estopped from challenging the values. The court, however, also noted that the value surrendered by the debtor should account for incidental costs associated with achieving the fair market values in the open market. To achieve the fair market values, the court determined that the parties would incur 6 percent in broker commissions and 2 percent in closing costs. Thus, the debtor would have to surrender additional property (or money) to provide Bank of Ozarks with the indubitable equivalent of its claim.


A secured creditor that will, on account of its claim, be receiving a partial  return of its collateral should be certain to supply the debtor with foreclosure or liquidation values of the collateral. A secured creditor that sits on the sidelines and is not actively involved in the collateral valuation process can be judicially estopped from objecting to the valuation at confirmation and forced to accept the value used by the debtor. Improper valuation may result in the diminution of the collateral value.