In Re Donald Taffi Madelaine Taffi, Debtors. Donald Taffi Madelaine Taffi v. United States

Donald and Madelaine Taffi appeal the judgment of the district court as to the value to be placed on a residence retained by them as debtors in a proceeding under Chapter 11 of the Bankruptcy Code. At issue is the proper construction in this context of 11 U.S.C. § 506 (a). The district court valued the residence at its fair market value. We affirm the judgment of the district court, except that we reduce the amount of the government’s tax lien to its allowed secured claim.

FACTS

The Taffis owe the Internal Revenue Service (the IRS) $496,940 for tax liability that arose in 1980 and 1981. To secure payment of this claim, the IRS on October 12, 1989 attached a tax hen to the Taffis’ personal residence (the House) and recorded it. The IRS also recorded a hen on the personal property of the Taffis in the amount of $10,-000. Senior hens in the amount of $233,-942.38 already encumbered the House.

The parties stipulated that the fair market value of the House was $300,000.00. That value represented what a willing and fully informed buyer would pay under fair market conditions. The parties also stipulated that the costs of selling the House in the marketplace would be nine percent, or…