1The Honorable Arthur Federman, United States Bankruptcy Judge for the Western District of

Missouri, sitting by designation.

United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

 

No. 00-6022 ND

 

In re: *

*

Dean Nelson and Sharon Nelson, *

*

Debtors. *

*

Kip M. Kaler, * Appeal from the United States

* Bankruptcy Court for the 

Trustee-Appellant, * District of North Dakota

*

v. *

*

Dean Nelson and Sharon Nelson, *

*

Debtors-Appellees. *

 

Submitted: June 30, 2000 

Filed: August 17, 2000

 

Before KRESSEL, SCHERMER and FEDERMAN 1, Bankruptcy Judges

SCHERMER, Bankruptcy Judge
2The Honorable William A. Hill, United States Bankruptcy Judge for the District of North

Dakota.

2

The trustee, Kip M. Kaler (“Trustee”), appeals the bankruptcy court2 order granting the motion

of debtors Dean Nelson and Sharon Nelson (“Debtors”) to compel the Trustee to abandon two parcels

of real estate and denying the Trustee’s motion for turnover of the two parcels. We have jurisdiction over

this appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set

forth below, we affirm.

ISSUE

The issue on appeal is whether the Trustee should be compelled to abandon two parcels of real

estate pursuant to 11 U.S.C. §554(b) as either burdensome or of inconsequential value to the bankruptcy

estate. We conclude that the bankruptcy court did not err when it ordered the Trustee to abandon the

property.

BACKGROUND

On June 21, 1999, the Debtors filed a voluntary petition for relief under Chapter 7 of the

Bankruptcy Code. In their schedule of real property filed with the bankruptcy court, the Debtors listed two

parcels of property. One tract consists of approximately 75 acres and includes tillable farmland as well as

a dwelling and various outbuildings. The Debtors reside on that tract, although they did not declare a

homestead exemption therein. The second tract consists of tillable farmland.

The improved tract has a fair market value of $104,000 and is encumbered by outstanding debts

of $195,883. The unimproved tract has a fair market value of $77,000 and is encumbered by debts

totaling $263,000.

Each tract is encumbered by mortgages in favor of the Red River State Bank and the Farm Service

Agency. Red River State Bank and the Farm Service Agency have assignment of rents clauses with

respect to each tract. As of the date of the hearing, the obligations to Red River State Bank were current,

the obligations to the Farm Service Agency were past due, and real estate taxes on each tract had not been
3

paid since 1997. Neither creditor had initiated a foreclosure proceeding with respect to either tract nor

had either exercised their assignment of rents clauses.

In 1999, prior to filing their bankruptcy petition, the Debtors leased the tillable acreage on the

improved tract for $3,315 annually and the tillable acreage on the unimproved tract for $7,080 annually.

All rents received by the Debtors on account of the 1999 leases were used to make mortgage payments

to Red River Sate Bank. Neither property was leased in 2000.

The Debtors spend approximately $230 per month to heat the dwelling on the improved tract,

$400 per month on electricity, and $1,690 annually on property and liability insurance for the tract.

The Trustee filed his motion seeking a turnover of the two parcels of property from the Debtors

to the Trustee. In response, the Debtors filed their motion requesting the bankruptcy court to compel the

Trustee to abandon the parcels. After a hearing, the bankruptcy court concluded that the two parcels

would be of inconsequential value or benefit to the bankruptcy estate and, accordingly, ordered the Trustee

to abandon the property to the Debtors.

STANDARD OF REVIEW

We review the bankruptcy court’s factual findings for clear error and its conclusions of law de

novo. Fed. R. Bankr. P. 8013; Jensen v. Dietz, (In re Sholdan), 2000 WL 822112, at *2 (8th Cir. 2000).

Where the bankruptcy court has determined that the factual predicates for abandonment are present, we

review the court’s decision and reverse only in the case of an abuse of discretion. Johnston v. Webster

(In re Johnston), 49 F.3d 538, 540 (9th Cir. 1995). See also Miller v. Generale Bank Nederland, N.V.

(In re Interpictures, Inc.), 217 F.3d 74 (2nd Cir. 2000)(order resolving motion to compel abandonment is

reviewed under abuse of discretion standard). An abuse of discretion may only be found if the lower

court’s judgment was based upon clearly erroneous factual findings or erroneous legal conclusions.

Innovative Home Health Care, Inc. v. P.T.-O.T. Associates of the Black Hills, 141 F.3d 1284, 1286 (8th

Cir. 1998); Mathenia v. Delo, 99 F.3d 1476, 1480 (8th Cir. 1996), cert denied 521 U.S. 1123 (1997);

Hopper v. Hopper (In re Hopper), 228 B.R. 216, 218 (B.A.P. 8th Cir. 1999);Barger v,. Hayes County

Non-stock Co-op (In re Barger), 219 B.R. 238 (B.A.P. 8th Cir. 1998). Under an abuse of discretion

standard, this court will not reverse without a definite and firm conviction that the bankruptcy court

committed a clear error of judgment in weighing the relevant factors and in reaching its conclusion. Hopper
3Court ordered abandonment has been reversed only upon the demonstration of a clear benefit

to the estate from the administration of the property. See, for example, Morgan v. K.C. Machine &

Tool Co. (In re K.C. Machine & Tool Co.), 816 F.2d 238, 243 (6th Cir. 1987), where the Sixth

Circuit Court of Appeals affirmed the district court opinion which reversed a bankruptcy court’s order

compelling a trustee to abandon property. The court found a demonstrated benefit to the estate in

excess of $156,000 from the administration of the asset and, accordingly, determined that the

abandonment order was in entered in error. 

4Although neither secured creditor had activated its assignment of rents clause as of the date of

the hearing before the bankruptcy court, Red River State Bank has since exercised its rights under its

4

v. Hopper (In re Hopper), 228 B.R. 216, 218 (B.A.P. 8th Cir. 1999); Nelson v. Siouxland Federal Credit

Union (In re Nelson), 223 B.R. 349, 352 (B.A.P. 8th Cir. 1998).

DISCUSSION

Pursuant to Section 554(b) of the Bankruptcy Code, on request of a party in interest and after

notice and a hearing, the court may order the trustee to abandon property of the estate that is burdensome

to the estate or that is of inconsequential value and benefit to the estate. The bankruptcy court determined

that the two parcels of real estate were of inconsequential value or benefit to the estate. The bankruptcy

court’s determination is supported by the record and therefore will not be reversed.3

The Trustee argues that the two parcels have more than inconsequential value. The Trustee admits

that the Debtors have no equity in the parcels and that a sale will not generate any benefit for the

bankruptcy estate. However, the Trustee argues that the parcels have value as rental property.

Additionally, he argues that the equity of redemption in the property provides another source of value for

the estate.

The Trustee argues that the parcels can be rented and generate annual rental income for the estate

of $13,000. Such rental value is more than “inconsequential” and therefore precludes a compelled

abandonment of the parcels. The Trustee’s argument is speculative at best. The Trustee did not

demonstrate any effort to rent the parcels. Furthermore, Red River State Bank and the Farm Service

Agency each have an assignment of rents clause with respect to each parcel which can be activated if a

rental income stream is created. Therefore any benefit generated by a lease of the property will

undoubtedly be swiftly captured by the secured creditors.4 The court need not consider speculative factors
assignment of rents clause. Therefore any rental stream generated at this time will inure to Red River

State Bank’s benefit and not to that of the bankruptcy estate. Furthermore, if the Trustee were to rent

the parcels, the estate will incur, at a minimum, obligations for taxes on the property for which no funds

will be available. Thus the property would not only provide no benefit to the estate, it would be

burdensome.

5The Trustee’s argument assumes that he can rent the property. The majority of the property is

tillable farmland and therefore only has rental value if the Trustee can rent it for the entire growing

season. If a foreclosure sale occurs during the growing season, it is extremely unlikely that the Trustee

will be able to rent the property without the ability to assure a prospective tenant of the continued use

and possession of the property until after harvest.

6As a courtesy, the North Dakota U.S. Attorney’s Office provides a sixty-day redemption

period. However, the North Dakota U.S. Attorney’s Office is not bound to provide any redemption

period. Furthermore, the rental value of tillable farmland for a sixty-day period is inconsequential at

best.

5

when determining whether abandonment is appropriate under Section 554(b) of the Bankruptcy Code.

Vu v. Kendall (In re Vu), 245 B.R. 644, 649 (B.A.P. 9th Cir. 2000). 

The Trustee next argues that even if the assignment of rents clauses in favor of Red River State

Bank and the Farm Service Agency are activated, the Trustee can still recover one year’s worth of rent

if a foreclosure sale occurs. North Dakota law provides for a one-year redemption period after a

foreclosure sale. N.D. Cent. Code §28-24-02 (1999). During the redemption period, the owner of the

property is entitled to the possession, rents, use, and benefit of the property sold from the date of sale until

the expiration of the redemption period. N.D. Cent. Code §28-24-11 (1999). Therefore, according to

the Trustee, in the event Red River State Bank forecloses on the parcels, the Trustee will have the

opportunity to rent the parcels for the redemption period and recover for the bankruptcy estate the yearly

rental value for the two parcels of $13,000.5 Again, the Trustee’s argument is tenuous, at best. While the

above-described scenario may be possible, the Trustee presented no evidence that Red River State Bank

has taken any steps to foreclose its interests in the parcels, nor that it has any intention of doing so in the

future. Furthermore, the Trustee fails to consider the fact that the Farm Service Agency is not subject to

the North Dakota redemption statute and, therefore, if it forecloses its interests in the property, the benefit

of the redemption period will not be available.6 This scenario is more likely to occur given the fact that the

indebtedness to the Red River State Bank was current as of the hearing date while the indebtedness to the

Farm Service Agency was in arrears. 
6

The bankruptcy court’s determination that the parcels are of inconsequential value to the estate is

not clearly erroneous. The bankruptcy court cannot be expected to deny the Debtors’ request to compel

abandonment on the basis of a speculative scenario which may or may not occur in the future. Vu v.

Kendall (In re Vu), 245 B.R. 644, 649 (B.A.P. 9th Cir. 2000). Otherwise, trustees could certainly invent

a scenario under which virtually all property could become valuable in the future and thereby defeat any

motion to compel abandonment. The bankruptcy court cannot gaze into a crystal ball and see the future.

It can only consider the evidence before it. In this instance, no concrete evidence of value to the estate was

presented and, therefore, the bankruptcy court did not abuse its discretion in compelling the Trustee to

abandon the parcels.

CONCLUSION

The bankruptcy court properly determined that the Debtor’s two parcels of real estate were of

inconsequential value or benefit to the estate. Furthermore, the bankruptcy court did not abuse its

discretion in ordering the trustee to abandon such property. Consequently, the court’s order directing the

Trustee to abandon the parcels of real property pursuant to Section 554(b) of the Bankruptcy Code is

affirmed.

A true copy.

Attest:

CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE 

EIGHTH CIRCUIT