For purposes of the debtor’s cramdown plan, a senior creditor’s secured claim is measured by the value of the property unrestricted by junior interests in the property since a foreclosure of the senior creditor’s lien would wipe out those junior interests and their restrictions.  Here, Sunnyslope obtained a HUD loan to build an affordable housing project.  The HUD loan was senior to all the rest of the interests in the property which restricted use of the property to affordable housing.  Held, the bankruptcy court erred in valuing the claim of the assignee of HUD’s loan by the value of the property if used for affordable housing—even though the debtor intended to use it for that purpose.  Instead, the assignee’s claim should be valued at the property’s value absent any restriction for use as affordable housing.  A creditor’s appeal from the valuation of its claim was not equitably moot despite the fact that the debtor’s reorganization plan had meanwhile been confirmed and implemented and a revaluation of the creditor’s claim in the amount it claimed was proper would ruin that plan.  The creditor had applied for a stay of the plan pending appeal in both the bankruptcy and district courts.  It was not necessary for it also to apply for a stay from the Ninth Circuit.  Furthermore, the only party harmed by the reversal would be the investor that acquired a controlling equity interest in the debtor with full knowledge of the creditor’s appeal.

Ninth Circuit Court of Appeals (Clifton, J.; Paez, J., dissenting); April 8, 2016; 2016 WL 1392318