If my math serves me right, in this case the lesser of the value of the improved real property or the loan amount would be $55,000 ($115,000 appraisal value less $60,000 site value).
Someone who knows the reg better than I may differ, but I would not adjust the loan amount in the calculation for any partial charge offs. The customer is still legally obligated to repay the entire loan amount and, god forbid there is a flood, you would want to recoup as much of the loan amount as possible.
In this case it's irrelevant as the improved real property value is less than the loan amount. But let's say the improved real property value is $150,000; I'd use the $128,000 loan amount as the lesser of the values and not take into account the charge-off amount. I'm hoping that's not against the regs.
I hear and I forget. I see and I remember. I do and I understand.--Confucius