Deceased Mortgagor Foreclosure Process
This chapter addresses the challenges and issues faced by lenders when attempting to foreclose after the death of the borrower. A number of legal and procedural questions remain unresolved concerning the mortgagee’s rights to enforce its promissory note and deed of trust during probate and the interim period between the mortgagor’s death and the opening of the mortgagor’s probate. Not only is the Texas Estates Code vague on key points, but much of the older probate case law is misleading in that cases that were once good law have been legislatively set aside during the last thirty years, a fact not readily apparent unless one looks past the mere case writ histories. Thus, when enforcing a promissory note secured by a deed of trust after the mortgagor’s death, the attorney should proceed cautiously and would be well advised to consult with a probate specialist.
Note: Effective January 1, 2014, the Texas Estates Code replaced the Texas Probate Code. While the section numbers of the various statutes in the Probate Code were changed, the prior statutes were not materially changed by the codification process itself. However, during the 2011 and 2013 legislative sessions, amendments were made to the statutes separate and apart from the codification process, so the attorney should not assume that the substance of the prior Probate Code was brought forward completely unchanged.
It is important to note that if a probate proceeding is opened or pending in any county with a statutory probate court, the statutory probate court will have exclusive or dominant jurisdiction over all causes of action even if a pending suit was previously filed in another court with exclusive or concurrent jurisdiction. See King v. Deutsche Bank National Trust Co., 472 S.W.3d 848, 855–56 (Tex. App.—Houston [1st Dist.] 2015, no pet.); see also Tex. Est. Code § 32.005(a). This situation typically arises when an application for an expedited order under rule 736 on a home equity loan is pending or contemplated against the personal representative of the estate.
The jurisdiction issue can be raised by a plea in abatement or for the first time on appeal because jurisdiction can never be presumed and cannot be waived or conferred by consent, waiver, estoppel, or agreement. Dubai Petroleum Co. v. Kazi, 12 S.W.3d 71, 75 (Tex. 2000).
When a person dies, beneficial title to all the decedent’s property immediately passes to (1) the decedent’s heirs-at-law, if there is no will, or (2) the devisees (also called legatees in the Estates Code) named in a valid will of the decedent. See section 26.2:2 below. The rights of the heirs or devisees as beneficial owners of the decedent’s property are subject to the interests and claims of third parties (such as creditors) existing against the decedent’s property at time of death and the statutory rights granted the estate representative in a probate proceeding to dispose of property of the estate as necessary to pay validly established claims against the estate and the costs of administering the estate. The purpose of probate is to provide for (1) an orderly handling of the interests and claims of third parties against the decedent and the decedent’s property, and (2) following disposition of the third-party claims against the decedent’s estate, the orderly transfer of the decedent’s property to the heirs or devisees that hold the beneficial title to the respective items of the decedent’s property. A probate proceeding does not have to be filed for a period of four years following the decedent’s death. See Tex. Est. Code §§ 256.003(a); 301.002(a).
The Texas Real Property Transfer on Death Act authorizes the use of revocable deeds that transfer title to real property at the transferor’s death outside of the probate process. See Tex. Est. Code ch. 114. Before the transferor’s death, the transferor may deal with the subject real property without regard to the prospective rights of the transferee and may, for example, pledge the property for loans or terminate the rights of the transferee by conveying the property to a third party during the transferor’s lifetime. To be effective, the transfer on death deed (TOD deed) must (1) contain the same legal requirements as a recordable deed, (2) state that the transfer of interest in real property to the designated beneficiary shall occur upon the transferor’s death, and (3) be recorded in the applicable real property records before the transferor’s death. See Tex. Est. Code § 114.055. While revocable in several different ways by the transferor, the TOD deed cannot be revoked by a will. See Tex. Est. Code § 114.057.
Under the Estates Code, the TOD deed is a deed without warranty regardless of the actual language in the deed. See Tex. Est. Code § 114.103(d). Section 114.104 provides that the beneficiary of a TOD deed takes title to the real property subject to all matters of record and other interests existing at the time of the transferor’s death and addresses the right of any lienholder of the real property that is subject to the TOD deed to elect to treat its claim as a matured secured claim or preferred debt and lien claim. See Tex. Est. Code § 114.104(a), (b). For the purposes of evaluating creditor’s claims, a TOD deed is deemed to have been recorded at the transferor’s death, regardless of when it is actually recorded. See Tex. Est. Code § 114.104(a). Section 114.106 addresses situations where the transferor’s estate is insufficient to pay claims or expenses and the right to a personal representative of the estate to enforce liability against the real property subject to a TOD deed. See Tex. Est. Code § 114.106.
Section 114.103 provides that if a designated beneficiary under a TOD deed fails to survive the transferor by 120 hours, the designated beneficiary’s share passes in accordance with Estates Code chapter 255, subchapter D, as if the proposed transfer were a devise made in a will, regardless of whether there were two or more beneficiaries. See Tex. Est. Code § 114.103(a).
Chapter 114 expressly provides that real property transferred by a TOD deed is not considered property of the probate estate for any purpose, including Texas Government Code section 531.077, the Medicaid Estate Recovery Program implementation statute. See Tex. Est. Code § 114.106(b). Some commentators have indicated that the Act’s intent is to allow indigent persons to pass title to real property without the cost of a will and the expenses of probate. The express reference to section 531.077 also indicates that the statute may provide a mechanism for transferring assets outside of probate that might otherwise be subject to the state’s right of recovery of Medicaid payments.
Because a TOD deed must comply with chapter 114; because it does not have the same exact legal effect as an enhanced life estate deed, or “Lady Bird” deed; and because it may have implications under both the state Medicaid Estate Recovery Program statute and federal tax law, the practitioner would be well advised to consult with probate counsel concerning the intricacies of chapter 114 when considering the use of a TOD deed to avoid probate.
Pursuant to the Texas Estates Code, probate proceeding means a matter or proceeding related to the estate of a decedent and includes (1) the probate of a will, (2) the issuance of letters testamentary and of administration, (3) an heirship determination or small estate affidavit, (4) an application regarding the probate of a will or an estate administration, (5) a claim arising from an estate administration, (6) the settling of a personal representative’s account for an estate, and (7) a will construction suit. See Tex. Est. Code § 31.001. The most frequently quoted definition of will is “An instrument by which a person makes a disposition of his property to take effect after his death, and which is . . . revocable during his lifetime.” Williams v. Noland, 32 S.W. 328, (Tex. App.—Dallas 1895, writ ref’d).
Note that in many older Texas cases, “probate” was more narrowly defined than under the current statutes and was often said to be the act or process of proving a will. See, e.g., Ross’ Estate v. Abrams, 239 S.W. 705, 707 (Tex. App.—San Antonio 1922), aff’d, Abrams v. Ross’ Estate, 250 S.W. 1019 (Tex. Comm’n App. 1923).
Tex. Est. Code § 101.001(a) provides that if a person dies leaving a lawful will, all of the property bequeathed in the will immediately vests in the named devisees or legatees in the manner mandated by the testator of the will, and any property of the decedent not devised in the will vests immediately in the decedent’s heirs at law. Tex. Est. Code § 256.001 further provides, however, that a will is not effective to prove title to, or the right of possession in, the devisees or legatees until the will is admitted to probate. See also Taylor v. Martin’s Estate, 3 S.W.2d 408 (Tex. 1928).
In the event the devisees or heirs of the decedent attempt to thwart or delay a foreclosure by refusing to probate a will, the creditor may file a sworn written complaint in probate court to compel the devisees or heirs to produce the decedent’s will. See Tex. Est. Code §§ 252.202–.204. See section 26.6 below.
Tex. Est. Code § 201.001 provides that if a person dies intestate without a spouse, all of the decedent’s property vests immediately in the decedent’s heirs-at-law, in the order provided by law. If the decedent is a trustee of property, the trustee’s heirs have no proprietary interest in property held in the trust because the trustee is merely the depositary of the legal title. Parrish v. Looney, 194 S.W.2d 419 (Tex. App.—Galveston 1946, no writ).
A surviving spouse is not an heir of the decedent because the spouse is not a blood relative. Farrell v. Cogley, 146 S.W. 315, 318 (Tex. App.—San Antonio 1912, writ ref’d n.r.e.). The rights, if any, of the surviving spouse in the decedent’s property will be established under the community property and homestead statutes.
§ 26.2:4Types of Estate Administration
Probate administrations are either dependent or independent. Dependent administrations are so named because essentially all actions by the estate representative are “dependent” upon obtaining approval of the probate court after notice and hearing. Independent administrations are not subject to such close court supervision, and once letters testamentary are issued by the probate court, normally the only significant contact the independent administrator has with the probate court thereafter is the filing with the court of an inventory of the estate’s assets and liabilities. Otherwise, the independent administrator is free to collect assets, resolve claims against the estate, and transfer estate assets to the devisees in accordance with the terms of the will and applicable law, all without the necessity of court approval.
§ 26.2:5Types of Creditor Claims in Probate
In probate, the secured creditor may elect to have its claim treated as either a “matured secured claim” or a “preferred debt and lien.” (See generally section 26.7 below for a more detailed discussion of matured secured claims and preferred debt and lien.) If the secured creditor elects to have its claim treated as matured secured claim, it will forgo the right to foreclose on the mortgagee’s deed of trust collateral (unless otherwise consented to by the independent administrator or the probate court) but preserve a deficiency claim against the estate in the event the value of the collateral is not sufficient to pay the debt owed the mortgagee. If the secured creditor elects to file its claim as a preferred debt and lien, the secured creditor retains the right to foreclose on the collateral pledged under the creditors’ deed of trust or security agreement, but must look solely to that collateral for repayment of the debt and gives up any claim to a deficiency against the mortgagor’s estate. The great majority of mortgagees elect preferred debt and lien over matured secured claim, as generally a mortgagee prefers to look to its deed of trust collateral for repayment of the decedent’s debt.
§ 26.3Notice of Mortgagor’s Death
Before the opening of probate and the receipt of notice from the estate administrator, a creditor such as a mortgagee is essentially left to its own devices to learn of the decedent’s death. This can be a particular problem with regard to securitized residential loans, as typically the mortgagee and the mortgage servicer have little if any contact with the mortgagor other than for the receipt of monthly installment payments on the debt, which a spouse or relative of the decedent may continue to make for some period after the mortgagor’s death.
Because a foreclosure conducted after the mortgagor’s death but before the opening of probate can be set aside in a dependent administration opened within four years of the mortgagor’s death (see section 26.5:3 below), immediately before conducting a foreclosure sale the mortgagee should try to confirm that the mortgagor is still living. An indirect—but certainly not fool-proof—method of running such a check is to determine if a claim for Social Security death benefits has been filed for the mortgagor. For example, the Social Security Administration’s Limited Access Death Master File (which lists reports of death submitted to the Social Security Administration) may be searched, for a fee, at https://ladmf.ntis.gov.
If a probate proceeding is opened for the decedent, then within one month after receiving letters of appointment, the representative of the mortgagor’s estate (whether an independent or dependent administration) was previously required to notify the general creditors of the estate of the appointment and the opening of probate by publishing notice to such effect in a newspaper “printed in the county where the letters were issued.” Tex. Est. Code § 308.051(a)(1) (2014). However, in 2017, the legislature amended the statute to allow notice to be provided in a newspaper of general circulation in the county in which the letters were issued. Tex. Est. Code § 308.051(a)(1) (2017). Within two months after appointment, the estate representative must also send notice to any creditor whose debt is known to the representative to be secured by a lien on real property or a security interest in personal property of the decedent. See Tex. Est. Code §§ 308.053(a), 403.051(a)(1). If the personal representative does not learn of the secured creditor until after this two-month period, the representative must send the notice within a reasonable time after discovering the secured creditor. Tex. Est. Code § 308.053(b). If the administrator fails to give notice to a known secured creditor, the administrator (and the sureties on the administrator’s bond, if there is a bond) is liable for any damage that the creditor suffers by reason of such neglect, unless the creditor otherwise had notice of the mortgagor’s probate. Tex. Est. Code § 308.056. Paradoxically, regardless of the type of estate administration, the executor or administrator may, but does not have to, give actual notice to unsecured creditors. Tex. Est. Code §§ 308.054, 403.051(a)(2).
§ 26.4Effect of Mortgagor’s Death on Other Comortgagors
Texas courts have held that, notwithstanding the death of a comortgagor, the mortgagee can proceed under the deed of trust and other loan documents against the interests of other, still-living comortgagors. Wiley v. Pinson, 23 Tex. 486 (Tex. 1859); Martin v. Harrison, 2 Tex. 456 (Tex. 1847); Albiar v. Arguello, 612 S.W.2d 219, 220 (Tex. App.—Eastland 1980, no writ); see also Kruger v. Taylor, 27 S.W.2d 130 (Tex. Comm’n App. 1930, holding approved).
When a mortgagor dies, beneficial title to the decedent’s interest in the property pledged under the deed of trust is immediately vested in the mortgagor’s heirs-at-law if the mortgagor died intestate and in the mortgagor’s devisees if the mortgagor died testate. Tex. Est. Code §§ 101.001(a), 201.001, 201.002, 201.003. The Texas Estates Code defines heir as “a person who is entitled under the statutes of descent and distribution to a part of the estate of a decedent who dies intestate” and devisee is included in the definition of legatee and defined as “a person who is entitled to a legacy under a will.” Tex. Est. Code §§ 22.009, 22.015, 22.021. While the decedent mortgagor’s property remains subject to all liens, security interests, and claims in effect at the time of the mortgagor’s death, the heirs or devisees often take prompt physical control of the decedent’s property (i.e., the mortgagee’s collateral) and yet in their handling of the property have no personal liability for either the decedent’s debts or the breach of the covenants and obligations set out in the decedent’s loan documents. See Potts v. W.Q. Richards Memorial Hospital, 558 S.W.2d 939 (Tex. App.—Amarillo 1977, no writ); Tex. Est. Code §§ 101.001, 101.051, 201.003; see also Jackson v. Hubert, 234 S.W.2d 414 (Tex. 1950); Van v. Webb, 215 S.W.2d 151 (Tex. 1948).
Although under appropriate circumstances the probate court can require that the heirs or devisees return physical control of the decedent’s property to the estate representative (or be liable to the estate for the value of such property, if return is not practicable), the change of physical control of the collateral puts the safety and security of the lender’s collateral in potential jeopardy, but a lender that proceeds with a foreclosure sale to obtain control of the collateral before the opening of the decedent’s probate runs the risk—even if the decedent had a will providing for an independent administration—that the foreclosure will be later set aside by the heirs or devisees opening a dependent administration within four years of the date of death. Moreover, the foreclosing lender will find few title companies willing to insure title for any resale of the property by the lender because of the risk of the resale of the property being set aside with the subsequent opening of a dependent administration.
§ 26.5:1Mortgagor’s Death after Foreclosure Sale
The death of the mortgagor after a nonjudicial foreclosure sale will not affect the validity of the foreclosure because the mortgagor did not own an interest in the mortgaged property at the time of death and thus the foreclosed property was never part of the mortgagor’s probate estate. Smith v. San Antonio Joint Stock Land Bank, 130 S.W.2d 1070 (Tex. App.—Eastland 1939, writ ref’d); see also Taylor v. Williams, 108 S.W. 815 (Tex. 1908); Estrada v. Reed, 98 S.W.2d 1042 (Tex. App.—Amarillo 1936, writ ref’d).
§ 26.5:2Foreclosure after Death, Followed by No Estate Administration
A properly conducted nonjudicial foreclosure sale will pass good title if no probate proceeding is subsequently opened within four years after the decedent’s death. Wiener v. Zweib, 147 S.W. 867 (Tex. 1912). In Natali v. Witthaus, 135 S.W.2d 969 (Tex. 1940), a foreclosure sale took place within four years of the death of the mortgagor, but a probate administration was never opened for the mortgagor’s estate. Ten years later, the widow and the children filed a trespass to try title suit claiming that the foreclosure sale was void because it took place within four years of the mortgagor’s death. The court held that since a probate administration had not been opened within the time allowed by law, the trustee’s deed became absolute four years after the mortgagor’s death. Natali, 135 S.W.2d at 973.
§ 26.5:3Foreclosure after Death, before Subsequent Dependent Administration
Texas law is clear that if a dependent administration is opened within four years after the death of the mortgagor, a foreclosure sale conducted in the interim between the mortgagor’s death and the opening of a dependent administration will be voided on the request of the dependent administrator to the probate court. See Pearce v. Stokes, 291 S.W.2d 309, 310–11 (Tex. 1956); Hury v. Preas, 673 S.W.2d 949, 951 (Tex. App.—Tyler 1984, writ ref’d n.r.e.); Bozeman v. Folliott, 556 S.W.2d 608, 613 (Tex. App.—Corpus Christi–Edinburg 1977, writ ref’d n.r.e.); see also Shell Oil Co. v. Howth, 159 S.W.2d 483 (Tex. 1942); Rivera v. Morales, 733 S.W.2d 677 (Tex. App.—San Antonio 1987, writ ref’d n.r.e.) (vendor’s cancellation of contract for deed for default in payment by deceased vendee set aside and vendor required to submit proposed cancellation of contract as claim in deceased vendee’s probate). Moreover, a foreclosing mortgagee (and presumably any third-party purchaser) that takes possession of the collateral property pursuant to a foreclosure sale that is subsequently voided by the opening of a dependent administration can be held liable for the value of the use of the property during the time it is in the mortgagee’s possession, together with simple interest thereon at the judgment rate. See American Savings & Loan Ass’n of Houston v. Jones, 482 S.W.2d 62, 63–64 (Tex. App.—Houston [14th Dist.] 1972, writ ref’d n.r.e.). However, if a dependent administration is not commenced within four years of the decedent’s death, a nonjudicial foreclosure conducted during or after that four-year period cannot be overturned. Freece v. Truskett, 106 S.W.2d 675 (Tex. 1937); Wiener v. Zweib, 141 S.W. 771 (Tex. 1911); Rogers v. Watson, 17 S.W. 29 (Tex. 1891).
§ 26.5:4Foreclosure after Death, during Dependent Administration
The opening of a dependent administration suspends the power of sale in a deed of trust, and a nonjudicial foreclosure sale conducted without the probate court’s permission while a dependent administration is open will be void unless the mortgagee complies with all applicable provisions of the Texas Estates Code. Pearce v. Stokes, 291 S.W.2d 309, 310–11 (Tex. 1956); Robertson’s Administratrix v. Paul, 16 Tex. 472 (1856); Hury v. Preas, 673 S.W.2d 949 (Tex. App.—Tyler 1984, writ ref’d n.r.e.); Bozeman v. Folliott, 556 S.W.2d 608, 613 (Tex. App.—Corpus Christi–Edinburg 1977, writ ref’d n.r.e.); see also Shell Oil Co. v. Howth, 159 S.W.2d 483 (Tex. 1942); Rivera v. Morales, 733 S.W.2d 677 (Tex. App.—San Antonio 1987, writ ref’d n.r.e.). As noted above, in addition to setting aside the foreclosure sale, the personal representative can also sue for conversion damages if the mortgagee knew or should have known the mortgagor was deceased. American Savings & Loan Ass’n of Houston v. Jones, 482 S.W.2d 62 (Tex. App.—Houston [14th Dist.] 1972, writ ref’d n.r.e.).
The administration of the intestate mortgagor’s estate is opened when (1) the probate judge signs an order that grants administration and appoints an administrator and (2) the appointed administrator files the required bond and makes and files the oath. To proceed with a nonjudicial foreclosure in a dependent administration, the mortgagee must comply with the procedures set forth in the Texas Estates Code by filing an application to foreclose the mortgaged property. See Tex. Est. Code § 356.201. See form 26-1 in this chapter for an application for foreclosure of mortgaged property, form 26-2 for an affidavit of mortgagee, and form 26-3 for an order authorizing foreclosure of mortgaged property.
§ 26.5:5Foreclosure after Death, before Subsequent Independent Administration
Under older Texas case law, a nonjudicial foreclosure conducted after the mortgagor’s death but before the start of probate would be deemed valid if an independent administration was subsequently opened for the deceased mortgagor. Fischer v. Britton, 83 S.W.2d 305 (Tex. 1935); Taylor v. Williams, 108 S.W. 815 (Tex. 1908). It is not clear that the result would be the same today. Legislative changes to former Probate Code section 146 in 2011 (now codified at Texas Estates Code sections 403.001 and 403.051 through 403.0585) provide that (1) a secured creditor must make an election about how to have its claim treated in an independent administration, (2) a secured creditor may not proceed with nonjudicial foreclosure during the six months after the opening of the independent administration, and (3) an independent executor has the right to pay the secured claim in accordance with the contract. See Tex. Est. Code §§ 403.001, 403.051–.0585. At least one commentator has questioned whether these statutory changes constitute a legislative policy change that sets aside the prior case law. See Lisa H. Jamieson, Creditors’ Claims and Allowances in Decedents’ Estates, in Building Blocks of Wills, Estates and Probate Course, State Bar of Texas (2011).
§ 26.5:6Foreclosure after Death, during Independent Administration
Before 2011, Texas case law held that the trustee under a deed of trust could exercise the nonjudicial power of sale at any time during the independent administration of the mortgagor’s estate if the secured debt was in default. Pearce v. Stokes, 291 S.W.2d 309, 310 (Tex. 1956); Freece v. Truskett, 106 S.W.2d 675, 677 (Tex. 1937); Fischer v. Britton, 83 S.W.2d 305, 306 (Tex. 1935); Robertson’s Administratrix v. Paul, 16 Tex. 472 (1856); Bozeman v. Folliott, 556 S.W.2d 608, 613 (Tex. App.—Corpus Christi–Edinburg 1977, writ ref’d n.r.e.). However, the 2011 legislative changes now expressly provide that secured creditors are prohibited from conducting collection actions or nonjudicial foreclosure during the six-month period following the issuance of letters testamentary in an independent administration. See Tex. Est. Code §§ 403.052–.054.
If a secured creditor elects to have its claim treated as a preferred debt and lien in the probate proceeding, once the six-month period for the independent administrator to collect and inventory the deceased’s property has passed, the secured creditor is free to exercise any judicial or nonjudicial collection rights it has (including nonjudicial foreclosure) for default in payment of the debt, in accordance with the applicable provisions of the deed of trust and Texas Property Code section 51.002. See Tex. Est. Code § 403.054. The independent administrator must be served with all the notices that would be given to a living mortgagor under the loan documents and the applicable provisions of the Texas Property Code. See Fenimore v. Gonzalez County Savings & Loan Ass’n, 650 S.W.2d 213 (Tex. App.—San Antonio 1983, writ ref’d n.r.e.) (foreclosure sale invalid for failure to send notice to executor).
§ 26.5:7Accelerating Note after Death, before Probate
There is only limited statutory and case law guidance for situations in which the mortgagee proceeds with notice of default and acceleration of the maturity of the debt during the interim period between the mortgagor’s death and the start of probate proceedings, without actually going to foreclosure. While such situations undoubtedly arise (especially today in connection with securitized residential loans, where the mortgage servicer is unlikely to get prompt notice of a mortgagor’s death), few cases have been prosecuted to the appellate level on whether the acceleration will be valid. What law there is, however, indicates that there may be little practical advantage for a mortgagee to knowingly proceed with acceleration of the debt during the interim between death and probate.
Dependent Administration: As already discussed, a prudent mortgagee will not want to proceed to acceleration and foreclosure as long as the risk exists of a dependent administration being later opened. Once a dependent administration is opened, the mortgagee will not be allowed to proceed with foreclosure of the deed of trust without the permission of the probate court, regardless of whether and when the maturity of the debt has been accelerated. However, the debt is normally treated as mature and owing for most practical purposes (regardless of the actual maturity of the debt) because the probate court will generally not allow a dependent administration to remain open simply to administer any sort of lengthy payout of the promissory note. The court will pressure the dependent administrator to either let the collateral property go to foreclosure or pay the debt in full by using other estate assets to pay the mortgagor’s debt, getting the court’s permission to sell the property for the purpose of paying the mortgagee and realizing any equity for the estate, or having the heirs or devisees refinance the mortgagor’s debt. Thus, there seems to be little practical advantage to accelerating the loan if the mortgagee knows probate proceedings will be initiated in the near future (whether by kin of the deceased or the mortgagee—see section 26.12 below).
Independent Administration: Because secured creditors are prohibited from conducting collection actions or nonjudicial foreclosure during the six-month period following the issuance of letters testamentary in an independent administration (see Tex. Est. Code §§ 403.052–.054), even if the debt is already mature, there is no significant advantage to accelerating the debt before probate is opened. A further consideration in the area of residential foreclosures (especially in light of the widespread use of standard federal loan forms to facilitate the securitization of residential mortgages) is that the creditor may well find that the estate representative has in any case a contractual right under the deed of trust to cure default and reinstate the promissory note at any time up to the fifth day before foreclosure.
§ 26.6Efforts by Survivors to Thwart Foreclosure by Delaying Probate
Because of the effect of opening a dependent administration after a nonjudicial foreclosure, the heirs or devisees of the decedent mortgagor may attempt to delay, thwart, or even overturn a mortgagee’s foreclosure by (1) delaying or refusing to initiate probate proceedings for the deceased mortgagor, (2) refusing to file a will providing for independent administration and filing for a dependent administration instead, or (3) convincing the named independent executors to decline to serve, thus forcing a dependent administration. (Note that persons declining to serve as independent executors are not disqualified from serving as dependent administrators appointed by the court.) In such circumstances, the mortgagee may file application in probate court for the appointment of an administrator and the initiation of creditor’s administration for the decedent’s estate under Texas Estates Code sections 256.051 and 301.051. See Tex. Est. Code §§ 256.051, 301.051; see also Humane Society of Austin & Travis County v. Austin National Bank, 531 S.W.2d 574 (Tex. 1975). Alternatively, the mortgagee may file a sworn written complaint in probate court to compel the heirs to produce and probate the decedent’s will. See Tex. Est. Code §§ 252.201–.204. See section 26.12 below and form 26-4 in this manual for a petition to compel the decedent’s heirs to produce a will to initiate probate proceedings.
It is worth noting that the administrator or executor’s loyalty is to the estate or beneficiaries, and not the creditor. Administrators and executors do not owe a fiduciary duty to creditors. See Mohensi v. Hartman, 363 S.W.3d 652, 657–59 (Tex. App.—Houston [1st Dist.] 2011, no pet.).
§ 26.7Probate Proceedings with Administrations
The purpose of a probate administration is to satisfy the claims of the creditors of the decedent and to distribute the remainder of the estate among the heirs, devisees, and legatees. With respect to creditors, an administration is for the benefit of all creditors and not just for those with a secured debt. Runnels v. Kownslar, 27 Tex. 528 (Tex. 1864). The estate of a decedent is not a legal entity and cannot sue or be sued. Miller v. Estate of Self, 113 S.W.3d 554, 556 (Tex. App.—Texarkana 2003, no pet.) (citing Price v. Estate of Anderson, 522 S.W.2d 690, 691 (Tex.1975)).
The statute of limitations for opening a probate proceeding is four years from the date of the mortgagor’s death. See Tex. Est. Code § 256.003.
§ 26.7:1Secured Creditor’s Election and Notice of Claim in Dependent and Independent Administrations
The claims statutes are found in chapters 308, 355, and 403 of the Texas Estates Code. Chapter 308 addresses the administrator’s notice to claimants; chapter 355 addresses presentment and payment of claims in dependent administrations; and chapter 403 addresses exemptions, allowances, and claims in independent administrations. The Texas Estates Code provides the secured creditor with the opportunity to file its election with the estate administrator as to whether the secured creditor wishes its claim to be classified as a matured secure claim or as a preferred debt and lien. See Tex. Est. Code §§ 355.151–.160, 403.001, 403.051–.0585. Before the 2011 amendments to former sections 306 and 146, the predecessor provisions of the Probate Code, the Probate Code did not state whether this election applied to both dependent and independent administrations, but the Texas Supreme Court so ruled in Geary v. Texas Commerce Bank, 967 S.W.2d 836 (Tex. 1998).
The secured creditor is supposed to give notice of its election to the estate administrator by the later of (1) six months after the opening of probate or (2) four months after the secured creditor’s receipt of notice from the administrator under Texas Estates Code section 308.053. If the secured creditor makes no claim or does not affirmatively elect otherwise within six months after the original grant of letters testamentary, the secured creditor’s claim will by statute be treated as an election for preferred debt and lien status. Tex. Est. Code §§ 355.152; 403.001, 403.051–.0585; see also Tex. Est. Code §§ 355.001, 355.060; Texas Commerce Bank N.A. v. Geary, 938 S.W.2d 205, 212 (Tex. App.—Dallas 1997), rev’d on other grounds, 967 S.W.2d 836 (Tex. 1998) (mortgagee was deemed to have elected preferred debt and lien status as a result of its failure to elect otherwise within six months after original grant of letters testamentary); Cessna Finance Corp. v. Morrison, 667 S.W.2d 580, 583–84 (Tex. App.—Houston [1st Dist.] 1984, no writ).
In addition to giving notice within this period, a creditor with a claim for money secured by real property must also record a notice of this election in the deed records in which the real property is located. See Tex. Est. Code § 403.052.
§ 26.7:2Matured Secured Claims
If the secured creditor elects to have its claim treated as matured secured claim, it will be paid in due course of administration of the estate, but the secured creditor will not be allowed to exercise any other remedies (such as foreclosure) that interfere with the payment of claims and allowances in accordance with the Texas Estates Code. Tex. Est. Code §§ 355.151, 355.156–.160. In essence, by electing matured secured claim status, the lien or security interest of the secured creditor against its collateral is released and the secured creditor only has a third-class preferential payment right with respect to proceeds from the estate’s sale of the security creditor’s collateral. See Sara E. Dysart, Texas Probate Code Redefines Secured Creditor’s Rights and Remedies, Real Prop. Prob. & Tr. L. Rept. 39 (Jan. 2007). However, if the secured creditor’s entire claim is not satisfied through the estate’s disposition of the collateral, the secured creditor can seek payment of the deficiency out of the other assets (if any) of the decedent’s estate. See Tex. Est. Code §§ 355.102, 355.103–.106, 355.151–.160, 403.001, 403.051–.0585; see also Wyatt v. Morse, 102 S.W.2d 396, 398–99 (Tex. 1937).
Because the secured creditor cannot foreclose on its collateral, it is important to note the holder of a matured secured claim loses priority in his collateral as against first and second class claims. See Tex. Est. Code §§ 355.151–.160, 403.051; Dallas Joint-Stock Land Bank in Dallas v. Maxey, 112 S.W.2d 305 (Tex. App.—Dallas 1937, no writ). This means that the estate administrator may use proceeds from the disposition of the secured party’s collateral to pay all class 1 claims (funeral and last-illness expenses not exceeding $15,000) and class 2 claims (estate administration expenses) if there are not enough other estate assets to pay these higher-class claims. See Tex. Est. Code §§ 355.102, 403.051.
By electing matured secured claim status, the due date of the underlying debt can be accelerated. See M. K. Woodward & Ernest E. Smith III, 18 Texas Practice Series, Probate and Decedents’ Estates § 916 (1st ed. 1971); Dunn v. Sublett, 14 Tex. 521 (Tex. 1855).
Mortgagees of real property typically elect to choose preferred debt and lien status rather than matured secured claim status.
§ 26.7:3Preferred Debt and Lien
If the secured creditor elects to file its claim as a preferred debt and lien, the secured creditor must look solely to its collateral for payment of the debt; in the case of a mortgagee, this generally means foreclosure of its deed of trust. Because the holder of a preferred debt and lien has elected to look solely to its collateral for payment, no deficiency can be sought if the collateral proves to be insufficient to pay the claim in full. Wyatt v. Morse, 102 S.W.2d 396 (Tex. 1937).
A preferred debt and lien claim is to be paid by the estate according to the terms of the contract, and thus the outstanding balance of the claim may increase during the period of probate in accordance with the terms of the loan documents. In the event payments on the debt are not made in accordance with the underlying contract, the secured creditor can seek foreclosure. See Tex. Est. Code §§ 355.151, 355.156–.160. The personal representative of the estate may pay the preferred debt and lien claim before maturity if it is in the best interest of the estate. See Tex. Est. Code § 355.151(b).
A mortgagee that has preferred debt and lien status in its deed of trust collateral has priority over all other classes of claims in the probate against such collateral, including first- and second-class claims. See Tex. Est. Code §§ 355.001, 355.004, 355.059–.061, 355.153, 403.052, 403.054; Wyatt, 102 S.W.2d at 398–99; Dallas Joint-Stock Land Bank in Dallas v. Maxey, 112 S.W.2d 305, 307–08 (Tex. App.—Dallas 1937, no writ); but see San Antonio Savings Ass’n v. Beaudry, 769 S.W.2d 277, 280 (Tex. App.—Dallas 1989, writ denied) (holding that expenses directly related to preserving, maintaining, and selling collateral may be paid out of sales proceeds of property). In 2016, the Dallas court of appeals again addressed the priority of claims in dealing with a preferred debt and lien—specifically, whether expenses directly related to preserving, maintaining, managing, and selling the property have priority over a preferred debt and lien creditor. See In re Estate of Parks, No. 05-15-00346-CV, 2016 WL 1085258 (Tex. App.—Dallas Mar. 21, 2016, pet. denied) (mem. op.). The court upheld the ruling of the trial court that the distribution of the net sales proceeds of the property to the estate for payment and reimbursement of administrative expenses directly related to the preserving, maintaining, managing, and selling of the property had priority over a preferred debt and lien creditor. In re Estate of Parks, 2016 WL 1085258, at *3.
Any election of the secured creditor’s claim as a preferred debt and lien sent to the personal representative should also advise that the creditor will foreclose if the loan is or goes into default and no cure is made. See Bozeman v. Folliott, 556 S.W.2d 608 (Tex. App.—Corpus Christi–Edinburg 1977, writ ref’d n.r.e.).
See form 26-5, Notice of Lien and Election of Preferred Status.
§ 26.7:4Notice of Claim against Estate
Claims may be presented directly to the administrator of the estate, as well as deposited with the clerk of the probate court. The clerk is required to notify the estate administrator of the creditor’s filing. See form 26-6, Authenticated Preferred and Secured Claim, form 26-7, Memorandum of Allowance, and form 26-8, Order Approving Claim. The claim of a creditor must be authenticated by a supporting affidavit stating the claim is just and that all legal offsets, payments, and credits known to the affiant have been allowed. See Tex. Est. Code §§ 355.004, 355.059, 403.056. The justification for the authentication requirement is “to afford protection to estates of deceased persons against unjust demands and to save the expense of litigation over those that are just and should be paid.” Anderson v. Oden, 780 S.W.2d 463, 465 (Tex. App.—Texarkana 1989, no writ). In a dependent administration, defects in the form of the claim are waived by the estate administrator unless written objection has been made within thirty days of presentment and filed with the court clerk. Tex. Est. Code § 355.007. Before the enactment in 2011 of Estates Code section 403.056, there was no prescribed format for an unsecured claim in an independent administration. An email or invoice might constitute a valid claim against the estate. See, e.g., Alterman v. Frost National Bank of San Antonio, 675 S.W.2d 619 (Tex. App.—San Antonio 1984, no writ) (holding that a letter describing the claim was sufficient to constitute a claim even though it did not expressly demand payment). Estates Code section 403.056 now requires compliance with Estates Code section 355.004 when presenting claims in an independent administration.
In the past, Texas courts have held that creditors are not obligated to attach copies of supporting documentation to claims. See, e.g., Parrish v. Johnson, 88 S.W.2d 1066 (Tex. App.—San Antonio 1935, writ ref’d). However, Estates Code section 355.004(b) now provides that “a photostatic copy of an exhibit or voucher necessary to prove a claim may be offered with and attached to the claim instead of attaching the original,” implying that some supporting documentation must be added. See Tex. Est. Code § 355.004(b).
§ 26.7:5Estate Administrator’s Failure to Allow Claim
In a dependent administration, the estate administrator must allow or reject a creditor’s claim within thirty days after the creditor’s notice of claim and election is presented to the administrator. Tex. Est. Code § 355.051; see also Tex. Est. Code § 355.002. If the estate administrator ignores or does not affirmatively allow the creditor’s claim within the thirty-day period by filing a memorandum of allowance with the probate court, the creditor’s claim is deemed rejected under section 355.051. (This is contrary to the rule in an independent administration.) After allowing a claim, the estate administrator cannot subsequently reject the claim. Hensel v. International Building & Loan Ass’n, 20 S.W. 116 (Tex. 1892). If the claim is not allowed, within ninety days after rejection the creditor must bring suit in the probate court to establish its claim and preserve its right to payment; otherwise the claim is barred. Tex. Est. Code §§ 355.064, 355.066. Once a claim is rejected, it is rejected and cannot subsequently be approved by a court. Russell v. Dobbs, 354 S.W.2d 373 (Tex. 1962); Small v. Small, 434 S.W.2d 940, 942 (Tex. App.—Waco 1968, writ ref’d n.r.e.).
It is common for dependent administrators to fail to take action within the thirty-day window for approving claims, even though they may provide oral or written assurance to the creditor that the claim will be approved at a later date. In Russell, 354 S.W.2d at 376, the assurances of the estate’s administrator and lawyers that the creditors’ claim would be allowed were not sufficient to save the claim when the creditors failed to timely file suit after the deemed rejection of claim, as the creditors “were charged with knowledge that the same would be deemed rejected by operation of law if no action was taken by the Administratrix within thirty days. They also should have known the claim would be barred in the event suit was not instituted within ninety days after such rejection.” However, in Albiar v. Arguello, 612 S.W.2d 219, 220 (Tex. App.—Eastland 1980, no writ), the claim was rejected by operation of law and the holders of the note did not file suit within ninety days thereafter. While the claim against the estate was lost, the estate administrator (who was comaker and husband of the decedent) remained liable for the full amount of the note in his individual capacity as comaker.
If the estate administrator fails to approve the claim or any part thereof (for example, the representative approves the unpaid principal balance of the note but rejects the unpaid interest and costs of collection incurred by the creditor), the creditor must file suit to establish the rejected part of its claim within ninety days. Tex. Est. Code § 355.064. In Klutts v. Newbury, 453 S.W.2d 243, 247 (Tex. App.—Fort Worth 1970, no writ), the court held that when a claim was only partially allowed, the creditor may either accept the amount allowed or file suit on the entire amount of the claim.
In the event an administrator’s inactivity results in a rejected claim and the claim is proved in a subsequent suit, the claimant can recover its costs of the suit. Tex. Est. Code § 355.052. However, there may be confusion as to what comprises “costs” in this specific situation. Generally, “costs” are defined to include “fees or compensation fixed by law collectible by the officers of the court, witnesses, and such like items, and does not ordinarily include attorney’s fees which are recoverable only by virtue of contract or statute.” In re Nalle Plastics Family Ltd. Partnership, 406 S.W.3d 168, 175 (Tex. 2013) (citing Johnson v. Universal Life & Accident Insurance Co., 94 S.W.2d 1145, 1146 (1936)).
The administrator’s “rejection by inaction” during the initial thirty-day period and the subsequent running of the ninety-day period for suit is limited to dependent administrations and is not applicable to claims in an independent administration, where the administrator may accept, reject, or take no action with respect to a submitted claim. Tex. Est. Code § 403.051.
§ 26.8Administrator’s Authority Lost
Removing the personal representative of the decedent’s estate, either as executor or administrator, deprives the personal representative of the authority to do anything further with respect to the administration of the estate. See Bozeman v. Folliott, 556 S.W.2d 608, 614 (Tex. App.—Corpus Christi–Edinburg 1977, writ ref’d n.r.e.); Felton v. Birchfield, 110 S.W.2d 1022, 1026 (Tex. App.—Fort Worth 1937, writ dism’d).
§ 26.9Change of Estate Administration
Removing the estate from the control of the independent executor and subjecting the estate to a dependent administration does not invalidate the acts of the independent executor or change any applicable rules while the independent executor had independent control of the estate. Taylor v. Williams, 108 S.W. 815, 817 (Tex. 1908); Bozeman v. Folliott, 556 S.W.2d 608, 613 (Tex. App.—Corpus Christi–Edinburg 1977, writ ref’d n.r.e.). However, if the mortgagee has not actually foreclosed under the independent administration, once the probate is converted to a dependent administration the mortgagee will have to follow the dependent administration rules concerning permission to foreclose.
§ 26.10Statute of Limitations in Probate
The mortgagee’s claim in probate can be barred by the running of the statute of limitations on the debt itself. See Tex. Est. Code § 355.061 (no claim for money barred by the statute of limitations can be either allowed or approved). However, section 16.062 of the Texas Civil Practice and Remedies Code tolls the general statutes of limitation that might otherwise be applicable to the creditor’s claim for a period ending on the earlier of twelve months after the mortgagor’s death or the qualification of a personal representative. See Tex. Civ. Prac. & Rem. Code § 16.062. Assurance of payment by the administrator does not toll the statute of limitations. See Russell v. Dobbs, 354 S.W.2d 373, 376 (Tex. 1962).
§ 26.10:1Limitations in Dependent Administrations
Texas Estates Code section 355.008, applicable to dependent administrations, provides that the running of the general statute of limitations is tolled on the date (1) a claim for money is filed or deposited with the clerk or (2) suit is brought against the estate representative with respect to a claim not required to be presented to the estate representative. Tex. Est. Code § 355.008. Note that the claim is tolled when “filed or deposited with the clerk,” not when “presented.” If a claim is close to being barred by limitations, the creditor should present its claim by filing rather than presenting it directly to the personal representative. If a claim has not been properly presented, filing suit to establish a claim that is required to be presented does not toll the running of the statute of limitations. Furr v. Young, 578 S.W.2d 532, 536 (Tex. App.—Fort Worth 1979, no writ).
§ 26.10:2Limitations in Independent Administrations
Except as otherwise provided by Texas Civil Practice and Remedies Code section 16.062 with respect to causes of action against or held by the decedent, Texas Estates Code section 403.057 provides that for independent administrations, the running of the statute of limitations is tolled only by a written approval of a claim signed by the independent executor, a pleading filed in a suit pending at the time of the decedent’s death, or a suit brought by the creditor against the independent executor. Tex. Est. Code § 355.008. The mere presentment of a claim or notice does not toll the running of the statute of limitations.
§ 26.11Probate Proceedings without Administrator
A number of mechanisms are available to a creditor to address title concerns in probate without going through a full probate administration, as discussed below.
The court’s order admitting the will to probate is legal authority for all persons concerned with the decedent’s estate to settle all claims related to the assets and liabilities of the estate in accordance with the will. See Tex. Est. Code ch. 257. After a will has been probated as a muniment of title, the devisees acquiring the property under the will become the owners of the property and are obligated for a pro rata share of the debt in accordance with the share of the property received. In many cases involving simple debt-free estates, practitioners use this proceeding even when an independent executor has been named in the will. This procedure gets the decedent’s property into the hands of the beneficiaries named in the will without the need for an executor or an administration of any kind and avoids much of the expenses of estate administration. However, the probate of a will as a muniment of title is only authorized if the testator’s estate does not owe an unpaid debt, other than any debt secured by a lien on real estate, or the court finds there is no necessity of administration of the estate. Tex. Est. Code § 257.001.
Effective September 1, 2021, when a will and its accompanying judgment, order, or decree admitting it to probate is written in whole or in part in a language other than English and is filed for record in a county where the testator’s real property was located, a correct English translation must also be filed. The accuracy of this translation must be sworn to before an officer authorized to administer oaths. See Tex. Est. Code § 503.002.
§ 26.11:2Small Estate Collection Proceedings
If certain statutory requirements are met, Texas Estates Code chapter 205 (formerly Texas Probate Code sections 137 through 144) provides for a simple method for the heirs of an intestate estate to receive the assets of the decedent. These requirements include: (1) the value of the entire gross estate, excluding homestead and exempt property, must not exceed $75,000; (2) thirty days must have elapsed since the death of the decedent; and (3) no petition for the appointment of a personal representative can be pending or have been granted. Tex. Est. Code § 205.001(1)–(3).
If a decedent’s homestead is the only real property in the decedent’s estate, title to the homestead can be transferred by the affidavit described in section 205.002. See Tex. Est. Code §§ 205.002, 205.006. The affidavit, once filed in the real property records in the county where the property is located, is sufficient title evidence of the transfer.
§ 26.11:3Determination of Heirship
A judgment declaring heirship rendered by a constitutional or statutory probate court is a valuable tool in clearing title issues related to a deceased mortgagor’s property. If properly prepared, the judgment establishes the name, place of residence, and share each heir of the decedent holds with respect to the decedent’s property.
An heir must be alive at the time of the decedent’s death to inherit any portion of the decedent’s estate. Lee v. Smith, 18 Tex. 141 (Tex. 1856). A judgment declaring heirship is conclusive as between the rights of an heir omitted from the judgment and a bona fide purchaser, as any omitted heir may seek relief only from the other heirs who received a distribution from the decedent’s estate. Once a certified copy of the judgment declaring heirship is recorded in the county where the decedent’s real property is located, the judgment serves as constructive notice of the ownership of the property. See Tex. Est. Code § 202.206; see also Tex. Est. Code ch. 202.
Note that Texas Estates Code section 202.206 eliminates limitations for bringing actions to determine heirships, thus reversing a 2010 Texas Supreme Court ruling that applied the residual four-year limitations period to an heirship proceeding.
Title companies recognize the risk that a dependent administration could be opened within four years of the decedent’s death. Consequently, few title companies will issue title policies without a probate exception, if at all. Even though all the heirs may have reached an agreement concerning the disposition of the decedent’s estate and agreed that a dependent administration would not be opened, an interested person, as that term is defined in Texas Estates Code section 22.018, can open a dependent administration. Therefore, any “interested person,” defined as an heir, devisee, spouse, creditor, one having a property right in or claim against an estate being administered, or anyone interested in the welfare of an incapacitated person including a minor, could seek to open probate any time within four years of the decedent’s death. Tex. Est. Code § 22.018.
If a deceased borrower’s loan is in default and no probate proceeding has been opened, the options generally available to the mortgagee are: (1) open a creditor’s administration; (2) acquire title and possession to the property by rescission of the vendor’s lien; or (3) wait four years and if a dependent administration is not opened, foreclose. However, if the mortgagee waits too long, the note secured by the deed of trust may be unenforceable if the statute of limitations for enforcing the note has run. Tex. Civ. Prac. & Rem. Code § 16.004. See section 5.12:1 in this manual. Assuming the mortgagee cannot or does not desire to wait four years to foreclose, the alternatives are discussed below.
§ 26.12:2Creditor’s Administration
Texas Estates Code section 301.051 provides that “an interested person may file an application with the court . . . for the appointment of an administrator.” Tex. Est. Code § 301.051(2). If no administration is pending, a creditor may file an application for the appointment of a dependent administration to avoid the potential for having unmarketable title after a foreclosure sale or, worse, a voiding of the sale and suit for conversion by a subsequently appointed administrator. In addition, courts have found that a secured creditor’s proper remedy when a borrower dies and no estate is pending is to force the opening of an administration. See Pearce v. Stokes, 291 S.W.2d 309 (Tex. 1956). These situations are typically referred to as a creditor’s administration.
When bringing an application, the creditor must comply with Texas Estates Code section 301.052, which covers the information that must be included. See Tex. Est. Code § 301.052. The necessity for an administration can be usually shown by the existence of unpaid debts of the estate. See Nelson v. Neal, 787 S.W.2d 343 (Tex. 1990).
Texas Estates Code section 304.001 lists the priority of those persons qualified to serve as administrator. See Tex. Est. Code § 304.001. If the creditor is not disqualified from serving, it may be in its best interest to nominate an experienced probate attorney to serve as the estate administrator as the attorney will be more familiar with the intricacies and responsibilities of serving as the administrator.
Once the application is filed and letters are issued, the creditor’s administration process is procedurally similar to a dependent administration. See form 26-9 in this chapter, Application for Letters of Administration.
However, by initiating a creditor’s administration, the creditor may become responsible for managing all of the affairs of the decedent’s estate until the probate proceeding is closed, which may take years.
§ 26.12:3Rescission of Vendor’s Lien
Rescission but not foreclosure of the vendor’s lien is an alternative to a creditor’s administration, if the loan is in default and the mortgagor is deceased. See Walton v. First National Bank of Trenton, 956 S.W.2d 647, 652 (Tex. App.—Texarkana 1997, pet. denied); Lusk v. Mintz, 625 S.W.2d 774 (Tex. App.—Houston [14th Dist.] 1981, no writ). Before 1996, this right to rescind the contract could apparently be exercised even after the claim was presented to, and rejected by, the estate administrator. See Walton, 956 S.W.2d at 652. However, Texas Estates Code section 355.153 prevents this option once the holder has elected to have its claim treated in probate as a matured secured claim. See Tex. Est. Code § 355.153. A mortgagee holding a vendor’s lien and superior title can thus avoid probate court proceedings by bringing suit to rescind the vendor’s lien in district court rather than proceeding in probate court. Walton, 956 S.W.2d at 652. The reservation clause pertaining to the vendor’s lien is usually found in the warranty deed and many times in a paragraph above the signature line of the deed of trust.
Since the mortgagee could rescind the vendor’s lien and obtain title and possession of the property while the mortgagor was living, neither the decedent’s estate nor heirs can prevent rescission of the vendor’s lien if the loan remains in default after the mortgagor’s death. See Hudson v. Norwood, 147 S.W.2d 826 (Tex. App.—Eastland 1941, writ dism’d judgm’t corr.). Because enforcement of a vendor’s lien requires a lawsuit, all the heirs who acquired a title interest upon the death of the intestate borrower must be made a party to the suit. Property is subject to payment of the debts of the decedent even though title is vested immediately in the heirs or devisees on the decedent’s death. See Casey v. Kelly, 185 S.W.2d 492 (Tex. App.—Fort Worth 1945, writ ref’d n.r.e.). As the Texas Supreme Court held in Estes v. Browning, 11 Tex. 237 (1853), “no man shall claim title to the land of another without payment of the price agreed upon.” As long as the purchase price for the property remains unpaid, the mortgagee has superior title to the property secured by a vendor’s lien.
Until the debt used to acquire the decedent’s property is paid, any comaker of the note and the decedent’s heirs have only equitable title to the property, that is the use, benefit, and enjoyment of the property—not legal title, which is held by the holder of the vendor’s lien. By exercising its right to rescind the vendor’s lien, the mortgagee is not making a claim for money against the decedent or decedent’s putative estate; therefore, there is no necessity of administration of lender’s claim under the Texas Estates Code. Walton, 956 S.W.2d at 652; see also Skelton v. Washington Mutual Bank, F.A., 61 S.W.3d 56 (Tex. App.—Amarillo 2001, no pet.). For due process purposes, the suit to rescind the vendor’s lien should allege that the foreclosure procedures in Texas Property Code section 51.002 will be used as the legal means to convert title from the decedent and heirs into the lender. See G. Tommy Bastian, Texas Foreclosures: Myths and Reality, in Advanced Real Estate Law Course, State Bar of Texas (2011).
Since an heir is vested with title upon the decedent’s death, the heir can sell inherited property, but the heir cannot convey greater title than was inherited. See Trevino v. Turcotte, 564 S.W.2d 682 (Tex. 1978). However, if a bona fide purchaser does not have notice of the heirship, it is possible for such purchaser to acquire fee simple title even though the heir only possessed an undivided interest with other heirs. If a person for value, in good faith and without knowledge of the existence of a will, purchases property from the heirs of the decedent more than four years after the decedent’s death, the purchaser has good title as against the claims of any devisee under the will. See Tex. Est. Code § 256.003(c).
If a bona fide purchaser, in good faith and for valuable consideration, acquires title from an executor or administrator of an estate without notice of a defect in title, title is good regardless of whether the acts of the administrator of the estate are later set aside, annulled, or declared invalid. Tex. Est. Code § 307.001(b).
Bastian, G. Tommy. “Texas Foreclosures: Myths and Reality.” In Advanced Real Estate Law Course, 2011. Austin: State Bar of Texas, 2011.
Jamieson, Lisa H. “Creditors’ Claims and Allowances in Decedents’ Estates.” In Building Blocks of Wills, Estate and Probate Course, 2011. Austin: State Bar of Texas, 2011.
Tamborello, Gus G. “Creditor Claims in Probate: Road Map for the Creditor’s Attorney.” In Collections & Creditors’ Rights Course, 2022. Austin: State Bar of Texas, 2022.