BILL ANALYSIS H.B. 2866 By: Hilbert (Whitmire) Jurisprudence 5-19-95 Senate Committee Report (Unamended) BACKGROUND Current provisions of the Probate Code regarding creditor's claims against a decedent's estate are confusing, particularly with regard to independent administrations. The language of the Probate Code does not take into account that creditors are not required to present claims formally in an independent administration. In addition, the system for classifying claims has caused courts to draw a distinction between deficiencies resulting after foreclosure depending upon whether the administration is independent or dependent. The Real Estate, Probate, and Trust Law section of the State Bar of Texas have recommended clarifying these procedures for the benefit of both personal representatives and creditors. PURPOSE As proposed, H.B. 2866 clarifies the procedures for dealing with claims of creditors in both independent and dependent administrations of estates, provides a way in which the personal representative may facilitate the closing of the estate, and eliminates the differences regarding secured claims in dependent and independent administration. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 146, Probate Code, as follows: Sec. 146. PAYMENT OF CLAIMS AND DELIVERY OF EXEMPTIONS AND ALLOWANCES. (a) Duty of the Independent Executor. Requires an independent executor to give the notices required under Sections 294 and 295, to approve and classify, rather than receive presentation of and allow, claims against the estate, setting aside and delivering to those entitled thereto exempt property and allowances for support, and allowances in lieu of exempt property, rather than in lieu of homestead. Authorizes the independent executor to give the notice permitted under Section 294(d) and to bar a claim under that subsection. Makes nonsubstantive changes. (b) Secured Claims for Money. Requires a creditor with a claim for money secured by property of the estate to notify the independent executor of the creditor's election to have the claim approved as a matured secured claim to be paid in due course of administration, within a certain time period. Provides that if the election is not made, the claim is a preferred debt and lien against the specific property and shall be paid according to the terms of the contract, and prohibits the claim from being asserted against other assets of the estate. Authorizes the independent executor to pay the claim before the claim matures if paying is in the best interests of the state. (c) Liability of Independent Executor. Authorizes an independent executor to pay at any time and without personal liability a claim to the extent approved and classified by the personal representative (representative) under certain circumstances. SECTION 2. Amends Section 294, Probate Code, by amending Subsection (a) and adding Subsection (d), as follows: (a) Requires the notice requiring all persons having claims to present the claim within a certain time period to include the date, rather than time of issuance of letters held by the representative. (d) Permissive Notice to Unsecured Creditors. Authorizes the representative to give notice to an unsecured creditor having a claim expressly stating that the creditor must present a claim within a certain time period, if the claim is not barred by the general statutes of limitation. Sets forth requirements for the notice. SECTION 3. Amends Section 295, Probate Code, as follows: Sec. 295. New heading: NOTICE TO HOLDERS OF SECURED CLAIMS. (a) New heading: When Notice Required for Secured Claimants. Requires the representative within two, rather than four months of receiving letters, to give notice of the issuance to each person known to the representative to have a claim that is secured by property of the estate. Requires the representative to give notice to the person of the issuance after the representative obtains actual knowledge of the existence of a person having a secured claim and to whom notice was not previously given. Deletes Subsection (b). Makes conforming changes. (b)-(c) Redesignate existing Subsections (c)-(d). Make nonsubstantive and conforming changes. SECTION 4. Amends Section 297, Probate Code, to make nonsubstantive changes. SECTION 5. Amends Section 298, Probate Code, as follows: Sec. 298. CLAIMS AGAINST ESTATES OF DECEDENTS. (a) New heading: Time for Presentation of Claims. Authorizes a claim to be presented to the representative at any time before the estate is closed if suit on the claim has not been barred by the general statutes of limitation. Provides that if a claim of an unsecured creditor for money is not presented within four months after the date of receipt of the notice permitted by Section 294(d), the claim is barred. Deletes provisions requiring claims for money against a testator or intestate to be postponed if presented after six months of the original grant of letters testamentary or of administration. (b) Makes conforming changes. SECTION 6. Amends the heading of Section 301, Probate Code, as follows: Sec. 301. CLAIMS FOR MONEY MUST BE AUTHENTICATED. SECTION 7. Amends Section 303, Probate Code, to make a nonsubstantive change. SECTION 8. Amends Section 304, Probate Code, to require an authorized officer or representative of a corporation or other entity, rather than the cashier, treasurer, or managing official of a corporation, to make the affidavit required to authenticate a claim of such corporation or entity. Makes a conforming change. SECTION 9. Amends Section 306, Probate Code, as follows: Sec. 306. New heading: METHOD OF HANDLING SECURED CLAIMS FOR MONEY. (a) Makes a conforming change. (b) New heading: Time for Specification of Secured Claim. Authorizes the secured creditor to present the creditor's claim and to specify whether the claim is to be allowed and approved under Subsection (a)(1) or (2) within a certain time period. Makes conforming changes. (c) Matured Secured Claims. Requires a claim that has been allowed and approved as a matured secured claim to be paid in due course of administration and the secured creditor is not entitled to exercise any other remedies in a manner that prevents the preferential payment of claims and allowances described by Section 320(a) of this code. (d) Redesignates existing Subsection (c). (e) New heading: Payment of Maturities on Preferred Debt and Lien Claims. Redesignates existing Subsection (d). Requires the representative of the estate to pay all maturities which have accrued on the debt accrued according the terms thereof if property securing a claim is not sold or distributed within six, rather than 12 months from the date letters are granted. Sets forth requirements for the court on application, rather than motion, of the claimholder, if the representative defaults in such payment or performance. (f) Foreclosure of Preferred Liens. Requires a claimholder to filed with the court an application supported by affidavit that meets certain criteria if the court authorizes the claimholder to foreclose the claimholder's lien or security interest on property securing a claim that has been allowed, approved, and fixed. (g) Citation. Requires the clerk to issue citation in a certain manner to the representative, any person described by the application as having other debts secured by a mortgage, lien, or security interest against the property (secured debt), and any other person interested in the estate. Requires the citation to require the person to appear and show cause why foreclosure should or should not be permitted. (h) Setting of Hearing on Application. Requires the clerk to notify the judge when an application is filed. Requires the judge to schedule a hearing on the application. Authorizes the judge to continue the hearing to allow an interested person to obtain evidence concerning the fair market value of the property that is the subject of the application. Requires the person to show good cause for the continuance if the interested person requests an unreasonable time for a continuance. (i) Hearing. Requires the court to enter an order granting the claimholder permission to foreclose the secured debt if the court finds that there is a default under the contract that secures payment of the claim. Authorizes the court to fix a minimum price for the property to be sold by foreclosure that does not exceed the fair market value, under which the property may not be sold. (j) Appeal. Authorizes any interested person to appeal an order issued under Subsection (i). (k) Unsuccessful Foreclosure. Authorizes the claimholder to file another application under Subsection (f) if a bid at the foreclosure sale does not meet the minimum price. Authorizes the court to eliminate or modify the minimum price requirements and grant permission for another foreclosure sale. Makes conforming changes. SECTION 10. Amends Section 308, Probate Code, to require the clerk to enter a deposited claim on the claim docket. SECTION 11. Amends Section 309, Probate Code, to make conforming and nonsubstantive changes. SECTION 12. Amends Section 310, Probate Code, to require the failure of a representative of an estate to timely allow or reject a claim under Section 309, rather than specifying a 30-day time limit, to constitute a rejection of the claim. Makes conforming and nonsubstantive changes. SECTION 13. Amends Section 311, Probate Code, to require a claim to be filed with the county clerk of the proper county after the claim against an estate has been presented to and allowed or rejected by the personal representative. Makes conforming changes. SECTION 14. Amends Sections 312(c)-(e), Probate Code, to make nonsubstantive changes. SECTION 15. Amends Section 313, Probate Code, to make a conforming change. SECTION 16. Amends Section 314, Probate Code, to make a nonsubstantive change. SECTION 17. Amends Section 315, Probate Code, to make conforming and nonsubstantive changes. SECTION 18. Amends Section 316, Probate Code, as follows: Sec. 316. New heading: CLAIMS AGAINST PERSONAL REPRESENTATIVES. Makes conforming and nonsubstantive changes. SECTION 19. Amends Sections 317(a) and (b), Probate Code, to make conforming and nonsubstantive changes. SECTION 20. Amends Section 318, Probate Code, to include creditors in the list of persons against whom the owner of any claim not barred by the laws of limitation is required to have an action. Makes conforming and nonsubstantive changes. SECTION 21. Amends Section 320, Probate Code, as follows: Sec. 320. ORDER OF PAYMENT OF CLAIMS. (a) Priority of Payments. Deletes exceptions to the requirement that a representative pay funeral expenses and expenses of last sickness in an amount not to exceed $5000, as a first priority. (b) Sale of Mortgaged Property. Requires a representative to pay the proceeds to any holder of a secured debt if the representative has the proceeds of a sale that has been made for the satisfaction of a secured debt and the proceeds are not required for the payment of any debts against the estate that have a preference over the secured debt. Requires the representative to pay the holders in order of the holders' priority. Authorizes a holder, on proof of the failure to pay, to obtain an order from the court directing the payment to be paid. (c) New heading: Claimant's Petition. Created from existing text. (d) Permissive Order of Payment. Authorizes the court to order the representative to pay any claim that is allowed and approved after a certain time period after the letters are granted and the representative states that the representative has no knowledge of any outstanding enforceable claims other than those already approved. SECTION 22. Amends Section 320A, Probate Code, to make conforming changes. SECTION 23. Amends Section 321, Probate Code, to make conforming changes. SECTION 24. Amends Section 322, Probate Code, to require secured claims for money to be paid in order of their priority, rather than requiring the oldest to be first paid but prohibiting giving preference to such mortgage or lien. Makes conforming and nonsubstantive changes. SECTION 25. Amends Section 323, Probate Code, to make a nonsubstantive change. SECTION 26. Amends Section 324, Probate Code, to make conforming and nonsubstantive changes. SECTION 27. Amends Section 328(b), Probate Code, to make a nonsubstantive change. SECTION 28. Amends Sections 329(a) and (c), Probate Code, to authorize the court to require that the representative's general bond be increased, or an additional bond given, for the protection of the estate and the creditors, as for the sale of real property belonging to the estate if a new lien is created on property of an estate. SECTION 29. Repealer: Sections 300, 325, and 327, Probate Code (Claims Must Be Authenticated-Proceeds of Sale of Mortgaged Property-Claims Presented Against Estate of Decedent After Six Months) of this bill. SECTION 30. Makes application of this Act prospective. SECTION 31. Effective date: September 1, 1995. SECTION 32. Emergency clause.