§ 306. Method of Handling Secured Claims for Money

306. Method of Handling Secured Claims for Money

(a) Specifications of Claim. When a secured claim for money against an estate is presented, the claimant shall specify therein, in addition to all other matters required to be specified in claims:

(1) Whether it is desired to have the claim allowed and approved as a matured secured claim to be paid in due course of administration, in which event it shall be so paid if allowed and approved; or

(2) Whether it is desired to have the claim allowed, approved, and fixed as a preferred debt and lien against the specific property securing the indebtedness and paid according to the terms of the contract which secured the lien, in which event it shall be so allowed and approved if it is a valid lien; provided, however, that the personal representative may pay said claim prior to maturity if it is for the best interest of the estate to do so.

(b) Time for Specification of Secured Claim. Within six months after the date letters are granted, or within four months after the date notice is received under Section 295 of this code, whichever is later, the secured creditor may present the creditor's claim and shall specify whether the claim is to be allowed and approved under Paragraph (1) or (2) of Subsection (a) of this section. If a secured claim is not presented within the time prescribed by this subsection or if the claim is presented without specifying how the claim is to be paid, it shall be treated as a claim to be paid in accordance with Paragraph (2) of Subsection (a) hereof.

(c) Matured Secured Claims. If a claim has been allowed and approved as a matured secured claim under Paragraph (1) of Subsection (a) of this section, the claim shall 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 Paragraphs (1) through (3) of Section 320(a) of this code.

(c-1) If a claimant presents a secured claim against an estate for a debt that would otherwise pass with the property securing the debt to one or more devisees in accordance with Section 71A(a) of this code and the claim is allowed and approved as a matured secured claim under Subsection (a)(1) of this section, the personal representative shall collect from the devisees the amount of the debt and pay that amount to the claimant in satisfaction of the claim. Each devisee's share of the debt is an amount equal to a fraction representing the devisee's ownership interest in the property, multiplied by the amount of the debt. If the personal representative is unable to collect from the devisees an amount sufficient to pay the debt, the personal representative shall sell the property securing the debt, subject to Part 5 of this chapter. The personal representative shall use the sale proceeds to pay the debt and any expenses associated with the sale and shall distribute the remaining sale proceeds to each devisee in an amount equal to a fraction representing the devisee's ownership interest in the property, multiplied by the amount of the remaining sale proceeds. If the sale proceeds are insufficient to pay the debt and any expenses associated with the sale, the difference between the sum of the amount of the debt and the expenses associated with the sale and the sale proceeds shall be paid under Subsection (c) of this section.

(d) Approved Claim as Preferred Lien Against Property. When an indebtedness has been allowed and approved under Paragraph (2) of Subsection (a) hereof, no further claim shall be made against other assets of the estate by reason thereof, but the same thereafter shall remain a preferred lien against the property securing same, and the property shall remain security for the debt in any distribution or sale thereof prior to final maturity and payment of the debt.

(e) Payment of Maturities on Preferred Debt and Lien Claims. If property securing a claim allowed, approved, and fixed under Paragraph (2) of Subsection (a) hereof is not sold or distributed within six months from the date letters are granted, the representative of the estate shall promptly pay all maturities which have accrued on the debt according to the terms thereof, and shall perform all the terms of any contract securing same. If the representative defaults in such payment or performance, on application of the claimholder, the court shall:

(1) require the sale of said property subject to the unmatured part of such debt and apply the proceeds of the sale to the liquidation of the maturities;

(2) require the sale of the property free of the lien and apply the proceeds to the payment of the whole debt; or

(3) authorize foreclosure by the claimholder as provided by Subsections (f) through (k) of this section.

(f) Foreclosure of Preferred Liens. An application by a claimholder under Subsection (e) of this section to foreclose the claimholder's lien or security interest on property securing a claim that has been allowed, approved, and fixed under Paragraph (2) of Subsection (a) of this section shall be supported by affidavit of the claimholder that:

(1) describes the property or part of the property to be sold by foreclosure;

(2) describes the amounts of the claimholder's outstanding debt;

(3) describes the maturities that have accrued on the debt according to the terms of the debt;

(4) describes any other debts secured by a mortgage, lien, or security interest against the property that are known by the claimholder;

(5) contains a statement that the claimholder has no knowledge of the existence of any debts secured by the property other than those described by the application; and

(6) requests permission for the claimholder to foreclose the claimholder's mortgage, lien, or security interest.

(g) Citation. On the filing of an application, the clerk shall issue citation by personal service to the personal representative and to any person described by the application as having other debts secured by a mortgage, lien, or security interest against the property and by posting to any other person interested in the estate. The citation must require the person to appear and show cause why foreclosure should or should not be permitted.

(h) Setting of Hearing on Application. When an application is filed, the clerk shall immediately notify the judge. The judge shall schedule in writing a date for a hearing on the application. The judge may, by entry on the docket or otherwise, continue the hearing for a reasonable time to allow an interested person to obtain an appraisal or other evidence concerning the fair market value of the property that is the subject of the application. If the interested person requests an unreasonable time for a continuance, the person must show good cause for the continuance.

(i) Hearing. (1) At the hearing, if the court finds that there is a default in payment or performance under the contract that secures the payment of the claim, the court shall:

(A) require the sale of the property subject to the unmatured part of the debt and apply the proceeds of the sale to the liquidation of the maturities;

(B) require the sale of the property free of the lien and apply the proceeds to the payment of the whole debt; or

(2) When the court grants a claimholder the right of foreclosure, the court shall authorize the claimholder to foreclose the claimholder's mortgage, lien, or security interest in accordance with the provisions of the document creating the mortgage, lien, or security interest or in any other manner allowed by law. In the discretion of the court and based on the evidence presented at the hearing, the court may fix a minimum price for the property to be sold by foreclosure that does not exceed the fair market value of the property. If the court fixes a minimum price, the property may not be sold at the foreclosure sale for a lower price.

(j) Appeal. Any person interested in the estate may appeal an order issued under Subsection (i)(1)(C) of this section.

(k) Unsuccessful Foreclosure. If a foreclosure sale authorized under this section is conducted and the property is not sold because no bid at the sale met the minimum price set by the court, the claimholder may file another application under Subsection (f) of this section. The court may, in the court's discretion, eliminate or modify the minimum price requirement and grant permission for another foreclosure sale.