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Indiana’s Claims Deadlines Against An Estate Of A Deceased Borrower

First Merchants Bank v. Tolley, 982 N.E.2d 1061 (Ind. Ct. App. 2013) is a hybrid of probate and secured collections law.  The opinion helps guide secured lenders when an Indiana borrower, who is in default under a mortgage loan, passes away and an estate is opened.  Specifically, Tolley addresses the applicable deadlines to file a claim against the estate. 

The chronology.  In Tolley, co-borrower (Husband) died 11/17/10.  An Estate was opened on 12/17/10, and counsel for the Estate called Lender to notify Lender that Husband had died and that estate proceedings had begun in Miami County.  On 12/31/10 and again on 01/07/11, the Estate published a statutory “notice of administration” in a local newspaper.  On 07/26/11, Lender filed a claim against the Estate related to notes and mortgages co-signed by Husband and Wife. 

Trial court’s summary judgment.  The Estate filed a motion for summary judgment seeking to strike Lender’s two claims because they were not filed within three months after the date of the first published notice to creditors.  Lender countered by filing its own summary judgment motion asserting that its claims were timely filed within nine months of the date of death.  The trial court sided with the Estate, but the Court of Appeals later ruled for Lender.

Indiana probate-related notice requirements.  The Court of Appeals discussed at length the difference between a “nonclaim statute” and a “statute of limitation,” which analysis may only be stimulating to attorneys.  (FYI, at issue in Tolley were nonclaim statutes.)  I.C. § 29-1-14-1(d) bars claims against an estate if they are not filed within nine months after the death.  On the other hand, I.C. § 29-1-14-1(a) bars claims unless they are filed within three months after the first published notice of the death to (generally unknown) creditors.  But subsection (a) must be read in conjunction with I.C. § 29-1-7-7, which also governs notice and which relates to known creditors. 

Parties’ contentions.  Lender argued that subsection (d) of I.C. § 29-1-7-7 required the Estate to provide Lender, a known creditor, notice by direct mail or other written means, not merely by publication in a newspaper.  Lender asserted a constitutional due process-like argument.  On the other hand, the Estate argued that I.C. § 29-1-7-7 did not require direct written notice and that, in this case, notice was immaterial because Lender already knew about the death and the opening of the Estate.  Since Lender did not file any claim until almost seven months after the first published notice to creditors, the claims should fail, according to the Estate. 

Holding and rationale.  The Court reversed the trial court and granted summary judgment in favor of Lender.  The Court “[could not] say that [Lender] received proper notice.”  As such, Lender’s claims, which Lender filed within nine months of Husband’s death, were timely filed.  The Court reasoned that the nine-month deadline, as opposed to the three-month deadline, applied.  This is because I.C. § 29-1-7-7(d) requires a written, detailed notice to be served on each creditor “who is known or reasonably ascertainable” and, in Tolley, Lender fit that description.  The phone call from the attorney for the Estate did not meet the statutory notice requirements, which include notice of the time period for the filing of a claim. 

Inapplicable to foreclosures.  As an aside, the Estate in Tolley conceded that, should the probate-related claims be dismissed, Lender would not be prevented from foreclosing the mortgages or from recovering any deficiency from the surviving co-borrower.  Thus the lessons from Tolley really only apply to collection of a deficiency from the estate of a borrower.  In rem mortgage foreclosure claims (judgments as to the real estate, not the individual) can be brought outside of probate proceedings. 

Thanks to my partner Amy VonDielingen, who handles both creditor’s rights and probate matters at our firm, for her input into today’s post.

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