Herring v. Bank of America, N.A., 176 S.W.3d 513 (Tex. App.—Houston [1st Dist.] 2004, no pet.).
Husband and Wife borrowed money from Creditor for the purchase of
their home. After Husband died, the court appointed Wife as the
administratrix of Husband’s estate. The court approved her request for a
family allowance. Later, Creditor filed a claim requesting preferred
debt and lien status under Probate Code § 306(a)(2). Wife approved the
claim and filed a report of a pending sale of the property indicating
that the proceeds would be distributed using the priority order set
forth in Probate Code § 320(a). Creditor objected. The trial court
issued an order stating that Creditor was entitled to top priority over
the sale proceeds to the extent of its claim, that is, Creditor had
priority over the family allowance. Wife appealed.
The appellate court affirmed. The court explained that Creditor’s claim
was not a general claim against the estate over which the family
allowance has priority under Probate Code § 320(a). Instead, Creditor
had a preferred debt and lien against a specific piece of property and
that Probate Code § 306 gives a creditor who elects this status, thereby
foregoing a claim against the estate’s general assets for a deficiency,
priority over other claims, including the family allowance.
Moral: A creditor who elects preferred debt and lien status has priority
over other claims, such as the family allowance, with respect to the
value of the collateral.