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In re Estate of Patton

Court of Appeals of Washington, Division 3

November 16, 2017

In re the Matter of the Estate of JASON L. PATTON

          FEARING, C.J.

         Do administration expenses of a decedent's estate hold priority above the decedent's secured debt to the proceeds from a nonjudicial foreclosure of the secured real property? After reviewing the probate code and the deed of trust act, we answer in the negative and reverse the trial court's order establishing priority in favor of administration expenses.

         FACTS

         In 2007, Jason Patton obtained an $115, 000 home loan from Countrywide Home Loans, Inc. A deed of trust on Patton's Union Gap residence secured the loan. Countrywide recorded the deed of trust with the Yakima County Auditor on May 24, 2007. When Bank of America shortly thereafter purchased Countrywide, Bank of America became the beneficiary under the trust deed.

         In 2014, Jason Patton died intestate. The probate court appointed a guardian ad litem for Patton's only heir, a minor. The Estate of Jason Patton (Estate) petitioned the probate court for letters of administration, and the court appointed Patton's brother, Robert Patton, to serve as the personal representative. The Estate made no payments on the home loan.

         The Estate of Jason Patton sent notice to creditors pursuant to RCW 11.40.030. The Estate then petitioned the probate court for limited nonintervention powers. In the petition, the Estate listed its assets and the assets' respective values as less than $1, 000 cash, two vehicles worth approximately $1, 300 combined, and the Union Gap residence with a fair market value of $75, 000. The petition claimed the Estate to be insolvent because the debt to Bank of America exceeded $112, 060.39 in principal alone. The probate court granted the petition for limited nonintervention powers.

         Two creditors filed claims with the Estate: the city of Union Gap for $107.98 in unpaid utility bills and Bank of America for $116, 932.69 owed on the home loan. The Estate recorded two notices of costs of administration with the Yakima County Auditor: attorney fees and costs for the personal representative amounting to $11, 546.75 and $1, 177.92 for guardian ad litem fees.

         PROCEDURE

         On February 24, 2016, the personal representative of the Estate of Jason Patton petitioned the probate court for approval of a sale of the Union Gap residence, due to insolvency. The personal representative also asked for an order that, under RCW 11.76.110, attorney fees of the Estate and guardian ad litem fees be paid first from the sale of the residence before Bank of America received any sum. Thereafter, the trustee of the deed of trust sent notice of its intent to conduct a nonjudicial foreclosure sale of the Union Gap residence, with a sale scheduled for July 15, 2016.

         Bank of America opposed the Estate's petition seeking approval of the Estate's sale of the residence and the Estate's proposed distribution of sales funds. Bank of America contended that RCW 11.76.110 did not establish any order of payment from a deed of trust sale because the bank, under RCW 11.40.135, could realize on its security independent of the probate process.

         At the hearing on the Estate of Jason Patton's petition, the Estate withdrew its request to sell the residence and agreed not to oppose the scheduled nonjudicial foreclosure. Nevertheless, the Estate still sought an order from the probate court confirming that RCW 11.76.110 required that sale proceeds reimburse the costs of administering the Estate before the remainder be distributed to Bank of America. The Estate observed that RCW 11.96A.160 directs that the guardian ad litem's compensation come from the principal of the estate. The Union Gap residence constituted an asset of the Estate. The Estate argued that RCW 11.76.110 created a super priority lien on all decedent's assets in favor of administration expenses. The Estate asserted a fear that small decedent's estates would go unadministered if the administration expenses bore no super priority, particularly when the value of the Estate assets deceeded the secured debt.

         The probate court ruled in favor of the Estate of Jason Patton and directed that any proceeds from the sale of the Union Gap residence apply first to estate administration costs.

         LAW AND ANALYSIS

         This appeal presents the narrow question of whether RCW 11.76.110 creates a lien with priority over an earlier recorded real property encumbrance such that proceeds from the sale of the real property go first to pay expenses to administer the estate. Bank of America contends that RCW 11.76.110 does not authorize a court to award a super priority lien. According to the bank, since it recorded its deed of trust before any obligation of the Estate of Jason Patton to pay administration ...


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