August 20, 2019

Colorado Court of Appeals: Secured Creditor With Disallowed Claim Against Estate Can Enforce Underlying Security

The Colorado Court of Appeals issued its opinion in Oldham v. Pedrie on Thursday, July 16, 2015.

Real Property—Promissory Note—Deed of Trust—Probate—Notice of Claim—Disallowance—Foreclosure—Novation.

This appeal involves a parcel of land in Teller County first purchased by Lorna Oldham in 1976 from Donald Pedrie in exchange for a promissory note. In 2005, Lorna Oldham signed a second promissory note to replace the first promissory note. In 2007, she died, and Pedrie filed a notice of claim against the Estate of Lorna Oldham for the amount owing on the promissory note. The personal representative disallowed a portion of Pedrie’s claim, Pedrie threatened foreclosure of the property, and the trial court allowed him to proceed with his foreclosure proceedings.

On appeal, the Oldhams and the Estate contended that the 1976 Deed of Trust was extinguished when Pedrie declined to contest the disallowance in the Michigan court. Under the Colorado and Michigan probate codes, the requirement to file a notice of claim in an estate proceeding does not affect or prevent the right of a secured creditor to enforce a mortgage or other liens on estate property. Further, a secured creditor is not required to pursue an unconditional claim that is disallowed. Therefore, a secured creditor’s lien on real property is not extinguished when the creditor presents an unconditional claim against a decedent’s estate but does not pursue a disallowed claim within sixty-three days. The secured creditor may still pursue a foreclosure action to enforce the lien. Therefore, the district court did not err when it found that Pedrie held a valid deed of trust on the Teller County property.

The Oldhams also contended that Pedrie’s 1976 lien on the Teller County property was extinguished under CRS § 38-39-207, either because Pedrie accepted a new promissory note in 2005 that was not secured by a deed of trust or because there was a novation. The record contains unrebutted testimony that the principal plus interest due on the first note was greater than the amount due on the 2005 promissory note. Under these circumstances, the 2005 promissory note did not constitute a novation and did not extinguish the 1976 Deed of Trust.

Finally, the Oldhams contended that the district court erred by not making a finding on the total amount owed on the debt secured by the deed of trust. Pursuant to CRCP 120, the district court was not required to determine the amount remaining on secured debt. The Trial Management Order (TMO), however, required the court to determine the payoff amount. Therefore, the district court erred in not complying with the TMO in this regard. The judgment was affirmed in part and reversed in part, and the case was remanded to the district court to determine the amount owed by the Oldhams on the 1976 Deed of Trust.

Summary and full case available here, courtesy of The Colorado Lawyer.

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