The Estate of Clint Wallace v. NewRez, LLC ( 2022 )

08/25/2022
IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
June 29, 2022 Session
THE ESTATE OF CLINT WALLACE v. NEWREZ LLC
Appeal from the Chancery Court for Dyer County
No. 18-PR-45 Jason L. Hudson, Judge
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No. W2021-00599-COA-R3-CV
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This appeal arises from the trial court’s decision to allow expenses and claims against an
insolvent estate to have priority over a recorded deed of trust to the proceeds of the court-
ordered sale of the decedent’s encumbered real property. We hold that the statutes
governing the administration of insolvent estates do not affect amounts due under a
perfected deed of trust. Accordingly, proceeds from the sale of decedent’s real property
must first be used to satisfy the deed of trust. Any remaining surplus is available for
distribution in accordance with Tennessee Code Annotated section 30-2-317. The
judgment of the probate court is reversed, and this matter is remanded for further
proceedings consistent with this Opinion.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Reversed and Remanded
KENNY ARMSTRONG, J., delivered the opinion of the court, in which ARNOLD B. GOLDIN
and CARMA DENNIS MCGEE, JJ., joined.
Bret J. Chaness and Patricia Whitehead, Peachtree Corners, Georgia, for the appellant,
NewRez, LLC.
Charles V. Moore, Jr. and Richard J. Schoepke, Dyersburg, Tennessee, for the appellee,
Estate of Clint Wallace.
OPINION
I. FACTUAL AND PROCEDURAL HISTORY
This appeal arises from the probate of an intestate decedent’s insolvent estate. It
requires us to determine whether, when real property encumbered by a deed of trust
perfected during the decedent’s lifetime is sold to satisfy claims against the estate, amounts
due under the deed of trust must be paid before any surplus becomes available for
distribution in accordance with Tennessee Code Annotated section 30-2-317. The facts
relevant to our disposition of the issues raised for our review are not disputed.
On December 14, 2015, real property located at 2600 Peach Grove Lane in
Woodlawn (Montgomery County), Tennessee (“the Property”), was conveyed to Clint
Allan Wallace (“Mr. Wallace”) by quitclaim deed. On the same day, Mr. Wallace obtained
a loan from Flagship Financial Group, LLC (“Flagship”) in the amount of $143,750.00
(“the loan”). Mr. Wallace executed a promissory note to Flagship and a Deed of Trust in
favor of Mortgage Electronic Registration System, Inc. (“MERS”) as nominee for
Flagship. The note and Deed of Trust were secured by the Property.1 Appellant NewRez,
LLC d/b/a Shellpoint Mortgage Servicing (“NewRez”) is the current holder of the note and
Deed of Trust.2
In August 2018, Mr. Wallace died in an automobile accident at age 37. He died
intestate, leaving behind two minor children as his heirs. Mr. Wallace resided in Dyer
County at the time of his death, and his only significant assets were the Property and a
truck that was totaled in the accident. The truck was subject to a perfected security interest
in the amount of $27,400.68 in favor of Bridgecrest, obo GFC Lending, LLC
(“Bridgecrest”) and was insured with Farmers Insurance.
Mr. Wallace’s estate (“the Estate”) was opened in the Probate Division of the
Chancery Court for Dyer County on August 13, 2018. Mr. Wallace’s mother, Patty Harris
(“Ms. Harris”), was appointed Administrator of the Estate. A notice to creditors was
published on August 21, and several claims were filed against the Estate. In October 2018,
Ms. Harris filed a petition for specific property, a year’s support allowance, and a
homestead allowance of $5,000.00 in cash for Mr. Wallace’s minor children. In December
2018, Ms. Harris filed an inventory listing a checking account containing $1,349.83, a
pending insurance claim on Mr. Wallace’s truck in the amount of $23,827.99, and the
Property valued at $147,900.00 as the only assets of the Estate.
In January 2019, the outstanding principal due under the Deed of Trust was
approximately $135,000.00. It appears from the record transmitted to this Court that
counsel for the Estate contacted NewRez on January 16, 2019, and that NewRez agreed
that the Property would be listed for sale. On January 23, Rubin Lublin TN, PLLC (“Rubin
Lublin”) counsel for Shellpoint Mortgage, notified the Estate that it intended to foreclose
1
See Mortg. Elec. Registration Sys., Inc. v. Ditto, 488 S.W.3d 265 (Tenn. 2015) for a discussion of the
role of MERS in mortgage securitization in the contemporary residential mortgage industry.
2
It appears that NewRez acquired Shellpoint Mortgage Servicing (Shellpoint Partners LLC) at some point
in 2018. See www.newrez.com/press-news/new-residential-completes-previously-announced-
acquisition-of-shellpoint-partners.
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on the Property and that sale by public auction would be held on March 14, 2019. It appears
that attempts by the Estate’s counsel to contact Rubin Lublin by telephone were
unsuccessful, and on February 13 counsel for the Estate advised Rubin Lublin by certified
mail, return receipt requested, that the Estate disputed the validity of the debt and that any
attempt to foreclose on the Property would be in violation of the Fair Debt Practices Act.3
Rubin Lublin replied in writing on February 26, enclosing a copy of the loan payment
history and advising counsel that it had initiated foreclosure proceedings.
In the meantime, on February 19, 2019, the Estate filed a petition in the probate
court to list the Property for sale. In its petition, the Estate asserted that it lacked sufficient
funds to pay Mr. Wallace’s debts and the Estate’s administration expenses. It further
asserted that the Property was valued at $147,900.00 and that, subject to the court’s
approval, it had retained a realtor to sell the Property subject to a six percent commission.
The probate court granted the petition the same day.
On March 5, 2019, the Estate filed a suggestion of insolvency. The Estate asserted
the value of the personal estate was $25,179.22; that the claims against and expenses of the
Estate totaled $167,291.85; and that the assets of the Estate were insufficient to pay the
debts and administrative expense. The Estate asserted that the probate court accordingly
had jurisdiction over the Property under Tennessee Code Annotated section 30-2-418.
In its suggestion of insolvency, the Estate also asserted that Rubin Lublin was in
violation of the Fair Debt Collection Practices Act (“FDCPA”) and prayed for a temporary
restraining order and an injunction. The Estate submitted that Rubin Lublin had published
notices of foreclosure of the Property in violation of the FDCPA and that the foreclosure
sale scheduled for March 14 would “usurp the jurisdiction of [the] [c]ourt and
misappropriate decedent’s assets in favor of NewRez at the expense of the decedent’s
creditors and beneficiaries and in violation of Tennessee Law.” The Estate prayed for a
temporary restraining order and, “eventually,” an injunction against Rubin Lublin and
NewRez restraining them from taking any action to foreclose against the Property. The
probate court granted a temporary restraining order enjoining Rubin Lublin and NewRez
from taking any action to foreclose or otherwise proceed against the Property on March 5.
Following a hearing on March 20, the probate court assumed jurisdiction over the property
pursuant to Tennessee Code Annotated section 30-2-418 and granted the Estate’s petition
for a temporary injunction enjoining Rubin Lublin and NewRez from proceeding against
the Property.
Rubin Lublin filed a notice of removal to the United States District Court for the
Western District of Tennessee on April 4, 2019. In its notice in the probate court, Rubin
3
The record contains a sworn affidavit of counsel for the Estate attesting to his conversation with a
representative of NewRez, his efforts to list the property for sale in reliance on an agreement with NewRez,
and his unsuccessful efforts to contact Rubin Lublin by telephone.
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Lublin advised the court that, “[p]ursuant to 28 U.S.C. § 1446(d), this ‘court shall proceed
no further unless and until the case is remanded.’” In the district court, Rubin Lublin
asserted federal jurisdiction was proper over the Estate’s claim that Rubin Lublin had acted
in contravention of the FDCPA. It also asserted that the federal court had supplemental
jurisdiction over the Estate’s claim of misappropriation of assets because the claim was
“derived from the same common nucleus of fact as the FDCPA claim.”
On April 11, Rubin Lublin filed a motion to dismiss the Estate’s FDCPA claim for
failure to state a claim on the basis that 1) it is not a debt collector and 2) the Estate had
failed to allege how it had violated the FDCPA. It also filed a motion to sever and remand
issues relating to the Estate’s notice of insolvency and “claim” of misappropriation of
property. The Estate did not respond to Rubin Lublin’s motions, and the district court
determined that the Estate’s petition “allege[d] no facts to show that Rubin Lublin meets
the FDCPA’s primary definition of a ‘debt collector’ or could be held liable under any
section of the Act other than section 1692f(6).” The court determined that the Estate had
failed to state a claim with respect to the FDCPA and granted Rubin Lublin’s motion to
dismiss. The court found that Rubin Lublin “concede[d] that ‘the determination of Estate
insolvency and how the insolvent Estate is to be administered do not share ‘a common
nucleus of operative fact’ with the determination of whether or not the notices of
foreclosure published by Rubin Lublin violated the FDCPA.”
The district court concluded that it had original jurisdiction over the FDCPA claims
but lacked supplemental jurisdiction over the rest of the Estate’s petition. It accordingly
granted Rubin Lublin’s motion to sever and remand. The district court entered judgment
on July 19, 2019, and the matter was remanded to the probate court.4
On August 16, 2019, the Estate filed a motion to approve the sale of the Property.
In its motion, the Estate asserted that it had retained a realtor and had entered into a standard
contract for sale, subject to the court’s approval, for a price of $162,000.00.5 The probate
court approved the sale by order entered August 28. However, it appears the buyers were
unable to obtain financing, and the sale fell through in May 2020.6
In June 2020, the Estate filed a motion to approve judicial sale of the Property, and
the probate court granted the motion on September 1, 2020. The probate court appointed
a special commissioner to complete the sale and ordered:
Upon the Special Commissioner’s receipt of the net purchase price, any and
all liens or claims against Decedent or Decedent’s property, including the
4
It appears that NewRez had retained Rubin Lublin for the foreclosure and that Rubin Lublin did not
represent NewRez following remand to state court.
5
The record before us contains a sales contract dated May 29, 2019.
6
The Estate contends that Buyers were unable to secure financing because NewRez failed to consent to the
sale.
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mortgage and/or deed of trust held by NewRez, LLC, and any other
mortgages or deeds of trust secured by the Property, and any other claims,
whether choate or inchoate, are transferred from the Property to the proceeds
of sale[.]
The Property was sold at public sale on October 12, 2020, at a sales price of
$167,000. The principal due under the Deed of Trust was approximately $135,405.97 at
the time of sale, and the total amount due on the loan was $151,455.85. The Special
Commissioner filed his report on October 26, 2020, and determined:
There is a deed of trust recorded in ORBV 1653, Page 1056, Register’s
Office for Montgomery County, Tennessee (ROMCT) held by New Penn
Financial, LLC d/b/a Shellpoint Mortgage Servicing, with Rubin Lublin TN,
PLLC, as trustee pursuant to an Appointment of Substitute Trustee recorded
in ORBV 1857, Page 2749, ROMCT. The estimated payoff for this
encumbrance through November 30, 2020, is One Hundred Fifty-One
Thousand Four Hundred Fifty-Five Dollars and Eighty-Five Cents
($151,455.85). This amount is subject to change based upon the
consummation of the transaction and date in which funds are received and
disbursed.
The Special Commissioner estimated total disbursements in the amount of $157,603.56,
including costs of the sale, 2020 Montgomery County taxes, the Special Commissioner’s
fee of three percent ($5,010.00), and payment to NewRez/Shellpoint Mortgage Servicing
in the amount of $151,455.85. Thus, a surplus of $9,396.44 remained to be deposited in
the registry of the court.
Following a hearing on October 27, the probate court entered an “order amending
and confirming [the] special commissioner’s report of sale and vesting title[.]” In its order,
the probate court found that the Property was “subject to an apparent perfected security
interest in the form of a mortgage and/or deed of trust held in favor of NewRez, LLC, as
set forth with particularity in the Notice of Insolvency[.]” The probate court ordered the
Property divested from the Estate and vested in the purchaser and ordered “any and all liens
or claims against Decedent or Decedent’s Property, whether choate or inchoate, including
but not limited to the aforesaid mortgage and/or deed of trust held in favor of NewRez,
LLC, should be terminated and transferred from the Property to the proceeds of sale
therefrom.” The probate court struck the Special Commissioner’s assignment of
$151,445.85 to NewRez, reduced the total disbursements to $6,147.71, and ordered net
proceeds in the amount of $159,633.28 tendered to the clerk and master.
The Estate filed a notice of insolvency on November 12, 2020. In its notice, the
Estate stated that the principal balance due on the note and Deed of Trust was $134,437.16,
that post-death interest, fees and expenses totaled $17,167.47, and that the total outstanding
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balance was $151,604.63. It also stated that the assets of the Estate, including $159,633.28
in net proceeds from sale of the Property, amounts received from the settlement with
Farmers Insurance, and the balance of Mr. Wallace’s checking account totaled
$184,812.50. In its plan of distribution, the Estate allocated $4,689.94 to each of Mr.
Wallace’s two children; $43,882.17 to Estate’s attorneys; and $4,500.00 to Ms. Harris as
personal representative. It also allocated $22,003.43 to Bridgecrest and $105,047.02 to
NewRez as pro rata shares of the remaining net estate.
On December 22, 2020, NewRez filed an objection to the Estate’s notice of
insolvency. In its objection, NewRez did not contend that the Estate was not insolvent.
Rather, NewRez asserted that it held a first-priority secured lien on the Property by way of
a recorded Deed of Trust and that it “maintain[ed] its first-priority secured lien to the sales
proceeds.” NewRez observed that the Estate had admitted in its notice of insolvency that
the Deed of Trust was secured by the Property and that there was $151,604.63 due and
owing, including $134,437.16 in principal. NewRez objected to the Estate’s planned
distribution of the proceeds from the sale of the Property and submitted:
Since NewRez held a first-priority secured lien on the Property, after the sale,
NewRez[‘s] first-priority lien attached to the sale proceeds pursuant to this
[c]ourt’s order of September 1, 2020, ¶ G. 7.
As there are sufficient proceeds from the Sale of the Property to pay the Deed
of Trust in full, and NewRez hold[s] a first-priority lien to the proceeds from
the Sale, this [c]ourt should disburse payment of $152,367.79, plus a per
diem of $12.99, to NewRez to satisfy the indebtedness secured by the Deed
of Trust.
The probate court heard the matter on April 20, 2021. By ordered entered May 11,
2021, the probate court determined that the total amount due and owing to NewRez was
$156,278.43, the amount asserted by NewRez at the hearing.7 The court determined that
the gross value of the Estate totaled $184,812.50; that funds in the amount of $4,706.08
were exempt from creditor claims; and that the secured claims of NewRez and Bridgecrest
totaled $183,679.11. It also found that $47,010.17 remained due for attorney’s fees and
expenses. The court determined that Mr. Wallace’s two minor children/heirs were entitled
to a disbursement of exempt property in the amount of $2,353.04 each. The court further
determined that, under Tennessee Code Annotated section 30-2-317(a), counsel for the
Estate was entitled to reimbursement in the amount of $47,010.17 and Ms. Harris was
entitled to a personal representative fee in the amount of $4,500.00. The court classified
NewRez and Bridgecrest as non-priority secured creditors under section 30-2-317(c),
subject to a pro rata distribution of the remaining assets as provided by section 30-2-317(b).
7
At oral argument of this matter on June 26, 2022, the parties agreed that $156,278.43 is the amount
due to NewRez.
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It determined that Bridgecrest was entitled to a disbursement in the amount of $22,003.43
and that NewRez was entitled to a disbursement in the amount of $106,592.82. NewRez
filed a timely notice of appeal to this Court.
II. ISSUES
NewRez raises the following issues, as stated in its brief, for our review:
1) Whether the probate court erred by failing to payoff a first-priority secured
lien on real property sold pursuant to court order.
2) Whether the probate court erred in ruling that a first-priority secured
lienholder’s claim to proceeds from the sale of encumbered real property by
an insolvent estate is subject to general distribution under Tenn. Code Ann.
30-2-317.
The issue presented by this appeal, as we reword it, is:
When a decedent’s real property is sold pursuant to Tennessee Code
Annotated section 30-2-418 to satisfy claims against the decedent’s insolvent
estate, must amounts due under a deed of trust perfected during the
decedent’s lifetime be paid from the sales proceeds before any proceeds are
incorporated into the personalty to be distributed under the priority of claims
provisions set forth in Tennessee Code Annotated section 30-2-317.
III. STANDARD OF REVIEW
The issue presented by this appeal involves the interpretation and applicability of
state statutes. The construction of a statute and the application of the statute to the facts of
a case are questions of law. Comm’ns of Powell-Clinch v. Util. Mgmt. Review Bd., 427
S.W.3d 375, 381 (Tenn. Ct. App. 2013) (citation omitted). We review questions of law de
novo upon the record with no presumption of correctness for the determination of the trial
court. Id. (citation omitted).
IV. ANALYSIS
We begin our discussion with the well-settled maxim that our primary goal when
construing a statute is to effectuate the intent of the General Assembly. Comm’ns of
Powell-Clinch, 427 S.W.3d at 381 (citation omitted). We accordingly “apply the plain and
normal meaning of the words” used in the statute, interpreting it “without a forced
interpretation that would limit or expand the statutes application.” Id. at 382 (quoting State
v. White, 362 S.W.3d 559, 566 (Tenn. 2012) (quoting Eastman Chem. Co. v. Johnson,
151 S.W.3d 503, 507 (Tenn. 2004))) (internal quotation marks omitted). However, “the
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language of a statute cannot be considered in a vacuum, but ‘should be construed, if
practicable, so that its component parts are consistent and reasonable.’” In re Estate of
Tanner, 295 S.W.3d 610, 614 (Tenn. 2009) (quoting Marsh v. Henderson, 221 Tenn. 42,
424 S.W.2d 193, 196 (1968)). Statutes related to the same subject and sharing a common
purpose must be construed together, “and the construction of one such statute, if doubtful,
may be aided by considering the words and legislative intent indicated by the language of
another statute.” Johnson v. Hopkins, 432 S.W.3d 840, 848 (Tenn. 2013) (citations
omitted). When separate statutes manifest an “unfortunate tension between two important
policy considerations[,] . . . it is not our duty to re-weigh the[] competing concerns.” Estate
of Tanner, 295 S.W.3d at 617. Rather, we must consider the statutes in context “to
determine the balance that was struck by the General Assembly.” Id.
The status of the law is determined by the statutes and the case law construing those
statues. See Coffman v. Armstrong Int’l, 615 S.W.3d 888, 896 (Tenn. 2021) (construing
a manufacture’s duty to warn under the Tennessee Products Liability Act and relevant case
law). Indeed, case law may constitute a significant portion of the jurisprudence governing
a matter. See State v. Jarman, 604 S.W.3d 24, 44-48 (Tenn. 2020) (considering the body
of case law comprising Tennessee jurisprudence governing jury instructions). It is well-
settled, furthermore, that the supreme court’s decision on a particular issue is binding on
this Court and the trial courts. Webb v. Nashville Area Habitat for Humanity, 346 S.W.3d
422, 430 (Tenn. 2011).
Additionally, our supreme court has opined that “‘new statutes change pre-existing
law only to the extent expressly declared.’” Johnson v. Hopkins, 432 S.W.3d at 848
(quoting State v. Dodd, 871 S.W.2d 496, 497 (Tenn. Crim. App. 1993)). A statute that
does not repeal a previous law – directly or by implication – “is cumulative to such law
and repeals by implication are not favored.” Id. (quoting McDaniel v. Physicians Mut.
Ins. Co., 621 S.W.2d 391, 394 (Tenn. 1981) (quoting Hibbett v. Pruitt, 162 Tenn. 285, 36
S.W.2d 897, 900 (1931))) (internal quotation marks omitted). The courts presume that the
legislature is aware of the status of the law when it enacts or modifies a statute, and that if
it “intend[s] to effectuate a significant change in the law [it] would [do] so in a clear and
straightforward manner.” Piper v. City of Memphis, 861 S.W.2d 832, 834 (Tenn. Ct. App.
1992) (citation omitted).
With these guiding principles in mind, we turn to the issue presented by this appeal.
A. Arguments of the Parties
NewRez submits that “[t]he main question of this appeal comes down to whether an
insolvent estate may use the probate court to reduce the balance of a mortgage made by the
decedent via pro-rata payment of the debt after a judicially ordered sale of the real
property.” It maintains that the probate court “reduced the secured debt of NewRez by
almost $45,000.00 after it ordered the sale of real property by classifying NewRez, a first-
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priority secured lienholder, as a creditor subject to pro-rata distribution of the assets of the
Estate pursuant to Tenn. Code Ann. § 30-2-317.” It also maintains that the “error of the
trial court is especially egregious in that instead of remitting payment in full to NewRez as
required by law, the trial court placed the Estate’s attorney’s fees, totaling over $47,000.00,
in a superior position over a first-priority secured lien on real property.”
NewRez contends that the court’s release of its secured lien though judicial sale
without paying the secured debt in full is contrary to Tennessee law with respect to real
property and that “it undermines the statutory scheme for the priority of registered
instruments as to real property within the State.” NewRez references Tennessee Code
Annotated section 66-26-105 in support of the proposition that the Tennessee Code gives
priority status to its recorded security interest. It asserts that, contrary to the contention of
the Estate, Title 30 and Title 66 “should be read in conjunction with each other as shown
by the long-standing case law in Tennessee,” and that one statutory scheme should not
“prevail over the other.” It submits that “[s]tripping the rights of secured lienholders due
to a borrower’s inability to pay his debts negates the very purpose a secured lien and cannot
be upheld by this Court.”
NewRez cites historic case law for the proposition that Tennessee courts have long-
recognized the priority of a deed of trust when real property is brought into an insolvent
estate. It submits that the Deed of Trust “is an in rem claim against the Property[;]” that
title vested in Mr. Wallace’s heirs upon his death; that the Property was not part of the
Estate prior to the court’s September 2020 order; and that NewRez’s claim is not a creditor
claim governed by section 30-2-317. NewRez submits that if the 2019 private sale had
been successful, “the Deed of Trust would have been paid in full at the closing of the sale
outside of the purview of the Probate Court.” NewRez quotes Woman’s Coll. v. Home,
60 S.W. 609 (Tenn. Ct. App. 1900), in support of its position that it has a “prior right” to
the proceeds of the sale of the Property and the “equity of the estate is simply in the surplus
that may be left after the satisfaction of the debt, and, if no surplus is left after a fair
execution of the trust, there is nothing for the rights of creditors or the estate to attach to.”
NewRez maintains that “[t]he case law is clear, stretching back 170 years, that neither death
nor an insolvent estate may disturb a lien on real property secured in the life of the
decedent.”
NewRez also contends that treating “a first-priority secured lienholder of real
property as creditor subject to pro-rata distribution in insolvent estates . . . would open the
gates to potential abuse of insolvent estate administration.” It submits that “[s]uch a
decision by this Court would invite every estate attorney to incur exorbitant expenses and
attorney’s fees as to their client and then be paid directly from the proceeds of the sale of
real property in a superior position to that of a secured lienholder. This is not to say that
counsel for an estate should not be paid for their services through the estate funds, but it is
important to distinguish that attorney’s fees do not hold super-priority over secured debts
on realty made in the life of the decedent.”
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Finally, NewRez contends that the priority position of the Deed of Trust was
acknowledged by the probate court in its September 2020 order and by the Special
Commissioner, who “followed the established practice of paying the Deed of Trust in full
and then depositing the remaining funds with the trial court for distribution to the creditors
of the Estate[,]” in his October 2020 report. It asserts that, as a matter of policy, “if trial
courts were allowed, on their own volition, to determine and set the balances they deem
“reasonable” for all prior secured liens of real property after a court ordered sale, such
actions would undermine the statutory scheme for perfecting secured liens on real property
and the lienholders’ rights to enforce the secured lien.” NewRez contends that “it is the
standard practice of Tennessee courts that secured liens on real property sold under judicial
order are to be paid directly from the proceeds of the sale, and the excess proceeds are then
eligible for distribution to an insolvent estate. Through this interpretation, the race-notice
recording system instituted in Tenn. Code Ann. § 66-26-105 and general principles
controlling conveyances of real property are upheld concurrently with the statutory
distribution of insolvent estate assets found in Tenn. Code Ann. § 30-2-317.”
The Estate, on the other hand, asserts that the probate court properly utilized the
Property to satisfy claims against the Estate under Tennessee Code Annotated sections 30-
2-418 and 30-5-101, et seq. It asserts that Tennessee Code Annotated section 30-2-103
mandates that, when a notice of insolvency is filed, the personal representative must file
an accounting of the assets of the estate and “a proposed plan of distribution in accordance
with § 30-2-317.” It contends that the “hierarchy for categorizing and computing
payments” contained in section 30-2-317 accordingly is applicable to the proceeds of the
sale of real property brought into an insolvent estate. The Estate also asserts that the
indebtedness of an estate includes administrative expenses and inheritance and estate taxes.
It submits that the “ranking method in the statute [section 30-2-317] is quite broad in that
it applies to the courts, funeral homes, both federal and state taxing authorities, the Bureau
of TennCare, city and county governments, and all other creditors of a decedent’s estate.”
The Estate asserts that, under the insolvency statutes, “once the trial court divested
ownership of the Property from [Mr. Wallace’s] [c]hildren and took jurisdiction over the
Property[,]” section 30-2-317 became applicable “to all interested parties who are owed
funds . . . including NewRez.”
The Estate submits that Title 66 “does not override the application of Title 30 in an
insolvent estate.” It asserts that:
an interpretation that allows Title 66 to override Title 30 would violate the
rules of statutory construction. In the process of bringing an estate
administration to a final conclusion, certain obligations must be paid before
others, and the Tennessee legislature created a hierarchy for just this purpose
when it created Tenn. Code Ann. § 30-2-317. Title 66 makes no attempt to
resolve a decedent’s business affairs because that is the purpose of Title 30,
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which further buttresses why Title 30 must control in the instant case.
The Estate analogizes the priority of claims provisions of section 30-2-317 to
provisions in a bankruptcy proceeding, asserting:
In completing this sale of real estate, both the bankruptcy trustee and the
trustee’s agents are compensated for their work in liquidating the real estate,
and this compensation is paid before any creditor, including those creditors
holding a security interest in the real estate, and this happens despite the fact
that the bankruptcy trustee is not a secured creditor because a failure to
compensate the trustee would cause the system to breakdown. Similarly, the
law for the administration of insolvent estates requires that court costs,
administrative expenses, and funeral expenses be paid first even though those
expenses are unsecured. Here, as with a bankruptcy trustee, the estate’s
administrative costs are superior in right to those of secured creditors in
accordance with the legislature’s priority hierarchy set forth in Title 30.
Tenn. Code Ann. § 30-2-317.
The Estate submits that provisions of section 30-2-317 reflect the General
Assembly’s intention as a matter of policy. It asserts that the section “was established by
the Tennessee legislature to make sure society functions and the most critical aspects of
society with respect to decedents are paid first.” It further asserts that “in creating the
procedure for insolvent estates set forth in Tenn. Code Ann. § 30-5-101, et seq., the
Tennessee legislature acknowledged a lack of assets in certain instances and provided the
framework for resolving those issues.” It submits that statute explicitly requires court costs
and administrative fees and expenses to be paid first. It maintains that “[t]he reasoning
behind this is clear, an unpaid judicial system would eventually breakdown and unpaid
administrators and counsel would refuse to get involved.” The Estate contends that the
application of section 30-2-317 “is the most appropriate means of resolving a decedent’s
obligations in such a way as to minimize the burden on society.”
The Estate urges that the historical caselaw sited by NewRez is inapplicable to this
case because it “deal[t] with priority among secured versus unsecured creditors rather than
the expenses of administration that are at issue in this case.” It asserts that NewRez’s
“arguments attempt to re-characterize priority expenses of administration (i.e., court costs,
administrative fees and expenses, attorney’s fees and expenses, funeral expenses, etc.) as
general unsecured creditor claims, which effectively, and improperly, nullifies the purpose
of the priority claim provisions in Title 30.” It argues that the probate court did not alter
NewRez’s standing as a secured creditor, but instead “applied Title 66 . . . through the lens
of Title 30 . . . and protected NewRez’s security interest to the extent the underlying funds
were available to do so.”
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B. The Statutes
Tennessee Code Annotated section 31-2-103, provides, in relevant part:
The real property of an intestate decedent shall vest immediately upon death
of the decedent in the heirs as provided in § 31-2-104.8 . . . Upon qualifying,
the personal representative shall be vested with the personal property of the
decedent for the purpose of first paying administration expenses, taxes, and
funeral expenses and then for the payment of all other debts or obligations of
the decedent as provided in § 30-2-317. If the decedent’s personal property
is insufficient for the discharge or payment of a decedent’s obligations, the
personal representative may utilize the decedent’s real property in
accordance with title 30, chapter 2, part 4. After payment of debts and
charges against the estate, the personal representative shall distribute the
personal property of an intestate decedent to the decedent’s heirs as
prescribed in § 31-2-104, and the property of a testate decedent to the
distributees as prescribed in the decedent’s will.
Tennessee Code Annotated section 30-2-401 gives the probate court “concurrent
jurisdiction with the chancery and circuit courts to sell real estate of decedents[,]” and
section 30-2-402 provides, in relevant part, that the personal representative may file a
petition for the sale of the decedent’s real property, “or so much of the land as may be
necessary,” when “the personal property available appears to be insufficient to pay debts
and expenses.”
Section 30-2-404 mandates that, “[b]efore making a decree for the sale of lands,”
the court must be satisfied “that the personal estate has been exhausted in the payment of
bona fide debts, and that the debts or demands for which the sale is sought are justly due
and owing either to creditors or to the personal representative for advances out of the
personal representative’s own means to pay just demands against the estate.” An action
prosecuted under the section “shall be conducted as other suits in equity.” Tenn. Code
Ann. § 30-2-405.
Section 30-2-418 gives the court the authority to order the sale of real property. The
section provides, in relevant part:
In the case of a will that does not give the personal representative the power
to sell real estate, and in intestate estates, when the personal estate is
ascertained by the report of the clerk, and the confirmation of the report by
8
Section 31-2-104 provides, in relevant part, that if no spouse survives an intestate decedent, as is the case
here, the entire intestate estate passes to the decedent’s children. Tenn. Code Ann. § 31-2-104(b)(1).
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the court, to be insufficient for the payment of the debts of the estate,
administrative expenses, inheritance taxes and estate taxes, the court shall
direct that the real estate, subject to sale, or so much of the real estate as is
necessary, be sold for the payment of the debts, expenses and taxes.
Tenn. Code Ann. § 30-2-418(a). The section further provides that the court may order the
sale of real property after notice to the parties and after considering the appraisal of a
“qualified appraiser as to the fair market value of the property.” Tenn. Code Ann. § 30-3-
418(d).
Tennessee Code Annotated section 30-2-317 sets forth the “priorities and
preferences” of claims and demands against an estate. Section 30-2-317 provides:
(a) All claims or demands against the estate of any deceased person shall be
divided into the following classifications, which shall have priority in the
order shown:
(1) First: Costs of administration, including, but not limited to, premiums on
the fiduciary bonds and reasonable compensation to the personal
representative and the personal representative's counsel;
(2) Second: Reasonable funeral expenses;
(3) Third: Taxes and assessments imposed by the federal or any state
government or subdivision of the federal or any state government, including
claims by the bureau of TennCare pursuant to § 71-5-116 and including city
and county governments; and
(4) Fourth: All other demands that may be filed as aforementioned within
four (4) months after the date of notice to creditors.
(b) All demands against the estate shall be paid by the personal representative
in the order in which they are classed, and no demand of one class shall be
paid until the claims of all prior classes are satisfied or provided for; and if
there are not sufficient assets to pay the whole of any one class, the claims in
that class shall be paid pro rata.
(c) Debts due upon bills single, bonds, bills of exchange and promissory
notes, whether with or without seal, and upon settled and liquidated accounts
signed by the debtor, are of equal dignity, unless otherwise provided, and are
to be paid accordingly.
(d) The personal representative shall hold aside sufficient funds or other
assets to pay each contested or unmatured claim (or the proper ratable portion
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thereof, as the case may be) with interest (if the claim be one bearing
interest), until it is determined whether or not the claim is to be paid, or until
an unmatured claim has reached maturity, also sufficient assets to meet the
expenses of pending litigation and costs of court and any unpaid taxes.
The statutes governing the administration of estates unambiguously authorize the
probate court to assume jurisdiction over a decedent’s real property and to order the sale
of that property if it determines that the personal property of the estate is insufficient to
satisfy the debts of the decedent and claims against the estate. Title 30 is silent, however,
with respect to whether, when real property encumbered by indebtedness secured by a
properly executed and recorded deed of trust is sold pursuant to chapter 2, part 4 of the
title, the claim of the first lien-holder secured under the deed of trust is a non-priority claim
subject to pro rata distribution under section 30-2-317 notwithstanding the recording and
priority provisions contained in Title 66.
We respectfully disagree with the Estate that the “[r]ules of statutory construction .
. . direct that Title 30 control the application of Title 66 in this instance.” As the Estate
asserts, Title 30 provides the mechanism by which real property may be utilized to satisfy
claims against an insolvent estate. It does not, however, expressly supersede the priority
provisions of Title 66.
Tennessee Code Annotated section 66-26-102 provides:
All of the instruments registered pursuant to § 66-24-101 shall be notice to
all the world from the time they are noted for registration, as prescribed in §
8-13-108; and shall take effect from such time.
Section 66-26-105 provides:
Any instruments first registered or noted for registration shall have
preference over one of earlier date, but noted for registration afterwards;
unless it is proved in a court of equity, according to the rules of the court,
that the party claiming under the subsequent instrument had full notice of the
previous instrument.
We agree with the parties that the provisions of Title 30 and Title 66 seek to strike
a balance between competing interests. Additionally, we observe that sections 66-26-105
and provisions governing the sale of real property to satisfy the debts of an insolvent estate
both sound in equity. Significantly, as discussed below, notwithstanding the evolution of
statutes relating to both the administration of estates and real property rights, the equitable
balance considerations contained in contemporary Titles 30 and 66 have been a part of
Tennessee policy and jurisprudence since the early 19th century. We accordingly turn to
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the historic case law addressing these considerations.
C. Case Law
We begin our discussion of the case law by observing that the parties do not dispute
the probate court’s authority to order the sale of the Property in this case, nor do they
challenge the conduct of the sale itself. It is also undisputed that any surplus from the sale
remaining after payment of the balance of the loan would be an asset of the Estate subject
to disbursement in accordance with Tennessee Code Annotated section 30-2-317. The
parties also do not dispute the priority provisions contained in Title 66. The only question
posed by this case is whether section 30-2-317 is applicable to the claim of a first lien-
holder under a properly executed and recorded deed of trust when the encumbered real
property is sold to satisfy the debts of an insolvent estate.
The Estate asserts that “the law for the administration of insolvent estates requires
that court costs, administrative expenses, and funeral expenses be paid first even though
those expenses are unsecured.” It cites no case law in support of this proposition, but relies
exclusively on the “priority hierarchy” contained in section 30-2-317 and relevant portions
of 2 Pritchard on the Laws of Wills and Administration of Estates § 913-918 (2021). The
Estate distinguishes cases relied on by NewRez, asserting that those cases relate to the
competing rights of creditors and the priority of claims between secured and unsecured
creditors and not to the priority status of claims enumerated by section 30-2-
317(a)(1)(2)&(3). It contends that the case law does not establish that the probate court
erred by categorizing NewRez as a creditor under section 30-2-317(c); that the probate
court did not fail to take NewRez’s status as a secured creditor into account; that the claims
of the secured creditors took priority over unsecured claims; and that the court correctly
directed the claims of the Estate’s two secured creditors to be paid on a pro rata basis as
provided by section 30-2-317(b). The Estate cites the rules of statutory construction set-
forth in In re Tanner, 295 S.W.3d 610, 613-14 (Tenn. 2009), for the proposition that “[t]he
cases cited by Appellant do not change the presumption that laws should be applied as
written.” However, it cites no case law in support of its contention that “the hierarchy for
ranking and paying the Estate’s claims and demands, as set forth in Tenn. Code Ann. § 30-
2-317, applies to all interested parties who are owed funds by a decedent, including
NewRez, once the trial court divested ownership of the Property from Decedent’s Children
and took jurisdiction over the Property.”
NewRez, on the other hand, relies primarily on case law from the 19th and early 20th
centuries in support of its assertion that a priority first lien secured by a deed of trust must
be satisfied before any proceeds from the sale of encumbered real property are brought into
an estate to satisfy claims in accordance with section 30-2-317. It relies on Fields v.
Wheatley’s Creditors, 33 Tenn. (1 Sneed) 351 (Tenn. 1853); Winton v. Eldridge, 40 Tenn.
(3 Head) 361 (Tenn. 1859); Kinsey v. McDearmon, 45 Tenn. (5 Cold) 392 (Tenn. 1868);
and Woman’s Coll. v. Home, 60 S.W. 609 (Tenn. Ct. App. 1900) in support of its assertion
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that “it is well-established that [a] secured lienholder on real property holds a superior
interest to other creditors of an insolvent estate[]” and “if the sale proceeds were not enough
to satisfy the debt of the lienholder, the deficiency balance would be eligible for a pro-rata
share of the remaining assets of the estate with the other creditors.”
It appears that NewRez found no contemporary case law in support of its position,
and it also appears that our courts have not addressed the applicability of current section
30-2-317 to a first lien-holder under a deed of trust when real property is sold pursuant to
section 30-2-401, et seq. NewRez contends, however, that the distribution recommended
by the Special Commissioner followed established practice by satisfying amounts due
under the Deed of Trust and allocating any surplus to the assets of the Estate. We
accordingly turn to the evolution of the case law addressing the public policies furthered
by the relevant portions of the Tennessee Code.
We begin by noting that the courts have long recognized that foreclosure is an
equitable, quasi in rem proceeding. Freeman v. Alderson, 119 U.S. 185, 187 (1886); see
Knapp v. Supreme Commandery, United Order of the Golden Cross of the World, 118
S.W. 390, 394 (Tenn. 1908). Further, it is well-settled in Tennessee that:
“ ‘[t]he legislature has determined that the public policy of the state is to
allow foreclosure through non-judicial sale.’ ” Threadgill v. Wells Fargo
Bank, N.A., No. E2016-02339-COA-R3-CV, 2017 WL 3268957, at *2
(Tenn. Ct. App. Aug. 1, 2017) (quoting CitiMortgage, Inc. v. Drake, 410
S.W.3d 797, 808 (Tenn. Ct. App. 2013)). Nonjudicial foreclosure is the
almost exclusive means of foreclosure in this State, and the statutes
governing it are outlined in Tennessee Code Annotated sections 35-5-101, et
seq. Id. “[S]o long as a mortgagee lender complies with the applicable
statutes and the terms of the deed of trust, it does not have to resort to a
judicial forum to foreclose on a secured property.” Id. (internal citation
omitted).
Smith v. Hughes, 639 S.W.3d 627, 639 (Tenn. Ct. App. 2021). Accordingly, “[b]ecause
foreclosure in not a judicial remedy in Tennessee[,] . . . a trustee may conduct a foreclosure
sale without making any filing in court.” Threadgill v. Wells Fargo Bank, N.A., No.
E2016–02339–COA–R3–CV, 2017 WL 3268957, at *3 (Tenn. Ct. App. Aug. 1, 2017)
(quoting Robertson v. U.S. Bank, N.A., 831 F.3d 757, 765 (6th Cir. 2016) (citing Tenn.
Code Ann. § 47–9–609(b)(2); see, e.g.,id. § 35–5–101)). Thus, as NewRez contends in its
brief, it would have been within its rights to foreclose on the Property for lack of payment
on the debt secured by the Deed of Trust had the probate court denied the Estate’s March
2019 motion for an injunction.
We also observe that, although real property passing by devise or descent may be
reached by the personal representative to discharge the debts of an insolvent estate,
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property passing by deed by right of survivorship cannot be so utilized. In re Estate of
Vincent, 98 S.W.3d 146, 149 (Tenn. 2003). However, absent exoneration under the terms
of a sole mortgagor/decedent’s will, when property passes by deed by right of survivorship,
the survivor takes the property subject to any deed of trust and must continue to make
payments to avoid foreclosure. Id. If the survivor does not assume payments on the
mortgage, the decedent/mortgagor’s estate is responsible for any deficiency that might
result on foreclosure. Id. at 150.
The priority provisions now contained in Title 66 likewise are well-settled. The
Tennessee courts have long held that ‘[t]he deed first registered must be given priority[.]”
Hammock v. Qualls, 201 S.W. 517, 518 (Tenn. 1918). They have likewise long-held that
an unregistered deed “shall be null and void as to existing and subsequent creditors of, or
bona fide purchasers from, the makers, without notice.” Wilkins v. McCorkle, 80 S.W.
834, 835 (Tenn. 1904) (citing Shannon’s Code, § 3752). However, “[a]ny instruments first
registered or noted for registration shall have preference over one of earlier date, but noted
for registration afterwards; unless it is proved in a court of equity, according to the rules of
the court, that the party claiming under the subsequent instrument had full notice of the
previous instrument.” Tenn. Code Ann. § 66-26-105; Watson v. Watson, 658 S.W.2d 132,
134 (Tenn. Ct. App. 1983).
It also is well-settled in Tennessee that the real property of an intestate decedent
vests immediately in the heirs. Tennessee Code Annotated § 31-2-103; In re Estate of
Trigg, 368 S.W.3d 483, 501 (Tenn. 2012). Accordingly, the decedent’s personal
representative has no power over or interest in the decedent’s real property unless the court
determines that the personal estate is insufficient to satisfy the bona fide debts and expenses
of the estate. Tennessee Code Annotated §§ 31-2-103 & 30-2-404; See id. This has been
the state of the law in Tennessee since at least 1827. Kindell v. Titus, 56 Tenn. (9 Heisk)
727, 731 (Tenn. 1872); Whitmore v. Johnson’s Heirs, 29 Tenn. (10 Hum.) 610, 612-613
(Tenn. 1850). Like the 1827 statute, Tennessee Code Annotated section 30-2-418 permits
the court to order the sale of “real estate . . . or so much of the real estate as is necessary”
to pay the debts, expenses and taxes of the estate. Like its precursors, Title 30 requires the
court to be satisfied that the “personal estate has been exhausted in the payment of bona
fide debts” before the court orders the sale of real property. Tennessee Code Annotated §
30-2-404; see Kindell, 56 Tenn. at 740; Whitmore, 29 Tenn. at 612.
The precursor to section 30-2-317 was enacted in chapter 36 of the Acts of 1833,
which gave “priority to certain debts, and amongst others, to debts and arrearages due to
the state[.]” Fields v. Wheatley’s Creditors, 33 Tenn. (1 Sneed) 351, 353 (Tenn. 1853).
In Fields, funds arising from the sale of a decedent’s land were paid first to satisfy a prior
vendor’s lien for unpaid purchase-money, and then to the Bank of Tennessee in payment
of a mortgage debt. The proceeds from the sale of the land were insufficient to fully satisfy
the mortgage however, and the court held that the bank was entitled to a pro rata division
of the remaining assets of the estate as a general creditor. In affirming the chancery court,
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The Fields court opined:
The statutes regulating the administration of insolvent estates were not
intended, and cannot be construed, to affect, in the remotest degree, liens
acquired in the lifetime of the deceased insolvent. They contemplate only a
ratable division of the assets which by law are subject to the satisfaction of
the general creditors.
Id. at 354-55. The Tennessee Supreme Court expanded on its holding in Fields in Winton
v. Eldridge, stating:
We have settled, in the case in 1 Sneed, 354, that the statutes regulating the
distribution of insolvent estates, were not intended to affect liens, upon any
part of the property of the estate, acquired and fixed in the lifetime of the
deceased. These rights continue as if there had been no death, and no statutes
on the subject, so far as their priority of satisfaction is concerned. The
property on which the lien exists, goes into the estate incumbered with the
lien debts. Or more correctly speaking, it is only what remains after the
discharge of the incumbrance, that goes into the fund for distribution.
Winton v. Eldridge, 40 Tenn. (3 Head) 361, 362 (Tenn. 1859). The Winton court
characterized the “right of lien” as “distinct” and “independent” and reiterated that, if the
lien is not satisfied with the proceeds of the sale of land, “the favored creditor” has a right
to a pro rata distribution of other assets with all other creditors in satisfaction of the
remaining debt. Id. In Kinsey v. McDearmon, the court opined that, under the “rule of
law[]” established in Fields and Winton,
a subsisting lien acquired and fixed in the lifetime of a deceased insolvent,
which is capable of being enforced in a court of equity upon the application
of the party in whose favor it exists, may be asserted after the death of such
insolvent; and it makes no difference how such lien was created, so it is a
fixed, subsisting and valid charge upon the estate; or whether it might have
been defeated by the superior diligence of other creditors.
Kinsey v. McDearmon, 45 Tenn. (5 Cold) 392, 399-400 (Tenn. 1868).
In Gwynn v. Estes, the court reiterated and summarized its holdings in Fields,
Winton, and Kinsey, stating:
In the case of Fields v. Wheatley, 1 Sneed, [351, 354-355], it was held: “The
statutes regulating the administration of insolvent estates were not intended,
and could not be construed, to affect in the remotest degree liens acquired in
the lifetime of the deceased insolvent. They contemplate only a ratable
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division of the assets, which, by law, are subject to the satisfaction of the
general creditors.” In the case of Winton v. Eldridge, 3 Head, 36: “These
rights continue as if there had been no death and no statutes on the subject,
so far as their priority of satisfaction is concerned. The property on which
the lien exists goes into the general estate encumbered with the lien debts.”
In Kinsey v. McDearmon, 5 Cold., 398-9: “A lien by contract as security to
reimburse a surety, though unregistered, was held to have precedence over
the general creditors of the estate. This being so, the case is stronger of a lien
registered after the death, no creditor having fastened any lien upon the
property before registration. The deed relates back to its date.”
Gwynn v. Estes, 82 Tenn. (14 Lea) 662, 673-74 (Tenn. 1885). The Gwynne court also
characterized the administrator’s “commission” as an “allowance” from the funds available
to the creditors of the estate. Id. at 674-75.
The court first addressed the statutory requirement of a pro rata distribution among
creditors’ claims against an insolvent estate in Henderson v. McGhee, 53 Tenn. (6 Heisk)
55 (Tenn. 1871). The Henderson court construed Section 2326 of the Code as it then
existed to “expressly break[] down all distinction in the dignity of debt, and treat[] all as of
equal grade[.]”9 Id. at 57. It further opined that a suggestion of insolvency effectively
“makes each creditor whose debt or claim is properly authenticated a quasi judgment
creditor[]” and a creditor who claims under an unregistered mortgage “has no priority over
other creditors[.]” Id. Thus, the courts characterized a lien-holder under a properly
recorded deed of trust as a “favored creditor” with a “distinct” and “independent” right and
the holder of an unperfected mortgage as a general creditor subject to a pro rata distribution
of the assets of an insolvent estate.
Our courts have observed that the object of the statutorily mandated pro rata
distribution of the assets of an insolvent estate “is to secure equality of distribution among
creditors of all the assets, real and personal.” Barchus v. Peters, 4 S.W. 833, 834 (Tenn.
1887). Further, “the legal effect of the suggestion of insolvency is to appropriate the land
(with other property) of the debtor for a pro rata distribution among his creditors, after first
satisfying such as had fixed or specific liens.” Id. (emphasis added). “The suggestion of
insolvency does not defeat liens acquired and fixed in the life-time of the debtor[.]” Id.9
The Code then in effect provided:
Insolvent estates of deceased persons shall be divided among the creditors ratably, and no
action brought, judgment, bill single or note shall have precedence over unliquidated
accounts, presented and filed, authenticated according to law; but all such claims shall be
acted upon as being of equal grade.
Henderson v. McGhee, 53 Tenn. 55, 56–57 (1871).
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(emphasis in the original). Additionally, a suggestion of insolvency does not “prevent
foreclosure of a deed of trust held by a creditor to secure a debt.” Woman’s Coll. v. Horne,
60 S.W. 609, 612 (Tenn. Ch. App. 1900).
Tennessee courts have consistently held that the priority of a perfected lien against
real property continues after the death of the decedent. Id. at 613; Barchus, 4 S.W. at 834;
Kinsey, 45 Tenn. at 399. The only interest in the real property that may be “appropriated”
after the death of the decedent is the interest that the decedent had in his lifetime. Milligan
v. Humbard, 58 Tenn. (11 Heisk) 137, 140 (Tenn. 1872). “[T]he equity of the estate is
simply in the surplus that may be left after the satisfaction of the debt, and, if no surplus is
left after a fair execution of the trust, there is nothing for the rights of creditors or the estate
to attach to.” Woman’s Coll., 60 S.W. at 613.
The background facts set-forth in contemporary cases addressing issues relating to
the administration of insolvent estates establish that this historic precedent has not been
overruled and continues to be accepted practice. The decedent’s indebtedness under a deed
of trust recorded pursuant to Title 66 must first be satisfied when real property is sold to
satisfy the debt of an insolvent estate, and any surplus becomes an asset of the estate. See
Patrick v. Hardin, 385 S.W.2d 905, 907 (Tenn. 1964); see also Chapman v. Tipton, 292
S.W.2d 25, 26 (Tenn. 1956).
More than 100 years ago, our supreme court observed that the “sole purpose” of the
statutory provisions regarding the distribution of the assets of an insolvent estate was to
place creditors on “the same footing – that of absolute equality, by compelling a pro rata
distribution of the assets . . . which by law are subject to the satisfaction of the general
creditors.” Richardson v. Vick, 145 S.W. 174, 177 (Tenn. 1910). The Richardson court
cited Fields, Winton, and Barchus and reiterated that the distribution provisions were “not
intended to affect or impair the liens acquired or fixed upon the property of debtors when
in life[.]” Id.We must disagree with the Estate that current section 30-2-317 permits an insolvent
estate to utilize the proceeds of the sale of the decedent’s real property to pay other
expenses, debts or claims without first satisfying any encumbrance due under a recorded
deed of trust. A mortgagee “has a legally protected property interest[,]” Mortg. Elec.
Registration Sys. v. Ditto, 488 S.W.3d 265, 282 (Tenn. 2015) (quoting Mennonite Bd. of
Missions v. Adams, 462 U.S. 791, 798 (1983)), and the courts have long-held that the
suggestion of insolvency does not displace a lien that was fixed in the decedent’s lifetime.
Barchus, 4 S.W. at 834. Succinctly stated, “the probate process does not extinguish a real
estate mortgage[.]” Summers v. Financial Freedom Acquisition LLC, 807 F.3d 351, 358
(1st Cir. 2015). The Estate cites no case law in support of its position that Title 30 displaces
a perfected deed of trust, and we find none. The interest of an insolvent estate in the
proceeds generated by the sale of real property pursuant to Tennessee Code Annotated
section 30-2-418 is in the surplus remaining after satisfaction of a deed of trust perfected
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in accordance with Title 66.
V. CONCLUSION
The judgment of the trial court is reversed. The trial court is instructed to order the
clerk to distribute $156,278.43 to NewRez from the proceeds being held. This matter is
remanded to the trial court for entry of judgment consistent with this Opinion. The Estate’s
request for attorney’s fees on appeal is denied. Costs on appeal are taxed one-half to the
Appellee, the Estate of Clint Wallace, and one-half to Appellant, NewRez, LLC, for all of
which execution may issue if necessary.
s/ Kenny Armstrong
KENNY ARMSTRONG, JUDGE
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