Opinion
No. 4-387 / 03-0785.
August 11, 2004.
Appeal from the Iowa District Court for Buena Vista Country, John P. Duffy, Judge.
The State Bank of Schaller appeals from the district court ruling on an application for classification, allowance, and payment of debts and charges. REVERSED AND REMANDED WITH INSTRUCTIONS.
Bruce Becker of Vest, Becker Murray, Sac City, for appellant.
Dennis Brady of Knudson Brady Law Firm, Marcus, James Gailey, Newell, and James Schall of Schall Law Office, Storm Lake, for appellee.
Robert Hartwig of Iowa Bankers Association, Johnston, for amicus curiae.
Considered by Mahan, P.J., and Zimmer and Eisenhauer, JJ.
The State Bank of Schaller (Bank) appeals from the district court ruling on the Administrator of the Estate of Merle Hughes's application for classification, allowance, and payment of debts and charges. The Bank contends the court erred in failing to find its secured interest takes priority over the payment preference provisions of Iowa Code section 633.425 (2001). The Bank further contends the court erred in suggesting it waived its secured interest by failing to repossess the secured property.
Merle Hughes died intestate on May 10, 2002. His estate is insolvent. At the time of his death, Hughes owed $17,675.10 on a loan made by the Bank in April 1998. Hughes signed a security agreement, and it is undisputed the Bank had a perfected interest in the machinery, equipment, and motor vehicles owned by Hughes.
The Bank cooperated with the administrator in selling the secured assets at a public auction. The sale yielded $22,112.50 and the administrator paid $7,636.54 in sale expenses, leaving $14,475.96. The administrator filed an application to determine the priority of claims. The court ruled the payment of ordinary and extraordinary attorney fees, administrator fees, and court costs were to be paid from the proceeds generated from the sale of property.
Iowa Code section 633.425 classifies debts and charges against an estate in probate. Payment of debts and charges of the estate are to be made in the order provided in section 633.425. Iowa Code § 633.426. A claimant's enforcement of the liens against the secured property, however, is not affected by the preference provisions of section 633.425. In re Estate of Lau, 442 N.W.2d 109, 111 (Iowa 1989).
The court ruled the Bank waived its right to assert preferential treatment of its lien by failing to enforce the security through repossession or replevin. There is nothing in Iowa Code chapter 633 to support this assertion. We conclude the district court erred. The administrator must pay all proceeds from the sale of the secured property to the State Bank of Schaller as it is the secured creditor.