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Securing Promissory Note is Sr Creditor in Otherwise Insolvent Estate

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Goodrisk47

Junior Member
What is the name of your state? VA

An "elder suite" was built for the deceased, onto her granddaughter's house (without addition of the deceased to title on that house) with funds obtained by taking out equity of her former (and for-sale) primary residence, leaving a lien against that property (the only property of value, whether real property or personal).

However, construction costs ran over. The brother-in-law of the granddaughter provided "hard money" completion funds, for which he received a personal promissory note as security, signed only by the deceased. The original intent was that the promissory note would form a de facto second lien. No lien was recorded because the deceased would have had to pay all recordation costs, which would have reduced the amount of completion funds received. Because the brother-in-law was willing to make the loan without a lien being recorded, it was agreed that the promissory note would be repaid at settlement of sale of the deceased's former primary residence (even though there was a balloon payment date per the promissory note, sooner than such settlement).

The grandson of the deceased, who also lived in the granddaughter's house, also received a promissory note, with the understanding that it would be paid back at settlement of the sale of the former primary residence. His promissory note was for the expenses he undertook in moving all of his grandmother's personal possessions from her former residence to storage and then into the new "elder suite."

Other debts - all unsecured (a loan and credit cards) - were incurred by the deceased over the course of over a year of construction.

When the house eventually sells, there will be enough money to meet real estate agent commissions, seller-side closing costs, and the existing first lien, leaving only enough to pay off the de facto "second lien" promissory note held by the brother-in-law and the grandson's "moving expense" promissory note.

If the promissory notes WERE allowed as senior creditors to a sea of unsecured creditors, there would be almost nothing for the latter class of creditors to share in, from the estate, on a pro rata basis.

How does one go about securing the claim of the promissory note holders ahead of the unsecured creditors?

No one named in the will would contest the promissory note holders' claims nor deny that the intent was that they be paid ahead of all other creditors.

Does it sound like there is a good chance of success...or even a snowball-in-hell chance... in securing the claims of the two family-member promissory note holders?What is the name of your state?
 


Goodrisk47

Junior Member
Maybe I should give the Reader's Digest version...

...relatives are owed money and have promissory notes for both personal financing and personal services, made prior to the decedent's passing. We'd like to make sure they get paid, as agreed and intended by the decedent, at the sale of the only value in the estate - the real property - AFTER the only recorded lien on that property is paid off, but AHEAD of the banks that provided unsecured credit in the year prior to the decedent's passing.

If this order - lien holder, family promissory note holders, then unsecured creditors - of payment were what the courts of Virginia would allow, rather than all-other-than-real-property-lien-holders being viewed as a single class of creditor (as it appears the Code of Virginia could deem them), sharing in what's left, pro rata, then there would be nothing left for the banks and corporations holding unsecured debt.
 

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