Estates & Protected Individuals Code (EPIC); Estate creditor priority; MCL 700.3805; Secured creditor; MCL 700.3809; MCL 700.3814; Security interest; In re Lundy Estate; Collateral description; MCL 440.9108(3)

The court held that appellant-bank retained priority as a secured creditor against proceeds from collateralized real property despite its previously barred general creditor claim, but that its separate “all-assets” loan was not properly secured. Before the decedent died intestate, he obtained two cross-collateralized loans from the bank, one secured by real property through a mortgage and another purportedly secured by all of his assets through a UCC-1 financing statement. The probate court later barred the bank’s general creditor claim for failure to comply with statutory claim requirements and authorized distributions from the estate without first satisfying the asserted security interests. On appeal, the court held that the probate court read Lundy Estate too narrowly because its reasoning applies to secured creditors generally, and “‘EPIC treats secured creditors differently than other potential claimants against an estate.’” A secured creditor has a priority position as to the secured property even without filing a claim against the estate, and the bank therefore had “a priority claim as a secured creditor against the proceeds from the sale of the collateralized real property” to the extent those proceeds were available. However, the court held that the all-assets loan was not properly secured because MCL 440.9108(3) provides that a description such as “‘all the debtor’s assets’ . . . does not reasonably identify the collateral.” Any deficiency remaining after exhaustion of the valid real-property security was only a general creditor claim, which had already been barred. Affirmed in part, reversed in part, and remanded.