The Israeli Supreme Court ruled that a will—even if once valid—cannot serve as collateral for a loan, particularly in real estate transactions that require a written agreement under Section 8 of the Real Estate Law. In this case, the deceased’s nephew claimed he was entitled to an apartment based on a revoked will, arguing it was collateral for a loan. The Court rejected this claim, citing the unilateral nature of wills and the lack of a written contract, and ordered that proceeds from the apartment’s sale be transferred to the deceased’s son, the lawful heir, minus the loan amount.

By Attorney Liel Menaged

In a case brought before the Supreme Court, a third-level appeal was heard concerning earlier rulings by the Family Court and the District Court over the rights to an apartment left by a deceased man (hereinafter: “the apartment” and “the deceased”).

The dispute began when the deceased borrowed money from his nephew (hereinafter: “the lender”) to buy the apartment. After the deceased’s passing, the lender sold the apartment, claiming the deceased had left it to him in his will as collateral for the loan. However, the deceased’s son (hereinafter: “the legal heir”) contested the claim, proving in court that the will had been revoked before the deceased’s death.

The Supreme Court, in an expanded panel, examined whether a revoked will—through which the deceased had initially left the apartment to the lender—could be used as collateral for a loan. The Court also addressed whether such a will met the legal requirement for a written agreement in real estate transactions, as stated in Section 8 of the Real Estate Law, 1969 (hereinafter: “the Law”).

This article reviews the Supreme Court’s ruling, which overturned the District Court’s decision and determined that the apartment belongs to the deceased’s estate, since the will had been legally revoked. As a result, all proceeds from the apartment’s sale must go to the deceased’s son, the legal heir, after deducting the loan amount given by the lender.

In the ruling, Justice Alex Stein stressed the importance of a written agreement in real estate deals. He explained that a will—a one-sided legal act that can be changed or canceled at any time—cannot be used as collateral for a loan. This is especially important when real estate is involved, as such transactions must meet the written requirement by law.

Case Background:

The deceased, who owned an apartment in Lod, passed away in 2015. In a 2007 will, he left the apartment to his nephew—the lender—who had given him a loan to buy it. After the deceased’s death, the lender claimed he didn’t know the deceased had any children and received a probate order based on that statement. He then sold the apartment to a third party. However, a 2009 document later showed that the deceased had revoked the will. It also turned out that the lender’s claim of not knowing about the deceased’s children was false. Once the revocation was discovered, the deceased’s son, the legal heir, began legal action to cancel the probate order and demanded the return of the money from the apartment sale.

The lender argued that the apartment was collateral for the loan he gave the deceased, and that both parties understood this—despite not having a written agreement—so the sale was justified. The legal heir responded that the lender acted dishonestly by hiding the revoked will and lying about not knowing who the heir was. He also claimed the apartment couldn’t serve as loan collateral without a written agreement, as required by the Real Estate Law.

The Family Court ruled the apartment was part of the deceased’s estate and that the lender had taken no legal steps to transfer ownership. It also found there was no agreement giving the apartment to the lender if the loan wasn’t repaid. The court ordered that the sale proceeds be returned to the legal heir, with the loan amount deducted. Both sides appealed.

The District Court reversed the Family Court’s ruling, accepted the lender’s version, and found an oral agreement between the deceased and the lender that made the apartment collateral—therefore granting the lender ownership.

Supreme Court Ruling:

The Supreme Court overturned the District Court’s ruling (while accepting the Family Court’s decision). The Court emphasized that oral agreements regarding real estate are invalid without a written document, under the written requirement in Section 8 of the Law. It also ruled that judicial exceptions like the “cry of fairness” do not apply in this case, as the lender acted in bad faith by submitting false affidavits and attempting to conceal material information about the will’s revocation.

Furthermore, the Court held that a will cannot be collateral for a loan. This stems from the fact that a will is a unilateral legal document that the testator may amend or revoke at any time. Section 27 of the Inheritance Law, 1965, stipulates that a commitment not to alter or revoke a will is invalid. The nature of a will differs fundamentally from that of a contract, where changes, revocations, or obligations are typically made by mutual agreement. Therefore, the Court clarified that a will cannot be a loan guarantee, especially in real estate transactions.

Moreover, the Supreme Court ruled that the lender acted unlawfully by unilaterally attempting to execute the apartment—which was part of the estate—without proper legal proceedings. The Court clarified that realizing estate assets requires a formal legal process to ensure maximum sale price and proper allocation of proceeds to pay estate debts, with the remainder going to the legal heirs. The lender acted independently and without authority, violating the legal framework.

Accordingly, the Supreme Court ruled that the legal heir is entitled to the entire proceeds from the sale of the apartment, plus interest and linkage, minus the loan amount the lender gave.

Author’s Note:

This case illustrates that when granting a loan—especially to a family member—to purchase an apartment, it is essential to secure repayment in writing per Section 8 of the Real Estate Law. That is, a separate, mutual, and clearly written document must be drawn up that explicitly outlines the loan terms and any collateral. A will is not sufficient.

FamApp 4854/24 Anonymous v. Anonymous (Nevo, 29.10.2024)
(Edited by Adv. Liel Menaged Schatz with assistance from Naomi Even Ezra)