(1) Payment of a secured claim is upon the basis of the amount allowed if the creditor surrenders his security; otherwise payment is upon the basis of one of the following: (a) If the creditor exhausts his security before receiving payment, (unless precluded by other law) upon the amount of the claim allowed less the fair value of the security; or (b) If the creditor does not have the right to exhaust his security or has not done so, upon the amount of the claim allowed less the value of the security determined by converting it into money according to the terms of the agreement pursuant to which the security was delivered to the creditor, or by the creditor and personal representative by agreement, arbitration, compromise, or litigation. (2) A claim for a decedent's proportionate share of liability for a secured debt, made by a third party who is jointly liable with the decedent to the secured creditor, based on the third party's right to contribution from the decedent, shall be reduced by the fair market value, as of the date of death, of the decedent's interest in the property securing the debt, if the property securing the debt is owned by the decedent and not subject to disposition by will or intestate succession at the time of death, and if the decedent's interest passed to the third party on decedent's death.
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