First Liens First!

A New York appeals court recently ruled that a bank’s claim against a Medicaid recipient’s property has priority over the state’s claim for Medicaid recovery because the bank’s lien was filed first. In re Estate of Shambo (N.Y. Sup. Ct., App. Div., 3rd Dept., No. 521174, April 7, 2016).

Three years after Peggy Lee Shambo began receiving Medicaid benefits, Ms. Shambo and her husband took out a mortgage on their property with Wells Fargo Bank. Mr. Shambo died and the probate court authorized the sale of the property, but it was not sold.

Ms. Shambo died intestate and the state Medicaid agency filed a claim to recover Medicaid benefits paid on her behalf. The probate court permitted the claim, but Wells Fargo commenced a foreclosure action on the property. The state filed a motion for summary judgment, arguing that its claim had priority. The probate court denied the motion, and the state appealed. 

The New York Supreme Court, Appellate Division, Third Department, granted summary judgment to Wells Fargo. The court concluded that although Ms. Shambo received Medicaid before the mortgage was given, the state did not have a prior lien against the property.  Therefore, Wells Fargo’s prior specific lien gives it priority over the state’s claim.