## Facts

- Joseph and Mylene Liggett bought Manhattan real property in 1974 and transferred title into Mylene’s name alone in 1975.
- In February 1980, Helen Liggett (Joseph’s former wife) obtained a money judgment against Joseph and sued to set aside the transfer to Mylene as a fraudulent conveyance; she filed a notice of pendency against the property.
- Between November 1980 and November 1981, Bank Leumi made three loans secured by successive mortgages on the property.
- In February 1982, Cosden Oil & Chemical Company obtained and entered a judgment against Joseph.
- In February 1984, Helen obtained partial summary judgment in the fraudulent conveyance action, and the court directed the sheriff to sell the property and distribute proceeds under CPLR 5236(g).
- Bank Leumi petitioned under CPLR 5236(g) for a declaration that, after Helen was paid, its mortgages had priority in any remaining proceeds over later-entered judgments such as Cosden’s.
- Special Term denied Bank Leumi’s request for a declaration of priority over Cosden; Bank Leumi appealed.

## Issues

1. Whether CPLR 5236(g) requires that judgment creditors be paid ahead of a mortgagee whose mortgages were recorded before those judgments.
2. Whether the phrase “unless the court otherwise directs” in CPLR 5236(g) permits the court to order distribution consistent with superior, earlier-recorded interests.
3. Whether CPLR 6501 (notice of pendency) alters priority among junior encumbrancers bound by the fraudulent conveyance action.

## Decision

- The Appellate Division reversed the order to the extent it denied Bank Leumi’s request for a priority declaration.
- The court held that CPLR 5236(g) does not rigidly elevate later judgment liens over earlier-recorded mortgages.
- The court directed that Bank Leumi’s mortgages, as prior encumbrances, were entitled to priority in distribution of any proceeds remaining after satisfaction of Helen’s superior lien, ahead of Cosden’s later judgment.

## Legal Principles

- CPLR 5236(g)’s distribution scheme is qualified by “unless the court otherwise directs,” authorizing a court to order distribution to protect interests superior to those listed in the default statutory order.
- A notice of pendency under CPLR 6501 binds later encumbrancers to the outcome of the action but does not, by itself, reorder priority among junior lienors.
- Absent a contrary directive grounded in superior rights, priority among junior encumbrances generally follows traditional timing/recording rules, so earlier-recorded mortgages take precedence over later judgment liens as to surplus proceeds after senior claims are satisfied.

## Conclusion

The court held that CPLR 5236(g) permits a distribution order that respects actual lien priority, allowing earlier-recorded mortgages to be paid from post-sale surplus ahead of later-entered judgment liens once the senior creditor’s claim is satisfied.


Bank Leumi Tr. Co. of N.Y. v. Liggett, 115 A.D.2d 378, 496 N.Y.S.2d 14 (1st Dep’t 1985)