Mortgages and Medicaid Liens: Which Is Paid First? Part 2: Priority of Claims Paid

HNWReal Estate, Landlord/Tenant, and Zoning

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Medicaid Attorney

In our last blog entry, I discussed with you the New Jersey Medicaid Lien laws and when it will not be enforced against a decedent’s estate.  When you die, the statutory law requires the executor of your estate to pay any outstanding claims you may have in the following order: reasonable funeral expenses, the costs and expenses of administering the estate, debts for services rendered by the Office of the Public Guardian for Elderly Adults, debts and taxes with preference under federal or state law, reasonable medical expenses for the last illness of the decedent, judgments entered against the decedent, and then all other claims can be paid.  Medicaid liens are considered debts under state law, so they get paid before a pre-existing judgment.  Does that include mortgages on properties?

Well, in reality, should the property be foreclosed upon by a bank when the loved one dies, New Jersey will recognize that the mortgage should be paid first over the Medicaid lien.  It is an implicit rule the state Medicaid office follows.  When you think about why it does that, the rationale is simple.  Most times, the mortgage was on the property prior to Medicaid being obtained.  If the state tried to take the money before the bank did, banks would be unwilling to make a mortgage loan knowing they would automatically be preempted in the future because of someone having Medicaid.  This would be disruptive to most lending companies and banks.  Also, keep in mind the first sentence of the blog, the Medicaid lien and when it is not enforced against a decedent’s estate.  The lien Medicaid applies is not on your loved one’s house but rather on the estate the person leaves behind.  Theoretically, it means that the real estate itself will not have a lien placed upon it.  In reality, though, most people who have Medicaid only have their home as a part of their estate, so the property will have the lien on it, and technically the estate has to pay the lien.

In a New York case, the Court held that even though a mortgage was taken out after the decedent went on Medicaid, the state did not have a prior lien against the property because the lien didn’t exist until the time the person died, and therefore the mortgage was given a priority. I concede that this is not a case from New Jersey, but it makes sense. However I’m not sure New Jersey will recognize a mortgage created after a person goes on Medicaid as having priority, so in our earlier hypothetical case, the daughter’s mortgage may have to wait until the first mortgage is paid off and Medicaid is satisfied before collecting on the second mortgage.  This case gives some insight into a court’s recognition about the priority of a mortgage over Medicaid, showing it will value it over the Medicaid lien under certain circumstances.  It will be interesting to see if our courts ever take up a case like this here and rule in the same fashion.

To discuss your NJ Medicaid matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at  Please ask us about our video conferencing consultations if you are unable to come to our office.

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