On certification to Superior Court, Appellate Division.
For reversal -- Chief Justice Wilentz and Justices Clifford, Schreiber, Handler, Pollock, O'Hern and Garibaldi.
This case concerns the notice afforded by the filing of a lis pendens. Specifically, the issue is whether the suit of a trustee in bankruptcy to set aside a mortgage may be related back to the prior filing of a notice of lis pendens by one creditor. The effect would be to invalidate the mortgage in favor of all other creditors, not just the creditor listed in the lis pendens, when the mortgagee has notice of the claim by that creditor of an alleged fraudulent conveyance as to it involving the disputed property. We hold that the effect of a notice of lis pendens in this context is limited to preservation of the rights of the party filing it. Accordingly, we reverse the judgment of the Appellate Division.
The factual and procedural background is complex. The first phase of litigation concerned whether a conveyance of the real estate was fraudulent. The second phase, our focus today, concerns the validity of a mortgage given on the disputed land. Although the first issue has been decided, we focus on the factual elements from both issues necessary to resolve the question before us.
The case concerns the development of a 116-unit garden apartment site in Bloomingdale. A development company, defendant Treetop Associates, Inc. (Treetop), acquired the site in 1974. It shortly thereafter conveyed title to Macopin Associates (Macopin), a closely-related partnership. Macopin obtained mortgage financing from the Hudson City Savings Bank to develop the project and hired Treetop as the general contractor.
Plaintiff Trus Joist Corporation (Trus Joist) supplied materials to Treetop to construct the project, but was never paid. It recovered a judgment against Treetop in September 1976 for $16,000. The judgment was not satisfied by Treetop. The dates of the following events now become critical.
April 18, 1977: Plaintiff Trus Joist commenced suit in the Chancery Division, alleging that the conveyance from Treetop to Macopin was fraudulent, and was designed to insulate the property from claims for labor and materials furnished to Treetop in connection with the project. The suit sought to have the
conveyance declared void and to have the $16,000 judgment declared as a lien on the property.
May 13, 1977: Trus Joist filed a lis pendens against the premises giving notice of the above.
June 30, 1977: Defendant Treetop filed a voluntary petition in bankruptcy in United States District Court in New Jersey. Its trustee took no action against Macopin, and therefore did not file a notice of lis pendens asserting an interest in the Macopin property.
September 8, 1977: National Union Fire Insurance Company of Pittsburgh (National Union) loaned Macopin $325,000 to be secured by a mortgage on the garden apartments. This mortgage was recorded on September 9, 1977. In searching the title, National Union found Trus Joist's notice of lis pendens, and set aside an escrow of $16,000 to satisfy the judgment if Trus Joist succeeded.*fn1 The mortgage was used to pay off some outstanding creditors, including making current the first mortgage of Hudson City Savings Bank on which the bank threatened to foreclose, and payoff of an earlier second mortgage.
November 23, 1977: Treetop's trustee was authorized to prosecute the claim of Trus Joist against the partnership, Macopin, and to represent other creditors with claims against Treetop.
February 24, 1978: The trustee joined Trus Joist in filing an amended complaint to set aside the deed to Macopin. National Union was not named in that suit, and the notice of lis pendens was not changed to reflect the amended complaint.
In January 1979, trial began. The court tried separately the issues of (1) whether the conveyance from Treetop to Macopin was fraudulent, and (2) whether the National Union mortgage was valid. On the first issue, the trial court agreed with Trus Joist and the trustee that the conveyance to Macopin was given without fair consideration and that it was fraudulent. On appeal, the Appellate Division affirmed. This Court denied certification on March 23, 1981, ending the first phase of litigation.
Following that judgment, Trus Joist and the trustee moved to set aside the National Union mortgage, because the mortgage's priority ahead of creditors ...