In re Shamus Holdings, LLC

• Decision Date: 05 August 2009
• Docket Number: Adversary No. 08-1030.,No. 07-14572-JNF.,07-14572-JNF.
• Citation: 409 B.R. 598
• Parties: In re SHAMUS HOLDINGS, LLC, Debtor. Shamus Holdings, LLC, Plaintiff v. LBM Financial, LLC, Defendant.
• Court: U.S. Bankruptcy Court — District of Massachusetts

409 B.R. 598

In re SHAMUS HOLDINGS, LLC, Debtor.

Shamus Holdings, LLC, Plaintiff v. LBM Financial, LLC, Defendant.

No. 07-14572-JNF.

Adversary No. 08-1030.

United States Bankruptcy Court, D. Massachusetts.

August 5, 2009.

COPYRIGHT MATERIAL OMITTED

Charles A. Dale, III, MacKenzie Shea, K & L Gates LLP, David M. Ianelli, Kara Ann Lynch, McCarter & English, LLP, Boston, MA, for Plaintiff.

Alissa L. Poynor, Jeffrey D. Ganz, Riemer & Braunstein LLP, Boston, MA, for Defendant.

MEMORANDUM

JOAN N. FEENEY, Bankruptcy Judge.

I. INTRODUCTION

The matters before the Court are the Motion of Shamus Holdings, LLC (the "Debtor") for Summary Judgment and the Opposition to the Motion filed by LBM Financial, LLC ("LBM"). The Court heard the matters on June 22, 2009 and took them under advisement. The issue presented is whether LBM's mortgage on the Debtor's property located at Unit C-1 Foundry Condominium, 314 West Second Street, South Boston, Massachusetts (the "Foundry property") must be considered discharged under Mass. Gen. Laws ch. 260, § 33, the Massachusetts Obsolete Mortgage Statute.

II. FACTS

The Court incorporates by reference its prior decision in the adversary proceeding and will not repeat the numerous and contentious factual allegations made in the Debtor's First Amended Objection to Claim, except to the extent necessary for determination of the limited issue articulated above. See Shamus Holdings, LLC v. LBM Fin., LLC (In re Shamus Holdings, LLC), No. 08-1030, 2008 WL 3191315 (Bankr.D.Mass. Aug. 6, 2008).

The Debtor filed a voluntary Chapter 11 petition on July 25, 2007 to forestall a foreclosure sale scheduled by LBM. Less than one week before, on July 19, 2007, the Debtor was organized as a Massachusetts limited liability company. On that same day, Steven A. Ross ("Ross"), Trustee of 14 Beach Street Realty Trust (the "Beach Street Realty Trust"), for nominal consideration of $1, conveyed the Foundry property to the Debtor.

The Foundry property was originally acquired by Foundry Realty, LLC ("Foundry Realty") from Faneuil Investors Group Limited Partnership ("FIG") in May of 2002. Foundry Realty secured a portion of the purchase price with a first mortgage to FIG. When its mortgage matured, FIG threatened foreclosure proceedings. In November of 2003, Charles J. Houseman, Trustee of Pine Banks Nominee Trustee, agreed to refinance the FIG note and mortgage.

The Debtor has alleged, and it is undisputed, that on May 9, 2003, prior to the closing of a loan from General Bank to 655 Corporation, an affiliate of Foundry Realty, and the execution of a promissory note by 655 Corporation to LBM with a September 9, 2003 maturity date (which was later extended by LBM to April 9, 2004), Foundry Realty executed a guaranty of 655 Corporations's note, which it secured with a mortgage on the Foundry property — the mortgage which the Debtor now challenges. That mortgage, which was executed on May 9, 2003 and recorded on May 14, 2003 had a "Term" of four months. It was to be subordinated to the Pine Banks mortgage, but LBM did not execute a subordination agreement. Pine Banks eventually foreclosed its mortgage and conveyed the Foundry property to Ross, as Trustee of the Beach Street Really Trust, by way of a foreclosure deed dated September 14, 2005.

In summary, Foundry Realty, the Debtor's predecessor in title, granted LBM a mortgage on the Foundry property on May 9, 2003 to secure a guaranty of what the Debtor has alleged was a sham loan made by LBM to 655 Corporation in the sum of $1,200,000. In contrast to the mortgage instrument, which has a stated term of four months, see Article I of the Mortgage and Security Agreement at page 1, the guaranty does not specify a term or a maturity date.

LBM initiated foreclosure proceedings with respect to the mortgage on the Foundry property and scheduled an auction for July 25, 2007. Additionally, it filed a proof of claim in the Debtor's Chapter 11 case on September 24, 2007 in the sum of $4,154,610.92.

According to Robert L. Donovan, an attorney specializing in title examinations, whose affidavit was submitted by the Debtor in support of its Motion for Summary Judgment, LBM made no recording with the Suffolk Registry of Deeds pursuant to the Obsolete Mortgage Statute between May 1, 2003 and February 19, 2009. On April 8, 2009, however, LBM did record an "Affidavit Pursuant to M.G.L. c. 260, §§ 33 and 34a" with the Suffolk Registry of Deeds. That recordation was within five years of the extended maturity date of the LBM loan to 655 Corporation, namely April 9, 2004, but not within five years of the original maturation date of September 9, 2003. LBM recorded an Affidavit with the Suffolk Registry of Deeds while the Debtor's Chapter 11 case was pending and without obtaining relief from the automatic stay. The Affidavit, which was executed by Marcello Mallegni as Managing Partner of LBM, provides:

... The Note had an original maturity date of September 9, 2003. The maturity date of the Note was subsequently extended to April 9, 2004 as reflected in the Allonge and Amendment to Mortgage annexed hereto as Exhibit A.

The Amendment to Mortgage bears no evidence that it was recorded in the Suffolk Registry of Deeds. It provides, in relevant part, that "[t]he definition of "Term" which appears on the first page of the Mortgage is changed to April 9, 2004."

III. SUMMARY JUDGMENT STANDARD

The standard for summary judgment is well-known and needs little explication here where the material facts are not in dispute.

It is apodictic that summary judgment should be bestowed only when no genuine issue of material fact exists and the movant has successfully demonstrated an entitlement to judgment as a matter of law. See Fed.R.Civ.P. 56(c). As to issues on which the movant, at trial, would be obliged to carry the burden of proof, he initially must proffer materials of evidentiary or quasi-evidentiary quality-say, affidavits or depositions-that support his position. This means, of course, that summary judgment is inappropriate if inferences are necessary for the judgment and those inferences are not mandated by the record.

Desmond v. Varrasso, 37 F.3d 760, 763 (1st Cir.1994) (citations and footnote omitted.).

IV. DISCUSSION

The Debtor primarily relies upon the express provisions of the Obsolete Mortgage Statute. It provides:

A power of sale in any mortgage of real estate shall not be exercised and an entry shall not be made nor possession taken nor proceeding begun for foreclosure of any such mortgage after the expiration of, in the case of a mortgage in which no term of the mortgage is stated, 35 years from the recording of the mortgage or, in the case of a mortgage in which the term or maturity date of the mortgage is stated, 5 years from the expiration of the term or from the maturity date, unless an extension of the mortgage, or an acknowledgment or affidavit that the mortgage is not satisfied, is recorded before the expiration of such period. In case an extension of the mortgage or the acknowledgment or affidavit is so recorded, the period shall continue until 5 years shall have elapsed during which there is not recorded any further extension of the mortgage or acknowledgment or affidavit that the mortgage is not satisfied. The period shall not be extended by reason of non-residence or disability of any person interested in the mortgage or the real estate, or by any partial payment, agreement extension, acknowledgment, affidavit or other action not meeting the requirements of this section and sections 34 and 35. Upon the expiration of the period provided herein, the mortgage shall be considered discharged for all purposes without the necessity of further action by the owner of the equity of redemption or any other persons having an interest in the mortgaged property and, in the case of registered land, upon the payment of the fee for the recording of a discharge, the mortgage shall be marked as discharged on the relevant memorandum of encumbrances in the same manner as for any other mortgage duly discharged.

Mass. Gen. Laws ch. 260, § 33 (emphasis added). Unless the automatic stay or some other provision of the Bankruptcy Code excuses compliance with the terms of the Obsolete Mortgage Statute, its plain language required LBM to record with the Suffolk Registry of Deeds an extension of the mortgage, or an acknowledgment or affidavit that the mortgage had not been satisfied before September 9, 2008. It did not do so.

This Court need not write on a blank slate. Judge Rosenthal recently had occasion to examine the Obsolete Mortgage Statute in a case with facts similar to those present here. Indeed, he analyzed a mortgage granted by the debtor to LBM.

In In re 201 Forest Street, LLC, 404 B.R. 6 (Bankr.D.Mass.2009), the debtor requested an order discharging a mortgage in favor of LBM. LBM had, on January 16, 2009, recorded an affidavit purporting to extend the one year term of a mortgage dated December 4, 2002.¹ The court stated that "a straightforward application of the Obsolete Mortgages Statute compels the Court to initially conclude that the Mortgage has been "discharged for all purposes" by operation of law." 404 B.R. at 10. It stated:

The language of the Obsolete Mortgages Statute is unambiguous and contains no exceptions. A mortgagee's actions, short of timely recording an appropriate document, are ineffective to extend an expired mortgage. Had the legislature intended the Obsolete Mortgages Statute to have a more narrow application, as LBM argues, it was certainly capable of drafting the statute accordingly. Cf. M.G.L. ch. 183, § 4 (recording statute provides that unrecorded conveyances are "not valid as against any person, except the grantor or lessor, his heirs and devisees and persons having actual notice of it. ...") (emphasis added); M.G.L. 183, § 58 ("Every instrument passing title to real estate abutting a way, whether public or private, watercourse, wall, fence...