Shamus Holdings, LLC v. LBM FINANCIAL. LLC

OCR transcription for search; preserved printed pages are authoritative

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UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS

In re
SHAMUS HOLDINGS, LLC, Chapter 11
Debtor Case No. 07-14572-JNF

Se we tne

SHAMUS HOLDINGS, LLC,
Plaintiff

Vv. Adv. P. No. 08-1030

LBM FINANCIAL, LLC,
Defendant

eetan an dae tae Th : nf Pe a Pt

MEMORANDUM

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 De®tor’s
property located at Unit C-1 Foundry Condominium, 314 West Second Street, South

Boston, Massachusetts. (the “Foundry property”) must be considered discharged under

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

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Mass, Gen, Laws ch. 260, § 33, the Massachusetts Obsolete Mortgage Statute.
Il. FACTS

The Court incorporates by reference its prior decision in the adversary proceeding
and will not tepeat 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 (InreStamus

Holdings, LLC), No. 08-1030, 2009 WL 3191314 (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 L‘ebtor
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

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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 mor:gage,
which was éxecuted on May. 9, 2003 and recorded on May 14, 2003 had a “Term” cf 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 Realty Trust, by way of a
foreclosure deed dated September 14, 2005.

In surnmary, Foundry Realty, the Debtor’s predecessor in title, granted LBM a
mortgage on the Foundry property on May 9, 2003 tosecure a guaranty of what the Cebtor
has alleged was a sham loan made by. LBM to 655 Corporation in the sum of $1,209,000.
In contrast to the mortgage instrument, which has a stated term of four months, see Article
[of the Mortgage and Security Agreement at page 1, the guaranty does not specify ¢ 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,

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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 ma‘urity
date of the LBM lean 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 wi:h 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.”
1. SUMMARY JUDGMENT STANDARD
The standard for summary judgmentis 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 tojudgmentas 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 arid those inferences are not

mandated by the record.

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

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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 sorecorded,
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 morigage
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

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to-exarnine the Obsolete Mortgage Statute ina 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 ilated
December 4, 2002.' 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
urirecorded conveyances are “not valid as against any person, except the
grantor or lessor, his heirsand 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 or other similar linear monument, shall be construed to include any fee
interest of the grantor in such way, watercourse or monument, unless [ inter
alia]... the instrument evidences a different intent by an express.exception
or reservation and not alone bounding by a side line.”) (emphasis added);
M.G.L. ch. 175, § 132 (providing that life insurance policies that have “been
in force during the lifetime of the insured for a period of two years from its

' At the hearing on the Motion for Summary Judgment, counsel to the debtor,
provided the court and counsel to LBM with a copy of an “ Affidavit Pursuant to M G'L.
c, 260 § 33 & 11 U.S.C. § 362(b)(3)” filed with the Middlesex South Registry of Deed: on
January 16, 2009. That Affidavit, te which counsel to LBM did not object, provided.
“This affidavit is filed pursuant to and as permitted by 11 U.S.C. § 362(b)(3), within
thirty (30) days after the five (5) years [sic] period provided by M.S.L. c. 260, § 33.”
Thus, in the Forest Street case, LBM specifically relied upon the exception to the.
automatic stay discussed below.

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date of issue” shall be “incontestable... except for [ inter alia ] non-payment
of premiums or violation of the conditions of the policy . . . .”) (emphasis
added). Rather than including an exception or other limiting language,
however, the legislature drafted the Obsolete Mortgages Statute ina manner
which reveals that it intended the statute to uniformly apply, without
exception, when a mortgagee fails to timely record an extension,
acknowledgment or affidavit:

A power of sale in any mortgage of real estate shall not be
exercised . . . 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 ot affidavit
that the mortgage is not satisfied, is recorded before the
expiration of such period. ... Upon the expiration of the period
provided herein, the mortgage shall be considered discharged
for all purposes .. ... oe

Id. at “10-11 (citing Mass. Gen. Laws ch. 260, § 33 (emphasis in original).

This Court agrees with Judge Rosenthal’s cogént interpretation of the statuie and
adopts it for purposes of this decision.

In the instant case, as in Forest Street, LBM makes several arguments agiinst a
straightforward application of the Obsolete Mortgage Statute. It maintains that 11 J.S.C.

§ 108(c)’ extends the time to enforce its mortgage, stating “§ 108(c) provides that when a

? Section 108(c) of the Bankruptcy Code provides:

Except as provided in section 524 of this title, if applicable nonbankruptcy
law, an order entered in a nonbankruptcy proceeding, or an agreement
fixes a period for commencing or continuing a civil action in a court other
than a bankruptcy court:on a claim against the debtor, or against an
individual with respect to which such individual is protected under
section 1201 or 1301 of this title, and such period has not expired. before
the date of the filing of the petition, then such period does not expire until
the later of-

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creditor is stayed from taking action against the debtor because of a bankruptcy.cas2, the
creditor is permitted an additional thirty days after the stay is lifted to take or contin ze its
action against the debtor.” It further maintains that “[t}he protections of § 108(c) have been
applied in a broad variety of actions to extend enforcement periods concerning mortgages,
liens and other claims against debtors protected by the automatic stay” and, citing Morton

v. Nat’] Bank of New York City v. Morton (In re Morton), 866 F.2d 561 (2d Cir. 1989), and

Spirtos v. Moreno (In re Spirtos), 221 F.3d 1079 (9th Cir. 2000), that § 108(c) “even ar plies:

when state statutes provide avenues for extending enforcement periods that would not
violate the automatic stay.”

LBM made the same arguments. and cited the same cases as in Forest Street and
Judge Rosenthal properly-rejected them. The language of section’ 108(c) is plain. It af plies.
only when a nonbankruptcy law, order, or agreement fixes a period for commencing or
continuing a “civil action.” Black’s Law Dictionary defines.a “civil action” as an “[a]-tion
brought to enforce, redress, or protect private rights.” Black's Law Dictionary 222 (5th ed.

1979). It-defines the term action “in its usual legal serise” as “a suit brought in a court of

(1) the end of such period, including any suspension of such
period occurring on or after the commencement of the case;
or

(2) 30 days after notice of the termination or expiration of the.
stay under section 362, 922, 1201, or 1301 of this title, as the
case may be, with respect to such claim.

11 U.S.C. § 108(c) (emphasis supplied).

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law.” Id. at 26. The recordation of an extension of a mortgage in the registry of deeds is not
remotely the equivalent of a suit brought in a court of law.

In Forest Street, the court noted that the purpose of section 108(c) is to prevent a
debtor from gaining an “unfair advantage over a claimant by . . . remain[ing] under the
protection of the automatic stay until the limitation period governing the claimant's action

had expired. ...” 404 B.R. at “13-14 (citing In re Morton, 866 F.2d 561, 566 (2d Cir.1989)).

Itadded: “To avoid this inequity, section 108(c) gives a claimant ‘stayed from commencing
or continuing an action against the debtor because of the bankruptcy case’ 30 days after the
termination or expiration of the automatic.stay to commence or continue his civil action.”
404 B.R. at *14 (citing Morton, 866 F.2d at 566). Focusing on the plain language of 108(c),
the court added:

Each of the cases that LBM cites are distinguishable from the instant facts: In
In re Morton, 866 F.2d at 566, and In re Spirtos, 221 F.3d 1079, 1080-81 (9th
Cir. 2000), the Second and Ninth Circuits held that the time to renew
judgment liens on debtors’ property was tolled by section 108(c) for thirty
days after notice of termination of the automatic stay. However, the
claimants in Morton and Spirtos had successfully prosecuted civil actions to
judgment, and thus, the renewal of their judgment liens were
“continuations” of “civil action(s]” within the meaning of section 108(c).
Here, the requirernent to file an extension, acknowledgment, or affidavit
under the Obsolete Mortgages Statute is not the continuation of a civil action.

LBM also cites In re Hunters Run Ltd. P’ship, 875 F.2d 1425, 1427 (9th Cir.
1989), and In re WorldCom, Inc., 362 B.R. 96, 108-09 (Bankr. S.D.N.Y. 2007),
for the proposition that section 108(c) extends the period of time that
mechanic's liens may be enforced for thirty days after notice of termination
of the automatic stay. Hunters Run and WorldCorn are inapposite because
the applicable state statutes:provided that those liens would have expired
unless enforcement-actions were timely filed in the appropriate courts. The
debtors’ bankruptcy cases stayed the claimants from initiating actions to
enforce their mechanic's liens, thus implicating the policy of section 108(c).

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Those courts explained that enforcing a lien is not “an act to maintain or
continue perfection of a lien” excepted from the automatic stay. WorldCom
362 B.R. at 108; see also In re Hunters Run Ltd. P’ship, 875 F.2d at 1428.
Meanwhile, LBM lost its right to foreclose on the Mortgage because it failed
to take necessary action which it was not stayed from taking; namely,
recording an extension, acknowledgment, or affidavit. See In re 229 Main
Street P’ship, 262 F.3d 1, 3 (1st Cir. 2001) (explaining that the automatic stay
is nét applicable to acts'‘to maintain or continue perfection of liens). In short,
while section 108(c) may extend the period of time to bring a foreclosure
action, see Hunters Run, 875 F.2d at 1429, LBM no longer has the right to
foreclose because it failed to take action that it was not. stayed from taking,
not because’ 201 Forest’s bankruptcy case prevented it from enforcing the
Mortgage. Consequently, section 108(c) is of no assistance to LBM because
it has no-right to commence or continue a civil action with respect to the
Mortgage.

Id. at *14-15 (footnote omitted).

This Court also concludes that a careful reading of In re Morton fails to sapport
LBM’s position. In that case, applicable New York law provided that a judgment lien on
Teal property expires after ten years unless the lienholder extends it by filing a metion in
a state court with proper notice to the judgment. debtor. 866 F.2d at 562. Prior to the
expiration of the extension period, a bank, the holder of a judgment lien, filed an extension
of its judgment lien in the New York State Supreme Court and that court extended the lien
“for as long as plaintiff is stayed by defendant Joan Morton’s filing of a petision in
Bankruptcy, plus three months after the lifting of such stay.” Id. The validity of that order
was disputed and the debtor moved in the bankruptcy court for a determination that the
judgment lien had lapsed. The bankruptcy court held that “‘the automatic stay in
bankruptcy preserved the validity of [the bank's] lien from the date of the dabtor’s
petition” and that the bank had no “duty te renew its lien until the debtor obtains [a]

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discharge.” Id. The district court affirmed.

On further appeal, the bank offered the following arguments: “(1) the automatic stay
eliminated the state-law extension requirement; (2) the provisions of § 108(c) preserve the
lien; (3) the lien remains valid because it was valid at the time Morton filed her petiticn and
at the time her plan was confirmed; and (4) the bank obtained a valid extension frcm the
state court,” Id. at 563.

The Secand Circuit, in addressing the bank’s first argument, stated:

The automatic stay provision of the bankruptcy code, 11 U.S.C, § 362{a),
operates only as a stay of “any act to create, perfect, or enforce” a lien against
the property of the estate. 11 US.C. § 362(a)(4) (emphasis added).
Significantly, the section doesnot explicitly prohibit acts to extend, continue,
orrenew otherwise valid statutory liens, noris there any indication from the
legislative history that congress intended such a result.

Similarly, there is no indication that the state requirements at issue here place
any type of burden on § 362(a) or the interests it was designed to protect.
Action by a lienholder under §.5203(b) [the applicable state law] does not
result in an enlargement of the lien, nor does it threaten property of the
estate which would otherwise be available to general creditors. To the
contrary, extension under § 5203(b) simply allows the holder of a valid lien
to maintain the status quo-a policy not adverse to bankruptcy law, but rather
in complete harmony with it. See Hunt v, Bankers Trust Co., 799 F.2d.1060
(Sth Cir.1986); In re Holtkamp, 669 F.2d 505 (7th Cir.1982).

In re Morton, 866 F.2d at 565. The Second Circuit concluded that the bank “was tree to

make that application despite the automatic stay,” although it also held “that the tolling
provisions of § 108(c) apply to New York’s ten-year period governing judgment liens on
real property,” such that the running of the period was'tolled pursuant to § 108(c)(L} and
(c}(2}. Notably, in Morton, the applicable New York law provided that on motion of the
judgment creditor and upon notice to the judgment debtor, served personally or by

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registered or certified mail, “the court may order the lien of a money judgment upen real
property to be effective. ...” N.Y. C.P.L.R. § 5203 (McKinney 1997).

In In re Spirtos, a creditor held a claim based upon a malpractice judgmen’. The
debtor’s spouse objected to the claim on the ground that under California law t was
unenforceable because the claimant failed to renew it and the time within which the
claimant could act expired during the bankruptcy case. The Ninth Circuit, citing Morton,
confined its analysis to section 108(c) and held that the period of duration under California
law would not expire until 30 days after all the assets of the debtor’s estate had been tinally
distributed. It stated:

. .. Moreno [the judgment creditor] is barred by the automatic stay from
collecting on ajudgment by attaching the debtor's assets which have become
property of the estate. It is the creditor’s inability to enforce the judgment for
a portion of the ten-year period that keeps the period of duration open under
section 108(c). Whether the automatic stay also precluded the creditor from
renewing the judgment-an issue we need not decide-is beside the point.
Morton reached the same conclusion, even though it held that section 362 did
not bar the creditor from renewing its judgment. See Morton, 866 F.2d at
564-65; accord Rogers [v. Corrosion Prods., Inc.], 42 F.3d [292]at 297 [(5th Cir.
1995)] (analyzing section 108{c) without regard to whether section 362 stay
barred action against debtor).

Spirtos, 271 F.2d at 1082.

In Spirtos, applicable law required the filing of an application for renewal of the
judgment, under oath, with the court in which the judgment was entered, see Cal. Civ.
Pro. §§ 683.120, 683.140, as well as‘service of a notice that informed the judgment «lebtor
of a 30-day window to move to vacate or modify the renewal. See Ca. Civ. Pro. § 6&3.160.

Thus, the applicable laws in both Morton and Spirtos requited the commencement o/ a suit

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or action in:a court of law.

In view of the provisions of the applicable state laws in Morton and Spirtos, which

require the filing of pleadings in state court with notice to the judgment debtor, the Court
finds that the provisions of the Obsolete Mortgage Statute are readily distinguishable.
Because the Massachusetts statute is concerned with consensual liens, no noice to
mortgagor is required. Indeed, there isno court involvement atall. The mortgagee is only
required to. file in the appropriate registry of deeds “an extension of the mortgage, or an
acknowledgment of affidavit that the mortgage is not satisfied ... before the expiration of tre five

year period.” Thus, the observations of the Second Circuit in Morton are pertinent here.

Any action that LBM may have taken to avoid the ramifications of Mass. Gen. Laws 7h. 260
§ 33 would not resultinan enlargement of the lien or threaten property of the estate which
would otherwise be available to general unsecured creditors. Rather, the extension of the
mortgage simply allowed LBM “to maintain the status quo-a policy not adverse to
bankruptcy law, but rather in complete harmony with it.” See Morton, 866 F.2d at 565.

Other cases cited by LBM, including Valley Transit Mix of Ruidoso, Inc. v. Miller, 928 F.2d

354 (10th Cir. 1991), are distinguishable as well. For example in Miller, the applicat-e law
required the commencement of “ proceedings” in a court of competentjurisdiction. See 928
F.2d at 355,

LBM also argues that it complied with the requirements of the Obsolete Mo-tgage
Statute to extend the time within which to enforce its rights. It points to the guaranty

which contains no maturity date and the extension of the 655 Corporation loan resulting

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in its maturation on April 9, 2004. As aresult, in its view, its recordation of an affidavit on
April 8, 2009 (five years after the extended maturity date) satisfied the statute.

Judge Rosenthal considered and rejected LBM’s argument and this Court dces too,
particularly as LBM failed to introduce evidence that the Allonge and Amendnient to
Mortgage were ever recorded in the Suffolk Registry of Deeds. Moreover, the Allonge and
Amendment to Mortgage were not attached to the proof of claim filed by LBM, which it
attached as an exhibit ta its Opposition to the Debtor's Motion for Summary Judetnent, and
would not be binding upon the Debtor as successor in title to Foundry Realty. The court
in Forest Street stated:

The Court disagrees with LBM’s argument that the maturity date of

the note controls as the Obsolete Mortgages Statute clearly states that an

extension, acknowledgment, or affidavit must be filed within five years from

the expiration of “the term or maturity date of the mortgage.” M.G.L. ch. 260,

§ 33 (emphasis added}. Nowhere does the statute mention the term or

maturity date of the note. The statute’s utility of discharging mortgages

automatically “without the necessity of further action,” would be
significantly frustrated if parties were permitted to corns [sic] forward with
collateral evidence purporting to show that the term or maturity date of the
mortgage was something other than what is set forth in the recorded
instrument.

Id. at 12.

Finally, LBM argues that its proof of claim is sufficient to satisfy the notice
requirements of the Obsolete Mortgage Statute. It states that “Shamus, as debtor-in-
possession, is charged with notice of the LBM Mortgage as of the petition daze and

therefore does not need additional notice. that the mortgage remained unsatisfied.” It

added that “Not only did Shamus have notice of LBM’s intention to foreclose on the LBM

14.

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Mortgage prior to the time fixed for foreclosure under the Obsolete Mortgage Statuts, but
LBM's September 24, 2007 proof of claim included all of the information required ty the
Obsolete Mortgage Statute to provide creditors and interested third parties with noticethat
the LBM Mortgage remained unsatisfied.

The Court rejects LBM’s arguments, The cases it cites, see, inter alia, General Elec.

Co. v. Halmar Distribs., Inc. (In re Halmar Distribs., Inc.), 968 F.2d 121, 128 (Ist Cir. *.992)},

and In re Paul, 67 B.R. 342 (Bankr. D. Mass: 1986), are distinguishable for the simple
reasons that neither decision addressed the Obsolete Mortgage Statute no; the
ramifications of section 362(b)(3) of the Bankruptcy Code. Moreover, both decisions
concerned priority among lienholders, not the enforceability ofa mortgage. Additionally,
both decisions relied in part on General Elec, Credit Corp. v. Nardulli & Sons, Inc., 836 F.2d
184 (3d Cir. 1988), a-case distinguished by the court in Forest Street, which observed:

First, while the UCC was the applicable law in Nardulli, the Court is bound
by the Obsolete Mortgages Statute in this matter. In Nardulli, the Third
Circuit primarily based its decision on its statement that the UCC’s filing
requirements are only-intended to protect subsequent purchasers or future
creditors. Unlike the limited purpose behind the UCC’s filing requirements,
however, it appears that the Obsolete Mortgages Statute at issue here has a
broader purpose. The statute reads that upon thé expiration of certain
deadlines set forth in the statute, “ 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 ..
M.G.L. ch. 260 § 33 (emphasis added). The Court believes that the legislature
included this broad-sweeping language because it intended the Obsolete
Mortgages Statute to automatically discharge mortgages after the expiration.
of certain deadlines irrespective of who invokes the protections of the statute.
The Land Court has confirmed this interpretation as it has found for an
original mortgagor on his count seeking a discharge of his mortgage brought
pursuant to the Obsolete Mortgages Statute. Wolfberg v. Spitz, 2008 WL
2345016, at *2, 4 (Mass.Land Ct.2008).

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404 B.R. at 16. The court also reasoned that unlike the situation in Nardulli where the
debtor had represented that it did not contest the validity of the creditor’s perfected
security interest, the debtor, challenged LBM’s lien, a circumstance present in the instant
case.

In In re Paul, the bankruptcy court considered the effect of Mass. Gen. Laws ch. 223,
§114A, a statute with provisions similar to those found in Mass. Gen. Laws ch. 261), § 33.
Specifically, section 114A requires an attaching creditor to request the register of deeds to
extend the attachment to avoid its expiration six years after it is first recorded. The
bankruptcy court observed:

The problem presented in this case is analogous to the issue of whether a
creditor's time within which to file a continuation of a financing statement
is tolled by the automatic stay in bankruptcy (11 U.S.C. § 362). In many
states, including Massachusetts, the question is easily resolved by the 1972
version of U.C.C. § 9-403(2), which expressly provides that a security interest
remains perfected during insolvency proceedings if it is perfected at the time
of the commencement of the proceedings. This is true regardless of whether
the secured party’s perfection would lapse during the. insovency [sic]
proceedings because of the failure to filé a continuation statement. See
MASS.GENLL. ch, 106, §.9-403(2).

In other states, however, the predecessor of § 9-403(2) is in force, The 1962
version of the statute does not address the effect-of a bankruptcy petition on
the secured patty’s obligation to file a continuation statement. Thus, secured
creditors in some jurisdictions (and the attaching creditors here) are faced
with a dilemma when a petition is filed a short time before their interests
lapse. The automatic stay prevents them from taking any further action to
perfect their lien, but the same stay may not stem the advance of time which
threatens to extinguish the perfection of their security interests existing at the
time of the petition.

67 B.R. at 344-45 (footnotes omitted), The bankruptcy. court, citing the policy of the
automatic stay to freeze all rights and priorities at the time of the filing of the petiticn and

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the notice filing goals of the U.C.C., as well as In re Chaseley’s Foods, Inc., 30 B.R. 45.2, 456-

57 (M.D. Ind. 1983), aff'd as modified, 726 F.2d 303 (7th Cir. 1983)? determined that filing a
continuation statement after a bankruptcy petition and further notice is unnecessary, It
stated:

The case at bar involves creditors’ claims and priorities, not a debtor's right
to cure a default. There is no express provision in the Bankruptcy Code
which allows.a creditor to take acts.in order to continue the perfection of its
lien. In fact, § 362(a)(4) arguably forbids such acts. Bond Enterprises, Inc. v.
Western Bank of Farmington (In re Bond Enterprises, Inc.), 54 B.R. 366,
368-69 (Bankr.D.N.M.1985). Alll of the attachments were perfected atthe time
the Debtors filed for bankruptcy on March 30, 1981. The policy of the
automatic stay obligates this Court to put on blinders and focus on that date
for the purpose of determining validity and priority of their lien.

All state notice concerns are satisfied here. The attachments of Georgia
Pacific and C.& S Lumber were recorded in the Worcester County Register
of Deeds pursuant to MASS.GENLL. ch. 223, §§ 63-66. At the time of the
petition, any creditor could search the records, find the attachments, and
deduce that they were still valid. The March 30, 1981 petition obviated any
need for further notice to or protection for potential creditors by vesting all
of the Debtors’ property in the bankruptcy estate, Continuation or renewal
of any of the attachments. after that time would be “futile, an idle gesture,
[and] ceremonial in character... .” Chicago Gravel Co. v. Howard (In re
Lake County Fuel & Supply Co.), 70 F.2d 391, 392 (7th Cir.1934) (judgment
creditor not required to preserve lien under Illinois law by executing it in
order to avoid expiration after bankruptcy petition filed); see Limperis-v. First

3 The district court in Chaseley’s Foods stated:

The only parties which can possibly be injured by failure to file a
continuation statement once a bankruptcy proceeding is pending are
creditors who obtain their liens after the financing statement expires.
However, because the trustee takes possession of the debtor’s property
once a petition is filed, and this possession is open-and notorious, these
creditors should not need the protection of a continuation statement.

United States v. Freeland ( In re Chaseley Foods, Inc.), 30 B.R, at 455,

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National Bank of Geneva (Inre Phillips Construction Co., Inc.), 579 F.2d 431
(7th Cir.1978) (mechanic’s lien did not expire after date of bankruptcy
petition despite state statute setting time limit for pursuit of claim).

In light of the foregoing, we conclude that the attachments of Georgia Pacific

and C & $ Lumber did not expire by operation of MASS.GEN.L. ch. 223, §

114A after the Debtors filed their joint petition on March 30, 1981. We now

turn to the claims of all of the creditors to the proceeds held by the Trustee.

67 B.R. at 346-47.

The Court is not persuaded by the reasoning of the court in Paul, as the court failed
to consider the exception tothe automatic stay set forth in section 362(b)(3). Moreover, the
case is factually distinguishable from the instant Chapter 11 case which involves @ two-
party dispute between sophisticated entities. The Court finds, based upon the undisputed
facts, that section 362(b)(3) would have excepted the filing of an extension or affidavi: with
the Suffolk Registry of Deeds from the automatic stay. Indeed, LBM admits as muck. Not
only did it specifically so. state in its Affidavit filed in the Forest Street case, see note 1,
supra, it filed an Affidavit with respect to the Foundry property without filing a motion for
relief from stay. The Court observes that LBM knows how to file a motion for relief from
stay,* and it could easily have filed an adversary proceeding or a counterclaim in the
instant proceeding to obtain a declaratory judgment that the stay did not apply.

Section 362(b) provides that the stay does not operateas to “any act to perfect.or to

‘The Court notes that LBM and the Debtor stipulated to the modification of the
automatic stay so that LBM could “adjourn, continue, and re-schedule” its foreclosure
of its mortgage arid the public auction sale of the Foundry property. Similarly, it
entered into a Stipulation with the Debtor with respect to the provisions of section
362(d)(3).

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maintain or continue the perfection of, an interest in property to the extent that the
trustee's rights and powers.are subject to such perfection under section 546(b) . . or to the
extent that such act is accomplished within the period provided under section
547(e)(2)(A).” 11 U.S.C. § 362(b)(3). Section 546(b), in turn,

allows, under certain circumstances, lien holders. to perfect a lien, or to
maintain or continue the perfection of an already perfected lien. “As this
Circuit has recognized, the relatively narrow purpose of [the section 546(b)]
exception is to ‘protect in spite of the surprise intervention of [the]
bankruptcy petition, those whom State law protects’ by allowing them to
perfect an interest they obtained before the bankruptcy proceedings began.”
In re Bennett Funding Group, 255 B.R. 616, 632 (N.D.N.Y.2000) (citations
omitted). The Bankruptcy Reform Act of 1994 (“the 1994 Amendment”)
“expanded the scope of § 546(b) (which previously related only to perfection
of an interest) to encompass an act to maintain or continue perfection of a
security interest.” Concrete Structures, Inc. v. Tidewater Crane and Rigging
Co. (In re Concrete Structures), 261 B.R. 627, 637 (D. Va. 2001). Prior to the
1994 Amendment section 546(b) “did not explicitly allaw an act to continue
or maintain perfection, which caused trouble because Commercial Code
filings may lapse, expire, or become ineffective for several reasons.” Kathryn
R. Heidt, The Effect of the 1994 Amendments on Commercial Secured
Creditors, 69 Am. Bankr.LJ. 395, 424-425 (1995). The 1994 Amendment
explicitly allowed for the maintenance.or continuation of such perfection. Id.

In re WorldCom, Inc., 362 B.R. 96, 104 (Bankr. S.D. N.Y. 2007). The court in WorldCom

observed that “’Section 546(b)(1}(A) authorizes postpetition perfection of an interest in
property if any generally applicable law permits perfection against an entity that acquires
rights in the property before the date of perfection.” Id, at 104 n, 10 (quoting 5 Collier on

Bankruptcy {| 546.03[2][a] (15th ed. rev.2006))." Itadded: “ [t]he legislative history ‘exolains

* Section 546 of the Bankruptcy Code provides:

(b) (1) The rights and powers of a trustee under sections 544, 545, and 549
of this title [11 U.S.C. §.544, 545, or 549]-are subject to any generally

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that the change to § 546(b) was intended to apply to acts necessary to maintain orcontinue
the perfection of an interest held by a secured creditor under the Uniform Comurercial

Code.” Id. at 106 (citing Concrete Structures, Inc. v. Tidewater Crane and Rigging Co. (In

re Concrete Structures, Inc.), 261 B.R. 627, 638 (D. Va. 2001)). The United States Court of

Appeals for the First Circuit considered the. parameters of section 546(b) in In re 229 Main

applicable law that-

(A) permits perfection of an interest in property to be
effective against an entity that acquires rights in'such
property before the date of perfection; or

(B) provides for the maintenance or continuation of
perfection of an interest in property to be effective against an
entity that acquires rights in such property before the date
on which action is taken to effect such maintenance or
continuation.

(2) If-

(A) a law described in paragraph (1) requires seizure of such
property or commencement of an action to accomplish such
perfection, or maintenance or continuation of perfection of
an interest in property; and

(B) such property has not been seized or such an action has

not been commenced before the date of the filing of the

petition;
such interest in such property shall be perfected, or perfection of such
interest shall be maintained or continued, by giving notice within the time

fixed by such law for such seizure-or.such commencement.

11 U.S.C. § 546(b).

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Street Ltd. P’ship, 262 F.2d 1 (1st Cir. 2001). It stated:

For .a particular creditor to reach the haven contemplated by: section

546(b)(1)(A), three elements must coalesce: (1) the creditor must act pursuant

to a law of general applicability; (2) that law must allow the creditor to

perfect an interest in property; and (3) such perfection must be effective

against previously acquired rights in the property.

1d. at 10. It would appear to this Court that LBM’s obligation to timely record an extension
of the mortgage satisfies the conditions articulated by the First Circuit. In the first place,
the recordation of an extension of the mortgage would not appear to be a “transfer” ¢ubject
to avoidance. The transfer was the original grant of the mortgage to secure the guaranty.
‘The absence of any requirement to file a “civil action” or give notice to the property »wner
lends support to this view. The recordation of an extension or affidavit merely. continues
the status quo, thus no new transfer occurs. Sections 544 and 549 of the Bankruptcy Cade
are not implicated to the extent that they enable the trustee (or debtor in possession) to
avoid “transfers.”

Under section 544, the Debtor, as a debtor in possession, is armed with the tights
and powers of a trustee “at the commencement of the case” and would not be in a position
to avoid the duly perfected mortgage. Accordingly, the.continuation of the “perfection”
of the LBM mortgage would have been effective against previously acquired rights in the
Foundry property, and section 362(b)(3) would have permitted LBM to record anextension
of the mortgage- - something that it purported to do on April 8, 2009 in any: event - -

without violating the automatic stay: .

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IV. CONCLUSION
In view of the foregoing, the Court shall enter an order granting the Debtor's Motion
for Summary Judgment.
By the Court,

GH. Fisasge

Joan N. Feeney

United States Bankruptcy Judge
Dated: August 5, 2009
ce: Jeffrey D. Ganz, Esq., Charles A. Dale IIL, Esq., David M. Ianelli, Esq.,