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The Importance of Recording Mortgage Extensions

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The Massachusetts Appeals Court recently issued two separate decisions interpreting Massachusetts General Laws c. 260, § 33, the Obsolete Mortgages statute. The result, in both cases, was a finding that each lender’s mortgage had been discharged, notwithstanding the fact that the party seeking to obtain the benefit of the discharge had actual knowledge that there was an off-record extension of the mortgage.

Massachusetts General Laws c. 260, § 33 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… 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….”

Harvard 45 Associates, LLC v. Allied Properties and Mortgages, Inc., & others

In Harvard 45 Associates, LLC v. Allied Properties and Mortgages, Inc., & others, 80 Mass. App. Ct. 203 (2011), the plaintiff, Harvard 45 Associates, LLC (“Harvard 45”), brought a quiet title action in the Land Court after acquiring title to property in Westwood, Massachusetts at a sheriff’s sale. The complaint alleged that a mortgage granted to Allied Properties and Mortgages, Inc. (the “Allied Mortgage”) on May 31, 2001 had been discharged under G.L. c. 260, § 33, due to the fact that it had been greater than five (5) years from the August 31, 2001 term stated in the Allied Mortgage and no extension of the mortgage had been recorded.

The Land Court entered a judgment in favor of Harvard 45, holding that, notwithstanding the existence of an executed extension of the Allied Mortgage or the possibility that Harvard 45 may have had actual knowledge of the extension, the fact that the extension was never recorded meant that the Allied Mortgage was deemed discharged under G.L. c. 260, § 33. The holder of the Allied Mortgage appealed the Land Court decision.

Housman v. LBM Financial, LLC

In Housman v. LBM Financial, LLC, 80 Mass. App. Ct. 213 (2011), the plaintiff, Charles J. Housman, Trustee of Pine Banks Nominee Trust (“Housman”), was the successful bidder at a foreclosure sale of a second mortgage. Subsequent to the foreclosure of the second mortgage, the first mortgagee, LBM Financial, LLC (“LBM”), moved to foreclose a mortgage (the “LBM Mortgage”) dated May 9, 2003 and containing a term of four months. While the parties to the LBM Mortgage had executed an extension of the LBM Mortgage prior to the expiration of its original term, the extension was never recorded. The foreclosure sale of the LBM Mortgage was held seven (7) days after the LBM Mortgage would have been discharged based on G.L. c. 260, § 33 and assuming the unrecorded extension of the term of the LBM Mortgage was not recognized. Housman filed an action in the Superior Court, alleging that the foreclosure sale of the LBM Mortgage was a nullity. The Superior Court granted LBM’s motion to dismiss, holding that Section 33 did not apply due to Housman’s actual knowledge of the extension of the first mortgage. Housman appealed the Superior Court decision.

The Appeals Court Decisions

On appeal, the Appeals Court, in two separate decisions rendered on August 25, 2011, held that the Allied Mortgage and the LBM Mortgage had been discharged as a matter of law. In reaching this conclusion, the Appeals Court focused on the issue of whether actual knowledge that a mortgage has been extended is sufficient to prevent the mortgage from being discharged in the absence of a recorded extension.

In Housman, Judge R. Malcolm Graham concluded that “the meaning of the statute is clear on its face. The language of the statute plainly discharges as matter of law all mortgages five years after the date on which they became due, unless an extension, acknowledgment, or affidavit is recorded within that period of time.” Judge Graham went on to state that it was of “no consequence that [Housman] may have had notice of the LBM [m]ortgage or the extension because LBM failed to comply with the requirements of § 33.”

To support his interpretation of the Obsolete Mortgages statute, Judge Graham relied upon the United States Bankruptcy Court holding in In re 201 Forest St., LLC, 404 B.R. 6, 10 (Bankr. D. Mass. 2009), in which the Bankruptcy Court concluded that “[t]he language of the Obsolete Mortgages [s]tatute is unambiguous and contains no exceptions. A mortgagee’s actions short of timely recording an appropriate document, are ineffective to extend an expired mortgage.”

Similarly, in Harvard 45, Judge Graham rejected the defendant’s argument that the language of the Obsolete Mortgages statute is “ambiguous and that the legislative intent of the statute indicates that it does not apply to the mortgage in dispute.” Judge Graham noted that “[t]he language of § 33 is final and applies universally to discharge mortgages, regardless of the intent, knowledge or “acknowledgment” of the mortgagee or mortgagor, if the appropriate documents are not timely recorded.”

These cases demonstrate the importance of recording all mortgage extensions where the mortgage references the maturity date. Lenders who fail to do so expose themselves to the possibility that their mortgage may be discharged before the obligations the mortgage secures are satisfied. It may be better practice, for mortgages securing obligations with a term shorter than thirty years, to simply exclude a reference to the term or maturity date in the body of the mortgage. Without such a reference, the mortgage will be deemed effective for a period of 35 years from its recording.

This advisory was prepared by Nutter's Commercial Finance practice group with primary authorship by Wendy Fiscus. For more information, please contact your Nutter attorney at 617.439.2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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