Monday, December 17, 2018

Foreclosing Lenders’ Duties to Holders of Affordable Housing Covenants


By Shannon F. Slaughter

Englander & Chicoine P.C. and foreclosure expert, Attorney Paul Collier, representing Boston
Redevelopment Authority d/b/a Boston Planning and Development Agency (“BPDA”), successfully defeated Motions to Dismiss filed by Boston Private Bank and Trust Company (“Boston Private”) and Janet Blake, Trustee of the 21 Warren Street Realty Trust (the “Trust”), in a recent case challenging the way a bank and a high bidder at a foreclosure auction colluded to terminate an affordable housing covenant on a handicap-accessible unit.

The handicap-accessible affordable housing unit was subject to a covenant restricting ownership to a qualified individual of moderate income.  The covenant also restricts the price any purchaser can pay for the unit to a below-market price set by a formula, referred to as the “Maximum Resale Price.” The covenant also required that the owner occupy the affordable unit as his or her principal residence.  The affordable housing covenant is eliminated by foreclosure if a bank acquires title to the unit. 

In this case, after the death of the owner of the affordable unit, her mortgage went into arrears and Boston Private sought to foreclose.  At the time of the foreclosure, the Maximum Resale Price of the affordable unit was $210,000.00.  BPDA announced the maximum resale price and the requirements of the covenant at the foreclosure auction. There were forty-two (42) bids at the foreclosure auction.  A private developer, Mikhail Starikov, submitted the highest bid at $385,000  to acquire the affordable unit as an investment property, despite the announcement of the covenant restrictions. Thereafter, Mikhail Starikov assigned the high bid to his son, Fred Starikov. After further notification of the restrictions by BPDA, the high bidder defaulted and did not purchase the unit.  Thereafter, Boston Private took title to the unit and then sold it for the price submitted by the high bidder to a supposed third party, the Trust—a procedure intended to nullify the affordable housing covenant.  

BPDA’s complaint alleged, among other things, that Boston Private, the high bidder, his son, and the Trust committed civil conspiracy in a scheme to nullify the affordable housing covenant.  BPDA also asserted that Ms. Blake was simply a straw for the high bidder, that Boston Private breached its duty to protect BPDA’s affordable housing covenant, and that Boston Private, the high bidder, and the Trust manipulated the foreclosure process for the purpose of eliminating the affordable housing covenant.  The civil conspiracy scheme by Boston Private, the Starikovs, and the Trust would enrich the private developers by approximately $300,000 and deprive the citizens of Boston of a valuable affordable housing asset. BPDA’s Complaint alleges that Boston Private’s acquisition of the affordable unit was invalid and, therefore, the foreclosure sale should be set aside.  

Boston Private and Blake sought to dismiss BPDA’s Complaint in its entirety, which was denied by the Business Litigation Session of the Suffolk Superior Court.  The Court held that as the party exercising the power of sale at the foreclosure auction, Boston Private owed BPDA a duty of good faith and reasonable care in executing its power of sale.  The Court explained, “[…] there is at least a plausible basis for the Court to conclude that Boston Private Bank’s foreclosure process was unlawfully tainted by the Bank’s decision to convey the Property to itself after the highest bidder defaulted, rather than giving the second highest bidder the opportunity to purchase the Property or selling the Property at another public auction.” The Court also allowed BPDA’s Motion to Amend its complaint to include claims for civil conspiracy and intentional interference with contractual relations against Mikhail and Fred Starikov based on the foregoing facts.

An associate with the Boston law firm of Englander & Chicoine, PC, Shannon Slaughter’s practice focuses resolving real estate and land use disputes, including real estate acquisition and complex title litigation, prescriptive easements and adverse possession claims, determination of ownership of tidelands, zoning and subdivision litigation, construction defects, fraudulent title and conveyances, and condominium disputes.  She can be reached by email at  sslaughter@ec-attorneys.com.



Thursday, December 13, 2018

Access to the Shore on a Plan Doesn’t Imply Usual Beach Rights




In Loiselle v. Hickey, 93 Mass.App.Ct. 644 (2018), the Appeals Court recently affirmed a Land Court decision involving a subdivision of registered lots in
Dennis, Massachusetts, which is distinguished from previous holdings by the SJC in Reagan v. Brissey (2006), and the Appeals Court in Leahy v. Graveline (2012). In those cases, the SJC and the Appeals Court held that owners of inland lots held implied easements to use parks and a beach, respectively, based on the inclusion of access ways to those areas on a recorded plan, which indicated a common scheme for the overall subdivision intended by the original developer.

The subdivision in Loiselle v. Hickey was originally part of a single 217-acre tract of land dating back to 1903. The subdivision was developed in stages. All of the litigants owned properties that were part of the second stage of development.

The eastern side of the tract was developed first and included a reservation by the developer of a long, narrow upland beach. Shoreland lots in the first stage of development describe their boundary as “by the beach.” The western side of the tract was developed second, but no similar beach was set aside by the developer. The lots in the second stage of development describe their boundaries as “by the waters of Cape Cod Bay” or equivalent language. After the second stage shoreland lots were deeded out, inland lots were deeded without any references to reserved beach rights. However, the Land Court plans for the subdivision depicted several access ways in between the shoreland lots. The ownership of these access ways and rights to use these access ways and the adjacent flats became the subject of multiple lawsuits over the last few years.


The first lawsuit involving the development was filed by four shoreland lot owners seeking a declaration from the Court that they owned the full interest in a twenty-foot wide right-of-way called “Hickey Way” that led to Cape Cod Bay, and that the inland owners had no right to use Hickey Way (Hickey I).

Hickey I went to the Massachusetts Supreme Judicial Court, which decided that Hickey Way and other access ways were excluded from the conveyance to the shoreland owners and that the inland lot owners had the rights to use Hickey Way (and the other ways) to access Cape Cod. The SJC held that the developers reserved the fee interest in the ways and that by retaining the fee in the ways, the developers could convey access rights to subsequently developed inland lots. Given the foregoing, the SJC held that the access ways were part of an integral scheme of ways in a neighborhood, providing access to the waterfront and that the developers intended to grant rights over the way to the inland owners. The SJC did not decide who owned title to the flats nor the scope of the inland owners’ rights to use the flats.


Having obtained a ruling that they had the right to use Hickey Way, the inland owners then filed a subsequent action in Land Court seeking a declaration regarding title to the flats adjacent to Hickey Way and a declaration that they had an easement to use the flats adjacent to Hickey Way for all usual beach purposes by virtue of their right to use Hickey Way and the other access ways (Hickey II).

In 2017, the Land Court held that: (i) the shoreland owners’ properties were subject to the common law presumption that their property includes the flats and that the inland owners did not proffer sufficient evidence to rebut that presumption and (ii) the inland owners’ rights in the access ways were limited to the use of the ways solely for the purpose of exercising their Colonial Ordinance Rights (fishing, fowling and navigating).

In July 2018, the Appeals Court affirmed the Land Court decision. Notably, the Appeals Court clarified the holding of the Land Court concerning use of the access ways. The Appeals Court held that the right to use the access ways to Cape Cod Bay does not impliedly carry with it the right to use the adjacent flats for all normal beach purposes (for example, sun bathing and recreation). The Appeals Court explained that even though the inland owners’ certificates of title reference rights to use Hickey Way and other access ways, none referenced a right to use the disputed flats for beach purposes. The access ways provided the inland owners the right to gain access to the disputed flats only to exercise the rights reserved by the Colonial Ordinance. The Appeals Court declined to address the scope of the inland owners’ rights to use the area within the access way.

The inland owners argued that it would not make sense for the original developers to have created a system of access ways for the benefit of the inland owners unless such owners acquired significantly greater rights than the public at large (i.e., the right fish, fowl and navigate on private flats). The Appeals Court rejected the inland owners’ argument and held that the inland owners enjoyed significant rights not possessed by the general public. For example, they could access ways closer to their homes and did not have to walk down to the public ways to access Cape Cod Bay and the disputed flats.

Hickey II can be distinguished from Reagan and Leahy. In Reagan, a handful of parcels were designated as parks on an 1892 subdivision plan. Advertisements described the subdivision as a "Pleasant and Healthy Seaside Resort" with harbor views and "gently undulating" lands and promised "a pleasant retreat during the 'heated term.'" However, the owners' deeds did not mention the parks and did not grant any express easements to use them, but the deeds did refer to the 1872 plan. The SJC held that an implied easement was intended with respect to the parks based on the details of the 1892 plan and inferences drawn therefrom. The SJC held that “without the use of the parks, the majority of lot owners would not be able to enjoy the social and recreational pleasures to be had by Crystal Lake.”

Similarly, in Leahy, the Appeals Court held that a beach, like the parks at issue in Reagan, was part of a common scheme for a vast subdivision with exceptional beach and bathing facilities. The Appeals Court held that the existence of the beach was an important feature in the attempt to sell the non-waterfront lots located in the Hyannis Park subdivision (as evidenced by the advertisements), and that "without the use of the [beach], the majority of lot owners would not be able to enjoy the social and recreational pleasures to be had by [Hyannis Park]." 

Such is not the case in Hickey II. The developer in Hickey II did reserve the rights to use a beach lot in the first stage of development and, unlike Reagan and Leahy, all of the proposed lot owners had the ability to use that reserved beach lot. The Appeals Court in Hickey II followed the general rule set forth in Jackson v. Knott that an easement must be shown on the certificate of title for registered land to be burdened by an easement. Neither of the Jackson exceptions applied in Hickey II. The advertisements relied upon in Reagan and Leahy would not be applicable in Hickey II because such advertisements were not included with other certificates of title, documents, or plans in the registration system. Further, even if the holdings in Reagan and Leahy are applied to Hickey II, the inland owners would not be deprived of the social and recreational pleasures to be had by Cape Cod Bay due to the reservation of the beach lot by the developer.

The inland owners sought further appellate review of the Appeals Court decision, which was denied.

A partner with the Boston law firm of Englander & Chicoine, PC, Shannon Slaughter’s practice focuses resolving real estate and land use disputes, including real estate acquisition and complex title litigation, prescriptive easements and adverse possession claims, determination of ownership of tidelands, zoning and subdivision litigation, construction defects, fraudulent title and conveyances, and condominium disputes.  She can be reached by email at  sslaughter@ec-attorneys.com.



Tuesday, December 11, 2018

The Foreclosure Crisis Ten Years Later



The passage of ten years from the last foreclosure crisis has caused our collective memories of the
devastation wrought on our communities by that event to fade. As a Gateway City, Lowell was one of the prime casualties of that crisis with foreclosures peaking at 370 in 2008 – there had only been 19 in 2005.

Besides the disruption to individual families, the volume of foreclosures caused severe disruption to several of Lowell’s neighborhoods. Houses facing foreclosure were often abandoned by their occupants early in the process and remained unoccupied for years as the process dragged on. These vacant properties became magnets for crime with lawless entrepreneurs stripping them of copper and other valuables. Many of the shells that remained became shooting galleries for addicts. This happening to a single home would drag down the value of those surrounding it, creating a downward spiral for the entire neighborhood.

A contributing factor to this collateral damage was the inability of local officials and members of the public to ascertain from the registry of deeds record what was going on with these properties. One way to address for the future this lack of public information about a pending foreclosure would be to require the notice of mortagee’s sale already required by MGL c.244, s.14 to also be recorded at the registry of deeds.

To understand the rationale of this proposal, it helps to review the process of a residential foreclosure. Most begin with the lender filing a complaint in the Land Court in compliance with the Service Members’ Civil Relief Act. The only issue in that litigation is whether the defaulting homeowner is serving in the military. If the homeowner is not, the Land Court issues a judgment in favor of the lender and the lender is free to schedule and conduct a foreclosure auction.

To commence the foreclosure, the lender prepares a notice of sale in accordance with MGL c.244, s.14.  This notice includes the date and time of the auction, the deposit amount required, the legal description of the property and information about the mortgage being foreclosed. The notice of sale must be served on all parties in interest and must be published in a local newspaper for three successive weeks with the first publication at least 21 days before the sale.

On the scheduled date, an auctioneer conducts the sale on the property. The high bidder signs a memorandum of sale and eventually pays the full bid price to the foreclosing lender who in turn delivers a foreclosure deed. This foreclosure deed is recorded at the registry of deeds, however, there is no time limit during which that must occur.

From the time the order of notice is recorded at the start of the process until the foreclosure deeds is recorded at the end of the process, there is an informational black hole about the ownership status of the property. The duration of that gap is a significant amount of time. A study of 200 foreclosure deeds recorded for Lowell in 2008 found that the average time from the recording of the order of notice to the recording of the foreclosure deeds was 208 days, while the time from the actual foreclosure auction to the recording of the foreclosure deeds was 102 days.

While the time between the auction and the recording of the foreclosure deeds has lessened somewhat, it remains long enough to cause problems. For the 83 foreclosure deeds recorded in Lowell between January 1, 2018 and November 30, 2018, for example, it took an average of 77 days from the auction to the recording of the foreclosure deed. The quickest a foreclosure deed was recorded was 18 days after the auction while the longest was 275 days after. Thirteen of the foreclosure deeds – 16 percent – were recorded more than 120 days after the auction.
To provide municipal officials, neighbors, homeowners and members of the public with an easily accessible record of what is happening with a property undergoing foreclosure, MGL c.244, s.14 should be amended to require that the same notice of mortgagee’s sale that is already being served on all parties in interest and published in a local newspaper also be recorded at the registry of deeds for the district in which the land is situated not less than 21 days before the day of the sale set forth in the notice.  This would provide universal notice of the date and time of the auction and allow the public, local government and other parties to learn of the pendency of the auction.

Furthermore, the recorded notice of mortgagee’s sale would clarify the state of title (and state of responsibility for the property) in the weeks and months until the foreclosure deed was recorded. As for the effort needed to comply with this proposal, the notice of mortgagee’s sale already must be created for publication and service so there is no additional effort there and with a recording fee of just $75, the added cost would be minimal in light of the benefit it would provide.

Dick Howe’s column, “From the Recording Desk...,” is a regular feature of REBA News.  Dick has served as register of deeds in the Middlesex North Registry since 1995.  He is a frequent commentator on land records issues and real estate news.  Dick can be contacted by email at richard.howe@sec.state.ma.us.