Trs. of the Beechwood Vill. Condo. Trust v. United Stateslliance Fed. Credit Union

95 Mass.App.Ct. 278

125 N.E.3d 83

TRUSTEES OF the BEECHWOOD VILLAGE CONDOMINIUM TRUST

v.USALLIANCE FEDERAL CREDIT UNION & others.¹

No. 18-P-89

Appeals Court of Massachusetts, Suffolk..

Argued December 7, 2018

Decided May 15, 2019

Thomas O. Moriarty, Braintree, MA, for the plaintiffs.

Charles G. Devine, Jr., Boston, MA, for USAlliance Federal Credit Union.

Michael Grant (Nancy M. Reimer also present), Boston, MA, for the intervener.

Present: Sullivan, Massing, & Sacks, JJ.

SULLIVAN, J.

Beechwood Village Condominiums is an age-restricted condominium development built in phases. After some but not all of the phases had been built, the developer ceased operations at the site. A dispute arose between the developer's mortgage lender and the condominium trust concerning the right to construct additional units. On cross motions for summary judgment, a judge of the Land Court granted partial summary judgment to the lender, USAlliance Federal Credit Union (USAlliance), and intervener Sean P. Fallon.² The judge declared that USAlliance held a mortgage interest in the undeveloped common area, and that the developer's reserved phasing rights were largely intact, but that two easement rights had expired. After entry of final judgment, the Beechwood Village Condominiums Trust (condominium trust), USAlliance, and Fallon each appealed.

We conclude that all of the land associated with the condominium development, including the common area, was submitted to the provisions of G. L. c. 183A, the Condominium Act (act or statute), by the master deed,³ and that the effect of the subsequent mortgage discharges by the relevant lenders upon the sale of each unit was to release the lenders' mortgage interest in all of the common area. The unit owners became the fee simple owners of all of the common area as tenants in common, including the undeveloped common area. The mortgage interest in the phasing and easement rights reserved by the developer, however, was not released by the partial discharges. We further conclude that the developer retained its phasing rights for an unlimited period of time, but that the construction easement contained in the master deed -- to pass over "the Common Areas and Facilities" (common area) for purposes of constructing additional phases -- expired seven years after the master deed was recorded.

Background. 1. The development, master deed, and mortgages. The background facts are undisputed. On May 11, 2006, Mark S. Gardner, as trustee of the Mark S. Gardner Trust, sold to Jeffrey S. Reale, as trustee of the Beechwood Village Realty Trust (developer), a thirty-seven acre parcel of land referred to by the parties as lot 7 on Beech Street in Rockland. On the same day, the developer granted a first mortgage to USAlliance to secure payment of a note in the original principal amount of $ 2,800,000 (2006 USAlliance mortgage),⁴ and a second mortgage to Gardner to secure payment of a note in the original principal amount of $ 1,900,000 (Gardner mortgage).⁵ On March 9, 2007, the developer submitted the entirety of lot 7 to the provisions of the act by recording the master deed in the registry of deeds. The master deed stated that all land and appurtenances, and phase one of the development, were submitted to the statute. The master deed also reserved to the developer (referred to as declarant) the right to create additional phases. See G. L. c. 183A, § 16.

The master deed provided that the condominium could include up to seventy-nine age-restricted "single family free-standing dwelling" units to be constructed in up to thirty phases. A site plan depicting seventy-nine lots⁶ was recorded with the master deed.⁷ Article 4A & B of the master deed reserved for the developer phasing and construction rights and associated easements as set forth in full in the Appendix, and discussed in greater detail, infra. Article 4A set out the developer's phasing rights. Article 4B(i) reserved, among other things, certain construction easements for a period of seven years, while article 4B(ii) and (iii) granted, without temporal limitation, other easement rights for passage to and from buildings and for utilities.

Phase one, consisting of three units, was constructed before the master deed was recorded.⁸ The three units were sold to third-party purchasers shortly after the master deed was recorded, together with each unit's undivided 33.3 percent share of the common area. The master deed defined the common area to include "the Condominium land all parts of the building and improvements thereon, other than the Units." That is, the common area included not only the facilities and the entirety of lot 7, but also the land under the individual units, albeit subject to exclusive use restrictions set forth in the master deed.

Thus, each unit sat on land designated as a common area, but the unit owner held an exclusive use easement in the lot on which the unit was located.⁹ An exhibit to the master deed reflected that the entirety of the common area was conveyed when the three units in phase one were sold, subject to provisions in the master deed that permitted dilution of the respective percentage interests as additional units were built and sold. The developer did not reserve a reversionary interest in any portion of the common area. Partial discharges of the mortgage were issued to each of the three phase one unit owners and recorded at or after the time the master deed was recorded.¹⁰

The original USAlliance mortgage was refinanced on April 11, 2007 (2007 USAlliance mortgage). The 2007 USAlliance mortgage secured an adjustable rate promissory note in the original principal amount of $ 4,700,000, and granted USAlliance a mortgage interest in all of the developer's interest in and to the condominium land, unsold units, all buildings erected or to be erected, and all improvements including all paved walkways, driveways, and parking areas, among others. On April 11, 2007, Gardner signed an agreement subordinating his mortgage to the 2007 USAlliance mortgage. Gardner assigned his mortgage to USAlliance in 2012, so that by the time of this litigation, USAlliance held both Gardner's 2006 mortgage and its own 2007 mortgage. The notes have not been paid in full.

Pursuant to the phasing and easement rights reserved by the developer, multiple phases of the condominium, totaling fifty-four units,¹¹ were constructed between 2007 and 2011. As each phase was constructed, the corresponding units were added to the condominium by amendment to the master deed. The record contains copies of recorded revised site plans for each phase, which indicate that units have been built fronting on each of the condominium's proposed roadways. Only scattered single lots, on what appear to be already constructed roadways, have yet to be built on.

2. Partial discharges and releases. Before he assigned his mortgage to USAlliance, Gardner executed and recorded a "Partial Discharge of Real Estate Mortgage" when each unit was sold.¹² USAlliance also executed partial releases when units subject to its mortgage were sold.¹³

The project ran into severe financial difficulties caused in part by the real estate market downturn. No additional phases were added after December 23, 2011.

On April 29, 2016, the condominium trust commenced this action in the Land Court seeking declarations that can be divided into three general categories: (i) the 2007 USAlliance mortgage no longer encumbers any interest in the condominium land or buildings; (ii) the developer's development, phasing, and easement rights expired on March 9, 2014, seven years after the master deed was recorded; and (iii) the common area of the condominium is not subject to any development without consent of seventy-five percent of the unit owners. USAlliance, by way of counterclaim, sought declarations that (i) as assignee of the Gardner mortgage, it has a mortgage interest in the condominium land superior to the master deed, securing both the loan from Gardner and all debts owed to USAlliance by the developer;¹⁴ (ii) USAlliance continues to have a mortgage interest in the phasing rights pursuant to the 2007 mortgage; and (iii) the phasing and easement rights set forth in the master deed remain enforceable. The parties filed cross motions for summary judgment.

A judge of the Land Court made several declarations that are not challenged on appeal and which we take as final for purposes of this opinion.¹⁵ The contested issues are as follows. The judge specifically rejected the condominium trust's argument that the Gardner mortgage had been subordinated to the master deed and concluded that "[t]he Partial Discharges did nothing more than shrink, unit by unit, the areas subject to the security interests established in the Gardner Mortgage." For that reason, he declared that USAlliance, as assignee of the Gardner mortgage, "has a security interest in the premises described in that mortgage [lot 7] that is superior to any interest in those Premises that arises under or subsequent to the Master Deed," except to the extent that the Gardner partial discharges released from the mortgage the specific units and not the associated percentage interest in the common area.

The judge then declared that the developer's rights under two parts of article 4 of the master deed had expired. Specifically, the affected development rights are (1) "all of [the developer's easement] rights under article 4(B)(i)," and (2) the developer's "right and easement in and over phase one of the Condominium, as described in article 4(A), ‘to construct the buildings, roadways and other amenities, and to construct drainage and perform grading on and over roadways and other amenities, and that portion of the premises shown as subsequent phases on the Condominium Plans....’ " He concluded that "[n]one of [the developer's] rights under article 4 has expired except for the two rights described."

The parties jointly sought clarification of the judge's decision. The judge...