Massachusetts Law Review

The basic dynamic of a mortgage and foreclosure is deceptively simple.  A mortgage is the transfer of an interest in land to a lender to secure repayment of a loan.  In the event of the mortgagor’s failure to repay the loan, the lender may foreclose on the real property.[1]  Like any other security interest, however, a mortgage is subject to competing claims and interests.  Among the potential hurdles to foreclosure are the debtor’s filing for bankruptcy protection, and the recording of mechanic’s liens on the property.[2]  This article provides an overview of the impact of bankruptcy on foreclosure, including the impact of select provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which became effective on October 17, 2005 (“BAPCPA”),[3] as well as a discussion of mechanic’s liens in Massachusetts as such liens affect, and are in turn affected by, mortgage foreclosures and bankruptcy proceedings.

I.          Impact of Bankruptcy on Foreclosure

A.        Bankruptcy Overview

Title 11 of the United States Code sets forth the federal statutory law known as the United States Bankruptcy Code (the “Code”).[4]  The Code allows both individual consumer debtors and business entities to restructure and resolve their debts through a court-supervised proceeding that may include an orderly distribution of the debtor’s assets to creditors.

The Code contemplates two basic types of bankruptcy proceedings:  liquidation and rehabilitation.[5]  In a chapter 7 liquidation, a trustee is appointed to investigate, collect and reduce to cash all of the debtor’s assets (with certain exceptions that are exempt from collection under applicable federal or state law).[6]  In contrast, chapters 11 and 13 allow a debtor to “reorganize” – that is, to restructure debt and be rehabilitated to continue operations pursuant to a plan approved by the bankruptcy court.  A business debtor may also choose to liquidate its assets in a chapter 11 case, generally without the involvement of a bankruptcy trustee but under the supervision of the bankruptcy court.  Under each chapter, available assets (if any) are distributed to creditors on a pro rata basis in accordance with a statutory priority scheme.

Consumer debtors may petition for bankruptcy protection under chapters 7, 11 or 13 of the Code, while business debtors are eligible to file under chapters 7 and 11.[7]  In a chapter 7 liquidation, unsecured creditors generally receive heavily discounted returns on their claims even when the trustee determines that the estate possesses nonexempt assets.  More often, a chapter 7 case will be declared a no-asset case, and the debtor will be discharged from all unsecured debts, without repayment.  Business and consumer debtors are also given an opportunity to reorganize under chapters 11 and 13 in order to maximize repayment to creditors.[8]  Chapter 13 allows the consumer debtor to retain essential property while repaying creditors over a period of three to five years, while offering a more generous discharge of debts than chapter 11.[9]  Consumers who file to resist imminent foreclosure generally choose chapter 13, which allows a debtor to cure arrearages and reinstate the mortgage, while paying a compromised amount to unsecured creditors.[10]  Most consumers elect to liquidate their assets under chapter 7, which allows the debtor to surrender his or her assets and discharge debts without undertaking a repayment plan.[11]

BAPCPA effected significant changes in the Code.  Many of these changes make it more difficult for a consumer debtor to discharge unsecured debts without completing a repayment program.  In addition to budget and credit counseling requirements,[12] a new “means test” assesses chapter 7 eligibility by comparing the debtor's income and reasonable expenses to the state median income – in Massachusetts, $52,633 for one earner and $91,892 for a family of four (for cases filed through March, 2008) – and budget guidelines.[13]  BAPCPA presumes abuse by chapter 7 debtors with income levels exceeding the state median income.[14]  If a debtor cannot rebut the presumption by showing “special circumstances,” such as a serious health problem, the case will be dismissed or converted to a case under chapter 11 or 13.  Debtors placed under chapter 13 must participate in a repayment plan that may be extended to as long as five years to maximize creditors’ recovery.[15] 

B.        Effects of Bankruptcy Filing:  Proofs of Claim and Arrearages

Every bankruptcy case begins with the filing of a petition, notice of which must be given to all creditors.[16]  A bankruptcy proceeding may either be filed voluntarily by a debtor or initiated by creditors against an involuntary debtor.[17]  The filing of a petition creates a bankruptcy estate, which is comprised of all legal and equitable interests of the debtor in property as of the commencement of the case.[18]  To protect its interest in the estate – including the proper classification of its secured claim and the treatment of pre-petition arrearages – every creditor should timely file a proof of claim in the case or risk being forever barred, absent what the courts have termed “excusable neglect."[19]  The Code establishes the priority of each creditor’s interest in the estate,[20] which rarely will contain sufficient assets to pay all creditors’ claims in full.

C.        The Automatic Stay and Creation of the Bankruptcy Estate

The bankruptcy estate is subject to the protections of the “automatic stay,” a statutory injunction that arises automatically pursuant to section 362(a) of the Code.  Immediately upon a bankruptcy filing, creditors may not seek to collect debts or proceed against a debtor or its property in any way outside of the bankruptcy proceeding.[21]  Consequently, creditors must cease all attempts to collect mortgage loan arrearages and should not initiate foreclosure without filing a motion for relief from the automatic stay and obtaining a bankruptcy court order.[22]  Even if a valid foreclosure has taken place (either pre-petition or post-petition with bankruptcy court approval), the actual eviction of the debtor is regarded as a separate “proceeding against the debtor” that requires the party seeking eviction to obtain an order lifting the stay before proceeding.[23]  The automatic stay remains in place, absent a court order, until the property at issue is no longer property of the estate, or the case is closed, dismissed or the debtor is granted or denied a discharge.[24] 

Violations of the automatic stay may render a foreclosure void and subject the violator to tort damages and sanctions under the Code.[25]  For this reason, it is imperative that, before taking any action against the debtor or any act to obtain possession of, or exercise control over, property of the estate, the creditor first determine whether the stay applies, and if any uncertainty exists, how most effectively to obtain relief.[26]   Note, however, that a creditor or its counsel may engage in post-petition negotiations with the debtor to secure an agreement to reaffirm a debt[27] without violating an automatic stay, provided that the creditor does not engage in coercive or harassing tactics, including threatening foreclosure.[28]

The Code’s creation of an expansive bankruptcy estate and court-supervised division and distribution of that estate ultimately benefits creditors.  Upon a bankruptcy filing, all nonexempt assets become property of the bankruptcy estate[29] and the debtor loses the right to dispose of those assets[30] (except, in the case of business debtors, in the ordinary course of business).[31]  Likewise, a filing halts a “race to the courthouse” by creditors seeking to create and perfect liens against the debtor’s assets.[32]  Additionally, certain pre-petition transfers of property, secured interests, and liens claimed by particular creditors may be delayed or invalidated for the benefit of the creditor body as a whole.[33]  Even property in which the debtor no longer has a possessory interest may be deemed part of the bankruptcy estate.[34]           

In view of the current subprime mortgage crisis, the courts are becoming increasingly protective of debtors, particularly with regard to enforcing the protections afforded by the automatic stay.[35]  Thus, it is more important than ever that creditors seeking to enforce their rights ensure that they have timely and precisely complied with all legal requirements before seeking relief from the courts.

D.        Creditors Beware: Turnover, Setoff and Lien Avoidance

Pursuant to section 542(a) of the Code, a court may order any creditor to turn over repossessed or seized property to the bankruptcy trustee when the debtor’s redemption rights have not been fully extinguished.[36]  The expansive definition of “property of the estate”[37] and the protection to the estate afforded by the automatic stay is so extensive that, even after a mortgage foreclosure, the property may be drawn back into the estate if the sale has not been fully consummated under state law.  Pursuant to the Massachusetts Statute of Frauds,[38] a debtor retains redemption rights in mortgaged property until a memorandum of sale is mutually executed.[39]  Execution of the memorandum of sale – not the foreclosure auction itself – extinguishes the debtor’s (and, therefore, the estate’s) rights in the property.[40]  A debtor whose redemption rights have been extinguished may only avoid foreclosure, or recover damages thereafter, by convincing the bankruptcy court that substantial defects in the foreclosure process rendered it invalid.[41]  In re Strayton,[42] a decision by the Massachusetts bankruptcy court, has arguably heightened the standard for diligence and good faith required of a foreclosing mortgagee.[43]

Secured creditors enjoy special protection under the Code.  Even when property seized prior to the filing of a petition must be turned over to the bankruptcy trustee, a secured creditor’s interest in the property remains intact.[44]  Further, under section 363 of the Code, the secured creditor is entitled to “adequate protection” of its interests.[45]  The purpose of section 542(a) is essentially procedural:  to require secured creditors to protect their interests utilizing bankruptcy procedures, as by filing a motion to lift stay or an objection to the debtor’s proposed plan of reorganization, rather than withholding property of the estate that may be used for the collective benefit of all creditors and to rehabilitate the debtor.

As federal law, the Code preempts state law.  Accordingly, states may not regulate bankruptcy.[46]  Nonetheless, substantive state and federal (nonbankruptcy) law governs other aspects of the debtor-creditor relationship that are relevant to foreclosure and mortgages.  These laws include debt collection statutes, fraudulent transfer statutes, and laws regulating lending to protect consumers.[47]  Creditors should be particularly aware of the Fair Debt Collection Practices Act,[48] the Massachusetts Consumer Protection Act,[49] and the Massachusetts Consumer Credit Cost Disclosure Act,[50] which is based on the Federal Truth in Lending Act[51] and the Consumer Credit Protection Act,[52] and the Servicemembers Civil Relief Act.[53]  Given the Code’s preemption of state law, creditors should further be aware that their rights, however well established under state law, are subject to modification under the Code.[54]

By way of illustration, under state law, and subject to the nature and terms of the agreements providing for a deposit account and loan respectively, a lending institution may generally exercise a right of setoff when a delinquent loan customer has otherwise deposited funds with the bank.  In the event that a customer files bankruptcy, however, under certain circumstances, the trustee may lawfully recover from the bank the amount of the setoff.  Section 553(b) of the Code subjects pre-petition setoffs to an empirical “insufficiency” test to ascertain the extent to which the creditor may have improved its position by effecting the setoff, which in turn will determine the amounts (if any) that the trustee may recover.[55] 

In some instances, a creditor’s rights may be modified even to the extent of avoidance of a lien.[56]  For example, section 522(f) of the Code allows for avoidance of a “judicial lien” on the debtor's interest in real property to the extent the lien impairs an exemption.[57] A judicial lien is defined as a “lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding”.[58] The term ordinarily does not include a consensual lien such as a mortgage, but the United States Court of Appeals for the First Circuit has held that a deficiency judgment obtained upon foreclosure of the mortgage – unlike the mortgage itself – is a nonconsensual lien like any other and is therefore subject to avoidance under section 522(f). [59]

In other instances, bankruptcy courts may allow a debtor to “strip off” a seemingly valid lien (typically that of a wholly undersecured junior lienholder) “if there is no security available to the lienholder to foreclose on in the event the debtor fails to fulfill the contract payment obligations”[60] – i.e., where the collateral has no value.  Similarly, an undersecured creditor’s lien may be “stripped down” to the value of the collateral.[61]

E.         BAPCPA 2005: Select Provisions Affecting Mortgages and Foreclosure           

Significant changes to the prerequisites for obtaining the protection of the automatic stay have already affected the interplay between foreclosure and bankruptcy.  In summary, as noted above, would-be individual debtors are now subject to means testing pursuant to section 707(b) of the Code and are required to have completed budget and credit counseling as recently as within the “180 days” preceding a filing for bankruptcy protection.[62]  Moreover, the availability of the automatic stay has been severely curtailed with regard to repeat bankruptcy filers,[63] signifying the end of the cycle of foreclosure attempts and bankruptcy filings sometimes commenced under the prior Code.  BAPCPA also expanded the Code definition of a “single asset real estate debtor,”[64] making it more difficult for such debtors to retain the protections of the automatic stay.  Finally, under BAPCPA it is clear that a consumer debtor wishing to retain personal property in which a lender holds a security interest must reaffirm or redeem the debt (thus eliminating the so-called “ride through” option), but it is arguable that real property may now ride through the bankruptcy without a reaffirmation agreement or redemption.[65]

The new budget and credit counseling requirement imposed by section 109(h)(1) of the Code provides that an individual may not be a debtor in a bankruptcy case

unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency … an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.[66] 

The requirement is being strictly construed by bankruptcy courts, which have denied relief where the requirement has not been met.[67]  The plain language of the statute is unambiguous and provides only limited enumerated exceptions to the requirement that an individual obtain counseling before filing a petition.[68]  Pursuant to section 521(b) of the Code, the debtor must then file with the court “a certificate from the approved nonprofit budget and credit counseling agency describing the services provided to the debtor”[69] and also file a copy of any resultant repayment plan.[70]

These new requirements will invariably curtail the heretofore common practice of filing bankruptcy at eleventh hour to prevent imminent foreclosure.  Bankruptcy courts have yet to reach a consensus as to whether the appropriate response to a bankruptcy filing by an ineligible debtor is to strike the petition, rendering it void ab initio, or to dismiss the petition.[71]  The distinction is legally significant because if the bankruptcy petition is struck, it will be as though the automatic stay never existed, and a foreclosure conducted post-petition will remain valid.  Conversely, if the petition is dismissed, a foreclosure conducted post-petition, but prior to dismissal, would be in violation of the automatic stay.  Where a bankruptcy is dismissed and successfully reinstated, First Circuit case law suggests that the reinstatement of the case will not act to invalidate a foreclosure sale conducted post-dismissal but before refiling.[72]

BAPCPA also added several sections to section 362 that pertain to the availability of the stay for repeat filers.  First, new section 362(c)(3) provides that if a debtor has had even one prior bankruptcy case dismissed within one year before the current filing, the stay terminates after 30 days, absent a court order granting an extension.[73]  There has been some confusion among bankruptcy courts as to whether new section 362(c)(3)(A) terminates the automatic stay with regard to the debtor, property of the debtor and property of the estate, or only with regard to the debtor and property of the debtor.[74]  The Bankruptcy Appellate Panel for the First Circuit has concluded that the automatic stay does not terminate with respect to property of the estate.[75]

Second, new section 362(c)(4) states that if a debtor has been the subject of two or more prior cases dismissed within the prior year, no automatic stay goes into effect upon the filing.[76]  Under section 362(c)(4), the debtor must petition the court to put the stay into effect.  The stay will be effectuated or extended only if the new filing is in good faith as to the creditors that will be subject to the stay.[77]  A lack of good faith is presumed under the following circumstances,  and may only be overcome by clear and convincing evidence: (1) the debtor had more than one bankruptcy case already pending within the preceding year; (2) a previous case was dismissed after the debtor's failure to (a) file or amend the petition or other documents required by the Code or the court without substantial excuse, (b) provide court-ordered adequate protection, or (c) perform the terms of a confirmed plan; or (3) there has been no substantial change in the debtor's financial or personal affairs since the last dismissal or any other reason to conclude that the current case will result in a chapter 7 discharge or a confirmed and fully performed chapter 11 or 13 plan.[78]  In addition, there is a presumptive lack of good faith as to a particular creditor who had obtained stay relief or had a stay relief motion pending as of the dismissal of a prior case.[79]

Finally, new section 362(d)(4) provides that, upon finding that a bankruptcy filing “was part of a scheme to delay, hinder, and defraud creditors” that involved either “(1) the transfer of all or part ownership (or other interest) in the real property without court approval or the consent of the secured creditor or (2) multiple bankruptcy filings affecting such property,”[80] the court shall lift the automatic stay as to a secured creditor proceeding against such property in satisfaction of its valid lien.[81]  If such an order is “recorded in compliance with applicable state laws governing notices of interests or liens in real property,”[82] it will be binding in any other bankruptcy case, filed within two years, that affects that real property.[83]  The debtor may, however, in a subsequent case, move for relief based upon changed circumstances or for other good cause shown.[84]           

A more subtle change to the Code affects the “single asset real estate debtor.”  In a single asset real estate bankruptcy, a debtor must file a feasible plan of reorganization or commence monthly interest payments in order to maintain the protections of the automatic stay.  Pre-BAPCPA, a single asset case was defined as one in which the following four factors existed: (i) a single real property or project (excluding residential property with fewer than four units) (ii) that generates substantially all of the debtor’s income (iii) on which the debtor conducts no substantial business other than operation of the property and (iv) on which there is no more than $4 million in secured debt.[85]  BAPCPA has amended this definition to exclude the fourth requirement of a $4 million cap on secured debt.[86]  Consequently, filing a plan or making monthly payments to secured creditors is now essentially mandatory for all single asset real estate debtors that desire to maintain the automatic stay. 

Another relevant BAPCPA development is actually based on the complete silence of the Code as to any restrictions on the “ride-through” of real property.  This omission stands in stark contrast to the substantial new restrictions on the ride-through protection available for personal property.  Pre-BAPCPA, several courts of appeals held that the Code permitted debtors to retain certain personal property without being required to reaffirm or redeem the debt as long the debtor stayed current on payments.  Hence, the property was said to “ride through” the bankruptcy.[87]  These courts, however, were split as to whether the debtor enjoyed the same privilege with regard to real property.  Following BAPCPA, sections 362(h) and 521(a)(6) of the Code now prohibit ride through – but only as to personal property collateral.[88]  Since a common rule of statutory construction presumes the legislature to be aware of such divisions, the enactment of legislation prohibiting ride through only as to personal property may be construed to mean that Congress intended that real property may ride through.[89] 

II.        Interplay of Massachusetts Mechanic’s Liens, Mortgage Foreclosures and       Bankruptcy Proceedings 

A.        Overview of Mechanic’s Liens in Massachusetts

In Massachusetts, mechanic’s liens are created and governed purely by statute.[90]  The governing statute, General Laws chapter 254, provides, in pertinent part:

A person entering into a written contract with the owner of any interest in real property, or with any person acting for, on behalf of, or with the consent of such owner for the whole or part of the erection, alteration, repair or removal of a building, structure, or other improvement to real property, or for furnishing material or rental equipment, appliances, or tools therefore, shall have a lien upon such real property, land, building, structure or improvement owned by the party with whom or on behalf of whom the contract was entered into, as appears of record on the date when notice of said contract is filed or recorded in the registry of deeds for the county or district where such land lies, to secure the payment of all labor, including construction management and general contractor services, and material or rental equipment, appliances, or tools which shall be furnished by virtue of said contract.[91]

“The primary purpose of the lien is to provide security to contractors, subcontractors, laborers, and suppliers for the value of their services and goods provided for the owner’s real estate.”[92]  “Because a mechanic’s lien is purely a creation of statute, the courts have consistently required exact compliance with the statute in order to create, perfect, and enforce such a lien.”[93] 

B.        Notice of Contract 

A contractor seeking to obtain a lien must record a “notice of contract” in the registry of deeds for the county in which the property is located.[94]  The statute calculates a deadline for the recording of a notice of contract based upon whether (and how) the contract is either terminated or completed.  If the owner and contractor have filed a notice of substantial completion under  section 2A (indicating that “work under the written contract is sufficiently complete so that it can be occupied or utilized for its intended use”)[95], the notice of contract must be filed no later than 60 days after the notice of substantial completion was filed.[96]  If the owner has filed a notice of termination under section 2B, the notice of contract must be filed no later than 90 days after the notice of termination was filed.[97]  Absent a notice of substantial completion or notice of termination, the notice of contract must be filed no later than 90 days after the contractor “last performed or furnished labor or materials or both labor and materials.”[98]  A notice of contract may be recorded “at any time after the execution of the written contract,” as long as it is recorded before the applicable deadline.[99]  A subcontractor or supplier seeking to obtain a lien must also give actual notice to the owner of such filing.[100]

C.        Statement of Account 

Enforcement of the lien requires further steps.  Pursuant to General Laws chapter 254, section 8, the contractor must record a statement of account, setting forth the amount due or to become due.[101]  It must be recorded within 90 days of the filing of a notice of substantial completion; 120 days of the filing of a notice of termination; or 120 days after the contractor last performed or furnished labor, materials, equipment, appliances, or tools for the project, whichever is earliest.[102]  Failure to file a statement of account within these time frames results in dissolution of the lien.[103] 

D.        Commencing and Recording an Action 

After filing the statement of account, the contractor has a brief period of time in which to enforce the lien.  Within 90 days of recording the statement of account, the contractor must file a civil action in the superior court for the county in which the real property is located [104] and, within 30 days of filing suit, must record in the registry of deeds an attested copy of the complaint, which should contain a brief description of the property sufficient to identify it and a statement of the amount due.[105]  If either deadline is not met, the lien will be dissolved.[106]

In filing an action, the plaintiff-contractor (or subcontractor) will name, as defendants, the owner and any higher-tier contractor.  As with any civil litigation, the defendants may raise defenses to the action[107] or bring an action to dissolve the lien.[108] 

E.         Dissolution of Liens 

Once perfected, a lien may be dissolved in several ways.  A contractor may voluntarily dissolve its lien by notice pursuant to General Laws chapter 254, section 10.[109]  The court will also enter a judgment dissolving a lien if it appears that no person is entitled to a lien, or that every lien has been discharged by payment.[110]  Such a judgment has the effect of dissolving the lien.

The recording of a bond under General Laws chapter 254, section 14 will also result in dissolution of the lien.  Under that section, any person in interest may dissolve a lien by recording the bond in the registry of deeds.[111]  The bond must be issued by a surety company authorized to do business in Massachusetts for a sum equal to the amount of the lien sought to be dissolved.[112]  Notice of the recording must be given by serving the claimant with copies of the bond and notice of bond.[113]  Service must be made by an officer authorized to serve process or by delivering the notice and copy of the bond to the claimant.[114]  The claimant may enforce the bond by commencing a civil action within 90 days after filing a statement of account or receipt of the notice of bond recording, whichever is later.[115]  The bond gives the claimant no greater rights than it would have had, or impair any defense that the obligors would have had, in an action to enforce a lien.[116]

Finally, General Laws chapter 254, section 15A establishes a summary process whereby an owner may seek a discharge of a defective mechanic’s lien or notice by filing a separate action, generally in the superior court for the county in which the real property is located.  There is some doubt, however, as to whether a contractor’s appeal of a judgment dissolving the lien will effectively resurrect the lien as a cloud on the title during the pendency of the appeal.[117] 

F.         Lien Priority 

A successful final judgment establishing the lien provides a basis for the lienholder to seek recovery through a court-ordered sale of the property (similar to an execution sale).[118]  The debtor retains redemption rights for 90 days after the sale.[119] The cost of redemption may include costs associated with establishing the lien.[120]

Upon such sale, or upon foreclosure, the recording of the notice of the contract establishes the priority of the mechanic’s lien.  As a general matter, the lien takes priority over all later-recorded encumbrances on the property, but if there is more than one lien creditor, each will receive a pro rata distribution regardless of the date upon which the lien creditor filed a notice of contract.[121]  Hence, ordinarily, a duly recorded prior mortgage will trump subsequent mechanic’s liens.  Massachusetts law generally prohibits any agreement, in connection with (or collateral to) contracts related to improvement to real property that bar filing a notice of contract, taking steps to enforce a lien, or purporting to subordinate such rights to the rights of other persons.[122]  There are, however, important exceptions.  For example, a so-called “section one” lien for labor will subrogate a mortgage that was recorded before the sworn statement for the labor, if the labor protected by the lien began before the mortgage was recorded.[123]  Another  exception to this general rule of lien priority is the so-called “rolling lien” provided by General Laws chapter 254, section 32(4), which creates a procedure for partial waivers and subordination of lien rights in exchange for advances by secured lenders.[124] 

G.        Mechanic’s Liens in Bankruptcy

A question that frequently arises with respect to mechanic’s liens in bankruptcy is whether steps may be taken to perfect the lien after the debtor has filed for bankruptcy relief.  As discussed above,[125] section 362 of the Code generally enjoins any act to create, perfect or enforce any lien against property of the estate.  Sections 362(b)(3) and 546(b) of the Code, taken together, set forth an exception from the stay for acts to continue perfection of certain interests in property.  The United States Court of Appeals for the First Circuit explained the operation of these provisions in a decision dealing with environmental “superliens,” as follows:

[T]he automatic stay [is] inapplicable to “any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the [bankruptcy] trustee’s rights and powers are subject to such perfection under section 546(b) of [the Bankruptcy Code]...[which] limits the debtor’s powers to avoid statutory liens by providing that they are “subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights before the date of perfection.” Thus sections 362(b)(3) and 546(b)(1)(A), read together, plot the boundaries of the exception to the automatic stay….[126]

General Laws chapter 254 is “generally applicable law” that authorizes a contractor to perfect a lien that has retroactive effect, and thus falls within the purview of the section 546(b) exception to the automatic stay. [127]  More particularly, chapter 254 (like General Laws chapter  21E, the environmental superlien statute reviewed by the First Circuit) authorizes both the creation and perfection of a lien through the single act of a recording with the registry of deeds.[128]  Consequently, if a contractor has recorded a pre-petition notice of contract, it is generally believed that the Code allows for a continuation of the perfection.[129] 

A contractor that recorded a pre-petition notice of contract is well advised, however, to move for relief from the stay before taking any action to maintain or continue perfection of its lien.  Indeed, from a contractor’s standpoint, the best practice is to protect its lien in two ways:  first, by filing with the bankruptcy court and serving on all creditors and parties in interest a notice of perfection of mechanic’s lien pursuant to section 546(b) of the Code, with statement of account and other relevant documentation attached, and, second, petitioning the court for relief from stay, if and to the extent that such relief is needed, in order to take the further steps required to maintain and continue perfection pursuant to General Laws chapter 254.[130] 

Conclusion

Counsel to both creditors and debtors in Massachusetts are well-advised to pay close attention to the intricacies of various state and federal laws that affect mortgage foreclosures.  These include, but are not limited to, General Laws chapter 254 and the United States Bankruptcy Code.[131]  Secured creditors have generally benefited from recent changes in the Code discussed herein, such as the “means test,” budget and credit counseling requirements and new provisions curtailing the availability of the automatic stay to repeat filers.  These changes are likely to reduce the number of last-minute bankruptcy filings designed to stave off impending foreclosure.  Nonetheless, the Supreme Judicial Court’s opinion in Tremont Tower – concluding that the right to file a mechanic’s lien may be resurrected after the lien is once dissolved – serves as a reminder that a foreclosing mortgagee must pay scrupulous attention to statutes designed to protect various constituencies.[132]  These constituencies include not only the debtor-mortgagor, but also contractors, subcontractors and materialmen who have provided labor and materials to improve the mortgaged property.  Where – as here – complex statutes intersect, there is little room left for the generalist.