All Tolled, Section 108(c) Preserves a Mortgagee’s Option to Commenc...

02/23/12

By: Matthew W. Silverman

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In Shamus Holdings, LLC v. LBM Financial, LLC (In re Shamus Holdings, LLC),[1] the United States Court of Appeals for the First Circuit held that the tolling provisions of section 108(c)[2] of the Bankruptcy Code preserved a mortgagee’s right to enforce an obsolete mortgage despite failing to seek an extension available under Massachusetts state law.[3] The Massachusetts statute required holders of a mortgage, on pain of forfeiture, to take action against the mortgagor within five years after the end of the mortgage’s stated term, but granted mortgagees the right to seek an extension of that five-year period.[4] Prior to the expiration of the five-year deadline, Shamus filed a chapter 11 petition.[5] After the five year statute of limitations had expired and without having sought an extension of that period, LBM Financial, the mortgagee, took action to enforce its mortgage, relying on the tolling provisions of section 108(c) to preserve its foreclosure rights. Shamus argued that LBM Financial’s failure to seek an extension rendered the mortgage time-barred,[6] but the First Circuit found LBM Financial’s right to enforce its mortgage protected by the tolling provision of section 108(c).[7]

read more

[more]