MAINE	SUPREME	JUDICIAL	COURT Reporter	of	Decisions Decision: 201 9 ME 3 Docket: Yor

- 18

- 103 Argue d : December	12,	2018 Decided: January	8,	2019 Panel: ALEXANDER,	MEAD,	GORMAN,	JABAR,	HJELM,	and	HUMPHREY,	JJ.

LITTLEBROOK	AIRPARK	CONDOMINIUM	ASSOCIATION

v. SWEET	PEAS,	LLC , et	al.

MEAD ,	J. [ ¶1] Sweet	 Peas,	 LLC , and	 party

- in

- interest	 Jea n Hardy	 appeal from a judgment of	 the Superior	 Court (York	 County, Fritzsche,	 J. )	 denying	 their motions	 for	 summary	judgment and	 granting	 the	 cross

- motion	 for	 summary judgment	 of Littlebrook	Airpark	 Condominium	Association (the	 Association) on	 the	 Association’s action for	 a	 declaratory	 judgment	 on	 the	 issue	 of	 the effectiveness	 of	 a	 lease	 amendment.	 	 The	 court	 found	 that ,	 altho ugh a	 lease amendment resulted	in	a	default	of	the	mortgage encumbering	property	owned by	Sweet	Peas , the	amendment	was not	void. W e	vacate	the	judgment.2 I. FACTS	AND	PROCEDURE
A. Facts [¶ 2 ] The	following	facts	are	drawn	from	the	summary	judgment	record and	are	undisputed .		On	March	18,	1999,	John	Hardy ,	who	then	was	the	owner of	 the	 property	 at	 issue, entered	 into	 a	 twenty

- year	 lease	 agreement	 with Littlebrook	Airport	 Development	 Co.,	 Inc.	 (LADC),	 of	which	 John’s	wife,	 Jean Hardy,	was	the	president.		Th rough	this	agreement,	LADC	was	granted	the	right to	develop	and	maintain	ten	condominium	units	on	the	leased	property,	which were	then	to	be	sold	to	individual	unit	owners.		The	same	day,	LADC	executed

a d eclaration	 of c ondominium	 sub ject ing	 the	 leased	 pro perty	 to	 the Maine Condominium	 Act ,	 33	 M.R.S.	 §§	 1601

- 101	 to	 1604

- 118	 (2017),	 and	 thereby

creat ed the	 Association. Both	 the	 lease	 and	 the	 declaration	 were	 recorded. Later	in	1999,	condominium	units	seven,	nine,	and	ten	were	sold,	and	the	lease was	amende d	in	a	manner	not	relevant	to	this	appeal. [¶ 3 ] When	John Hardy died	on	November	15,	2000, Jean	Hardy became the	owner	of	the	property	that	was	leased	to	LADC.		By	a	recorded	deed	dated June	 30,	 2005, Jean	 Hardy then	 sold	 the	 leased	 property	 to	 Littlebroo k Ventures,	 LLC	 (LV),	 an	 organization	 of	 which	 James	 Barrett	 was	 the	 sole member.		LV	executed	and	delivered	to Hardy a	mortgage	on	the	property	and3 an	 assignment	 of	 leases	 and	 rentals,	 both	 of	 which	 were	 recorded. In	 the mortgage,	 LV	 agreed	 not to modify any	 leases	 or	 tenancies	 without Hardy’s prior	written	consent. Likewise , in the	lease	assignment,	LV	agreed	not	to	alter, modify,	or	change	the	terms	of	the	lease	without Hardy’s prior	written	consent. [¶ 4 ] The	same	day,	LADC	assigned	its	interest	in the	lease	and	its	rights as	declarant	of	the	condominiums	pursuant	to	the	Maine	Condominium	Act	to Windmill,	USA,	 LLC	 (Windmill) .	 	 James Barrett	was also the	 sole	member of Windmill

. Additionally, LADC	 sold	 its	 interest	 in	 condominium	 units	 one through	si x	to	Windmill,	retaining	its	interest	in	unit	eight

. Windmill	sold	units one	through	six	to	individual	unit	owners	in	October	2005,	and	LADC	sold	unit eight	to	an	individual	unit	owner	in	June	2006. [¶ 5 ] On	October	11,	2005,	Windmill	executed and recorde d a document styled	as	an	amendment	to the declaration	of	condominium	which	purported to	extend	the	term	of	the	lease for forty	years	beyond	the	original	twenty

- year term	 and	 to	 give	 unit	 owners	 the	 right	 to	 use	 the	 runway	 on	 the	 property without	a	 fee.		 T wo	 days	later,	 LV	and	Windmill	 signed	 an	addendum	 to the lease	 purporting	 to	 amend	 the	 lease	 in	 accordance	 with	 the	 declaration amendment	by	extending	the	term	of	the	lease	and	allowing	use	of	the	runway4 without	a	fee.		The	lease	amendment	was	not	recorded ,	and	there	is	nothing	in the	record	to	suggest	that Hardy gave prior	written	consent	to	the	amendment. 1 [¶ 6 ] By	 deed	 in	 lieu	 of	 foreclosure	 dated	 December	 15,	 2005,	 and recorded	on	March	31,	2006,	LV	conveyed	the	property	back	to Hardy

. Hardy then	enforced	her	statutory	power	of	sale	and	purchased	 the	property	at	 the foreclosure	 sale	 on	 July	 27,	 2006. On	 October	 25,	 2006,	 she conveyed	 the property	to	Sweet Peas in a	quitclaim	deed that	stated that the	conveyance	was explicitly	 subject	 to	 the 2005 declaration	 amendment	 and	 the	 1999	 lease amendment	but made	no	mention	of the	2005 lease	amendment.		Sweet	Peas later	executed	a	mortgage	in Hardy’s favor.
B. Procedure [¶ 7 ] On	 June	 16,	 2011,	 the	 Association,	 on	 behalf	 of	 the	 individual condominium unit	 owners	 and	 as	 successor	 to	 the	 lessee’s	 rights	 under	 the lease, 2 filed	a	nine

- count	complaint	in	 the	Superior	Court	against	Sweet Peas. Relevant	to	this	appeal	is	count	eight,	a claim for	declaratory	judgment	on	the issue	of	the	effectiveness	of	the	2005	lease	amendment.

1 Hardy questioned	the	effectiveness	of	the	declaration	amendment	in	email	correspondence	with her	then

- attorney	in	May	2006.

2 Windmill	was	at	some	point	administratively	dissolved.5 [¶ 8 ] Sweet	Peas,	and Hardy as	party
- in

- interest,	filed	motions	for	partial summary	 judgment,	 arguing	 that	 the	 lease	 amendment	 was	 void	 because (1) the	foreclosure	ext inguished	it ,	(2) there	was	no	consideration	for	it ,	(3) it

was against	 public	 policy,	 and	 (4) it	 was	 the	 result	 of Barrett’s	 fraudulent
actions .		The	Association	filed	a	cross

- motion	for	summary	judgment,	arguing that	the	validity	of	the	amendment	was	not challenged	within	a	year	after	the amendment	 was	 recorded and	 that Sweet	 Peas	 and	 Hardy’s challenge w as therefore untimely pursuant	to	33	M.R.S.	§	1602

- 117(b)	(2017)

. [¶ 9 ] In	addressing	the	Association’s	argument,	the	trial	court determined that section 1602

- 117(b) barred Hardy from	challenging	the	amendment	to	the declaration but that it	 did	 not	 bar	 her	 from	 challenging	 the	 validity	 of	 the amendment	to	the lease .		However,	the	court	concluded	that ,	although Barrett could not change	the	lease	in	2005	with out	Hardy’s	consent,	that	did	not	mean “that	a	change	in	the	lease	is	void	as	to	the	plaintiff	.	.	.	.” Accordingly,	the	court held	that	the	declaration	and	the	lease	were	validly	amended	and	granted	the Association’s	cross

- motion	for	summary	judgment	on count	eight. 3

3 On	May	7,	2012,	Sweet	Peas	and Hardy moved	 to	alter	or	amend	 the	judgment	pursuant	 to M.R. Civ.	 P.	 59(e)

. T he	 court	 granted	 the	 motion	 to	 the	 extent	 that	 it	 sought	 correction	 of typographical	err ors	in	the	original order but	otherwise	denied	the	motion.6 [¶1 0 ] Sweet	Peas	and Hardy then	filed	a	motion	to	report	the	case	to us pursuant	 to M.R.	 App.	 P.	 24(c) ,	 which	 the	 court	 granted. We exercised our discretion	to	reject	the	report	and	remanded	the	case	for	further	proceedings

. Littlebrook Airpark	 Condo.	 Ass’n	 v.	 Sweet	 Peas,	 LLC ,	 2013 ME 89,	 ¶ 1 5 , 81 A.3d 348. [¶1 1 ] On	 March	 6,	 2018,	 the	 parties	 stipulated	 to	 dismissal	 without prejudice	of	counts	one	through	seven	and	nine,	reserving	their	rights	of	appeal with	 respect	 to	 count	 eight

— the	 issue	 of	 the	 effectiveness	 of	 the	 lease amendment.		Sweet	Peas	and Hardy now	appe al the	court’s	order	on	the	parties’

cross - motions	for	summary	judgment,	arguing	that the	lease	amendment	is	not effective	 because, inter	 alia ,	 any	 rights	 created	 by	 the	 amendment	 were subordinate	 to	 the	 existing	 mortgage	 on	 the	 property	 and	 were	 therefore extinguished	by	Hardy’s	foreclosure

. 4
II.		DISCUSSION [¶1 2 ] “When	 we	 review	 a	 grant	 of	 summary	 judgment,	 we view the evidence	in	the	light	most	favorable	to	the	party	against	whom	the	judgment

4 The	Association	filed	a	cross

- appeal,	arguing	that	any	challenge	to	the	lease	amendment	is	now time

- barred	by	the	statute	of	limitations	set	out	in	33	M.R.S.	§ 1602

- 117 (b)	(2017). Because	 that provision governs	 amendments	 to	 a	 declaration	 of	 condominium	 and	 not	 to	 a	 lease,	 it	 is	 not applicable	in	this	case.		The	court	correctly concluded that	 the	statute	did	not	bar	Sweet	Peas	and Hardy	from	challenging	the	amendment	to	the	lease.7 has	 been	 granted [] and	 review	 the	 trial	 court’s	 decision	 for	 errors	 of	 law.” Farrington’s	 Owners’	 Ass’n	 v.	 Conway	 Lake	 Resorts,	 Inc. ,	 2005	 ME	 93,	 ¶	 9,
878 A.2d	 504	 (quotation	 marks	 omitted).	 	 Additionally,	 “ [w]e independently determine	whether	the	record	supports	the conclusion	that	there	is	no	genuine issue	of	material	fact	and	that	the	prevailing	party	is	entitled	to	judgment	as a matter	of	law.” Id. (quotation	marks	omitted). [¶1 3 ] It	is	not dispute d that	a	valid	foreclosure	of	a	mortgage	terminates all	interests in	the	foreclosed	real	estate	that	are	junior	to	the	mortgage	being foreclosed. See 14	M.R.S. § 6203

- A ( 4 )	(2017) (noting	that	upon	foreclosure	“the premises are considered	to	have	been	sold	free	and	clear	of	the	interest	of	the mortgagor	 and	 of	 all	 other	 parties	 in	 interest	 .	 .	 .	 except	 [those]	 having	 a superior	 priority	 to	 the	 foreclosing	 mortgage e ”) ;	 Restatement	 ( Third )	 of Prop erty : Mortgages § 7.1 (Am.	 Law	 Ins t.	 1997) (“A	 valid foreclosure of	 a mortgage	terminates	all	interests	in	the	foreclosed	real	estate	that	are	junior	to the	mortgage being foreclosed	.	.	.	[but	f]oreclosure	does n ot terminate	interests in	the	foreclosed	real	estate	that	are	senior	to	the m ortgage being	foreclosed

. ”). [¶1 4 ] Sweet	 Peas	 and Hardy a ssert that the	 lease	 amendment	 was	 a junior	encumbranc e	because	it	was	entered	into	after	 the	mortgage	and	was therefore	voided	upon	foreclosure	of the mortgage. The	Association	maintains8 that	 the	original	lease	is	 the	operative	document	and that because	 that	lease was	 on	 record	 before	 the	 mortgage,	 the	 lease ,	 as	 amended, is	 senior	 to	 the mortgage

. We	 hold that ,	 under	 the	 specific	 facts	 of	 this	 case, the	 lease amendment was	 a	 new	 interest created	 after	 the	 mortgage, rendering	 the amendment	junior	to	the	mortgage. [¶1 5 ] T he	purpose	of	foreclosure is generally “to	give	the foreclosure sale purchaser	 essentially	 the	 same	 title	 to	 the	 land	 as	 that	 possessed	 by	 the mortgagor	when	the	foreclosed	mortgage	was	executed.” Restatement	(Third) of	Prop erty :	Mortgages §	7.1 ,	reporter’s	note (quotation	marks	omitted)

. See also Scharaga	 v.	 Schwar tzberg , 540	 N.Y.S.2d	 451, 452	 (N.Y.	 App.	 Div.	 1989) (“ [T] he	purpose	of	a	foreclosure	sale	is	to	end	the	right	to	redeem	of	all	persons having	 interests	 in	 the	 property	 subject	 to	 the	 mortgage	 and	 to	 vest	 in	 the purchaser,	upon	the	sale,	the	title	to	the	pr operty	as	it	stood	at	the	time	of	the execution	 of	 the	 mortgage

. ”	 (quotation	 marks	 omitted))

. Thus,	 where	 the mortgagor	leases	the	mortgaged	premises to	a	third	party ,	“the	purchaser	at	the foreclosure	sale	takes	subject	to	the	lease	as	it	existed	when	th e	mortgage	was first	entered.” 12 Thompson	on	Real	Prop erty § 97.06 (e)(2) ( David	A.	Thomas ed. ,	 Matthew	 Bender	 &	 Co.,	 Inc. 2018 )

. See also Fletcher	 v.	 Chamberlin , 61 N.H. 438,	 446	 ( N.H. 1881)	 (“The	 mortgagee’s	 title,	 when	 perfected	 by9 foreclosure, relates	 back	 to	 the	 date	 of	 the	 mortgage	 deed,	 so	 as	 to	 avoid intervening	 incumbrances

. .	 .	 . ”); Patrick J. Rohan, Current	 Leasing	 Law	 and Techniques

— Forms § 7C.02 (Matthew	 Bender	 &	 Co. ,	 Inc. 2018) (“Title transferred	 at	 foreclosure	 relates	 back	 to	when	 the	 mortgage	 .	 .	 .	 foreclosed upon	was	executed.”). It	therefore	follows	that,	where	the	lessor	and	the	lessee have	 amended	 the	 lease,	 “[i]f	 the	 amendment	 came	 after	 the	 mortgage,	 the amendments	are subordinate	to	the	mortgage.” 12	Thompson	on	Real	Prop erty § 97.06 (e)(2)

. [¶1 6 ] Moreover,	p olicy	considerations	compel this result	where,	as	here, the	lessor	and	lessee	amend	the	lease	in	a	way	that	could	devalue or	otherwise encumber the	 property	 and	 defeat	 the	 mortgagee’s reasonable	 expectations

. The	 underlying	 rationale	 has	 been discussed	 by	 the C ourt	 of Appeal of California in R

- Ranch	Markets	#2,	 Inc.	v.	Old	Stone	Bank as	a	need	“ to	protect lending	 institutions	 from	 fraudulent	 amen dments	 to	 leases	 which	 would encumber	 the	 value	 of	 their	 acquired	 property. ” 21	 Cal.	 Rptr.	 2d	 21,	 24 ( Cal. Ct. App. 1993). In	 that	 case ,	 the court	 reasoned	 that “[i] f	 the	 rule	were different,	lending	institutions	would	be	discouraged f rom	making	loans	si nce they	would	have	no	assurances	that	the	borrower	and	senior	leaseholder	would

not drastically	reduce	the	value	of	the	lease,	thereby	reducing	the	value of the10 property	and	security.” Id. The	court therefore affirmed	the	rule	that	the	l essor and	lessee	cannot c reate	a	greater	burden	on	the	property beyond that	reserved to	it	under	the	original	lease	without	making	the	additional	burden	subject	to the superior	rights of	the	trustor	under	the	trust	deed

. Id. at	23

- 24 ( citing First Nat’l	B ank	v.	Coast	Consol.	Oil	Co. , 190	P.2d	214 ,	217 (Cal. Ct. App. 1948) ). [¶1 7 ] T he	A ssociation	argues that this	rationale	is	mitigated	by	the	fact that mortgagees c ommonly	get adequate assurances that	the	value	of	the	lease will	not	decrease	by	entering into subordination	agreement s with	lessee s . B y way	of a	subordination	agreement,	“one who	holds an	otherwise	senior	interest agrees	 to	 subordinate	 that	 interest	 to	 a	 normally	 less e r	 interest

. .	 .	 . ” Subordination	 Agreement , Black’s	 Law Dictionary	 ( 10th ed.	 2014 )

. T he Association	 contends	 that in	 order to	 prevent the	 possibility	 of	 a	later	lease amendment	 defeating	 the mortgagee’s reasonable	 expectations	 about	 the existing	 lease , the mortgagee should obtain	 an	 agreement	 from	 the	 lessee subordinat ing its	interest. [¶1 8 ] A lessee might	 agree	 to	 this	 if	 a mortgagee also	 signs	 a

non - disturbance	agreement,	whereby	the mortgagee agrees	not	to	terminate	a subordinate	lease	in	the	event	of	foreclosure. Rohan, Current	Leasing	Law	and Techniques

— Forms § 7C. 0 1

. Lessors,	lessees,	and mortgagees can	accordingly11 modify	 their	 common	 law	 rights	 in	 one	 document called	 a	 subordination,

non - disturbance , and	 attornment agreement ( hereinafter	 S N DA A )

. See i d. at C h. 7C	Scope. Although SNDA A s are	a mechanism for	parties	to	gain	contractual certainty, there	is	no	duty	or	requirement for a	party	to	sign	one. See Wheeler v.	White ,	1998	ME	137,	¶¶	2

- 5,	714	A.2d	125	(upholding	a	jury	verdict	in	favor of	an	attorney	who	did	not counsel his	client	as	to	the	advisability	of	obtaining
a	SNDAA where the	attorney believed	that (1)	the mortgagee generally	did	not enter	into	 subordination	agreements and	 (2)	his	client’s	circumstances	were not	likely	to	facilitate	the	negotiation	of	a	subordina tion	agreement	because	the client	did	not	present	a	large	financial	benefit	to	the mortgagee ) ; Rohan, Current Leasing	 Law	 and	 Techniques

— Forms §	 7C.05.	 	 Indeed,	 “in	 period s of	 strong tenant	demand	and	rising	rents	.	.	.	the [mortgagee] may	be	less	willing to	enter
into	a non - disturbance	agreement and	may	rely	on	subordination	by	operation of	law

. .	.	. ” Rohan, Current	Leasing	Law	and	Techniques

— Forms §	7C.05. [¶1 9 ] The	 Association	 further	 argues	 that even	if	 the	mortgage	 terms prohibited	the	lessor	from	amending	the	lease,	the	lessee	was	not	a	party	to	the mortgage ,	and a	SND A A	was	required	to prevent	the	lessee	from	exercising	its right	to	amend ,	even	if	the	lessor	did	not	have	that	right

. To	the	co ntrary, the lessee here was	well	aware	of	the	restriction	in	the	mortgage	documents	that12 prevented	 the	 lessor	 from	 amending	 the	 lease. See Back	 Bay	 Spas,	 Inc.

v. 441 Stuart	Mktg. , LLC , 688	F.3d	61, 62

- 63 ,	66

- 67 (1st	Cir.	2012)	( reasoning that	a	requiremen t	in the mortgage	documents	that	the	lender	consent	to	future transactions	 was	 enforceable	 as	 to	 the	 lessee	 who	 was	 not	 a	 party	 to	 the mortgage	 where	 the	 lessee	 had	 constructive	 notice	 of	 the	 consent requirement). [¶ 20 ] Here,	 Barrett	 was the	 sole	 member of	 both	 L V,	 t he	 lessor , and Windmil l, the	lessee. Barrett	was	thus	plainly	on	notice	of	the	prerequisite	that Hardy	consent in	writing before	the	lease	could	be	amended

— the	terms	were contained	 in	 the	 publicly	 recorded	 mortgage	 instrument	 that	 he	 himself signed. 5 See Back	Bay	Spas ,	688	F.3d	at	63. The	Association therefore cannot now	argue	that the	lessee	is	not	subject	to	the	terms	of	the	mortgage because the	 lessee	 was	 not	 a	 party	 to	 the	 mortgage

. See Anderson	 v.	 Robbins ,

5 We	do	not	f ind	persuasive	the	Association’s	arguments	that	Hardy	consented	to	the	amendment by	making	conveyances	that	did	not	suggest that the lease amendment	was	invalid	or	by	continuing to	collect	rent	subsequent	 to	acquiring	 title	 to	 the	 fee	interest	underlying the	leasehold	premises. Hardy	conveyed	her	interest	without	any	representations	as	to	the	nature	of	that	interest,	and	her deeds	 made	 no	 reference	 to	 the	 2005	 lease	 amendment	 even	 though	 they	 referenced	 the 1999 amendment. Furthermore,	her	acceptance	of rental	payments	did	not	constitute	a	ratification of	the	amendment	because	the	payments	were	due	under	the	original	lease.13 82 Me. 422, 426,	19	A.	910 (1890)	(noting	that	a	subsequent	lease	is	subject	to the	mortgage)

. 6 [¶ 2 1] Lastly,	t he	Association	argues	that	if	the	lease	amendment	was	in fact	 a	 junior	 interest,	 it	 was	 not	 extinguished	 because	 the	 individual	 unit owners	were	not	given	notice	of	the	f oreclosure.		Contrary	to	the	Association’s contention,	the	unit	owners	were	not	parties	that	would have	been entitled	to written	 notice	in	 a	judicial	 foreclosure. 7 Notice	was published	 and properly given	to	Barrett,	the agent	and	sole member of	the organi zation holding a	junior encumbrance	 on	 the	 mortgaged	 property

. T hat	 interest

— t he	 amendment purporting	to	extend	the	lease for an	additional	forty	years

— w as terminated upon	foreclosure.		Because	we	hold	that	the	lease	amendment	is	invalid	on this basis,	we	need	not	address	the	parties ’ remaining	arguments.

6 N otwithstanding	the	lessee’s	notice	of	the	prohibition	on	amending	the	lease,	the	parties’	rights are	defined	by	the	original	lease,	which	limited	the	parties’	rights	to	a	twenty

- year	term.		The	lease provided	that if , after	the	expiration	of	the	original	l ease	term,	the	lessee	had	ful l y performed	all	of its	terms	and	conditions,	then	the	lessee	ha d the	option	to	enter	into	negotiations	to	renew	the	lease with	the	lessor	for	a	period	of	an	additional	ten	years ,	at	a	price	mutually	agreed	upon	by	both	lessor and	 lessee

. T he	 original	 lease did not	 grant	 the	 lessee the authority	 to	 extend	 the	 lease	 by	 an additional	forty	years	before	the expiration of	the	original	lease	term.

7 T o	the	extent	t he	Association claims that	the	unit	owners	were	due	notice	pursuant to	14	M.R.S. § 6203

- A (1

- A)	(2017) , the	foreclosure	action	in	this	case	occurred	in	2006,	and	that	provision	was not	enacted	until	2015. See P.L.	2009,	ch.	476,	§	B

- 3	( emergency, effective	Feb.	24,	2010);	P.L.	2015, ch.	147,	§	1.		We	do	not	address whether	the	unit	owners	would	have	been	entitled	to	notice	had	the statute	been	effective at	the	time	of	foreclosure.14 The	entry	is: Judgment vacated

. Remand e d	 to	 the	 Superior Court	 for	 entry	 of a	 declaratory judgment that the	 2005	 forty

- year	 extension	 of	 the	 lease	 was extinguished	by	 the	 foreclosure	 and	 sale of	 the leased	premises.

Gene	R.	Libby,	Esq.,	and	Tyler	J.	Smith,	Esq. (orally) ,	Libby	O’Brien	Kingsley	& Champion,	LLC,	Kennebunk,	for	appellants	Sweet	Peas,	LLC , and	Jean	M.	Hardy James	A.	Hopkinson,	Esq. (orally) ,	and	Gerald	B.	Schofield,	Jr.,	Esq.,	Hopkinson &	 Abbondanza ,	 P.A.,	 Portland,	 for	 cross

- appellants	 Littlebrook	 Airpark Condominium	Association

York	County	Superior	Court	docket	number	CV

- 2011

- 148 F OR C LERK R EFERENCE O NLY