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This foreclosure fact pattern is the basis of a case recently decided by the Massachusetts Land Court, Fox Gate LLC v. The Town of Millbury, et al., case no. 09 MISC 395474 (December, 2011). In this case, Fox Gate acquired a 27-lot residential subdivi- sion in Millbury through a foreclosure auction. The original developer initially recorded a covenant with the Millbury Planning Board and subsequently replaced the covenant with a performance bond. In typical fashion, the Millbury Planning Board released its covenant restriction on lot construction and sales at the time the performance bond was posted, and the covenant release was recorded in the appropriate registry of deeds. The original developer proceeded to perform some of the work shown on the approved subdivision plan, but defaulted under its mortgage loan prior to completion of all roadways and municipal services. During the foreclosure process, Fox Gate performed due diligence, including a title search, and discovered the recorded release of covenant, as well as the bond that had been posted with the town by the previous developer. It acquired the property believing that it would not need to post additional surety or perform additional work covered by the bond, as the town was already secured in the completion of the work. On news of the foreclosure, the town of Millbury first sought to call upon the performance bond to complete the necessary improvements. The bonding company, however, argued that the bond was nonassignable. As a result of foreclosing, passing the title first to the foreclosing lender and then from the foreclosing lender to Fox Gate, the bond was no longer enforceable. The town then took the position that any new attempt at lot construction would be denied until such time as a new performance guarantee was posted. The Millbury building inspector denied issuance of a building permit on these grounds. Fox Gate appealed first to the Millbury Zoning Board of Appeals, where the building inspec- tor's decision was upheld, and ultimately to the Land Court. Fox Gate argued that (a) the town of Millbury should be directed to take enforcement action against the bond- ing company and perform work under the existing bond (a mandamus action); and (b) that the town of Millbury should not withhold building permits under circumstances in which it had recorded a release of covenant and had accepted a performance guarantee. The Land Court decision provides a thorough analysis of per formance guarantees, particularly in the context of the Subdivision Control Law and relevant case law. Notably, the court concluded that action under a performance guaran- tee is first and foremost a right that falls almost exclusively to the municipality in its role as protector of the public interest. Performance guarantees rarely confer individual enforcement rights to lot own- ers (discounting any ability for Fox Gate to act on the bond on its own). In addition, the municipal role as enforcement agent is "an inherently discretionary function contingent upon an array of factors including, but not limited to, the perceived soundness of one's legal position as well [as] the availability of funding." Where the enforcement action is discretionary, the court will not mandate that action must be taken by the town under an existing bond. The Land Court also sided with the town of Millbury regarding its stance on the issuance of building permits. Despite the fact that Fox Gate's title search showed that all lots had been released from the planning board covenant, the court ruled that the town still had broad powers under M.G.L. c.41, Section 81M to ensure safety, convenience and welfare, which included "adequate access to all the lots" as well as "securing adequate provision for water, sewerage, drainage, underground utility services, fire, police and other similar municipal equipment … where necessary." Under these broad, discretionary rights, the town could legiti- mately refuse to issue a building permit until a new performance guarantee is posted. The court further explained that Fox Gate, as the new owner, assumed the primary responsibility to undertake and complete requisite improvements in the subdivision. As of this writing, the Land Court decision in this case has been appealed to the Massachusetts Appeals Court. Additional information will be available in the months ahead, and many in the development community will be anxious to see if the ruling is confirmed. In the interim, the Fox Gate case is an important lesson in the intricacies of performance guarantees. Builders and developers must be extra vigilant in performing due diligence prior to acceding to ownership of an existing development. Rights can vanish, and obligations can appear. Given the propensity of foreclosure proceedings and myriad issues that have arisen recently regarding the proper conduct of foreclosure, rights of parties in possession and other succession issues, the real estate community may be untangling this web for years to come. n M.L. McDONALD SALES COMPANY, LLC 50 OAKLAND STREET P.O. BOX 315 WATERTOWN. MA 02471-0315 P: 617-923-0900 F:617-926-8418 www.mlmcdonald.com Builder: The Lagasse Group. Congratulations on being chosen "Builder of the Month" PAINT DRYWALL FABRIC PANELS FIREPROOFING SPECIALTIES BOSTON.BUILDERARCHITECT.COM Builder+Architect GREATER BOSTON | 63

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