Shrewsbury v Bank of NY Mellon: Genuine Issues of Fact exist

For Ruling PDF click here: 2017-Shrewsbury v Bank of NY Mellon

The recent Supreme Court of Delaware case J.M. Shrewsbury v. The Bank of New York Mellon, CA No. N15L-03-108 (Del. 2017), provides a reminder of the importance of clearly documenting the assignment of loan documents. The Court’s holding requires that prior to the assignee of a mortgage loan filing suit on the note or mortgage, the assignee must have received both an allonge/assignment of the note and an assignment of the mortgage. The case is a reminder of the importance of maintaining a precise chain of title when assigning loan documents. The facts of the case as described below demonstrate the need to make sure that the note is properly assigned.

The Case

In 2007, J.M. Shrewsbury and Kathy Shrewsbury signed a promissory note in favor of Countrywide Home Loans, Inc. Concurrently, the Shrewburys were granted a mortgage to secure their obligations under the note, which mortgage encumbered real property in Delaware. In 2011, the mortgage was assigned to The Bank of New York Mellon (Bank). In 2013, the Shrewsburys requested and received a copy of the original note, which contained no indication that the note had been assigned. Neither party disputed the fact that the Shrewsburys stopped making mortgage payments in 2010.

The Bank commenced a mortgage foreclosure action in 2015 in the Superior Court of the State of Delaware, Bank of N.Y. Mellon v. Shrewsbury, C.A. No. N15L-03-108 CLS (Del. Super. Ct. Feb. 17, 2016). In holding in favor of the Bank, the Superior Court found that the Bank need only show that it had a valid assignment of the mortgage to enforce its rights. The Shrewsburys appealed the decision to the Court.

In reversing and remanding the decision of the Superior Court, the Court followed its reasoning in Iowa-Wisconsin Bridge Co. v. Phoenix Finance Corporation, Iowa-Wisconsin Bridge Co. v. Phoenix Finance Corporation, 25 A.2d 383, 389 (Del. 1942), stating that a debt is an essential requisite to a mortgage. While persuaded by wide-ranging case law and other respected authorities, the Court’s decision relied most heavily on the United States Supreme Court case Carpenter v. Longan, 83 U.S. 271 (1872), holding that the “note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.”

Supreme Court of Delaware.

J.M. SHREWSBURY, a/k/a J. Michael Shrewsbury, and Kathy Shrewsbury, Defendants Below–Appellants, v. The BANK OF NEW YORK MELLON, f/k/a The Bank of New York, as Trustee for the Certificateholders of CWMBS, Inc., CHL Mortgage Pass–Through Trust 2007–9, Mortgage Pass–Through Certificates, Series 2007–9. Plaintiff Below–Appellee.

No. 306, 2016

    Decided: April 17, 2017

Before STRINE, Chief Justice;  HOLLAND, VALIHURA, VAUGHN, and SEITZ, Justices, constituting the Court en Banc.Cynthia L. Carroll, Esquire, Cynthia L. Carroll, P.A., Newark, Delaware, for Appellants, J.M. Shrewsbury, a/k/a J. Michael Shrewsbury and Kathy Shrewsbury. Melanie J. Thompson, Esquire, Atlantic Law Group, LLC, Wilmington, Delaware, for Appellee, The Bank of New York Mellon, f/k/a The Bank of New York, as Trustee for the Certificateholders of CWMBS, Inc., CHL Mortgage Pass–Through Trust 2007–9, Mortgage Pass–Through Certificates, Series 2007–9.

This is a mortgage foreclosure action brought by Appellee The Bank of New York Mellon, f/k/a The Bank of New York (“The Bank”) against Appellants J.M. Shrewsbury and Kathy Shrewsbury. The Bank is not the original mortgagee. It received the Shrewsbury mortgage by an assignment from the original mortgagee. The Shrewsburys filed an answer to the complaint asserting that the note representing the debt secured by the mortgage had not been assigned to The Bank. They further asserted that since the note had not been assigned to The Bank, it did not have the right to enforce the underlying debt and, therefore, did not have the right to foreclose on the mortgage. The Superior Court rejected the Shrewsburys’ argument and granted summary judgment to The Bank. The narrow question presented on appeal is whether a party holding a mortgage must have the right to enforce the obligation secured by the mortgage in order to conduct a foreclosure proceeding. For the reasons which follow, we hold that a mortgage assignee must be entitled to enforce the underlying obligation which the mortgage secures in order to foreclose on the mortgage.

FACTS AND PROCEDURAL HISTORY

On May 15, 2007 J.M. Shrewsbury signed a promissory note in favor of Countrywide Home Loans, Inc. in the amount of $653,553.26. At the same time, J.M. Shrewsbury and Kathy Shrewsbury granted a mortgage to secure the debt upon property they owned at 9 Barnesdale Drive, Middletown, Delaware. The mortgagee was Mortgage Electronic Registration Systems, Inc., acting solely as a nominee for Countrywide Home Loans.

On June 6, 2011, Mortgage Electronic Registration Systems, Inc. assigned the mortgage to The Bank as Trustee for the Certificateholders of CWMBS, Inc., CHL Mortgage Pass Through Trust 2007–9, Mortgage Pass–Through Certificates, Series 2007–9.

On or about July 1, 2010, the Shrewsburys stopped making payments on the mortgage. It is undisputed that the Shrewsburys have not made payments on the mortgage since then, or at least that no payments have been made for a substantial period of time.

The Bank commenced this mortgage foreclosure on March 20, 2015. As mentioned, the Shrewsburys filed an answer in which they asserted as a defense that the bank must show that it held the note, as well as the mortgage, in order to foreclose on the mortgage. After statutorily required mediation efforts proved unsuccessful, The Bank filed a motion for summary judgment. In their response to the motion, the Shrewsburys repeated their argument that The Bank must show that it held the note as well as the mortgage in order to conduct the foreclosure action. Attached to their response to the motion was an affidavit of Mr. Shrewsbury stating that in 2013 he requested and received a copy of the note from Residential Credit Solutions, Inc., the company servicing the loan. The note provided to Mr. Shrewsbury was a copy of the original note given to Countrywide Home Loans, Inc. with no notation or indication of any assignment.

In support of the motion, The Bank argued that the Shrewsburys had not pled an allowable defense. Relying upon the case of Wells Fargo Bank, N.A. v. Nickel and other Delaware precedents, The Bank argued that the limited, allowable defenses in a mortgage foreclosure action were payment, satisfaction or a plea in avoidance of the mortgage, and that a plea in avoidance “must relate to the mortgage sued upon, i.e. must relate to the validity or illegality of the mortgage documents.”1 The defense pled by the Shrewsburys, The Bank contended, did not satisfy that criteria.

The Superior Court rejected the Shrewsburys’ argument, reasoning that The Bank need only show that it had a valid assignment of the mortgage, and that as a valid assignee of the mortgage, The Bank was the proper party to enforce the note. It appears that in the proceedings in the Superior Court The Bank did not produce the note, claim to be the holder of the note, or claim to be entitled to enforce the note.2

DISCUSSION

“This Court reviews de novo the Superior Court’s grant or denial of summary judgment ‘to determine whether, viewing the facts in the light most favorable to the nonmoving party, the moving party has demonstrated that there are no material issues of fact in dispute and that the moving party is entitled to judgment as a matter of law.’ ”3

On appeal, The Bank contends that it has been consistently held under Delaware law that a mortgagee’s right to foreclose emanates from the mortgage, not the note.4 Ownership of the related promissory note, which confers separate rights and remedies to its holder, it contends, is irrelevant to a mortgage holder’s right to foreclose on the mortgage. It relies upon well-established authorities in this State which hold that a mortgage foreclosure action is an action based on a record, the record being the mortgage, with limited available defenses.5

Subject to statutory requirements not relevant here, the statute governing the commencement of a mortgage foreclosure proceeding provides, in pertinent part:

[U]pon breach of the condition of the mortgage ․ by nonpayment of the mortgage money ․ the mortgagee ․ or [the mortgagee’s] assigns may ․ sue out of the Superior Court ․ a writ of scire facias ․ commanding the sheriff to make known to the mortgagor ․ that the mortgagor ․ appear before the Court to show cause ․ why the mortgaged premises ought not to be seized and taken in execution for payment of the mortgage money.6

The term “mortgage money” in the statute is a synonym for the note (debt) that is secured by the mortgage.

A complaint on a sci fa sur mortgage puts the existence of the mortgage debt in issue and orders the mortgagor to show cause why the mortgaged premises should not be taken in execution and sold to satisfy the debt. See 2 Woolley § 1358, at 918–19;  id. § 1371;  Skelly, 38 B.R. at 1002 n 4;  10 Del. C. § 5061. The sci fa proceeding may appear simple, because the facts are usually undisputed, but it is mortgagor’s chance to litigate the existence of the debt and present any defenses. See Gordy v. Preform Building Components, Inc., 310 A.2d 893, 895–96 (Del. Super. 1973).7

Until 1953, a Delaware statute defined the defenses that were available in a mortgage foreclosure proceeding.8 The statute read as follows:

The defendant in a scire facias on a mortgage, may plead satisfaction, or payment, of all, or any part of the mortgage money, or any other lawful plea in avoidance of the deed as the case may require.9

The statute was omitted from the code in 1953, but thereafter case law continued to recognize that the only defenses available in a mortgage foreclosure action were payment of the “mortgage money”, satisfaction or a plea in avoidance of the mortgage.10 The phrase “plea in avoidance” has sometimes been described as referring to a plea relating “to the validity or illegality or the mortgage documents,” as reflected in the quotation set forth above from Wells Fargo Bank, N.A. v. Nickel set forth above, 11 but a more apposite description of “plea in avoidance” appears in Gordy v. Preform Building Components, Inc., where the phrase is described as referring to the common law plea known as confession and avoidance.12 “Such plea admits the allegations of the complaint but asserts matter which destroys the effect of the allegations and defeats the plaintiff’s right.” 13 “[T]he allegation ‘in avoidance’ must relate to the subject matter of the complaint.”14 Examples of pleas in confession and avoidance are “act of God, assignment of cause of action, conditional liability, discharge, duress, exception or proviso of statute, forfeiture, fraud, illegality of transaction, nonperformance of condition precedent, ratification, unjust enrichment and waiver.”15 We consider the question presented in the framework of these well-established principles.

It has long been recognized in this State that “a mortgage is merely security for a debt, or for the performance of some other obligation.”16 The Delaware statute characterizes that debt as “mortgage money.” A mortgage does not create a debt or obligation, it merely secures one. It has also long been recognized that an underlying debt or obligation is essential to a mortgage’s enforceability. In Iowa–Wisconsin Bridge Co. v. Phoenix Finance Corporation, this Court observed that a “debt, either in being, or created at the time or contracted to be created, is an essential requisite of a mortgage.”17 The Court supported this observation with a citation to Carpenter v. Longan, a United States Supreme Court case.18 In Carpenter, the Supreme Court discussed the consequences of an assignment of a mortgage without an assignment of the underlying debt.19 It observed that the “note and mortgage are inseparable;  the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.”20

Other respected authorities have also recognized that the holder of a mortgage must have an interest in the underlying debt or obligation to enforce the mortgage. In Powell on Real Property, the rule is bluntly stated as follows;

It must be remembered that the mortgagee has two interests:  (1) the debt or obligation which is owed to him, and (2) the security interest in land represented by the mortgage. ․ In fact, the primary interest is the personalty debt obligation. The interest in land which is available in case security is necessary because of the debtor’s default is considered a collateral interest. Much trouble has been caused by mortgagees attempting to transfer only one of these two interests. Where the mortgagee has “transferred” only the mortgage, the transaction is a nullity and his “assignee,” having received no interest in the underlying debt or obligation, has a worthless piece of paper.21

The Restatement Third of Property (Mortgages) Section 5.4(c) provides that “a mortgage may only be enforced by or on behalf of a person who is entitled to enforce the obligation.”22 American Jurisprudence, Second Edition provides that “only the rightful owner of the note has the right to enforce the mortgage.”23

Courts in other jurisdictions have reached the same conclusion:  Merritt v. Bartholick (“As a mortgage is but an incident to the debt which it is intended to secure ․ the logical conclusion is that a transfer of the mortgage without the debt is a nullity, and no interest is assigned by it. This is a necessary legal conclusion, and recognized as the rule by a long course of judicial decisions.”);24 Vidal v. Liquidation Properties, Inc. (“We have held that the one who owns or holds the note is entitled to foreclose on the mortgage.”);25 Bank of New York v. Raftogianis (“As a general proposition, a party seeking to foreclose a mortgage must own or control the underlying debt.”);26 Deutsch Bank National Trust v. Brumbaugh (“Appellee must demonstrate it is a person entitled to enforce the note.”);27 Bankers Trust Company of California, N.A. v. Vaneck (“The [Conn.] statute codifies the common law principle of long standing that ‘the mortgage follows the note,’ pursuant to which only the rightful owner of the note has the right to enforce the mortgage.”);28 In re Atlantic Mortgage Corporation v. Adamo (“In Michigan law, a mortgage which has been severed from the corresponding promissory note does not entitle the mortgage holder to collect the indebtedness or to take possession of the real property.”);29 Deutsche Bank National Trust Company, Trustee, v. Holden (“Deutsche Bank must still show that it is the holder of the note that establishes the debt in order to foreclose.”);  30 South Carolina National Bank v. Halter (“The assignment of a mortgage as distinct from the debt it secures is nugatory and confers no rights upon the transferee, absent some indication that the parties also intended to transfer the debt.”);  31 McKeighan v. Citizens Commercial & Savings Bank of Flint (“The assignment of the mortgage by Schlee, the mortgagee, to Selenik, after Schlee had indorsed the mortgage note over to the bank, was a nullity.”);32 Walston v. Twiford (“A mortgage which purports to secure the payment of a debt has no validity if the debt has no existence.”).33

We find these authorities persuasive and consistent with our observation in Iowa–Wisconsin Bridge Co. v. Phoenix Finance Corporation that a debt is an essential requisite to a mortgage.34 The logic of the rule that the holder of a mortgage must have the right to enforce the underlying obligation in order to foreclose on the mortgage is clear. That is why the Delaware mortgage foreclosure statute requires the mortgagor “to show cause, if there is any, why the mortgaged premises ought not to be seized and taken in execution for payment of the mortgage money with interest ․”35 If the holder of the mortgage is not the one entitled to enforce the underlying debt (“mortgage money”), the mortgage holder suffers no injury by the mortgagor’s nonperformance.

For the foregoing reasons, we hold that a mortgage holder must be a party entitled to enforce the obligation, mortgage money, which the mortgage secures in order to foreclose on the mortgage.

We also believe that a claim that a mortgage holder is not entitled to foreclose on the mortgage because it is not the party entitled to enforce the underlying obligation falls within the scope of a plea in avoidance. It relates to the plaintiff’s legal ability to foreclose on the mortgage. It admits the essential allegations of the complaint but asserts a matter which, if true, defeats the plaintiff’s right to foreclose.

The mortgage was assigned to The Bank in 2011. In 2013, two years after the mortgage was assigned, Mr. Shrewsbury requested and obtained from the company servicing the mortgage a copy of the note. The copy he received contained no notation or indication that the note had been assigned. The Shrewsburys asserted their defense in their answer and in their response to the motion for summary judgment. In the Superior Court, it appears that The Bank did not produce the note, claim to be the holder of the note, or claim to be entitled to enforce the note. Under these circumstances, a question of fact existed which should have resulted in denial of The Bank’s motion for summary judgment until it showed that it had the right to enforce the note.

We do not view the holding we reach in this case as imposing new pleading requirements which must be contained in a mortgage foreclosure complaint. 10 Del. C. § 5061 has not been interpreted as requiring an averment concerning the note. The Superior Court Civil Rules include an appendix of approved forms. Form 13 illustrates, in its simplest form, a sufficient mortgage foreclosure complaint, subject to the various requirements found in other statutes enacted after the form was adopted. The second paragraph of the form of complaint is an allegation that “Defendant owes plaintiff the principal amount of the mortgage with interest from ––––.” That form must be construed in accordance with the language of the statute. Therefore, the second paragraph of the form should be read:  “the defendant owes the principle amount of the mortgage money with interest ․”36

The complaint in this case alleged that “Defendant(s) owe to plaintiff the principal sum of the amount remaining on the mortgage with interest ․” Our ruling simply recognizes that one of the possible pleas in avoidance of this allegation is that the money is not owed to the plaintiff because it does not have the right to enforce the debt which the mortgage secures. We also note that where a mortgage has been assigned, plaintiff’s counsel is free, if counsel chooses, to expand the averment that the mortgage has been assigned to include an averment that the note, as well as the mortgage, was assigned to the plaintiff. In fact, the best practice would be for the plaintiff’s counsel to do so.

For the foregoing reasons, the judgment of the Superior Court is reversed and the matter is remanded for further proceedings consistent with this opinion.37

Although I understand and respect the approach my friends in the Majority take to address the difficult problem this case presents, I respectfully disagree with their conclusion about what the foreclosure statute requires and would affirm the Superior Court’s well-reasoned orders resolving this case.38 In this case, however sympathetic we may be to anyone facing foreclosure, the Shrewsburys have been living in a house for nearly seven years without making any mortgage payments, and one thing is therefore clear, that they are in no equitable position to continue to occupy the house, as they now owe in excess of $800,000 including unpaid principal, interest, and late charges,39 according to The Bank, and have not even so much as made any good faith payment on the mortgage since July 2010.40 There are, of course, complexities to the current mortgage system, but those complexities have also increased the pool of capital funding affordable mortgages for ordinary Americans. We should be careful about mandating as judges, not legislators, an increase in the costs to lenders of enforcing their rights when that is not necessary to protect the legitimate rights of borrowers. Costs that are above what is truly necessary to protect borrowers from inequitable conduct by lenders will be ultimately borne by all borrowers and especially the vast bulk of those who prudently borrow and make their loan payments. Because 10 Del. C. § 5061’s language plainly allows foreclosure by the mortgage holder, I would not, by judicial act, add the requirement that a bank must also prove it owns the note.

The mortgage that the Shrewsburys executed states that if the Shrewsburys failed to pay their obligations when due, the loan would be in default, and the lender could accelerate the remaining sum due and foreclose on the property. The mortgage also states “all payments accepted and applied by Lender shall be applied in the following order of priority:  (a) Interest due under the Note;  (b) principal due under the Note;  (c) amounts due under Section 3 [escrow].”41

Delaware recognizes both statutory and equitable foreclosure methods. 42 Here, The Bank used the statutory method. 10 Del. C. § 5061 provides:  “[s]ubject to the provisions of §§ 5062A, 5062B, 5062C and 5062D ․ upon breach of the condition of a mortgage of real estate ․ the mortgagee’s heirs, executors, administrators, successors or assigns may ․ sue out of the Superior Court [corresponding to the property’s location] a writ of scire facias upon such mortgage ․”43 Actions based on scire facias writs for mortgages have a long history in Delaware and receive extensive treatment in Woolley’s Practice in Civil Actions. Woolley says that plaintiffs in a scire facias sur mortgage action “should have a legal interest in the mortgage sued upon.”44 Additionally, scire facias actions in general are “founded upon a record, the record in [scire facias sur mortgage], of course, being the mortgage.”45

The language of § 5061 also supports the idea that holding the mortgage is sufficient to confer standing. Section 5061 only refers to mortgagors and mortgagees and doesn’t refer to a note or note holder. Other parts of the Delaware Code, including other parts of Title 10, acknowledge the existence of notes as distinct from mortgages.46 The General Assembly could have referred to both or only note holders if it so desired, especially against a backdrop of invoking a writ with an extensive history of use for in rem proceedings. This is especially true given that the General Assembly amended § 5061 in 2012 to add a series of provisions protecting homeowners in foreclosure proceedings.47

Thus, we are faced with a situation where the most natural reading of the statute as well as the history of the action codified in it identify the mortgage holder as the person who is entitled to bring a foreclosure action, not the person holding both the note and mortgage. The Shrewsburys argue that allowing foreclosure based only on a mortgage opens the door to a dire scenario where an unfortunate homeowner could have her home foreclosed on by a mortgage holder and later have a separate note holder show up and demand payment. Were that a likely or even plausible result, the Shrewsburys might have a point. But, the reality is that homeowners in the Shrewsburys’ position are well protected against double collection.

For one thing, the mortgage itself provides that all payments have to be applied to the interest and principal due “under the Note.”48 Thus, a mortgage holder would be obligated to put any money it receives from a judgment sale toward satisfaction of the note. For another thing, the statute protects the homeowners. 10 Del. C. § 5067, which is part of the Delaware Code’s subchapter on scire facias sur mortgage states “any surplus of the proceeds of sale of mortgaged premises, after satisfying the principal debt in the mortgage, with interest and costs, shall be rendered to the owner of the premises at the time of sale. Until the surplus is so rendered, the officer making the sale shall not be discharged upon the record of the court to which the sale is returnable.”49 So, the sheriff who was appointed by the Superior Court to conduct the sale is responsible for ensuring the proceeds go to satisfy the mortgage debt. Finally, in Delaware, any foreclosure proceedings occur under judicial supervision and so a homeowner in the Shrewsburys’ situation could always raise the defense of satisfaction of the mortgage in a future proceeding.50

The Majority also may introduce unnecessary complication into the way the Superior Court will analyze its jurisdiction in future cases like this one. The Shrewsburys’ argument all along has been that The Bank’s inability to produce the note was a defect in The Bank’s standing. The Shrewsburys’ characterization of the issue, if not their ultimate conclusion, is correct. “The issue of standing is concerned ‘only with the question of who is entitled to mount a legal challenge and not with the merits of the subject matter in controversy.’ ”51 My friends in the Majority, though, state that their holding does not impose “new pleading requirements which must be contained in a mortgage foreclosure complaint”52 and, instead, it is up to the defendant to assert that a foreclosing plaintiff is not entitled to foreclose because the plaintiff lacks the note. But, this sits uncomfortably with the normal proposition that “[t]he party invoking the jurisdiction of a court bears the burden of establishing the elements of standing.”53 That is, if the Majority’s position is correct, to establish standing, the foreclosing plaintiff should be obliged to plead that it holds both the mortgage and the note. And, because any defendant faced with a complaint that does not do this will invoke the Majority’s decision and ask for dismissal for the failure of the plaintiff to do so, the Majority rule will in fact by necessity drive the form of foreclosing plaintiffs’ pleadings. The Majority acknowledges this when they urge counsel for foreclosing plaintiffs to include “an averment that the note, as well was the mortgage, was assigned to the plaintiff.”54 And, the only evidence the Shrewsburys here cited that The Bank did not possess the note was a version of the note from 2013, almost two years before the foreclosure complaint was filed. Because notes like these are freely transferable, if this is evidence sufficient to meet a defendant’s burden to provide a factual basis that the foreclosing plaintiff does not hold the note, then the practical burden of the Majority’s rule is on a foreclosing plaintiff to plead this affirmatively. If these are the practical realities flowing from the Majority’s decision, it is probably best for all concerned to state this and to require a foreclosing plaintiff to plead the required elements up front so that the delays that have resulted in this case do not ensue in future cases.55

FOOTNOTES

1.   2011 WL 6000787, at *2 (Del. Super. Nov. 18, 2011) (quoting Am. Nat’l Ins. Co. v. G–Wilmington Assocs., L.P., 2002 WL 31383924, at *2 (Del. Super. Oct. 18, 2002));  see also LaSalle Nat’l Bank v. Ingram, 2006 WL 1679418, at *2 (Del. May 16, 2006);  Christiana Falls, L.P. v. First Fed. Sav. & Loan Ass’n of Norwalk, 1986 WL 18356, at *1 (Del. Dec. 30, 1986);  Wilmington Trust Co. v. Bethany Group Ltd. P’ship, 1993 WL 258686, at *2 (Del. Super. June 3, 1993);  Gordy v. Preform Bldg. Components, Inc., 310 A.2d 893, 895 (Del. Super. 1973).

2.   In its Statement of Facts in its brief on appeal, The Bank states that “[o]n an unknown date, the Note was endorsed by Countrywide Home Loans, Inc. in blank.” Appellee’s Answering Br. at 4. A copy of the note containing such an endorsement is in The Bank’s appendix in this appeal. App. to Appellee’s Answering Br. at 28–30. The Bank makes no argument on appeal concerning the note contained in its appendix. Under Delaware Supreme Court Rule 9, we hear an appeal on the record created in the trial court. Accordingly, we do not consider the Note contained in The Bank’s appendix.

3.   Brown v. United Water Del., Inc., 3 A.3d 272, 275 (Del. 2010) (quoting Estate of Rae v. Murphy, 956 A.2d 1266, 1269–70 (Del. 2008)).

4.   The Bank cites the following Superior Court cases in support of its contention:  M&T Bank v. Watkins, 2016 WL 4123903, at *2 (Del. Super. July 29, 2016) (citing Deutsche Bank Nat’l Trust Co. v. Moss, 2016 WL 355017, at *3 (Del. Super. Jan. 26, 2016) (quoting HSBC Mortg. Corp. (USA) v. Bendfeldt, 2014 WL 600233, *2 (Del. Super. Feb. 4, 2014), aff’d 2014 WL 4978666 (Del. Oct. 7, 2014)));  Davis v. 913 N. Mkt. St. P’ship, 1996 WL 769326, at *1 (Del. Super. Dec. 12, 1996) (“The [ ] note and the mortgage confer separate rights and obligations. Thus, the [ ] note is a separate matter and is not part of the foreclosure action on the mortgage.”);  Ryan v. Ryan, 1989 WL 135711, at *1 (Del. Super. Nov. 2, 1989).

5.   2 Victor B. Woolley, Woolley on Delaware Practice, § 1358 at 918, § 1371 at 926 (WM. W. Gaunt and Sons, Inc. 1985).

6.   10 Del. C. § 5061.

7.   Matter of Celeste Court Apartments, Inc., 47 B.R. 470, 474 (D. Del. 1985).

8.   Gordy, 310 A.2d at 895.

9.   Id. (citing Revised Code of Delaware, 1935, par. 4859, Ch. 133, & 68).

10.   See cases cited supra note 1.

11.   2011 WL 6000787, at *2.

12.   310 A.2d 893, 895 (Del. Super. 1973).

13.   Id.

14.   Id.

15.   Id. at 895–96.

16.   Woolley, supra note 4, § 1353 at 914.

17.   25 A.2d 383, 389 (Del. 1942).

18.   83 U.S. 271 (1872).

19.   Id.

20.   Id. at 274.

21.   4 Richard R. Powell, Powell on Real Property § 37.27[2] at 37–178 (Michael Allan Wolf ed., 2000).

22.   Restatement (Third) of Property (Mortgages) § 5.4(c) (1997). Section 5.4(a) states “A transfer of an obligation secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise.” This “the mortgage follows the note” principle is supported by substantial authority. Section 5.4(b) states “Except as otherwise required by the Uniform Commercial Code, a transfer of a mortgage also transfers the obligation the mortgage secures unless the parties to the transfer agree otherwise.” The Reporter’s Note acknowledges that there is “substantial contrary authority, holding that an assignment of the mortgage without the obligation is a nullity.”

23.   55 Am. Jur. 2dMortgages § 584 (2017).

24.   36 N.Y. 44 (1867) (internal citations omitted).

25.   104 So.3d 1274, 1276 (Fla. Dist. Ct. App. 2013).

26.   13 A.3d 435, 438 (N.J. Super. Ct. Ch. Div. 2010).

27.   270 P.3d 151, 153 (Okla. 2012).

28.   899 A.2d 41, 42 (Conn. App. Ct. 2006).

29.   69 B.R. 321, 325 (Bankr. E.D. Mich. 1987).

30.   60 N.E.3d 1243, 1250 (Ohio 2016).

31.   359 S.E.2d 74, 77 (S.C. Ct. App. 1987) (internal citations omitted).

32.   5 N.W.2d 524, 526 (Mich. 1942).

33.   105 S.E.2d 62, 64 (N.C. 1958).

34.   25 A.2d 383 (Del. 1942).

35.   10 Del. C. § 5061(a).

36.   We recommend that the Superior Court consider amending the form to specifically say “mortgage money” rather than just “mortgage.”

37.   The dissent characterizes the Majority’s opinion as being based upon sympathy, and cautions against “mandating as judges, not legislators, an increase in the costs to lenders of enforcing their rights when that is not necessary to protect the legitimate rights of borrowers.” Yet, the Dissent acknowledges that the Majority “might have a point where an unfortunate homeowner could have her home foreclosed upon by a mortgage holder and later have a separate note holder show up and demand payment.” But that is exactly the point. Our Dissenting colleague would force upon such a homeowner the costs of chasing down the mortgage holder and suing to establish that the note had already been paid. To the extent that decisions of this Court are contrary to our holding herein, they are hereby overruled.

38.   The Superior Court’s decision accords with its earlier decisions on this topic that holding the mortgage was sufficient to confer standing on a foreclosing plaintiff. See, e.g., Deutsche Bank National Trust Company v. Moss, 2016 WL 355017, at *1, *2 (Del Super. Jan. 26, 2016), aff’d sub nom. Moss v. Deutsche Bank National Trust Company, 148 A.3d 1170, 2016 WL 5660265 (Del. Sept. 30, 2016) (TABLE) (finding foreclosing plaintiff had standing to foreclose because it held validly assigned mortgage);  HSBC Mortgage Corp. (USA) v. Bendfeldt, 2014 WL 600233, at *2 (Del. Super. Feb. 4, 2014), aff’d sub nom. Bendfeldt v. HSBC Mortgage Corp. (USA), 2014 WL 4978666 (Del. Oct. 7, 2014) (same).

39.   Appellant’s Corrected App. at A69 (Complaint, Ex. D § 5062D(b)(2) Affidavit in Support of Amounts Due (Docket No. 1, C.A. No. N15L–03–108)).

40.   Id. at A24 (Complaint (Docket No. 1, C.A. No. N15L–03–108)).

41.   App. to Appellee’s Answering Br. on Appeal at B6 (Mortgage).

42.   Monroe v. Metropolitan Life Ins. Co., 457 A.2d 734, 736 (Del. 1983).

43.   10 Del. C. § 5061.

44.   Woolley, supra note 5, at 919.

45.   Id. at 918.

46.   E.g., 10 Del. C. § 3912.

47.   The 2012 amendment added provisions mandating that defendants in foreclosure actions “must have an opportunity to apply for relief under a federal loss mitigation program,” 10 Del. C. § 5062A, must receive specific information about foreclosures, id. § 5062B, have the right to pre-foreclosure mediation, id. § 5062C, and also required foreclosure complaints to contain statements of how the foreclosing plaintiff complied with the new provisions, id. § 5062D.

48.   App. to Appellee’s Answering Br. on Appeal at B6 (Mortgage).

49.   10 Del. C. § 5067.

50.   Indeed, this State requires mortgagees to update mortgage records within sixty days of the mortgage’s satisfaction, 25 Del. C. § 2111, and also provides a procedure to compel mortgagees to enter satisfaction if they otherwise fail to do so, id. § 2115.

51.   Dover Historical Soc. v. City of Dover Planning Comm’n, 838 A.2d 1103, 1110 (Del. 2003) (quoting Stuart Kingston, Inc. v. Robinson, 596 A.2d 1378, 1382 (Del. 1991)).

52.   Majority Op. at 15.

53.   Dover Historical Soc., 838 A.2d at 1109.

54.   Majority Op. at 15–16.

55.   The litigation that continues to be generated in this area suggests another possible reality. It could be that the perpetuation of procedural practices that were designed at a time in our history when capital markets and commercial practices were far different is inefficient. In a year that would have been the subject of science fiction in the period when the print was still fresh on the first edition of Woolley’s, it is likely not optimal to continue using a writ lawyers often refer to as “sci fi” and other procedural practices and writs no longer fit to purpose. A comprehensive look at statutory and rule provisions to simplify and make plain what is required would likely aid all parties to disputes like this, and in other important areas of law such as landlord-tenant disputes, where cases involving someone’s ability to avoid eviction can turn on whether there was a narrowly defined error on the face of the record allowing a party to invoke a writ with a Latin name.

VAUGHN, Justice, for the Majority:

Lower Court Ruling: Bank of N.Y. Mellon v. Shrewsbury

Decided February 17, 2016 Summary Judgement ruling

On Plaintiff’s The Bank of New York Mellon Motion for Summary Judgment.


GRANTED.
ORDER Melanie J. Thompson, Esq., Atlantic Law Group, LLC, 913 North Market Street, Wilmington, Delaware 19801. Attorney for Plaintiff. Cynthia L. Carroll, Esq., Cynthia L. Carroll, P.A., 262 Chapman Road, Newark, Delaware 19702. Attorney for Defendants. Scott, J.

Introduction

Before the Court is Plaintiff Bank of New York Mellon’s (“Defendant” or “Mellon”) Motion for Summary Judgment in this mortgage foreclosure action. The Court has reviewed the parties’ submissions. For the following reasons, Plaintiff’s Motion for Summary Judgment is GRANTED.

Background

Defendants assert that there are genuine issues of material fact at issue in this case which preclude granting of summary judgment in favor of Plaintiff because of Defendants’ denials in their Answer and Response. Yet their denials in both are merely conclusory, and unsupported by any evidence in the record. See Wells Fargo Bank, N.A. v. Nickel, 2011 WL 6000787 (Del. Super. Nov. 18, 2011). In fact, Defendants’ conclusory factual denials are directly contradicted by the factual record. Furthermore, as discussed below, Defendants fail to offer any evidence to rebut the presumptions created by notarized documents and proofs of notice provided by Plaintiff. For these reasons, the Court finds there is no genuine issue of material fact, and that the record evidence demonstrates the facts set forth in this section.

Defendants J.M. Shrewsbury and Kathy Shrewsbury (collectively “Defendants”) executed a promissory note (the “Note”) in favor of Countrywide Home Loans, Inc. (“Lender”), and executed a mortgage (the “Mortgage”) that secured that Note in favor of Mortgage Electronic Registration System (“MERS”) as “nominee” for the Lender on a property located in Middletown, Delaware (the “Property”). The Mortgage was duly filed and recorded in the real property records of New Castle County, Delaware. By a transfer through MERS, Lender assigned all of its interest to Plaintiff, which was also filed and recorded in the real property records of New Castle County, Delaware.

On March 20, 2015, Plaintiff filed a scire facias sur mortgage complaint against Defendants seeking foreclosure of Plaintiff’s interest in the Property. The mortgage provides that, upon Defendants’ failure to pay when due any obligation or any portion of thereof when due, the loan shall be in default and Plaintiff, after notice and opportunity to cure, may accelerate the sum secured by the Mortgage and may foreclose upon the Property for the collection of the obligation. On June 2, 2015, Defendants filed an answer to Plaintiff’s Complaint. Plaintiff’s filed this motion for summary judgment on September 18, 2015. An Affidavit of Exemption from Loss Mitigation Affidavit and a 4f4 Affidavit were filed concurrently with Plaintiff’s motion, pursuant to 10 Del. C. § 5062(a).

Standard of Review

Despite Defendants’ conclusory denial of such, the summary judgment standard discussed in this section is, in fact, the appropriately applicable standard on this motion for summary judgment. See Def. Response at ¶¶ 5-6.

The Court may grant summary judgment if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to summary judgment as a matter of law.” The moving party bears the initial burden of showing that no material issues of fact are present. Once such a showing is made, the burden shifts to the non-moving party to demonstrate that there are material issues of fact in dispute. In considering a motion for summary judgment, the Court must view the record in a light most favorable to the non-moving party. “Summary judgment will not be granted when a more thorough inquiry into the facts is desirable to clarify the application of the law to the circumstances.”

Super. Ct. Civ. R. 56(c); Burkhart v. Davies, 602 A.2d 56, 59 (Del. 1991).

Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979).

Id. at 681.

Burkhart, 602 A.2d at 59.

Phillip-Postle v. BJ Prods., Inc., 2006 WL 1720073, at *1 (Del. Super. Apr. 26, 2006).

Discussion

Plaintiff has satisfied its burden and is entitled to summary judgment as a matter of law. Defendants’ argument against summary judgment is that Plaintiff has not proven that it is the owner or holder of the Note, and therefore, Plaintiff is not the proper party to bring the foreclosure action.

Under Delaware law, a mortgagee or the assignee of a mortgagee’s interest has standing to pursue foreclosure. An assignment is valid when it operates to convey all the rights and interest of the assignor, was attested to by a credible witness, and notarized. The assignment in this case was valid because it operated to convey all the rights and interest of the assignor, was attested to by a credible witness, and was notarized by Lillian J. Ellison. Defendants have not presented any evidence showing that Ms. Ellison’s notarization was not credible. As such, the assignment meets the requirements set forth in the Delaware Code and Plaintiff is a valid assignee of the mortgagee. As a valid assignee Plaintiff is the proper party to enforce the Note.

10 Del C. § 5061(a) (providing “upon breach of the condition of a mortgage of real estate by nonpayment of the mortgage money or nonperformance of the condition stipulated in such mortgage at the time and in the manner therein provided the mortgagee, the mortgagee’s heirs, executors, administrators, successors or assigns may, at any time after the last day whereon the mortgage money ought to have been paid or other condition performed, sue out of the Superior Court of the county wherein the mortgage premises are situated a writ of scire facias“).

25 Del. C. § 2109(a): An assignment of a mortgage or any sealed instrument attested by 1 creditable witness shall be valid and effectual to convey all the right and interests of the assignor. (b) All assignments of mortgages or any sealed instruments heretofore made in the presence of 1 witness and all satisfactions made by assignees in such assignments are made good and valid.

Yomari Quintanilla

See CitiMortgage, Inc. v. Bishop, 2013 WL 1143670, at *4 (Del. Super. Mar. 4, 2013).

See e.g., Nationstar Mortgage, LLC v. Sears, 2015 WL 4719941, at *5 (Del. Super. Aug. 7, 2015); CitiMortgage, Inc. v. Bishop, 2013 WL 1143670, at *4-6 (Del.Super. Mar. 4, 2013).

Moreover, Defendants attack the assignment of the Mortgage from MERS to Plaintiff. Defendants, however, lack standing to challenge the validity or enforceability of the assignment as a non-party who is not a third-party beneficiary to the assignment. Furthermore, Defendants cite no authority under Delaware law suggesting that MERS assignments are treated differently than any other assignment in Delaware. On the contrary, Delaware Courts have shown little appetite for invalidating mortgage assignments merely because they were assigned by MERS.

Nationstar Mortgage, LLC v. Sears, 2015 WL 4719941, at *5 (Del. Super. Aug. 7, 2015); CitiMortgage, Inc. v. Bishop, 2013 WL 1143670, at *4-6 (Del.Super. Mar. 4, 2013) (The Court holding that a debtor is not a party to a mortgage assignment, is not a third party beneficiary to the assignment and cannot show legal harm as a result of the assignment. As such, the debtor has no legally cognizable interest in an assignment and therefore is not in a position to complain about it. Thus, it is not plaintiff who lacks standing to sue, but defendants who lack standing to contest the assignment.)

Branch Banking & Trust Co. v. Eid, 2013 WL 3353846, at *4 (Del. Super. June 13, 2013). See, e.g., Savage v. U.S. Nat. Bank Ass’n, 19 A.3d 302 (Del. 2011) (upholding plaintiff’s interest in defendant’s mortgage acquired through an assignment from MERS.); Citimortgage, Inc. v. Trader, 2011 WL 3568180 (Del. Super. May 13, 2011) (finding plaintiff to be the proper party in interest after an assignment of a mortgage from MERS to plaintiff).

Finally, Defendant’s make a conclusory challenge to the authenticity of the Mortgage. An acknowledgment of a signature by a notary, however, gives rise to a presumption of the genuineness of that signature, and the party challenging the authenticity of the document has the burden of proving otherwise. In this case, Defendants have offered no evidence to support their allegation that the signatures of the Mortgage are not authentic. Without such an offering, the notary’s presumption of authenticity eliminates any genuine issue of material fact.

Estate of Osborn ex rel. Osborn v. Kemp, No. 2009 WL 2586783, at *6 (Del. Ch. Aug. 20, 2009) affd sub nom. Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153 (Del. 2010). ——–

Conclusion

For the foregoing reasons, Plaintiff’s Motion for Summary Judgment is GRANTED.

IT IS SO ORDERED.

/s/Calvin L . Scott

 

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation with any specific legal question you may have.

3 Responses

  1. Thanks for discussing our case – the fight continues!

  2. The amount ($653K) the servicer (Residential Credit Solutions aka RCS) and the plaintiff (The Bank of New York Mellon, f/k/a The Bank of New York, as Trustee for the Certificateholders of CWMBS, Inc., CHL Mortgage Pass–Through Trust 2007–9, Mortgage Pass–Through Certificates, Series 2007–9) are almost identical to my loan.

    My loan amount was about $20K less, my servicer was RCS after BofA handed it off to them, and the only difference in plaintiff, if I had been sued, would have been the suffix after the 2007 in the Shrewsbury’s plaintiff’s name.

    A couple of things of interest:
    If we can assume they got into this boat after trying and failing to get a loan mod from RCS, their fate was sealed the moment BofA handed the servicing off to RCS. How so? The US Treasury kept track of the HAMP approval rates for about 22 servicers, including RCS. RCS was the very lowest. They approved only 12% of HAMP mods. Perspective: BofA was at about 40%. When BofA sold your loan’s servicing to RCS, you lost your house or faced the fight of your life.

    RCS had some cute tricks:

    1. They only approved HAMP mods if the borrower’s payment could be reduced to the HAMP-specified 31% of income without adjusting your loan term. They never carried out the step that was supposed to follow interest rate reduction according HAMP’s rules, extending your remaining loan term to 30 or 40 years.

    2. They strung you along with false assurances until your arrears were too great for their *fake* arrears test. That’s right, fake. Once you’d got everything else sorted out, and they finally admitted your income was adequate, they leapt onto the arrears issue, which had never come up before. Then, they faked a bad result. They pretended your arrearage was too large a percentage of your capitalized loan balance (which is your balance plus accumulated arrears and escrow amounts) for HAMP, but they didn’t calculate that percentage. Instead of dividing your arrears by your capitalized balance, they divided it by your unpaid principal balance.

    Say your arrears was $200,000 and your unpaid principal balance was $650,000. If so, your capitalized balance was $850K. RCS did this: $250K is a little above 38% of $650K. The cutoff for HAMP is 30%. You cannot get a HAMP mod.

    But that’s not the right way to calculate it.

    The real percent to calculate for HAMP was $250K/$850K, which is $29.4 %. You’d have qualified for a HAMP if RCS had done it right.

    I don’t know how many people lost their houses because RCS made up their own rules. I came close, but tried a “hail mary” Chapter 11 and lived to tell about. I also saved my house, at great expense of time, money, and stress.

    Did anyone else out there have to tangle wth RCS?

  3. The Delaware Supreme court justice who penned the minority dissent made a reference to the fact the Shrewsburys would be protected from others attempting to collect on the debt, claiming that even the note states that ALL PAYMENTS are to be credited to the amount owed on the debt. GEE, seems like I have heard Neil bring up the fact the SETTLEMENTS that the INVESTORS have gotten NEED TO ALSO BE CREDITED to the debt. SO, THERE ARE PAYMENTS THAT WERE NOT EVEN ALLEGED in this case that would bring still another basis for suit: the stated amount due is NOT CORRECT.

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