In a recent opinion, the Supreme Court of Delaware held that a mortgage holder must be entitled to enforce the underlying obligation that secures the mortgage in order to foreclose on the mortgage. As a result of the court’s decision in Shrewsbury v. Bank of New York Mellon, 160 A.3d 471 (Del. April 17, 2017), mortgage lenders in Delaware should be sure to clearly document the assignment of mortgage loans and include the underlying promissory note in the assignment.
Shrewsbury v. Bank of New York Mellon
In Shrewsbury, The Bank of New York Mellon (the Bank) brought a foreclosure action against J.M. Shrewsbury and Kathy Shrewsbury. In May 2007, Shrewsbury signed a promissory note in favor of Countrywide Home Loans, Inc. and simultaneously granted a mortgage to Mortgage Electronic Registration Systems, Inc., which acted as nominee for Countrywide. In July 2010, Shrewsbury stopped making payments on the promissory note, and, in June 2011, Registration Systems assigned the mortgage to the Bank.
The Bank filed a mortgage foreclosure proceeding in the Superior Court, and, in their response to the complaint, the Shrewsburys argued that the Bank had to show that it held the promissory note (in addition to the mortgage) in order to succeed on the mortgage foreclosure claim. The Superior Court rejected the Shrewsburys’ argument and granted summary judgment in favor of the Bank, finding that the Bank only needed to show a valid assignment of the mortgage. In the Superior Court proceedings, the Bank did not produce a copy of the promissory note, nor did the Bank claim to be the holder of, or entitled to enforce, the promissory note.
On appeal, the Delaware Supreme Court cited a long history of Delaware case law in which the court found that the “underlying debt or obligation is essential to a mortgage’s enforceability.” The court also relied on the U.S. Supreme Court case Carpenter v. Longan, 83 U.S. 271 (1872), which held that a “note and a 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.” The court emphasized that a question of fact existed as to whether the Bank was entitled to enforce the obligations created by the promissory note. The court reversed the Superior Court’s judgment and remanded the matter for further consideration.
In a noteworthy dissent, Chief Justice Strine respectfully disagreed with the majority opinion, citing to Delaware Code title 10, section 5061, and explaining that the Delaware Code allows foreclosure by the mortgage holder and does not require that a mortgagee also show that it holds the promissory note. Justice Strine explained that statutory requirements should not be imposed by the judiciary and that the majority’s opinion could complicate the pleading requirements for future mortgage foreclosure proceedings.
Foreclosing lenders should include language in a foreclosure complaint that references the underlying obligation and makes clear that the obligation is owed to the foreclosing lender.
Foreclosing lenders should attach the promissory note and any assignments thereof as exhibits to the foreclosure complaint.
A mortgage lender should ensure that, when it acquires a mortgage loan by assignment, all of the underlying obligations of the mortgage (i.e., the promissory note) are clearly included in the assignment.