Standing in Foreclosure Actions Requires Holding Both Mortgage and Note
A divided Delaware Supreme Court recently held that a mortgage assignee must be entitled to enforce the underlying obligation that the mortgage secures in order to foreclose on the mortgage.
July 05, 2017 at 07:06 AM
7 minute read
In Shrewsbury v. The Bank of New York Mellon, No. 306, 2016 (Del. Apr. 17, 2017), a divided Delaware Supreme Court held that a mortgage assignee must be entitled to enforce the underlying obligation that the mortgage secures in order to foreclose on the mortgage. The decision means that the mortgage holder in a foreclosure action must also prove that it owns the underlying note. The majority opinion, while eschewing the notion that it was imposing a new pleading requirement for mortgage foreclosure actions, nevertheless suggested that best practice for plaintiffs counsel in a foreclosure action where a mortgage has been assigned would be to include an averment that the note, as well as the mortgage, was assigned to the plaintiff.
The lone dissenter, Chief Justice Leo E. Strine Jr., accused the majority of ignoring the plain language of the statute that allows foreclosure by the mortgage holder, and thereby increasing the costs to lenders of enforcing their rights when it was not necessary to protect the legitimate rights of borrowers. More interestingly, Strine invites lawmakers to take a comprehensive look at outdated statutory and rule provisions based on writs “with a Latin name.”
The facts of the case were not complicated. The Shrewsburys executed a promissory note in favor of Countrywide Home Loans and a mortgage that secured the note in favor of the Mortgage Electronic Registration Systems (MERS) as nominee for the lender. By transfer through MERS, the mortgage was assigned to The Bank of New York. The Shrewsburys defaulted on the note, and the bank filed a scire facias sur mortgage complaint seeking foreclosure of the bank's interest in the property. The Shrewsburys filed an answer alleging that the note representing the debt secured by the mortgage had not been assigned to the bank, it did not have the right to enforce the underlying debt, and therefore it did not have the right to foreclose.
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