Delaware Supreme Court rules Holder must prove it owns Note: Shrewsbury v. The Bank of NY Mellon


The Delaware Supreme Court has ruled you must own note and mortgage in order to foreclose — which is what I have been saying for 12 years.  A lot of good that will do the millions of people who lost their homes to parties that did not have ownership of the note and mortgage.  The days of creating the illusion of standing are approaching their end-  but how about the families who were illegally foreclosed by parties who had no standing to do so?

In Shrewsbury v. The Bank of New York Mellon, No. 306, 2016 (Del. Apr. 17, 2017), the Delaware Supreme Court ruled 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 enforces that the mortgage holder in a foreclosure action must also prove that it owns the underlying note. The majority opinion held that best practice for plaintiff’s 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 Shrewsburys executed a promissory note in favor of Countrywide Home Loans and a mortgage that secured the note in favor of Mortgage Electronic Registration Systems (MERS) as nominee for the lender.  MERS assigned the mortgage to The Bank of New York.  The Shrewsburys “defaulted” on the note (remember there is no default if the servicer made advances), and the bank filed a mortgage complaint seeking to foreclose. The Shrewsburys responded alleging that the note had not been assigned to the bank, it did not have the right to enforce the underlying debt, and therefore the Bank of New York could not prove it had the right to foreclose.

The bank moved to dismiss on summary judgment, which was predictably granted by the Delaware Superior Court. The Superior Court held that under Delaware law, a mortgagee or the assignee of a mortgagee’s interest had standing to pursue foreclosure, citing 10 Del. C. Section 5061(a). In this case, the assignment of the mortgage was deemed valid because it conveyed all rights and interest of the assignor, was attested to by a credible witness, and was properly notarized. As a valid assignee of the mortgage, the bank was a proper party to enforce the note even though the bank did not produce the note or claim to be the holder of the note. The Shrewsburys appealed the decision to the Supreme Court.

On appeal, the bank argued that under Delaware law, a mortgagee’s right to foreclose derives from the mortgage, not the note. Ownership of the related promissory note is irrelevant to the mortgage holder’s right to foreclose on the mortgage.

In reaching its decision, the court looked to statute 10 Del. C. Section 5061 which provides that upon breach of the condition of a mortgage by nonpayment of the “mortgage money,” the mortgagee or the mortgagee’s assignee may sue out a writ of scire facias requiring the mortgagor to show cause why the mortgaged premises ought not to be seized and taken in execution for payment of the mortgage money.

The court noted that “mortgage money” refers to the note or debt that is secured by the mortgage. The only defenses available in a mortgage foreclosure action were payment of the mortgage money, satisfaction, or a plea to avoidance to avoid the mortgage based on the validity or illegality of the mortgage documents.

The court concluded that a mortgage does not create a debt or obligation, but merely secures one. An underlying debt or obligation is essential to a mortgage’s enforceability. An assignment of the note carries the mortgage with it, while an assignment of the mortgage alone is a nullity.

If the holder of the mortgage is not the one entitled to enforce the underlying debt—the “mortgage money” or note—the mortgage holder suffers no injury by the mortgagor’s nonperformance. Thus, a mortgage holder must be a party entitled to enforce the obligation that the mortgage secures in order to foreclose.  Since the bank had not produced the note or claimed to be the holder of the note or entitled to enforce it, a question of fact existed that should have resulted in the denial of the bank’s motion for summary judgment. Accordingly, the decision of the Superior Court was reversed.

In this particular lawsuit, the homeowners didn’t need need to delve into issues of securitization, it was enough to challenge the assignment of the note (or lack of) and to attack the servicer’s affiant who lacks sophisticated knowledge of the business records.

9 Responses

  1. Similar here. But, my “bank” (trustee, i.e., Servicer w/PoA) is producing a fabricated note with blank endorsement. The endorsement was not on the copy of the note in the original filing, added to the one filed for Summary Judgment. Once dismissed, with leave to amend, filed as Amended Petition by 3rd Servicer, 2nd law firm.

    This thing is like musical chairs. Seems anyone can jump in and claim they are the Plaintiff.

    Wanted to try and address the issue of “servicing”. By Common Law, if not by outright title in any particular state, The act/art of “Servicing” extends from the owner of the debt. In these cases, we have one “Master” Servicer distributing these rights to Sub-Servicers at will. The Master Servicer claims right to do so on their relationship to the Trustee as owner (via PSA and by way of PoA) of the debt. Keep in mind, it’s the Trustee who claims to own the debt, not the bank whom is trustee. The Trustee exists as a corporate person only by way of the PSA (or Trust Agreement, perhaps in some states). Assignments to the Trustee, then, are not to the bank. And, ownership of the debt can only be achieved via the process defined in the PSA. Certainly, not via direct assignment from the Originator. An assignment cannot transfer a note/debt, it must be negotiated, by UCC (how Delaware suggests assignment of a note in addition to the mortgage seems off to me, unless it’s a power thing only.)

    Anyway, if the note never made it into the Trust, owned by the Trustee, all via the PSA, then the PSA itself is unenforceable, particularly as it relates to Servicers who then fail to achieve relationship to be doing what they are attempting.

    But, we have to get over the many courts who’ve claimed the homeowner is not a party to the PSA and therefor cannot make claims in this regard.

  2. In my chapter 11, Bank of NY Mellon stated that it was either the original or a subsequent holder of the note and that either they or another party had possession of the note. In effect, they were saying they had no clue how, if at all, they became noteholder and no clue where on earth the note could be found. My lawyers were conventionalist, status-seeking weenies, one of whom berated me by email for days for merely mentioning that an assignment of deed on a different mortgage appeared to be fraudulent. I didn’t dare make an issue of Mellon’s weak grasp on creditor status, but I’d love to now, after this case and a similar one published here recently went so well in appeal. I don’t think I can. If anyone knows otherwise regarding Chapter 11 bankruptcy plans, feel free to weigh in here.

  3. Will this affect rulings in Rhode Island? If so, please explain.

  4. How about the millions who were foreclosed on because the bank refused to modify their loans because foreclosing was more profitable?

    A little fraud against millions of customers is a multi billion dollar business in the bankster’s mortgage servicing industry.

  5. Maxim – Even though several causes of action are time barred, fraud never expires.

    Reclaim back what was taken; make a stink; lien the BAR; but, Judge Anna has already liened it; see:

  6. Reblogged this on Deadly Clear.

  7. I keep saying the debt is UNSECURED debt !!!!……

  8. Hooray! This is wonderful news. I’m still hanging on out here in Seattle. The timing of this couldn’t better. Maybe now a Lawyer will step up and help me for the sake of justice!

    Thank you Neil! For everything you do. You are my lifeline in this battle and a GODsend to all homeowners.

  9. It seems like all of these foreclosure lawsuits should never have passed muster if the law and due process was actually followed.

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