In J.M. Shrewsbury v. Bank of New York Mellon, (Del. Apr. 17, 2017), the Supreme Court of Delaware, sitting en banc, issued a decision of interest to lenders seeking to foreclose on real property in the state of Delaware. In reversing the order of the trial court granting summary judgment in favor of the foreclosing bank, the majority held that a mortgagee must be entitled to enforce the underlying promissory note in order to foreclose on the mortgage security. While this holding affects lenders’ pursuit of foreclosure, the practical consequence appears limited, and the decision likely impacts counsel for lenders far more than the lenders themselves.
In Shrewsbury, the bank filed an in rem action against the defendants’ real property. The complaint does not make an express reference to a promissory note and largely ignores the underlying obligation to repay money; rather, the bank avers that the defendants caused a federal tax lien to be recorded on the real property in violation of certain covenants set forth in the mortgage. While the bank accelerated the amount of the loan, it did not seek an in personam judgment against the defendants. The complaint required the defendants to answer the allegations by affidavit in accordance with Title 10, Section 3901, of the Delaware Code. The defendants answered the complaint, in which they asserted, as an affirmative defense, that the bank was not the real party in interest and lacked standing to file suit.