Eastern Savings Bank, FSB v. Cach, LLC

55 A.3d 344, 2012 WL 3631484, 2012 Del. LEXIS 451
CourtSupreme Court of Delaware
DecidedAugust 24, 2012
DocketNo. 88, 2012
StatusPublished
Cited by12 cases

This text of 55 A.3d 344 (Eastern Savings Bank, FSB v. Cach, LLC) is published on Counsel Stack Legal Research, covering Supreme Court of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Eastern Savings Bank, FSB v. Cach, LLC, 55 A.3d 344, 2012 WL 3631484, 2012 Del. LEXIS 451 (Del. 2012).

Opinion

STEELE, Chief Justice:

The New Castle County Sheriff sold real property encumbered with a judgment lien and a mortgage lien, in that order of priority, at a mandated sheriffs sale. The Sheriff disbursed the proceeds to Eastern Savings Bank, the mortgage lien holder. CACH, LLC, the judgment lien holder, filed a complaint in the Court of Common Pleas alleging misappropriation and unjust enrichment. The Court of Common Pleas judge denied CACH’s Motion for Summary Judgment and granted Eastern’s Motion to Dismiss for failure to state a claim. The Superior Court judge reversed. On appeal, Eastern argues that the sheriffs sale did not discharge the judgment lien, and therefore CACH is not entitled to the sale proceeds. We find no merit to Eastern’s argument and hold that: (1) all nonmortgage liens are discharged at a sheriffs sale and (2) sheriffs sale proceeds are disbursed according to a first in time, first in line priority. Therefore, we affirm.

I. FACTUAL AND PROCEDURAL HISTORY

t<On December 7, 2006, CACH, LLC obtained a judgment lien against Aaron Johnson to satisfy a deficiency balance on Johnson’s car loan. CACH duly recorded its judgment as a property lien on December 21, 2006. As of that date, Aaron Johnson owned real property located at 19 Sanford Drive, in Newark, Delaware.

On December 19, 2006, Aaron Johnson executed a deed conveying his property to himself and his wife as tenants by the entirety. Later that day, Johnson and his wife mortgaged the property to Eastern Savings Bank, FSB for $168,000. The conveyance and the mortgage, however, were not duly recorded until December 29, 2006.

After the housing bubble burst, Eastern filed a foreclosure action in August 2008. CACH notified Eastern that CACH’s judgment lien had priority over Eastern’s mortgage lien. The judgment lien totaled $16,041.28 as of the date Eastern filed the foreclosure action. At the April 2009 sheriffs sale, Mile High Investments, Inc. purchased the property for $133,000 and the Sheriff sent the proceeds to the attorney for Eastern. No excess proceeds remained for CACH after costs and partial satisfaction of the mortgage.

CACH filed a complaint in the Court of Common Pleas against Eastern. The complaint alleged two counts: (1) misappropriation of the funds received from the sheriffs sale and (2) unjust enrichment by keeping the portion of the sale proceeds that should have been paid to CACH.1 Eastern filed a Motion to Dismiss for failure to state a claim and CACH filed a Motion for Summary Judgment on the basis that there are no material facts in dispute. The Court of Common Pleas judge denied CACH’s Motion for Summary Judgment and granted Eastern’s [347]*347Motion to Dismiss.2 The Superior Court judge reversed.3

II. STANDARD OF REVIEW

The interpretation of statutes is a question of law that this Court reviews de novo.4 When reviewing a grant or denial of summary judgment, we view all facts in the light most favorable to the nonmoving party and apply a de novo standard of review to determine whether there is a genuine issue of material fact in dispute.5

III. ANALYSIS

The Superior Court judge held that the sheriffs sale discharged the CACH judgment lien and that the judgment lien must be paid before the mortgage lien, even if the mortgagee filed the foreclosure action. On appeal, we resolve two principal issues: (1) what liens are discharged when real property is sold at a sheriffs sale and (2) in what order are proceeds from the sale disbursed to the discharged hen holders.

A. Because real property sold at a sheriffs sale is taken free of all nonmortgage liens on the land, CACH’s judgment lien was discharged at the sale.

Two statutes, based on the public policy to disencumber lands as much as possible from liens, require the sheriff to discharge all nonmortgage liens when selling property at a foreclosure sale. First, according to 10 Del. C. § 4985, real property purchased at a sheriffs sale must be free from all liens against the previous owner: “Real estate sold by virtue of execution process shall be discharged from all liens thereon against the defendant ... except such liens as have been created by mortgage or mortgages prior to any general liens.”6 The § 4985 drafters intended purchasers to take the property unencumbered by judgments against the prior owner in order to promote the free transferability of land.7 The statute contemplates that the prior owner, here Aaron Johnson, be the “defendant” because CACH had a judgment lien against him; therefore, the sale discharges all nonmortgage liens against Johnson’s former property.

The second statute cited by the parties, 10 Del. C. § 5066, also provides that land sold after foreclosure shall be discharged from all incumbrances incurred by the pri- or owner.

The person to whom any lands and tenements shall be sold, or delivered, under § 5065 of this title, and such person’s heirs and assigns, shall hold the same, with their appurtenances, for such estate, or estates, as they were sold, or delivered for, discharged from all equity or redemption, and all other incumbran-ces made and suffered by the mortgagor, the mortgagor’s heirs, or assigns; and such sale shall be available in law.8

[348]*348Again, this statute directs that property-sold at a sheriffs sale must be free of liens against the mortgagor. We hold that the sheriffs sale purchaser must take the property free of any prior judgment liens against the property. Therefore, Mile High Investments, the purchaser at the sheriffs sale in this case, acquired the property free of CACH’s judgment lien. Two cases from the nineteenth century support this interpretation.

In the 1841 case Farmers’ Bank v. Wallace, the trial judge considered whether land sold by sheriffs sale on a junior judgment lien would either discharge the older judgment lien with proceeds from the sale or be sold subject to the judgment lien.9 Wallace held that the foreclosure discharged both of the judgment liens.10 Longstanding common law precedent guides us with the settled policy “to disencumber lands as much as possible from all liens, which a sale could possibly remove.” 11 The Superior Court judge’s decision to discharge CACH’s judgment lien is consistent with this long held public policy.

Forty years later, Sharpe v. Tatnall presented a similar situation where a mechanic’s lien holder argued that land sold at a foreclosure sale was sold subject to the lien because it predated the mortgage.12 The Court rejected this argument and ruled, “the only liens ... not discharged by a sale of his lands under execution process against him are mortgages which are prior to any general liens.”13 Because a mechanic’s lien, even though bound to specific property, is not a mortgage, the foreclosure discharged the mechanic’s lien. Similarly, because CACH’s judgment lien, although recorded as a lien against the property, is not a mortgage, the foreclosure discharged CACH’s judgment lien.

Eastern Savings Bank cites two recent cases for the proposition that Wallace and Sharpe

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Cite This Page — Counsel Stack

Bluebook (online)
55 A.3d 344, 2012 WL 3631484, 2012 Del. LEXIS 451, Counsel Stack Legal Research, https://law.counselstack.com/opinion/eastern-savings-bank-fsb-v-cach-llc-del-2012.