Berg v. Liberty Federal Savings & Loan Ass'n
428 A.2d 347, 1981 Del. LEXIS 296 (1981)
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Rule of Law:
A mortgage lender does not waive its right to sue the original mortgagor on the underlying bond upon default, even after accepting payments from a third-party grantee who assumed the mortgage, unless there is a novation, a release, or an alteration of the debt terms detrimental to the mortgagor.
Facts:
- In 1970, Howard M. Berg and Sandra Berg executed a bond and mortgage in favor of Liberty Federal Savings and Loan Association.
- In 1973, the Bergs sold the real estate to a third party (grantee) who assumed liability for the mortgage.
- Liberty Federal was not a party to the sale transaction and did not release the Bergs from their liability.
- Following the sale, Liberty Federal accepted timely monthly mortgage payments from the grantee for approximately four years.
- During this period, all correspondence from Liberty Federal concerning the mortgage was with the grantee.
- In late 1977, the grantee ceased making payments, causing the mortgage to go into default.
Procedural Posture:
- Liberty Federal Savings and Loan Association sued Howard and Sandra Berg in Superior Court on their bond after the mortgage went into default.
- The Bergs asserted as a defense that Liberty Federal, by its conduct, was required to foreclose on the mortgage before suing them on the bond.
- Liberty Federal moved for partial summary judgment on the Bergs' defense.
- The Superior Court granted partial summary judgment for Liberty Federal, finding no legal support for the Bergs' defense.
- The Superior Court later granted a final money judgment against the Bergs.
- The Bergs, as appellants, appealed both orders of the Superior Court to the Delaware Supreme Court, with Liberty Federal as the appellee.
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Issue:
Does a mortgage lender's acceptance of payments from a third-party grantee who assumed the mortgage, without a formal release or novation, legally obligate the lender to foreclose on the property before suing the original mortgagors on their bond?
Opinions:
Majority - Horsey, Justice
No. A lender's acceptance of mortgage payments from a grantee does not, by itself, alter the lender's right to pursue all available remedies against the original mortgagor upon default. The law is well-settled that upon a debtor's default, a lender may, at its option, either sue on the bond or foreclose on the mortgage. This right is not relinquished unless the original mortgagor is explicitly released or a contract of novation is executed, which requires the creditor's expressed assent to give up the original debt. The Bergs' sale of the property to a grantee who assumed the mortgage did not exonerate them from their personal liability on the bond. The court distinguished precedents cited by the Bergs, noting those exceptions only apply under suretyship principles where a lender's actions, such as altering the terms of the debt, are detrimental to the mortgagor's interests. As Liberty Federal did not vary the terms of the debt, its acceptance of payments from the grantee was insufficient as a matter of law to reorder its remedial rights, which were expressly conferred by the bond.
Analysis:
This decision reaffirms the traditional and powerful remedies available to mortgage lenders upon default. It clarifies that a lender's course of dealing with a new property owner does not implicitly waive its contractual rights against the original borrower. For mortgagors seeking to be free from liability after selling a property, this case underscores the necessity of obtaining an express release or novation from the lender. The ruling provides significant protection and predictability for lenders, ensuring their rights are not easily compromised by informal arrangements between borrowers and subsequent purchasers.
