Case Title: Hancock v. Citifinancial, Inc

Citation: 

Docket Number: 311, 2004

State: delaware

Court: Delaware Supreme Court

Date: 2005-07-06T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
WALTER HANCOCK and LINDA § 
HANCOCK, 
 
§ 
 
 
§ 
No. 311, 2004     
 
Defendants Below, § 
 
Appellants, 
§ 
Court Below:  Superior Court of  
 
 
§ 
The State of Delaware in and for 
              v. 
 
§ 
New Castle County 
 
 
§ 
CITIFINANCIAL, INC. f/k/a 
§ 
C. A. No. 01L-06-083 
COMMERCIAL CREDIT  
§ 
CORPORATION, a Maryland 
§ 
corporation, 
 
§ 
  
 
 
§ 
 
 
Plaintiff Below, 
§ 
 
 
Appellee. 
§ 
 
 
 
Submitted: April 6, 2005 
 
 
Decided: 
July 6, 2005 
 
Before STEELE, Chief Justice, HOLLAND and JACOBS, Justices. 
 
O R D E R 
 
 
This 6th day of July 2005, upon consideration of the briefs of the parties and 
the record in this case, it appears to the Court that: 
 
1.  Walter R. and Linda M. Hancock, defendants below (the “Hancocks”), 
appeal from a June 25, 2004 order of the Superior Court in a mortgage foreclosure 
action, granting plaintiff below, Citifinancial, Inc., formerly known as Commercial 
Credit Corporation (“Citifinancial”):  (i) a joint and several judgment against the 
defendants, in personam, for $245,887.03, plus post-judgment interest on a lesser 
amount thereof from December 16, 2003; and (ii) a judgment in rem against the 
 
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Hancocks’ home, which was subject to a mortgage that secured the debt which 
underlay the in personam judgment.  The Hancocks claim that the Superior Court 
order must be reversed and set aside because:  (i) the mortgages and notes that 
were the subject of the action were not legal and binding, as no attorney was 
involved in those transactions, with the result that Citifinancial was engaged in the 
unauthorized practice of law; and (ii) the judgment was improperly granted against 
Linda Hancock on a satisfied mortgage and note and without a sufficient basis in 
evidence. 
 
2.  The underlying facts are as follows:  On August 21, 1998, the Hancocks 
executed a mortgage in favor of Citifinancial in the amount of $218,532.34.  The 
note was signed by Walter Hancock, and it also bore what appeared to be the 
signature of Leroy Smith.  Four months later, on November 24, 1998, the 
Hancocks refinanced the August transaction, by executing a new mortgage in the 
amount of $220,518.59, but with a lower interest rate and monthly payment than 
the August mortgage.  The November 1998 note was (again) signed by Mr. 
Hancock and Mr. Smith as obligors.  As part of the November refinancing, the 
August 1998 mortgage was marked satisfied.  Thereafter, the Hancocks began 
making payments in the new, lower amount.  Although Mrs. Hancock was not an 
obligor on the November 1998 note, she acknowledged, by her signature at the 
bottom of the note, that she was bound by the other conditions, including 
 
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specifically “the right and power of the Lender to repossess and sell the Property    
. . . .” 
 
3.  The Hancocks’ payment record was irregular, their last payment on the 
mortgage being in March 2001.  Citifinancial later filed this foreclosure action in 
the Superior Court.  In January 2003, the case was tried to the Superior Court, 
which ordered post-trial briefing.  Because Citifinancial failed to file its answering 
brief in accordance with a stipulated briefing schedule, the trial court issued a letter 
order deeming Citifinancial as having waived its answering brief.  
 
4.  By letter opinion and order issued on June 27, 2003, the Superior Court 
concluded that the conflicting paperwork and testimony made it difficult to 
determine who had borrowed what and when, and to determine the extent of 
Citifinancial’s status as a secured creditor.  The trial court further concluded that 
Citifinancial’s failure to file its brief was a tacit recognition by Citifinancial that its 
claim of secured creditor status was untenable, and that without the aid of a brief, 
the trial court was “unable and unwilling to sort out the complicated record and 
address [Citifinancial’s] arguments.”  In addition, the trial court found that 
although Citifinancial had, in effect, abandoned foreclosure as a remedy, it 
appeared from the record that loans had been made and not repaid, and that as a 
result, Citifinancial may have unsecured claims against the Hancocks.  But, 
because the Hancocks “deny the loan on which [Citifinancial] sued . . . [a]nd the 
 
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court will not sort it all out on its own” the Superior Court entered judgment in 
favor of the Hancocks and against Citifinancial. 
 
5.  Citifinancial then filed a timely motion for reargument, which the 
Superior Court granted.  Treating Citifinancial’s reargument motion as its overdue 
post-trial brief, the Superior Court re-addressed the merits, and concluded that:  (i) 
Citifinancial had not shown, to the Superior Court’s satisfaction, that the 
November 1998 mortgage transaction was valid; (ii) despite the gaps in the record, 
Citifinancial established that it had loaned at least $215,367.18 to the Hancocks in 
the August transaction—a fact the Hancocks “virtually admit[ted] . . . in their 
Affidavit of Defense;” and (iii) although Linda Hancock did not sign the August 
1998 note, she was estopped from denying her liability as a co-obligor of the 
August 1998 debt because she had signed the mortgage, received the loan 
proceeds, and participated in the repayment of the loan until default.  As a 
consequence, the Superior Court found both Mr. and Mrs. Hancock personally 
liable for the August 1998 debt, and further found that that debt had been secured 
by a valid mortgage on their home.  Accordingly, the Superior Court entered 
judgment “in rem . . . in favor of the Plaintiff, Citifinancial, Inc. and against the 
Defendants, Walter R. Hancock and Linda M. Hancock, jointly and severally. . . .” 
 
6.  On their appeal from the judgment, the Hancocks first argue that the 
August 1998 loan and mortgage were not legally binding or valid, because the 
 
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settlement on that transaction was not conducted by a Delaware attorney.  The only 
authority cited to support this claim is In re Mid-Atlantic Settlement Serv.,1 an 
order upholding a decision of the Board on the Unauthorized Practice of Law.  In 
that case, the Board held that real estate settlements constituted the practice of law 
and, therefore, required the involvement of a Delaware attorney.  Neither that 
Board decision nor our order upholding it helps the Hancocks, because neither 
decision determined that the absence of Delaware counsel operates to invalidate, or 
to render unenforceable, the underlying transaction against the mortgagors who 
receive the benefit of the loan.  Nor do the facts at bar provide any reason to so 
determine.  The Hancocks received the benefit of the loans and do not dispute that 
they failed to repay them.  The Hancocks were not prejudiced by the non-
participation of an attorney at the settlement.  No evidence was presented at the 
trial showing that the Hancocks did not understand the nature of the transactions or 
their resultant obligations.  The opposite is far more probable, because Mrs. 
Hancock was herself a mortgage broker. 
 
7.  The Hancock’s second claim is that the Superior Court erred in granting 
an in personam judgment against them based on the August 1998 note and 
mortgage, because the August 1998 loan obligation and mortgage were satisfied in 
the November 1998 mortgage refinancing.  Citifinancial does not dispute that the 
                                          
 
1 No. 102, 2000, 2000 Del. LEXIS 243 at *42 (Del. May 31, 2000). 
 
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August 1998 mortgage was satisfied.  Moreover, Citifinancial represented to the 
Superior Court, and to this Court on appeal, that it was not seeking an in personam 
judgment against the Hancocks, but only an in rem judgment against the 
mortgaged property.2  By entering a judgment in personam against the Hancocks 
based on the August 1998 note, therefore, the Superior Court granted relief 
Citifinancial was not asking for, and enforced a legal obligation previously 
satisfied in the November 1998 refinancing.  Accordingly, the Superior Court 
judgment, to the extent that it operates in personam, was erroneously granted. 
 
8.  To the extent that the Superior Court judgment operates in rem against 
the mortgaged property, however, it is legally valid.  The November 1998 
mortgage bore the signatures of Mr. and Mrs. Hancock.  Although both defendants 
denied having signed that mortgage, they conceded in their Affidavit of Defense, 
and the trial judge found, that they owed Citifinancial money, that they had a 
mortgage with Citifinancial, and that the payments made after the November 
refinancing were for the new, lower amount specified in the November transaction 
documents.  Although the trial court questioned the validity of the November 1998 
transaction because Citifinancial’s record keeping was not sufficiently reliable, the 
trial court made no finding that the November 1998 mortgage was invalid.  
Although the Superior Court entered judgment in personam on the August 1998 
                                          
 
2 Citifinancial Answering Brief at 8; A125-126. 
 
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note and in rem on the August 1998 mortgage, presumably it did so because there 
was no dispute that both Mr. and Mrs. Hancock had signed the August 1998 
mortgage document, and Mr. Hancock had signed the August 1998 note.  The trial 
court then proceeded to find Mrs. Hancock liable on the August 1998 note as well, 
on the basis that in the circumstances she was estopped to deny its validity. 
 
9.  The entry of judgment on the August 1998 note and mortgage was 
erroneous, because the rights and obligations created by those instruments had 
been extinguished and superseded by the rights and obligations created in the 
November 1998 refinancing.  As noted, despite the Superior Court’s concerns 
about the November 1998 documents, it made no finding that the November 1998 
mortgage was invalid.  Indeed, the trial court found that the Hancocks were unable 
to explain why their the post-November 1998 payments were in the amounts called 
for by the November 1998 note and mortgage—instruments whose legal validity 
they were denying.  Finally, the interest awarded on the Superior Court judgment 
runs from January 1, 1999, i.e., from and after settlement on the November 1998 
transaction.   
 
10.  We conclude, for those reasons, that the Superior Court determined—in 
our view correctly—that the November 1998 mortgage was valid and enforceable, 
and that the amount of the underlying principal obligation (which because of the 
flawed record keeping had to be determined from extrinsic evidence) was the 
 
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$215,367.18 that the Hancocks admitted having borrowed in August 1998, less all 
payments made by them, plus interest on the balance and attorney’s fees. 
 
NOW, THEREFORE, IT IS ORDERED, that the judgment of the Superior 
Court is AFFIRMED to the extent it operates in rem; is REVERSED to the extent 
that it operates in personam and recites that it is based on the August 1998 note 
and mortgage; and the case is REMANDED to the Superior Court to modify and 
correct the judgment consistent with the rulings made herein. 
 
 
 
 
BY THE COURT: 
 
 
 
 
 
 
 
 
/s/ Jack B. Jacobs      
 
 
 
                   Justice