August 13, 2026
Written by: Stern & Eisenberg Associate Attorney, Daire Pyle, Esquire
On June 1, 2023, the Superior Court of Delaware rendered a landmark decision in REO TRUST 2017-RPL1 v. SHORT SALE, LLC, 2023 WL 3774654, regarding the priority of payment of mortgages when a property is sold at sheriff sale. This decision has had a tremendous effect on the Delaware foreclosure industry as well as bank lending practices and lending assessments. In prior years, if a second mortgage holder brought a property to sale, the second mortgage holder would be paid from the proceeds of the sale in order to apply the proceeds against the outstanding debt owed, and the first mortgage would survive the sale. The buyer at the sale would take the property subject to the first mortgage. The REO Trust decision disagreed with the previous method, and held that no matter who brings the property to sheriff sale, mortgage liens are paid in the priority in which they were recorded. Payment through priority essentially eviscerates the incentive of banks to lend on a second mortgage, because they would be paid after the first mortgage holder, even if the second mortgage holder was the entity to bring the property to sale. The parties in the REO Trust lawsuit appealed the Superior Court June 1, 2023 Order, and the Delaware Supreme Court heard oral argument in 2024. The Delaware Supreme Court remanded the case down to the Superior Court, and the Superior Court has recently issued a second Order following the remand dated May 28, 2026. The Superior Court did not waiver from their previous decision and again held that mortgages must be paid in the priority in which they are recorded, regardless of who brings the property to sale. One interesting caveat to this ruling is that the Superior Court will allow a property to be sold subject to a first mortgage, if the sale is “noted to be sold subject to the first mortgage.” At this time, it is unclear whether the Court requires that language be included in the Complaint, whether that language must be put in the judgment, or if an announcement at the sheriff’s sale would meet the “sold subject to” analysis. To add to the confusion, the 3 Delaware counties are interpreting the REO Trust decision differently, and there is no uniform approach on how to deal with these issues. If you have any questions or concerns regarding the ever-changing Delaware foreclosure landscape, please feel free to contact Stern and Eisenberg at de_foreclosure@sterneisenberg.com.