Original Promissory Note Lost—Lender Satisfied UCC 3-804 and Entitled to Judgment
October 31, 2017
By Scott E. Mollen
A lender moved for a summary judgment and an order of reference. “Generally, in moving for summary judgment in an action to foreclose a mortgage, a plaintiff establishes its prima facie case through the production of the mortgage, the unpaid note [‘note’], and evidence of default.” The court explained that “[n]otwithstanding failure to produce the original …note[], the [holder] could still recover pursuant to UCC 3-804, which deals with lost, destroyed or stolen instruments and requires the requesting party to prove ownership of the note[], the circumstances of the loss and [the note’s] terms.”
When a defendant challenges the plaintiff’s standing, the plaintiff must present “evidence that it was the holder or assignee of the subject mortgage and underlying note at the time the action was commenced…. Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident.”
The plaintiff had made “a prima facie showing of its entitlement to judgment as a matter of law by producing a copy of the mortgage, evidence of the lost note and its terms, and a note & mortgage purchase agreement that sets forth the date of defendant’s default. With respect to the lost note, plaintiff submitted an allonge to prove ownership, a recital in the mortgage that details the terms of the note including the total amount owed and the term of the loan, and lost note affidavits to account for the note’s loss.”
The court found that the plaintiff met the requirements of UCC §3-804 and had “sufficiently defeated any triable issues with respect to the note’s existence, terms, and whereabouts.” The plaintiff had also “established its standing by the allonge, which endorsed the note to plaintiff.”
The defendant argued that the mortgage was “void ab initio because the original mortgagees acted as trustees for the property owner, who did not authorize the property’s transfer to defendant.” The court rejected such argument, citing the defendant’s “conduct in accepting the benefit under the note and mortgage and in making seventeen payments on the loan such that he waived any right he may have had to repudiate it.”
The defendant had also asserted that his covenant to pay was “subject to a condition precedent,” i.e., compliance with a mortgage rider. The court found that “the terms of the …rider concern payment of the full loan balance upon certain conditions, and is irrelevant to the present case.” The court also rejected the defendant’s arguments with respect to consideration and fraud. The court granted the plaintiff’s motion for summary judgment and for an order of reference.
Comment: Attorney for the lender, Adam Leitman Bailey, stated, inter alia, that this case demonstrates that “notwithstanding [the] failure to produce the original promissory note[], the [holder] could still recover pursuant to UCC 3–804, which deals with lost, destroyed or stolen instruments and requires the requesting party to prove ownership of the note[], the circumstances of the loss and [its] terms.” Mr. Bailey also noted that the borrower’s assertion that the mortgage was void ab initio, was rejected because the borrower reaped the benefits under the note and mortgage, had made 17 payments on the note without objection and had thereby ratified the note and waived any right to repudiate obligations thereunder. The borrower filed a notice of appeal.