Missing Promissory Note Renders Residential Mortgage Unenforceable

This case involves a woman who executed a mortgage with a valuation of $10,108,000 to finance her purchase of property. The woman also executed a second mortgage for $1,501,433 in favor of one of the sellers. An extended series of re-financing transactions took place over the next 18 years and the first mortgage was repeatedly discharged and replaced by another, the last of which was assigned to a certain bank. Shortly after the woman purchased the property, while the first mortgage was still held by the original mortgage company, the seller assigned the second mortgage to a realty trust company. At some point, the promissory note relating to the second mortgage was lost. The second mortgage itself stated the amount of debt the mortgage secured and the interest rate but did not state additional terms such as the payment schedule, default terms, assignability, whether the note was under seal, or whether the instrument was a demand or term note and, if the latter, the maturity date. The bank that the first mortgage was assigned to eventually realized that due to the lack of recorded subordination, the second mortgage was senior to the first mortgage. The woman sought a judgment in Land Court to establish the seniority of the first mortgage.

Question(s) For Expert Witness

1. Can a mortgage be enforced when the underlying promissory note securing the mortgage is lost?

Expert Witness Response

This case involves an “equitable subrogation” action. This means that the title insurance network company was probably required to step in and ask the court to rearrange the priorities of the mortgages due to mistake or inadvertence. The second mortgage holder probably tried to claim that enough of the terms of the missing note could be “imported” from the second mortgage. Usually, it is held in these types of cases that there is not enough specificity on key terms to enforce the mortgage. This means that a mortgage, such as the second mortgage in this case, without sufficient evidence of a promissory note is rendered unenforceable and un-foreclosable. This is usually the rule because in these types of cases, there may be some evidence that the promissory note required monthly payments and that the debt was subject to an interest rate. Whether the promissory note was payable on demand for specific terms cannot be ascertained and also there may not be evidence of any terms that could show whether the debt was in default. Since the terms of the second mortgage are insufficient to demonstrate the existence or amount of a current debt, the second mortgage in this case is probably not a valid, enforceable contract.