Based upon a recent decision of the Massachusetts Appeals Court, a Lender’s inability to produce an original, or a copy, of a promissory note secured by a mortgage may impair the Lender’s ability to foreclose upon its mortgage.

In J.P. Morgan Chase v. Carlo Casarano, Doc. 11-P-2 (Mass. App. Ct. Feb. 2012), two Lenders held separate mortgages on a property in Boston. Twenty years after the initial financing, the first mortgage-holder sought to prove that the second mortgage was unenforceable. The second mortgage-holder, who had been assigned the mortgage several years earlier, was unable to locate the original promissory note and could not produce a copy of it. Nevertheless, the second mortgage-holder argued that the mortgage alone was sufficient to prove the existence of the debt. Both the Massachusetts Land Court and the Massachusetts Appeals Court disagreed.

Even though the mortgage instrument contained some of the terms of the debt, the Appeals Court focused on the legal distinction between a promissory note and a mortgage. A promissory note is a contract, and in order to be actionable, its material terms must be ascertainable. A Massachusetts mortgage, on the other hand, is a conveyance of an interest in real property, and the Court was reluctant to treat it as a contract even though it was signed, identified the parties and specified the amount of the secured debt and the interest rate. The Court noted that many other essential terms of the promissory note, such as the term of the promissory note and whether the promissory note was executed under seal (which increases the statute of limitations from six years to twenty), could not be determined. The decision leaves open the possibility, however, that even where an original promissory note is lost, a copy of the promissory note may be sufficient to establish the Lender’s rights.

Overall, this case highlights that good record-keeping is essential in the mortgage and foreclosure contexts, and this rule extends not only to the mortgages themselves, but also to the promissory notes they secure.