The 'Not So Simple' Lost Note Affidavit

Tuesday, December 12, 2023

Given the current economic climate, it is not uncommon that a loan originated many years ago is now about to be sold to a third-party and/or is in default and will soon be the subject of legal proceedings. In either scenario the note holder will need to look for the original promissory note (the “Note”) and one of two things will happen: the original Note will be found and the note holder will breathe a sigh of relief, or the note holder will be unable to locate the original Note and wonder: “Now what?” The answer to “Now what?” is that a lost note affidavit (the “LNA”) will need to be prepared and, while the drafter’s initial reaction might be that the task is simple and straightforward, it can prove to be a bit challenging, as discussed below.

Of all the documents executed in connection with a loan transaction, the negotiable instrument, commonly known as the promissory note, is indispensable. Under Article 3 of the Uniform Commercial Code, a negotiable instrument is a document that must “(a) be signed by the maker or drawer; and (b) contain an unconditional  promise  or  order  to  pay  a  sum certain  in  money and no other promise, order, obligation or power given by the maker or drawer except  as  authorized by this Article; and (c) be payable on demand or at a definite time; and (d) be payable to order or to bearer.”[1] The original Note has intrinsic value and must be safeguarded.  

When a default occurs under a loan or a loan matures without payment, a note holder may judicially seek to recover on the debt reflected in the Note. In a mortgage foreclosure action, for example, the note holder will first move for summary judgment. In doing so, the note holder “establishes its prima facie case through the production of the mortgage, the unpaid note, and evidence of default.”[2] While the Note and mortgage underpin any foreclosure action, the New York Court of Appeals has held that under New York law “the note, and not the mortgage, is the dispositive instrument that conveys standing to foreclose.”[3] “A plaintiff has standing in a mortgage foreclosure action when it is either the holder or assignee of the underlying note at the time the action is commenced.”[4] A holder is defined as the person in possession of a negotiable instrument either payable to the bearer or an identified person who is the person in possession.[5]

What happens when a note holder seeking to foreclose is not in possession of the original Note at the time the action is commenced because it has been lost? In this instance, and if defendant/obligor places standing in issue, plaintiff/note holder must establish standing by demonstrating that “the original note was physically delivered to it prior to the commencement of the action.”[6] However, if the original Note was lost, then plaintiff/note holder must seek cover under U.C.C. § 3-804, which provides a method for recovery on lost, stolen or destroyed instruments upon the establishment of “proof of [plaintiff’s] ownership, the facts which prevent [its] production of [the note,] and its terms.”[7]

The terms of the original Note can easily be proved through a copy of the Note. The ownership and prevention of production elements are more difficult. To be sure, in the case of Wells Fargo Bank, N.A. v Meisels, Wells Fargo commenced a foreclosure action against Chaim M. Meisels and Board of Directors Congregation Khal Binyan David D'Ihel under a mortgage and note in the principal amount of $333,700.00 payable to Florida Bank, N.A. Because Wells Fargo could not produce the original note, it proceeded under U.C.C. § 3-804 to prove its status as the note holder. The court held that summary judgment was improperly entered in Wells Fargo’s favor because the bank’s lost note affidavit failed to establish Wells Fargo’s ownership of the lost promissory note or that it had standing as the lawful holder of the subject note. The court explained that Wells Fargo’s lost note affidavit was stated “vaguely, and in a conclusory manner”[8] and did not contain any details as to the delivery of the note other than the claim it was delivered to Wells Fargo sometime after its execution.[9] The lost note affidavit also averred only that the note was “inadvertently lost, misplaced or destroyed,” that Wells Fargo did not pledge or assign the note, and that diligent efforts were made to replace the note.[10] Critically, the court concluded the lost note affidavit needed to set forth facts as to “when the search for the note occurred, who conducted the search, or when or how the note was lost.”[11] Because the lost affidavit did not contain any of these facts, the court held that Wells Fargo failed to establish its ownership of the note or that it physically received the original note prior to the commencement of the action.[12]  Similarly, the court in Deutsche Bank National Trust Co. v. Anderson declined to find that the proffered affidavit complied with U.C.C. § 3-804 where it did not “provide sufficient facts as to when the search for the note occurred, who conducted the search, the steps taken in the search for the note, or when or how the note was lost.”[13]

What then would be the case in an action involving multiple consolidated notes? In Wells Fargo Bank, N.A. v. Ho-Shing, the court held that possession of the original consolidated note is sufficient to validate a foreclosure action.[14] There, defendant/obligor appealed to reverse the lower court’s summary judgment order entered in favor of Wells Fargo arguing, among other things, that Wells Fargo did not have standing to maintain the action because it did not produce the original 2005 note from Fremont that was later negotiated to Wells Fargo and consolidated with the Wells Fargo note.[15] The court stated it was undisputed that Wells Fargo had physical possession of the original consolidated note and that, by its terms, the consolidated note and consolidated mortgage superseded all prior instruments and documents. As such, the original consolidated note was, without more, sufficient to establish Wells Fargo’s standing in the action.

To reference an old proverb: “an ounce of prevention is worth a pound of cure”. That said, note holders should make certain that they have in place practices and procedures to ensure that original Notes are safeguarded so that reliance on an LNA is not necessary. However, if an LNA is required, note holders must confirm that the LNA asserts facts sufficient to satisfy the requirements of U.C.C. § 3-804, especially the facts surrounding the conduct of the search, which are typically more difficult to gather due to the passage of time—during this time the original Note likely changed hands, responsible personnel turned-over and memories faded.


If you would like to discuss this article, please contact Robert J. Malatak, Michele Arbeeny, Maria Zachariadis or your Windels Marx relationship lawyer.


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[1] U.C.C. § 3-104.

[2] Deutsche Bank Natl. Trust Co. v. Abdan, 16 N.Y.S.3d 459, 459 (2d Dep’t 2015).

[3] Aurora Loan Servs., LLC v. Taylor, 25 N.Y.3d 355, 361 (2015).

[4] Wells Fargo Bank, N.A. v Meisels, 111 N.Y.S.3d 706, 709 (2d Dep’t 2019).

[5] U.C.C. § 1-201(b)(21)(A).

[6] Meisels, 111 N.Y.S.3d at 709.

[7] Id. at 709 (citations and quotations omitted).

[8] Id.

[9] Meisels, 111 N.Y.S.3d at 709.

[10] Id.

[11] Id. (emphasis added).

[12] Id.

[13] Deutsche Bank National Trust Co. v. Anderson, 79 N.Y.S.3d 42, 44 (2d Dep’t 2018). Compare with Wheatley Harbor LLC v. Dewey, 190 N.Y.S.3d 906, 915 (Sup. Ct., Suffolk County, 2023) (court holding that affidavit complied with U.C.C. § 3-804 where “[t]he facts clearly establish that: (1) [holder] acquired the Note; (2) the reason that the Note became lost; (3) that [holder] searched for the Note without success; and finally, (4) that [holder] did not transfer the Note”).

[14] Wells Fargo Bank N.A. v Ho-Shing, 92 N.Y.S.3d 194, 198 (1st Dep’t 2019).

[15] Id.