It seems logical enough.  A lender makes a loan and requires the borrower to execute a promissory note and secures the note with a lien on collateral.  The lender tucks the promissory note away in a file, and moves on to the next deal.  The borrower is not going to go into default, right?

Then a default occurs, and the lender scurries, looking for the original note.  But notes are misfiled or files are mislaid.  A recent decision of the Massachusetts Appeals Court raises questions about faulty record keeping and the ability of the lender to realize upon its collateral or even collect on the note.

In J.P. Morgan Chase v. Carlo, the Appeals Court was asked to decide whether the holder of a mortgage, who was unable to locate either the original note or a copy of it, had a valid lien.  The Court declined to find the debt enforceable, instead finding that “[t]he terms of the …..mortgage, now the only documentary evidence, are insufficient as a matter of law to demonstrate the existence, much less the amount, of a current debt.”  Without an enforceable note, the Court concluded, the mortgage was not enforceable.

This case serves as an important reminder to all lenders to maintain proper record keeping.  For questions about any secured lending or transactional matters, contact Craig A. Ciechanowski, Esq. or one of the real estate or business attorneys at Doherty, Ciechanowski, Dugan & Cannon, P.C.