A Missing Massachusetts Promissory Note's Outsized Potential Impact on Foreclosures

In Zullo v. HMC Assets, LLC, the Massachusetts Land Court has issued a judicial about-face in deciding that a mortgage holder lacks standing to foreclose if that holder never possessed the mortgagor's original promissory note – even if that holder can submit a lost note affidavit from a predecessor holder. In a written decision issued in August 2014, the Land Court determined, in the very same case, that the mortgage holder could foreclose without possession of the original promissory note but with a lost note affidavit executed by a prior loan servicer. The 2014 Zullo decision directly contradicted two decisions arising out of the Massachusetts bankruptcy court, Desmond v. Raymond C. Green, Inc., 505 B.R. 365 (Bankr. D. Mass. 2014); Marks v. Braunstein, 439 B.R. 248 (Bankr. D. Mass. 2010), both of which concluded that under Massachusetts law, the foreclosing mortgage holder must have at one point possessed the original note, so that it can execute the lost note affidavit.

So why the about-face? On review, the Land Court was not without justification in reversing course by relying on the provisions of Uniform Commercial Code (UCC) adopted under Massachusetts law. Here is the issue: UCC § 3-309 addresses the ability of a note holder to execute a lost note affidavit to enforce the debt. Massachusetts has adopted the 1990 version of 3-309, which requires the same party that is seeking to enforce the instrument through lost note affidavit to demonstrate actual possession of the note at the time of the loss. Like the majority of other states, Massachusetts has not yet adopted the 2002 version of 3-309, which eliminates the requirement that the same person seeking to enforce the lost note must have also had possession of the original note. Instead, the 2002 version of 3-309 allows the person seeking to enforce the lost note to have "directly or indirectly acquire[d] ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred." In other words, a person or entity seeking to enforce the note (i.e., the party with standing) can rely on a predecessor's lost note affidavit – which is not the case under the 1990 version of 3-309.

Reading this, one might assume that Massachusetts is an outlier jurisdiction in relying upon antiquated 1990 version of the UCC. While that may be true, the Land Court noted that only 18 states and the District of Columbia have adopted the 2002 amendment. Is your state one of the 32? Alaska, Arizona, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maine, Maryland, Massachusetts, Missouri, Montana, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming.