505 B.R. 365
Bankr. D. Mass.2014Background
- Harborhouse of Gloucester, LLC ( debtor ) acquired property at 90 Rantoul St., Beverly, MA in 2004, assuming the existing mortgage and note.
- The Mortgage secures a promissory Note originally for $360,000 executed by Timothy Murphy for Hansbury’s 90 Rantoul Real Estate Trust.
- Hansbury purportedly assigned the Note to CPIC in 2006, but the original Note was lost; Hansbury filed a Lost Note Affidavit stating possession, loss, and transfer terms to CPIC.
- CPIC thereafter assigned the Note and Mortgage to Green to secure a $150,000 loan; the balance on the Note at transfer per the allonge was $602,557.73.
- The debtor filed for Chapter 11 in 2010, later converted to Chapter 7; Green filed a proof of claim securing against the Property; MDOR also filed a secured claim.
- The Property was sold at auction in 2012 for $245,000, with liens including Green’s and the MDOR’s claims remaining attached to the sale proceeds.
- The Trustee challenged Green’s secured claim, arguing the Note was unenforceable and CPIC/Green had no enforceable rights; Green argued he could enforce under the Lost Note Affidavit or, at least, enforce the Mortgage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a lost-note affidavit permits enforcement of the Note | Green, as holder of the Lost Note Affidavit, may enforce or succeed to enforce. | Trustee requires possession at loss; Massachusetts §3-309(a) demands possession to enforce. | Green cannot enforce the Note; possession at loss is required under Massachusetts §3-309. |
| Whether the Mortgage can be enforced if the Note is unenforceable | Green can enforce the Mortgage as the assignee of the Mortgage. | Without an enforceable Note, the Mortgage is unenforceable as to foreclosure. | Mortgage cannot be foreclosed by Green; however Green may receive proceeds as mortgagee, held in trust for the true note holder. |
| Whether the Mortgage and Note can be treated as independent instruments for enforcement | Note and Mortgage are inseparable; if Note unenforceable, Mortgage fails too. | Mortgage and Note can transfer separately; mortgage persists as security independent of possession of Note. | Note and Mortgage exist on separate planes; mortgage can transfer independently; but enforcement depends on the Note. |
| Disposition of Count V (lien preservation) and Count VI (turnover) | If lien preserved, Count V valid; turnover should follow. | Lien preservation under §551 is contingent; turnover depends on lien status. | Count V dismissed; summary judgment for Green on Count VI to extent affected by lien preservation; Green must hold proceeds for true note holder. |
| Status of joinder of Hansbury as a party | Hansbury may be joined as a party. | Not essential at this stage; subject to separate motion. | Joinder addressed if a separate motion is filed; not resolved here. |
Key Cases Cited
- Marks v. Braunstein, 439 B.R. 248 (D. Mass. 2010) (applies Joslin holding to § 3-309, requires possession and entitlement to enforce before loss)
- Eaton v. Fed. Nat. Mortgage Ass’n, 969 N.E.2d 1118 (Mass. 2012) (mortgage and note are distinct; mortgage can be assigned independently of note)
- Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282 (1st Cir. 2013) (noteholder’s equitable right to assignment; mortgage remains subject to the note)
- In re Gavin, 319 B.R. 27 (1st Cir. BAP 2004) (possession protects debtor against competing claims; supports enforceability framework under §3-309)