Over the last decade or so, many Nevada borrowers faced with foreclosure of their residences have objected to foreclosure proceedings because the lender does not hold the original promissory note. In Jones v. U.S. Bank National Association, 136 Nev. Adv. Op. 16 (April 2, 2020), the Nevada Supreme Court held in a case of first impression that a lender who does not hold the original promissory note may proceed with foreclosure proceedings upon submission of a lost note affidavit and other evidence demonstrating that the lender is entitled to enforce the lost promissory note.
In Jones, Jones obtained a loan encumbering residential property from a mortgage company that later filed for bankruptcy. That loan was assigned to U.S. Bank, but the underlying promissory note appears to have been lost. U.S. Bank commenced judicial foreclosure proceedings and moved for summary judgment. In support of its motion for summary judgment, U.S. Bank attached a lost note affidavit prepared by the loan servicer. The lower court granted U.S. Bank’s motion for summary judgment, thereby holding that U.S. Bank was entitled to enforce the lost note and foreclose on its real property collateral.
When affirming the lower court, the Nevada Supreme Court held that a party is entitled to enforce a promissory note or other instrument where the original has been lost or destroyed under the Uniform Commercial Code. Id. at 4 (citing NRS 104.3309(1)). In order to enforce a lost promissory note, the person seeking to enforce it bears the burden of demonstrating by a preponderance of evidence that: “(1) the party was entitled to enforce it when possession was lost or it acquired ownership from a prior owner who was entitled to enforce it when it was lost, (2) possession was not lost due to transfer or lawful seizure, and (3) the enforcing party cannot reasonably obtain possession of the note because it was destroyed, cannot be located, or is wrongfully possessed by an unknown person or a person who cannot be found or is not amenable to service.” Id. In addition, the party seeking relief under this procedure must demonstrate that the payor is “adequately protected from claims on the note by a third party.” Id. at 5.
Jones is likely good news for lenders and their assignees because it clarifies what they need to demonstrate in order to enforce promissory notes that have been lost or destroyed. But, some cases involving lost promissory notes may require the lender to judicially foreclose on its collateral–a process that is more expensive than common nonjudicial foreclosure proceedings and is accompanied with a right of redemption.