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In re Carol Engen

Summarizing by Bradley Pearce

Desmond v. Green

Desmond v. Green, (In re Harborhouse of Gloucester, LLC) BAP No. MB 14-013, MB 14-014
The BAP upheld the bankruptcy court ruling that because a note secured by a mortgage had been lost, Green, the purported holder of the lost note and mortgage (through transfer) had no right to enforce the note or foreclose. The Bankruptcy Court and BAP determined that under section 3-309 of the Massachusetts UCC, a lost note could not be transferred to a third party because a party had to have possession of the note to foreclose or enforce the note; the holder of the note remained the party that had the right to enforce the note at the time that the note was lost. Even though Green did not have possession of the note, Green remained the valid holder of the mortgage. The Bankruptcy Court, affirmed by the BAP, determined that the mortgage could be transferred separately from the note. As holder of the mortgage, Green and not the trustee was entitled to the proceeds from the sale of the property securing the mortgage. Green held the proceeds in trust for the actual holder of the lost note.
Procedural context:
Desmond, the bankruptcy trustee, challenged the mortgage held by Green through an adversary proceeding. The bankruptcy court decision arose from cross motions for summary judgment.
Harborhouse, LLC (the "Debtor") purchased a property that was encumbered by a mortgage, which secured a promissory note. The holder of the promissory note and mortgage lost the note. The holder of note transferred the mortgage, along with a copy of the note and affidavit of lost note. The Debtor filed for bankruptcy. While in bankruptcy, the property securing the mortgage was sold and the Trustee for the bankruptcy estate filed an adversary proceeding, against the transferee of the note, to avoid the mortgage secured by the property.
Lamoutte, Deasy and Kornreich

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