Can a Lender Still Enforce a Debt if They Don't Have the Promissory Note?

A promissory note is a written promise to pay a creditor money. The note spells out the amount of money and the terms and time for repayment. Notes are called negotiable instruments because the creditor can sell them to someone else: Whoever holds the note has the right to ask the debtor for payment. It's possible for someone to "enforce" a note -- collect on the debt -- without possessing the instrument.

UCC

The Uniform Commercial Code spells out the requirements for individuals and businesses to enforce a missing note. The note must be unavailable because it's lost, destroyed or stolen, not because someone else has become the legitimate holder. The person collecting the debt must either have been entitled to enforce the note when it went missing, or have acquired the right after the disappearance. That person must prove she has a right to enforce it; establish the terms of the note; and protect the debtor against someone else enforcing the note.

Affidavits

Some notes include provisions that the borrower must execute and sign an identical, new note, if the lender presents evidence the original has disappeared or been destroyed. Alternatively, the note-holder can execute an affidavit affirming the note's existence and his right to enforce it. The affidavit states the nature of the debt and its current value, accounts for the loss of the note and provides assurances that if the original note surfaces, the borrower doesn't have to pay twice.

Foreclosure

In the 21st century's foreclosure boom, a number of foreclosure cases have hinged on whether the mortgage lender or servicer can prove its right to enforce the mortgage promissory note. As mortgage loans became "securitized" -- traded like stocks -- keeping track of the notes has become more difficult. Judges in several cases have halted foreclosures on the grounds that the company foreclosing can't prove its right to enforce the note. Some judges have insisted the lender present the original note in court.

Considerations

Even if a promissory note goes missing, that doesn't erase the debt the borrower owes. In some states, such as California, a mortgage lender can use a deed of trust to foreclose even without the original note. The best way to avoid confusion over ownership of the note is to minimize the risk of loss: Note-holders should treat promissory notes as they would any valuable document, and hold them somewhere secure. If the note disappears, the holder should make an effort to find it before resorting to affidavits.