No Signatures, No Promissory Notes, No Problem
February 07, 2009
Has your lending institution lost its promissory note? Is the defaulting mortgagee claiming she did not sign the mortgage? As explained in Bonilla v. Commercial Services, 2009 Ind. App. LEXIS 112 (Bonilla.pdf), all may not be lost.
History. In the mid-1980’s, husband arranged for two loans that were secured by real estate upon which a gasoline service station operated. The mortgages contained the signatures of both husband and wife as co-mortgagors. Husband died in 1991. The mortgagee filed a foreclosure action against wife in 2000. Wife lost at trial, and appealed. Her appeal centered on two arguments: (1) she did not sign the subject mortgages and (2) the plaintiff (mortgagor) failed to produce the underlying promissory notes.
Signatures. Wife claimed that she adequately established her non-participation in the mortgage executions. She even submitted handwriting samples to contest the alleged signatures. The trial court found the samples to “clearly show a distinct difference between the signatures of wife in the exemplars and the purported signature of wife on the mortgages.” Wife’s purported signatures on the mortgages, however, were notarized, which created a presumption that wife signed them. Ind. Code § 33-42-2-6 provides that the “official certificate of a notary public, attested by the notary’s seal, is presumptive evidence of the facts stated in cases where, by law, the notary public is authorized to certify the facts.” The trial court concluded that wife’s evidence was inadequate to rebut the presumption, and the Indiana Court of Appeals affirmed. Significantly, the trial court found that wife admitted she knew of the debts and of her husband’s unsuccessful attempts to settle them before his death. Furthermore, she made no effort during any of the intervening twenty years to either set aside the mortgages, to quiet title to the property or to return any of the funds associated with the mortgages. Finally, wife admitted at trial that she benefited from the funds received from the loans associated with the mortgages.
Damages. Wife’s second argument on appeal was that the trial court erred in determining the damages owed. The mortgages had been submitted into evidence, but the promissory notes were not. Based upon the Indiana Supreme Court’s decision in Yanoff v. Muncy, 688 N.E.2d 1259 (Ind. 1997) and I.C. § 26-1-3.1-309 "Enforcement of lost, destroyed, or stolen instrument", the notes’ absence was not a bar to recovery. In Indiana, a plaintiff in a foreclosure action does not necessarily need to produce the promissory note to recover the debt. The debtor in Yanoff provided testimony of the essential terms of the debt, such as the amount of the original debt, the interest rate, the existence of a mortgage securing the debt, and the schedule of payments. Such evidence, according to Yanoff, was “enough to prove both the existence of the promissory note underlying the mortgage and its essential terms.”
In Bonilla, the Court of Appeals found that the record contained undisputed evidence establishing the terms, dates, amounts of, and interest rates on the two mortgages. Wife also conceded that no payments had been made on the mortgages since they were executed over twenty years ago. Even though the Court did not have the precise terms of the notes, there was a reasonable inference to draw from the evidence submitted at trial “that the failure to make a single payment on the notes in over twenty years is an event of default.”
Wife lost the case, even though she presented fairly strong evidence that she did not sign the mortgages and even though the plaintiff mortgagee was unable to produce the promissory notes. In the end, Indiana law allowed the mortgagee in Bonilla to dodge a bullet.