RENDERED: APRIL 16, 2021; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2019-CA-1007-MR
JOEL D. HOUSE AND MONICA APPELLANTS
HOUSE
APPEAL FROM JEFFERSON CIRCUIT COURT
v. HONORABLE ANN BAILEY SMITH, JUDGE
ACTION NO. 14-CI-400031
DEUTSCHE BANK NATIONAL APPELLEE
TRUST, AS TRUSTEE FOR WAMU
SERIES 2007-HE1 TRUST
OPINION
AFFIRMING
** ** ** ** **
BEFORE: CLAYTON, CHIEF JUDGE; TAYLOR AND L. THOMPSON,
JUDGES.
TAYLOR, JUDGE: Joel D. House and Monica House (the Houses) bring this
appeal from a June 19, 2019, Amended Judgment and Order of Sale granting
summary judgment in favor of Deutsche Bank National Trust, as Trustee for
Wamu Series 2007-HE1 Trust, (Deutsche Bank). We affirm.
This is a residential foreclosure action. The primary dispute in this
appeal centers upon whether Deutsche Bank can enforce a promissory note where
the original note has been lost. The underlying facts of this case are somewhat
complex, and we will only recite those facts necessary to resolution of this appeal.
BACKGROUND
On December 8, 2006, Joel House (Joel) executed a promissory note
in the principal amount of $303,000 and made payable to the lender, Washington
Mutual Bank (Washington Mutual).1 The promissory note was secured by a
mortgage upon real property located in Louisville, Kentucky (mortgage), owned by
the Houses. The mortgage was executed by the Houses on December 8, 2006, in
favor of Washington Mutual.2
According to Deutsche Bank, the promissory note was thereafter
transferred to it by Washington Mutual on December 1, 2007. Upon transfer,
Washington Mutual became the loan servicer for Deutsche Bank and retained
possession, as agent for Deutsche Bank, of the promissory note. Later, Deutsche
Bank obtained the mortgage by an assignment dated May 22, 2008, from
Washington Mutual. Under the assignment, Washington Mutual “transfer[red]”
1
We will refer to the December 8, 2006, promissory note as either the promissory note or the
lost promissory note throughout this Opinion.
2
Both Joel David House and his wife, Monica House (the Houses), executed the December 8,
2006, mortgage as collateral for the loan; however, Joel solely executed the December 8, 2006,
promissory note.
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and “assign[ed]” a “mortgage dated 12/13/2006 executed and delivered by [the
Houses] . . . together with the promissory note.”3 This assignment was recorded
with the Jefferson County Clerk on May 30, 2008.
Subsequently, on July 1, 2008, Deutsche Bank and the Houses entered
into a Loan Modification Agreement. The Loan Modification Agreement adjusted
the principal balance, monthly payment, and interest paid by the Houses.
Additionally, the Loan Modification Agreement specifically listed Deutsche Bank
as “note holder and mortgagee.”
In October 2008, JP Morgan Chase Bank (Chase Bank) acquired all
loans and loan commitments from Washington Mutual. It is at this time that the
Houses believe Chase Bank was transferred the promissory note from Washington
Mutual. Conversely, Deutsche Bank claims that Chase Bank merely became the
loan servicer for the promissory note at this time.
Joel apparently was unable to make the monthly payments as required
by the promissory note. As a consequence, the Houses executed a Home
Affordable Modification Trial Period Plan on September 1, 2009. In the Home
3
The mortgage was actually signed and dated December 8, 2006, and recorded in the Jefferson
County Clerk’s office on December 13, 2006. The mortgage was assigned to Deutsche Bank
National Trust, as Trustee for Wamu Series 2007-HE1 Trust, (Deutsche Bank) by assignment
dated May 22, 2008.
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Affordable Modification Trial Period Plan, the lender was identified as “JP
Morgan Chase Bank, NA, Successor to Washington Mutual Bank.”
More than two years later, on June 29, 2012, the Houses and Chase
Bank entered into another agreement – the Home Affordable Modification
Agreement. Relevant herein, under the Home Affordable Modification
Agreement, Chase Bank is identified as the lender or servicer. The agreement was
effective July 1, 2012.
On January 9, 2014, Deutsche Bank filed a complaint for foreclosure
against the Houses in Jefferson Circuit Court. Therein, Deutsche Bank asserted:
FIRST CLAIM FOR RELIEF
3. [Deutsche Bank] is entitled to enforce the Note
executed by Defendant Joel David House, AKA Joel D.
House (hereinafter referred to as “Maker”). . . .
4. The original obligations of the Note have been
modified by the parties by a [sic] written agreements
(herein after referred to as “Agreements”). . . .
5. Maker has defaulted under the obligations of the
Note and Agreements by, among other things, failing to
pay the required monthly payments of principal and
interest.
6. [Deutsche Bank] has satisfied all conditions
precedent and declared the entire debt referenced above
due and payable. The current principal amount due is
$268,724.07, plus interest on the outstanding principal
balance at the variable rate as set forth by the step rate
loan modification from July 1, 2013[,] until paid, and the
deferred principal amount of $103,348.00, plus late fees,
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costs, attorney’s fees, and other advances made pursuant
to the terms of the Note and Agreements.
SECOND CLAIM FOR RELIEF
7. [Deutsche Bank] incorporates the allegations of the
First Claim for Relief as if fully set forth herein.
8. The Mortgage executed by Defendant Joel David
House, AKA Joel D. House and Defendant Monica Lynn
House, AKA Monica L. House (hereinafter referred to as
“Mortgagors”) was given to secure payment of the
above-described Note. . . .
9. The Mortgage was recorded December 13, 2006[,]
[at] Mortgage Book 10448, Page 0577, Jefferson County,
Kentucky records. Except for real property estate taxes
and assessments, the Mortgage constitutes a valid first
lien against the real property commonly known as 9415
Rockycreek Lane, Louisville, KY 40299 . . . .
10. The terms and conditions of the Mortgage have been
broken and become absolute, and [Deutsche Bank] has
declared the entire balance due and payable. All
conditions precedent to [Deutsche Bank’s] ability to
enforce the mortgage have been satisfied, and [Deutsche
Bank] is entitled to have the property sold.
Complaint at 1-3. In its complaint, Deutsche Bank sought to enforce the terms of
the promissory note and claimed that Joel had defaulted thereunder by failing to
make the required monthly payments since August 1, 2013. Deutsche Bank also
alleged that the terms of the mortgage had been breached and sought judicial sale
of the real property.
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The Houses filed an answer. In the answer, the Houses maintained
that Deutsche Bank was not entitled to enforce the promissory note. The Houses
claimed that Deutsche Bank failed to produce the original note and, thus, failed to
demonstrate that the promissory note had been endorsed to enable Deutsche Bank
to seek enforcement thereof. Rather, the Houses believed Chase Bank to be the
holder of the promissory note and solely entitled to enforce it.
Deutsche Bank filed a motion for summary judgment and an order of
sale. Therein, Deutsche Bank admitted that the original promissory note was not in
its possession and was lost. Deutsche Bank claimed it was entitled to enforce the
lost promissory note under Kentucky Revised Statutes (KRS) 355.3-309. The
Houses responded and argued that Deutsche Bank failed to demonstrate the
statutory prerequisites to enforce a lost note pursuant to KRS 355.3-309.
The matter was referred to the master commissioner. In a September
28, 2017, report, the master commissioner recommended that the motion and order
of sale be denied. The master commissioner believed that the promissory note was
lost and that Deutsche Bank failed to satisfy KRS 355.3-309 in order to enforce the
lost promissory note. The master commissioner reasoned:
The [Houses] claim that [Deutsche Bank] has not
established that it has standing to enforce the promissory
note and mortgage. [Deutsche Bank] has not produced
the original note signed by Mr. House, but has filed the
affidavit of Curtis Pulsipher, Senior Vice President of
Select Portfolio Servicing, Inc., servicer for [Deutsche
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Bank], attesting that the note has been “lost, misfiled,
misplaced or destroyed.” The affidavit further attests that
“upon information and belief, the Noteholder [Deutsche
Bank] was the owner of the Note when the loss of
possession occurred and was entitled to enforce the Note
at that time.” Attached to the affidavit is a copy of the
note signed by Mr. House, payable to Washington
Mutual Bank and bearing no indorsement or allonge.
The [Houses] contend that in order to enforce the
note, [Deutsche Bank] must satisfy the requirements of
KRS 355.3-301 by establishing that it is “A person not in
possession of the instrument who is entitled to enforce
the instrument pursuant to KRS 355.3-309 or KRS 355.3-
418(4).” . . .
....
The [Houses] claim that [Deutsche Bank’s] affidavit
does not comply with the statute. Specifically, as the
attached note is not endorsed to [Deutsche Bank], the
affidavit fails to prove that the note was negotiated to
[Deutsche Bank] or otherwise explain how [Deutsche
Bank] may have became a holder of the note. Therefore,
[Deutsche Bank] has not established that it was entitled
to enforce the note when loss of possession occurred.
Additionally, the [Houses] allege that [Deutsche
Bank] failed to establish that its loss of possession of the
note was not the result of a transfer. [Deutsche Bank]
has submitted a loan modification agreement between the
[Houses] and [Deutsche Bank] dated July 1, 2008, and a
home affordable modification trial period plan, dated
September 1, 2009, between the [Houses] and JPMorgan
Chase Bank, NA, successor to Washington Mutual Bank
as “Lender.” The record also contains the affidavit of
Mr. House attesting that he made payments on the note to
JPMorgan Chase Bank. All of this suggests that the note
may have been transferred from [Deutsche Bank] to
JPMorgan Chase Bank.
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A motion for summary judgment shifts the burden to
the opposing party to submit supportive information
establishing that there are material factual issues to be
tried by the Court; more is required than relying upon the
assertion of the pleadings. Lawrence v. Risen, 598
S.W.2d 474 (Ky. App. 1980).
September 28, 2017, Report at 1-3 (footnotes omitted). The circuit court
ultimately denied Deutsche Bank’s exceptions to the master commissioner’s
report.
Deutsche Bank subsequently filed another motion for summary
judgment and order of sale on January 30, 2019. Deutsche Bank again argued that
it was entitled to enforce the lost promissory note under KRS 355.3-309. It
pointed to affidavits as evidence that it fulfilled the requirements of KRS 355.3-
309. In response, the Houses maintained that Deutsche Bank again failed to meet
the requirements of KRS 355.3-309 and was, thus, not entitled to enforce the
promissory note.
By an April 12, 2019, report, the master commissioner recommended
denying the motion for judgment and order of sale. In relevant part, the master
commissioner concluded:
[Deutsche Bank] alleges that the original note cannot be
located. Because of this, [Deutsche Bank] submitted a
Lost Note Affidavit. However, KRS 355.3-309(2)
provides that “[t]he court may not enter judgment in
favor of the person seeking enforcement unless it finds
that the person required to pay the instrument is
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adequately protected against loss that might occur by
reason of a claim by another person to enforce the
instrument. Adequate protection may be provided by
reasonable means.” Thus, [Deutsche Bank] must provide
reasonable adequate protection for Defendant Joel David
House against a claim by another person to enforce the
instrument. [Deutsche Bank] may do this by filing a
motion for the Court to set a bond and tendering a motion
therewith.
April 12, 2019, Report at 1-2. Deutsche Bank filed exceptions to the master
commissioner’s report. Relevant to this appeal, Deutsche Bank alleged that Joel
was adequately protected against a third-party seeking to enforce the lost note and
cited to language in a Lost Note Affidavit of Curtis Pulsipher that had been filed in
the circuit court record in October of 2015.
By report dated May 31, 2019, and filed on June 3, 2019, the master
commissioner recommended that Deutsche Bank’s motion for summary judgment
and order of sale be granted. The master commissioner agreed with Deutsche
Bank “that the indemnification language in the Lost Note Affidavit provides
reasonable and adequate protection” to the Houses as required by KRS 355.3-
309(2). Consequently, the master commissioner concluded that Deutsche Bank
was entitled to enforce the lost promissory note under KRS 355.3-309.
The Houses filed exceptions to the June 3, 2019, report, but same
were denied by the circuit court by order entered June 19, 2019. In a June 19,
2019, Amended Judgment and Order of Sale, the circuit court granted summary
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judgment determining that $438,841.65 was owed upon the promissory note and
ordered the Houses’ real property subject to the mortgage to be sold by the master
commissioner. This appeal follows.
STANDARD OF REVIEW
To begin, summary judgment is proper where there exists no material
issue of fact and movant is entitled to judgment as a matter of law. Steelvest, Inc.
v. Scansteel Service Center, Inc., 807 S.W.2d 476, 482 (Ky. 1991). All facts and
inferences therefrom are to be viewed in a light most favorable to the nonmoving
party. Id. If there are no factual issues, a summary judgment looks only to
questions of law, whereupon we review a trial court’s decision to grant summary
judgment de novo. Blackstone Mining Co. v. Travelers Ins. Co., 351 S.W.3d 193,
198 (Ky. 2011). Our review shall proceed accordingly.
ANALYSIS
The Houses argue that the circuit court erroneously rendered summary
judgment concluding that Deutsche Bank was entitled to enforce the lost
promissory note under KRS 355.3-301 and KRS 355.3-309. For the following
reasons, we disagree and conclude that summary judgment was proper.
I. KRS 355.3-301
Under the Kentucky Uniform Commercial Code, KRS 355.3-301 sets
forth who is regarded as a “[p]erson entitled to enforce” an instrument, as follows:
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(1) The holder of the instrument;
(2) A nonholder in possession of the instrument who has
the rights of a holder; or
(3) A person not in possession of the instrument who is
entitled to enforce the instrument pursuant to KRS 355.3-
309 or KRS 355.3-418(4). A person may be a person
entitled to enforce the instrument even though the person
is not the owner of the instrument or is in wrongful
possession of the instrument.
As Deutsche Bank admittedly is not in possession of the promissory note, the
circuit court concluded that it could enforce the lost promissory note under
subsection (3) of KRS 355.3-301. Thereunder, a person not in possession of the
instrument may, nonetheless, enforce it if such person meets requirements of KRS
355.3-309 or KRS 355.3-418(4).
II. KRS 355.3-309
At issue in this case is KRS 355.3-309 – the lost instrument statute.
KRS 355.3-309 provides:
(1) A person not in possession of an instrument is entitled
to enforce the instrument if:
(a) The person seeking to enforce the instrument:
1. Was entitled to enforce the instrument when loss
of possession occurred; or
2. Has directly or indirectly acquired ownership of
the instrument from a person who was entitled
to enforce the instrument when loss of
possession occurred;
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(b) The loss of possession was not the result of a
transfer by the person or a lawful seizure; and
(c) The person cannot reasonably obtain possession of
the instrument because the instrument was
destroyed, its whereabouts cannot be determined,
or it is in the wrongful possession of an unknown
person or a person that cannot be found or is not
amenable to service of process.
(2) A person seeking enforcement of an instrument under
subsection (1) of this section must prove the terms of the
instrument and the person’s right to enforce the
instrument. If that proof is made, KRS 355.3-308 applies
to the case as if the person seeking enforcement had
produced the instrument. The court may not enter
judgment in favor of the person seeking enforcement
unless it finds that the person required to pay the
instrument is adequately protected against loss that might
occur by reason of a claim by another person to enforce
the instrument. Adequate protection may be provided by
any reasonable means.
To enforce a lost note under KRS 355.3-309, both Section (1) and Section (2) must
be satisfied by the person seeking enforcement thereunder. KRS 355.3-309(1)
permits “[a] person not in possession of an instrument” to, nevertheless, enforce
that instrument provided subsection (a), (b), and (c) are met. We shall analyze
each subsection of KRS 355.3-309(1) seriatim and then review Section (2) of KRS
355.3-309.
(i) KRS 355.3-309(1)(a)
Under KRS 355.3-309(1)(a), a person is entitled to enforce an
instrument if such person either “1. Was entitled to enforce the instrument when
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loss of possession occurred” or “2. Has directly or indirectly acquired ownership of
the instrument from a person who was entitled to enforce the instrument when loss
of possession occurred[.]” And, to determine if a person was entitled to enforce
the instrument when loss occurred within the meaning of KRS 355.3-309(1)(a)1,
we must refer back to KRS 355.3-301. KRS 355.3-301 defines, in relevant part,
the term – person entitled to enforce – as either (1) “The holder of the instrument”
or (2) “A nonholder in possession of the instrument who has the rights of a
holder[.]” We shall initially decide who can be considered a holder of the lost
promissory note pursuant to KRS 355.3-301(1).
Under the Kentucky Uniform Commercial Code, a holder is generally
“[t]he person in possession of a negotiable instrument that is payable either to
bearer or to an identified person that is the person in possession[.]” KRS 355.1-
201(2)(u)1; see also 4 ROBERT W. KEATS, KY. PRAC. Methods of Practice § 5.10
(2020). 4 In turn, for Deutsche Bank to be entitled to enforce the instrument under
KRS 355.3-309(1)(a)1, Deutsche Bank must demonstrate that it had obtained
possession of the promissory note that was appropriately indorsed by Washington
Mutual when loss of possession occurred. KRS 355.3-301(1).
4
A holder in due course of an instrument is defined in Kentucky Revised Statutes (KRS) 355.3-
302.
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Under the facts of this case, the promissory note was initially payable
to Washington Mutual. Deutsche Bank has not introduced a copy of the
promissory note either indorsed in blank or indorsed to Deutsche Bank. In 2018,
Deutsche Bank filed a second Lost Note Affidavit signed by Lorena Medina, a
document control officer for Select Portfolio Servicing, Inc. (Select Portfolio);5
Select Portfolio is purportedly the current loan servicer for Deutsche Bank. In the
Lost Note Affidavit, Medina stated:
5. The loan was transferred to Deutsche Bank
National Trust Company, as Trustee, in trust for
registered Holders of WaMu Asset-Backed
Certificates WaMu Series 2007-HEI Trust, on or
about December 1, 2007 (“Deutsche Bank”).
Washington Mutual Bank remained the servicer
when the loan was transferred to the Trust.
6. Washington Mutual Bank endorsed the Note to
Deutsche Bank National Trust Company, as
Trustee, in trust for registered Holders of WaMu
Asset-Backed Certificates WaMu Series 2007-
HEI Trust, but retained possession solely as
servicer for Deutsche Bank.
Lost Note Affidavit at 2-3. In the above affidavit, Deutsche Bank introduced proof
that the promissory note was indorsed specifically to it by Washington Mutual and
that it possessed the promissory note, through its agent Washington Mutual, before
loss occurred.
5
A copy of the original promissory note executed by Joel D. House is attached to the Lost Note
Affidavit filed by Deutsche Bank in 2018.
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On the other hand, the Houses filed the affidavit of Joel. In his
affidavit, Joel stated:
2. I was told by J.P. Morgan/Chase Bank that the
note which is [the] subject of the foregoing action was
negotiated and transferred to J.P. Morgan/Chase Bank
and I was instructed to make, and did make, numerous
payments to J.P. Morgan/Chase Bank for the debt, many
of which payments, according to my attorney, have been
credited in documents produced in this action.
3. The amounts claimed by Plaintiff in this action
do not match the payments and charges in my
calculations of the balance due to the holder of the note I
executed.
Joel’s Affidavit at 1. Viewing the facts and inferences therefrom most favorable to
the Houses, Joel was informed by Chase Bank that the promissory note was
“negotiated and transferred” to Chase Bank. A permitted inference from Chase
Bank’s statement would be that the promissory note was indorsed to Chase Bank,
as it was negotiated.6 If so, Joel’s affidavit would be contrary to the Lost Note
Affidavit submitted by Medina as the promissory note could not have been both
indorsed by Washington Mutual to Deutsche Bank and also indorsed by
Washington Mutual to Chase Bank. The Houses believe that Joel’s affidavit
creates a material issue of fact.
6
It is clear that “negotiation requires transfer of possession of the instrument and its indorsement
by the holder.” KRS 355.3-201(2).
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In Kentucky, all affidavits are not entitled to equal consideration or
equal weight when considering a summary judgment. Particularly, Kentucky
Rules of Civil Procedure (CR) 56.05 provides that an affidavit in support of a
motion for summary judgment “shall set forth such facts as would be admissible in
evidence[.]” An affidavit containing inadmissible hearsay statements is
insufficient and cannot be considered on a motion for summary judgment. CR
56.05; Cadleway Props., Inc., v. Bayview Loan Serv., LLC, 338 S.W.3d 280, 289
(Ky. App. 2010).
In his affidavit, Joel was relying upon statements made to him by
Chase Bank. In this respect, Joel’s affidavit is plainly based upon hearsay
statements and cannot be considered unless an exception to the hearsay rule is
applicable. Kentucky Rules of Evidence (KRE) 801. However, we were neither
cited to nor are we aware of an exception to the hearsay rule that would permit
admission of the above hearsay statements in Joel’s affidavit.7 On the other hand,
7
Kentucky Rules of Evidence 801A(c)(2) provides:
(c) Admission by privity:
....
(2) Predecessors in interest. Even though the declarant is
available as a witness, when a right, title, or interest in any
property or claim asserted by a party to a civil action requires a
determination that a right, title, or interest existed in the
declarant, evidence of a statement made by the declarant during
the time the party now claims the declarant was the holder of
the right, title, or interest is not excluded by the hearsay rule
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the Lost Note Affidavit by Medina contains no hearsay but rather is based upon her
personal knowledge grounded upon a review of Select Portfolio’s records.
As Joel’s affidavit cannot be considered as it was based upon
hearsay, the Lost Note Affidavit is uncontroverted as to the fact that Washington
Mutual had indorsed the promissory note to Deutsche Bank and that Deutsche
Bank had obtained possession of the promissory note, through its agent, before its
loss occurred. Viewing the facts most favorable to the Houses, we conclude that
Deutsche Bank constituted a holder of the instrument per KRS 355.3-301(1) and,
thus, was entitled to enforce the promissory note when loss of possession occurred
per KRS 355.3-309(1)(a)1.
(ii) KRS 355.3-309(1)(b)
As Deutsche Bank satisfied KRS 355.3-309(1)(a), our focus now
turns to Section (1)(b) of KRS 355.3-309. Under KRS 355.3-309(1)(b), a person
not in possession of an instrument may enforce it if “[t]he loss of possession was
not the result of a transfer by the person or a lawful seizure[.]” To satisfy this
requirement, Deutsche Bank again points to the Lost Note Affidavit of Medina.
when offered against the party if the evidence would be
admissible if offered against the declarant in an action
involving that right, title, or interest.
Thereunder, “a predecessor in interest[‘s] [hearsay statements may] be used against that
predecessor-in-interest’s successor.” Melton v. Cross, 580 S.W.3d 510, 518 (Ky. 2019). Under
the facts as set forth by the Houses, JP Morgan Chase Bank would not constitute a predecessor-
in-interest to Deutsche Bank because the promissory note is not an interest in property.
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Therein, Medina averred that after obtaining the promissory note from Washington
Mutual, Washington Mutual served as the loan servicer. Subsequently, according
to Medina, Chase Bank became the loan servicer from October 2, 2008, to May 1,
2014; thereafter, Select Portfolio became the loan servicer. Medina stated that
“[d]uring the course of the servicing transfer, the original Note was lost and could
not be found.” Additionally, Medina pointed out that “[t]he loss of the Note was
not the result of transfer by Deutsche Bank . . . or a lawful seizure.” The Houses
have not put forth any contradictory evidence upon this point. Therefore, viewing
the facts most favorable to the Houses, Deutsche Bank has demonstrated that the
loss of possession of the promissory note was not the result of transfer or lawful
seizure under KRS 355.3-309(1)(b).
(iii) KRS 355.3-309(1)(c)
Because Deutsche Bank has satisfied KRS 355.3-309(1)(a) and (b),
we now focus on Section (1)(c) of KRS 355.3-309. Under KRS 355.3-309(1)(c), a
person seeking enforcement of a lost instrument must prove that he “cannot
reasonably obtain possession of the instrument because” it “was destroyed, its
whereabouts cannot be determined, or it is in the wrongful possession of an
unknown person or a person that cannot be found or is not amenable to service of
process.” Turning to the Lost Note Affidavit, Medina stated that Deutsche Bank
“cannot reasonably obtain possession of the Note because its whereabouts cannot
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be determined, it was destroyed, or it is in the wrongful possession of an unknown
person” or a person that cannot be found or is not amenable to service of process.
Medina Lost Note Affidavit at 3. The Houses failed to set forth contradictory
facts, beyond mere conjecture. See Henninger v. Brewster, 357 S.W.3d 920, 929
(Ky. App. 2012). As such, Deutsche Bank has set forth uncontradicted facts
demonstrating that it could not have reasonably obtained possession of the
promissory note pursuant to KRS 355.3-309(1)(c).
As set out above, Deutsche Bank has satisfied the statutory
requirements of KRS 355.3-309(1); nonetheless, to enforce a lost instrument under
KRS 355.3-309, Deutsche Bank must also meet the mandates of Section (2) of
KRS 355.3-309.
(iv) KRS 355.3-309(2)
KRS 355.3-309(2) reads:
A person seeking enforcement of an instrument under
subsection (1) of this section must prove the terms of the
instrument and the person’s right to enforce the
instrument. If that proof is made, KRS 355.3-308 applies
to the case as if the person seeking enforcement had
produced the instrument. The court may not enter
judgment in favor of the person seeking enforcement
unless it finds that the person required to pay the
instrument is adequately protected against loss that might
occur by reason of a claim by another person to enforce
the instrument. Adequate protection may be provided by
any reasonable means.
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Under KRS 355.3-309(2), the terms of the lost promissory note must be
sufficiently demonstrated by the person seeking to enforce the lost note. If such is
demonstrated, the court must then find that the promisor/obligor required to pay
upon the lost instrument is “adequately protected” for a loss resulting from a
possible future claim asserted by a third-party. 4 WILLIAM A. HAWKLAND,
FREDERICK H. MILLER AND ALVIN C. HARRELL, UCC Series – Adequate Protection
§ 3-309:6 (2020). KRS 355.3-309(2) is clear that “[a]dequate protection may be
provided by any reasonable means.”
Here, it is clear that Deutsche Bank has proved the terms of the lost
promissory note. And, to meet the requirement that the Houses “are adequately
protected,” Deutsche Bank filed in 2015 a Lost Note Affidavit of Curtis Pulsipher,
Senior Vice-President of Select Portfolio. In the Lost Note Affidavit, Pulsipher
averred:
2. Upon information and belief, on 12/08/2008, JOEL
DAVID HOUSE (the “Borrower”), executed and
delivered a promissory note (the “Note”) in the principal
amount of $303,000.00 which Note is secured by a
mortgage or deed of trust (the “Mortgage”) on the real
property and improvements located at 10323 BACK
RUN ROAD, LOUISVILLE, KY 40299 and which was
duly recorded on 12/13/2006 in Book/Reel/Liber: 10448
Page/Fotio: 0577 as Instrument No.: DN2006198866 in
Jefferson County, a copy of which is attached hereto.
3. The Company services the Mortgage and Note for
DEUTSCHE BANK NATIONAL TRUST COMPANY,
AS TRUSTEE, IN TRUST FOR REGISTERED
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HOLDERS OF WAMU ASSET-BACKED
CERTIFICATES WAMU SERIES 2007-HE1 TRUST
(the “Noteholder”) with Select Portfolio Servicing, Inc.[,]
as attorney in fact the successor in interest to the original
holder of the Note, the current owner of the Note.
4. Though it has conducted a diligent search of the
records and files maintained in connection with the
Mortgage, the Company has been unable to locate the
Note and believes that the Note has been lost, misfiled,
misplaced, or destroyed.
5. Upon information and belief, the Noteholder was the
owner of the Note when the loss of possession occurred
and was entitled to enforce the Note at that time.
6. The records of the Company do not show that the
Note was ever released, paid off, satisfied, assigned,
transferred, pledged, hypothecated or that the Note was
otherwise disposed of by the Company.
7. The Company is aware that the successors in interest,
assigns and/or transferees of the original holder of the
Note (collectively, the “Owner”) may rely upon the
statements made in this Affidavit as to the Note having
been lost, mislaid, misfiled or destroyed and never
having been released, paid off, satisfied, assigned,
transferred, pledged, hypothecated or otherwise disposed
of by the Company.
8. If the Company should ever locate the Note, the
Company agrees to provide the Note to the owner of
record of the Property at that time.
9. The Company hereby agrees to indemnify and hold
the Borrower harmless from and against any and all
losses, damages, penalties, fines, forfeitures, reasonable
and necessary legal fees and related costs, judgments,
and other costs and expenses resulting from any claim,
demand, defense or assertion based upon, or resulting
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from the Company’s breach of any covenant,
representation or warranty contained in this Affidavit.
Pulsipher Lost Note Affidavit at 2-3.
Pursuant to Paragraph 9 of the Lost Note Affidavit, Select Portfolio
agreed to “indemnify” the Houses against “all losses, [and] damages” arising from
any representations set forth in such affidavit. Pulsipher stated that Deutsche Bank
was the holder of the promissory note and entitled to enforce the promissory note
when it was lost. Moreover, Pulsipher averred that the promissory note was not
transferred, assigned, or satisfied. The circuit court viewed Paragraph 9 of the Lost
Note Affidavit as setting forth adequate protection to the Houses, and we cannot
conclude that the circuit court erred by so doing. Consequently, Deutsche Bank
has fulfilled the requirements of KRS 355.3-309(2).
CONCLUSION
Accordingly, we are of the opinion that the circuit court properly
rendered summary judgment determining that Deutsche Bank was entitled to
enforce the lost promissory note under KRS 355.3-301 and KRS 355.3-309.
For the foregoing reasons, the Amended Judgment and Order of Sale
of the Jefferson Circuit Court is affirmed.
ALL CONCUR.
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BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEE:
Vincent F. Heuser, Jr. Brad S. Keeton
Louisville, Kentucky Kathryn S. Beck
Louisville, Kentucky
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