"Produce the note"???

The note is only one part of the transaction which occurred back then.
The actual mortgage document is another. That is the document by which the customer transferred the ownership of the real estate to the bank (YUP! That's what they say!) with acknowledgment of the transfer of funds, and with description of the various rights of the parties by way of the loan, which would have been evidenced by the note. But the mortgage, with its acknowledgment of the consideration, ought to be sufficient to make the note itself fairly irrelevant.

Of course the lending institution just might not be able to produce a properly authenticated copy of the mortgage, either.

Other courts, under under the laws of other states than New York, make take a different position. Indeed, the New York appellate system may or may not accept that trial court's position when the case is appealed. Which I'd bet heavy money it will be appealed.

Dave Oesterreich