Source: https://www.scribd.com/document/57380098/x-a-Ucc-Draft-Report-Assignment-Note-and-Dot
Timestamp: 2017-02-20 12:43:18
Document Index: 716388502

Matched Legal Cases: ['§ 3', '§ 3', '§ 3', '§ 3', '§ 9', '§ 3', '§ 1', '§ 9', '§ 1', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 1', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 9', '§ 9', '§ 3', '§ 9', '§ 1', '§ 1', '§ 1', '§ 1', '§ 9', '§ 9', '§ 9', '§9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 3', '§ 3', '§ 3', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 3', '§ 1', '§ 3', '§ 1', '§ 3', '§ 9', '§ 3', '§ 3', '§ 3', '§ 1', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 3', '§ 9', '§ 9', '§ 9', '§ 3', '§ 3', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 1', '§ 9', '§ 9', '§ 1', '§ 1', '§ 1', '§ 9', '§9', '§ 9', '§ 9', '§ 3', '§ 3', '§ 3', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9']

x a - Ucc Draft Report Assignment Note and Dot | Uniform Commercial Code | Mortgage Law
BrowseInterestsBiography & MemoirBusiness & LeadershipFiction & LiteraturePolitics & EconomyHealth & WellnessSociety & CultureHappiness & Self-HelpMystery, Thriller & CrimeHistoryYoung AdultBrowse byBooksAudiobooksNews & MagazinesSheet MusicBrowse allUploadSign inJoinMEMORANDUMMarch 29, 2011 From: John A. Sebert, Chair, Pennanent Editorial Board for the Uniform Commercial Code (PEB) Re: Draft Report of the PEB on the uec Rules Applicable to the Assignment of Mortgage Notes and to the Ownership and Enforcement of Those Notes and the Mortgages Securing Them Recent economic developments have brought to the forefront complex legal issues ahout the enforcement and collection of mortgage debt Many of these issues are governed by local real property law and local rules of foreclosure procedure, as well as by mles of evidence and civil procedure, but others are addressed in a unifonn way throughout the United States by provisions of the Uniform Commercial Code (UCC). Although the DCC provisions have been law for a number of years, it has become apparent that not all courts and attorneys are familiar with them. In addition, the complexity of some of the rules has proved daunting. The Permanent Editorial Board for the Uniform Commercial Code has prepared this Draft Report in order to further the understanding of this statutory background by identifying and explaining several key mles in the UCC that govern the transfer and enforcement of notes secured by a mortgage on real property. Of course, the vce does not resolve all issues in this field. Most particularly, the enforcement of real estate mortgages by foreclosure is primarily the province of a state's real property law (although deterroinations made pursuant to the Dee are typically relevant under that law). This is a draft repGrt that does not represent the final views of the PEB, the American Law Institute, or the Uniform Law Commission on the matters discussed in this report. The PEB is distributing this Draft Report broadly seeking comrnent on the draft, and we strongly encourage those interested in these matters to provide comments to ALI Associate Deputy Director Deanne Dissinger at When submitting comments please identify your representation of or affiliation with stakeholders, as well as your expertise and experience in the mortgage and foreclosure area. Comments should be received by May 28, 201 L After the end of the comment period, the PEB will review all of the coltl.rnents that have been received and will make appropriate revisions io the draft before issuing the report as a final repoli of the PEB. EXHIBIT A
PERMANENT EDITORIAL BOARD FOR THE UNU'ORM COMMERCIAL CODE DRAFT REpORT uec RULES TO THE ASSIGNMENT OF MORTGAGE NOTES AND TO THE OWNERSHIP AND ENFORCEMENT OF THOSE NOTES AND THE MORTGAGES SECURING THEM Introduction Recent economic developments have brought to the forefront complex legal issues about the enforcement and collection of mortgage debt. Many of these issues are governed by local real property law and local rules of foreclosure procedure, but others are addressed in a unifOlID way throughout the United States by provisions of the Uniform Commercial Code (UCC). I Although the UCC provisions have been settled law for a number of years, it has become apparent that not all courts and attorneys are familiar with them. In addition, the complexity of some of the rules has proved daunting. The Permanent Editorial Board for the Uniform Commercial Code
2 has prepared this Report in order to further the understanding of this statutory background by identifying and explaining several key rules in the VCC that govern the transfer and enforcement of notes secured by a mortgage on real property. Of course, the vec does not resolve all issues in this field. Most particularly, the enforcement of real estate mortgages by foreclosure is plimarily the province of a state's real property law (although determinations made pursuant to the VCC are typically relevant under that law). Background Two Articles of the UCC apply to the transfer, ownership, and enforcement of mortgage notes: 1 The UCC is a uniform l'lW sponsored by the Alnerican Law Institute and the Uniform Law Commission. It has been enacted in every state (as well as the District of Columbia, Puerto Rico, and the United States Virgin Islands) in whole or significant part. This Report is based on the current Official Text of the UCC. Some states have enacted some non-uniform provisions that are generally not relevant to the issues discussed in this Report. Of course, the enacted text of the UCC in the state whose law is applicable governs. See note 4, infra, for important information about variations among different versions of Article 3 of the UCc. lIn 1961, the American Law Institute and the Uniform Law Commission, the organizations that jointly sponsor the UCC, established the Permanent Editorial Board for the Uniform Commercial Code (PEB). One of the charges of the PEB is to issue commentaries "and other articulations as appropriate to reflect the correct interpretation of the [Uniform Commercial] Code and issui ng the same in a manner and at times best calculated to advance the uniformity and orderly development of commercial law." EXHIBIT A
III In cases in which the notes fulfill the technical requirements of negotiability,
3 Article 3 of the uec
4 provides rules goveming the obligations of parties on the notes and the enforcement of those obligations, In cases involving either negotiable or non-negotiable notes, Al1icle 9 of the uec
5 contains important rules governing how ownersh1lp of those notes may be transferred, the effect of the transfer of ownership of the notes on the ownership of the mortgages securing those notes, and the right of the transferee, under certain circumstances, to record its interest in the mortgage in the applicable real estate recording office, This Report explains the application of the rules in both of those Articles to provide guidance in: • Identifying tl1e person who is entitled to enforce the payment obligation of the maker
6 of a mortgage note, and to whom the maker owes that obligation; and • Determining who owns the rights represented by the note and mortgage, Together, the provisions in Articles 3 and 9 of the UCC (along with general prilillcipies that appear in Article 1and that apply to all transactions governed by the ueC) provide legal rules that apply to these questions.
7 Moreover, these mles displace any inconsistent common law rules that might have otherwise governed those questions.
s 3 Those requirements an:. set out in vec § 3·, I 04. 4 Except for New York, r:very state (as well as the District of Columbia, Puerto Rico, and the United States Virgin Islands) has enacted the 1990 Official Text of Article 3 or the newer 2002 Official Text (the latter having been adopted in ten states as of the date of this Report). Unless indicated to the contrary all discussions of provisions in Article 3 apply equally to both versions. Much of the analysis of uce Article 3 in this Report aliso appiies under the older version of Article:; ie) effect in New York, although many section numbers differ. The Report does not. address those aspects of\[ew York's Article 3 that are different than the 1990 or 2002 texts, 5 Unlike Article 3 (which has not been enacted h its modem form ill New York), the cunent version of Arlicle 9 ha.', been enacted in al150 states, the District of Columhia, and the United States Virgin Islands. Sonle states have enacted non-unifom1 provisions that are generally not relevant to the issues discussed in this Report (but see note 24 with respect to one relevant non-uniformity). A limited set·of amendments to Article 9 was approved by the American Law Institute Hnd the Uniform Law Commission in 20W. Except as noted in this Report, those amendments (which have not. yet been enacted by any state) are not germane to the matters addressed in this Report. 6 A note can have more tiilan one obligor. In some cases, this is because there is more than one maker (in which case they are jointly and liable; see UCC § 3-116(a)). In other cases, there may be an indorser. 'fhe obligation of an indorser is differenl than that of a maker in that the indorser's obligation is ttiggered by dishonor ofthe note (see uee § 3-415) and, unless waived, indorscrs have additional procedural protections (such as notice of dishonor; see UCC § 3-503)). These differences do not affeet the issues addressed in this Report. For simplicity, this Report uses the tem1 "maker" to refer to bo1h makers and indorsers. "I Subject to limitations on the ability to affect the lights of third parties, the effect of these provisi.ons may be varied by agreement. UCC 1-302. Variation by agreement is not permitted when the uee so indicate:s (see, e.g., uec § 9-602) or when the variation would disclaim obligations of good faith, diligence, reasonableness, or care prescribed by the Uec. But the me."ning of the statute itself cannot be varied by agreement. Thus, for example, private parties cannot make c. note negotial)le unless it complies with ncc § 3-104. See Official Comment I to uec § 1-302. Similarly, parties may nol; avoid the application of ncc Article 9to a transaction that falls within its scope. See id. and Official Comment 2 to nee § 9-109. 8vee § l-103(b). As noted in Official Comment 2. to UCC § 1-103: 2 EXHIBIT A
This Report does not, however, address all of the rules in the uee relating to enforcement, transfer, and ownership of mortgage notes. Rather, it reviews the rules relating to four specific questions: • Who is the person entitled to enforce a mortgage note and, cOlTespondingly, to whom is the obligation to pay the note owed? • How can the owner of a mortgage note effectively transfer ownership of that note to another person or effectively use that note as collateral for an obligation? • What is the effect of transfer of an interest in the note on the mortgage securing it? • Maya person to whom an interest in the note has been transfelTed, but who has not taken a recordable assignment of the mortgage, take steps to become the assignee of record of the mortgage securing the note?9 Question One - Who is The Person Entitled to Enforce a Mortgage Note and to Whom the Obligation to Pay tbe Note is Owed? If the mortgage note is a negotiable instrument, 10 Article 3 of the uee provides a largely complete set of rules governing the obligations of parties on the note, including how to determine who may enforce those obligations and to whom those obligations are owed. The following discussion analyzes the application of these rules to that deteITnination in the case of mortgage notes that are negotiable instruments. II In the context of notes that have been sold or used as collateral to secure an obligation, the central concept for making that determination is identification of the "person entitled to enforce" the note. l2 Several issues are resolved by that determination. Most particularly: The Uniform Commercial Code was drafted against tbe backdrop of existing bodies of law, including the common law and equity, and relies on those bodies of law to supplement its provisions in many important ways. At the same time, the Uniform Commercial Code is the primary source of commercial law rules in areas that it governs, and its rules represent choices made by its drafters and the enacting legislatures about the appropIiate policies to be furthered in the transactions it covers. Therefore, while principles of common law and equity may supplement provisions of the Uniform Commercial Code, they may not be used to supplant its provisions, or the purposes and policies those provisions reflect, unless a specific provision of the Uniform Commercial Code provides otherwise. In the absence of such a provision, the Uniform Commercial Code preempts principles of common law and equity that are inconsistent with either its provisions or its purposes and policies. 9 The Report does not dis<;uss the application of common law principles, such as the law of agency, that supplement the provisions of the UCC other than to note some situations in which the text or comments of the UCC identify such principles as being relevant. See UCC § I-I O3(b). 10 See UCC § 3-104 for the requirements that must be fulfilled in order for a payment obligation to qualify as a negotiable instrument. II Law other than Article 3, including contract law, governs thi s determination for non-negotiable mortgage notes. That law is beyond the scope of this Report. 12 The concept of "person entitled to enforce" a note is not synonymous with "owner" of the note. A person need not be the owner of a note to be the person entitled to enforce it, and not all owners will qualify as persons entitled to enforce. Rules that address transfer of ownership of a note are addressed in the discussion of Question 2 below. 3 EXHIBIT A
(i) the maker's obligation on the note is to pay the mnount of the note to the person entitled to enforce the note, 13 (ii) the maker's payment to the person entitied to enforce the note resu1ts in discharge of the maker's obligation, 14 and (iii) the maker's failure to pay, when due, the amount of the note to the person entitled to enforce the note constitutes dishonor of the note. 15 Thus, a person seeking to enforce rights based on the failure of the maker to pay the note must identify the person entitled to enforce the note and establish that that person has not been paid. This portion of the Report sets out the criteria for qualifying as a "person entitled to enforce" a note. The discussion of Question Two addresses how ownership of a note may be effectively transferred from an owner to another person. vee Section 3-301 provides only three ways in which a person may qualify as lhe person entitled to enforce a note, two of which require the person to be in possession of the note (which, for this purpose, may include possession by a third party such as an agent) 16; .. The first way that a person may qualify as the person entitled to enforce 1 note is to be its "holder." This familiar concept, set out in detail in uee Section 1-201(b)(21)(A), requires that the person be in possession of the note and either (i) the no' ~ is payable to that person or Oi) the note is payable to bearer. Detemllning to whom a aote is payable requires examination not only of the face of the note but also of any indorsements. This is because the party to whom a note is payable may be ctanged by indorsement 17 so that, for example, a note payable to the order of a named payee that is indorsed in blank by that payee becomes payable to bearer. 18 " The second vvay that a person may be the person entitled to enforce a note is to be a "nonholder in possession of the [note] who has the rights of a holder." o H o w ~ a n a person who is not the holder of a note have the rights of a holder? This ean occur by olPeration of law outside the DeC, such as the Jaw of 13 lJCC § 3A12, (If the note has been dishonored, and an indorser has paid the note to the persoll entitled to enforce it, the maker's obligation runs to the indorser.) 14UCC § 3-601. In states that have enacted thc 2002 Official Text ofUer Article 3. a maker is also discharged by paying a person formerly entitled to enforce the note if the maker has not received adequate notification thaI. the note has been transferred and that payment is to be made to the transferee, 15 See uee §§ 3·502. See also uec § 3-60L 16 See DeC § l--103(b). ,ke also DCC § 3-420, Comment J ("Delivery to an agent [ofa payee] is delivery to the payee."). Note that "'delivery" of a negotiable instrument is defined in UCC § 1-201(b)(15) as voluntary transfer of possession 17 An indorsement maya Jpear either on the instrument or on a separate piece of paper (usually referred to as an allonge) affixed to the instrument. See uee § 3-204(a) and Comment 1, par. 4. 18UCC Section 3-205 contains the rules concerning the effect of various types of indorsement on the party to whom a note is payable, 4 EXHIBIT A
subrogation or estate administration, by which one person is the successor to or acquires another person's rights. 19 It can also occur if the deliwTY of the note to that person constitutes a ''transfer'' (as that term is defined in uec Article 3, see below) because transfer of a note "vests in the transferee any right of the tram.feror to enforce the instrument.,,20 Thus, if a holder (who, as seen above, is a person entitled to enforce a note) transfers the note to another person, that other person (the transferee) obtaim from the holder the right to enforce the note even if the transferee does not become the holder (as in the example bebw). Similarly, a subsequent transfer will result in the subsequent transferee being a person entitled to enforce the note. o what circumstances does de.ivery of a note quallfy as a transfer? As stated in uec Section 3-203(a), a note is transferred "when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument." For example, assume that the plyee of a note sells it to an assignee, intending to transfer all of the payee's rights to the note, but delivers the note to the assignee without indorsing it. The assignee will not qualify as a holder (because the note is still payable to the payee) but, because the transaction between the payee and the assignee qualifies as a transfer, the assignee now has all of the payee's rights to enforce the n()te and thereby qualifies as the person entitled to enforce it. Thus, the failure to obtain the indorsement of the paye(: does not prevent a person in posseSSlOn of the note from being the person entitled to enforce it, but demonstrating that status is more diffie-ult This is because the person in possession of the note must also demonstrate the purpose of the delivery of the note to it in order to qualify as the person entitled to enforce?1 • There is a thilrd method of qualifying as a person entitled to enforce a note that, unlike the previous two methods, does not require possession of the note. This method is quite limited- it 3,}plies only in cases in which "the person cannot reasonably obtain possession of the instmment hecause the instmment 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.,,22 In such a case, a person qualifies as a person entitled to enforce the note if the person demonstrates not only that one of those circumstances is present but also demonstrates that the person was --------.------­
19 See Official Comment to UCC § 3-301. 20 UCC § 3-203(b). 2J If the note was transferred for value and the transferee does not qualify as a holder because of the lack of indorsement by the transleror, "the transferee has a specifically enforceable right to the unqualified indorsement of the transferor." See uec § 3-203(c). 22 Dec § 3-309(a)(iii) (1990 text), 3-309(a)(3) (2002 text). The 2002 text goes on to provide that a transferee from the person who lost possession of ill note may also qualify as a person entitled to enforce it. See lICC § 3­
309(a)(l)(B) (2002). This point was thought to be implicit in the 1990 text, but was rejected in a federal district court opinion in which isme was raised. 5 EXHIBIT A
formerly in possession of the note and entitled to enforce it when the loss of possession occurred and that the loss of possession was not as a result of transfer (as defined above) or lawful seizure. If the person proves those facts, as well as the terms of the note, the person may enforce the note, but the court may not enter judgment in favor of the person unless the court finds that the maker is adequately protected against loss that might occur because if the note subsequently reappears?3 Question Two - What Steps Must be Taken for the Owner of a Mortgage Note to Transfer Ownership of the Note to Another Person or Use the Note as Collateral for an Obligation? In the discussion of Question One, this Report addresses identification of the person who is entitled to enforce a note. It does not address who "owns" the note. While in many cases the owner of a note and the person entitled to enforce it are the same person, as explained earlier this is not always the case. This is because the rules that determine who is entitled to enforce a note and the rules that determine whether the note, or an interest in it, have been effectively transferred serve different functions: • The rules that determine who is entitled to enforce a note are concerned primarily with the maker of the note, providing the maker with a relatively simple way of determining to whom his or her obligation is owed and, thus, whom to pay in order to be discharged. • The rules concerning transfer of ownership and other interests in a note, on the other hand, relate to who, among competing claimants, is entitled to the economic value of the note, a matter as to which the maker is indifferent so long as it does not affect whom the maker must pay. Initially, a note is owned by the payee to whom it was issued. Ifthat payee seeks eitherto use the note as collateral · or sell the note outright, Article 9 oftpeUCC and determines or buyer has obtain6d a property right in the note. As is generally known, Article 9 governs transactions in which property is used as collateral for an obligation.
24 In addilion, however, Article 9 governs the sale of most payment rights, including the sale of both negotiable and non-negotiable notes.
25 With very few exceptions, the same rules that apply to transactions in which a payment right is collateral for an obligation also apply to transactions in which a payment right is sold. Rather than contain two parallel of rules -- one for transactions in which payment rights are collateral and the other for sales of payment rights .­
23 See uee § 3-309(b). This subsection goes on to state that "Adequate protection may be provided by any reasonable means." 24uee § 9-109(a)(l). 2S With certain limited exceptions not germane to this Report, Article 9 governs the sale of accounts, chattel paper, payment intangibles, and promissory notes. Dec § 9-109(a)(3). The term "promissory note" indudes not only notes that fulfill the requirements of a negotiable instmment under uee § 3- 104 but also notes that do not fulfill those requirements but nonetheless are of a "type that in ordinary business is transferred by delivery with any necessary indorsement or assignment." See uee § § 9-102( a)( 65) (definition of "promissory note") and 9-102(a)( 4 7) (definition of "instrument" as the term is used in Article 9). 6 EXHIBIT A
Article 9 uses nomenclature conventions to apply one set of rules to both types of transactions. This is accomplished primarily by defining the tefm "security interest" to include not only an interest in property that secures an obligation but also the right of a buyer of a payment right in a transaction governed by Article 9.
26 As a result; forpurpos¢s of Article 9, pron1iss(}ryntJtehasa '.'securityinteresf" in the l}ote; and ther\lles 'that apply 10 secl.p:f1:Y interests that secureailobligaiion aIstJ apply totransaetions 'tiWhicb"apromiss(}ry .noteis' soldP Section 9-203(b) of the Uniform Commercial in order for theoWller of a mortgage note effectively to'create a"security (either an interest in the note securing an obligation or the outright sale of the note to a buyer) in it. • 'Thefitsttwo criteria are stra,ightforward -- ''Vallie'' ml.)sfbegivert
28 at1if musthave rights in the note?9 • The third criterion may be fulfilled in either one of two ways. Either the debtor must "authenticate,,30 a "security agreement,,31 that describes the note
32 or the secured, Party must take possession
. of it pursuant to tbe debt(jr' sseeurity agreement. 34 26 See VCC § 1-201(b)(35) [VCC § 1-201(37) in states that have not yet enacted the 2001 revised text ofUCC Article]]. (For reasons that are not apparent, when South Carolina enacted the] 998 revised text of VCC Article 9, which included an amendment to VCC § 1-201 to expand the definition of "security interest" to include the right of a buyer of a promissory note, it: did not enact the amendment to § 1-201. This Report does not address the effect of that omission.) The limitation to transactions governed by Article 9 refers to the exclusion, in cases not germane to this Report, of certain assignments of payment rights from the reach of Article 9. "debtor" to .. indnde tne buyer of to .§§ ..9d02(a)(28), (72),; (12). 28 liCe § n: ' ucc§'1-704 provides that onlya,c<JllifiitgtiJem f01) considera:tion but'itlsoa!;quiring them in refilm for a extend credit, as' security for or in complete.orpartlalsatisfactionof a preexisting claim; or by accepting delivery 'ofthem Uriliefapreexi&tingq<:iritfltCt for their purchase. 29 VCC § 9-203(b)(2). Limited rights that are short of full ownership are sufficient for this purpose. See Official Comment 6 to VCC § 9-203. 30 This term is defined to include signing and its electronic equivalent. See VCC § 9-102(a)(7). 31 A is an agreement that creates or proyides[or asccutity interest (including the rignts ·ofa buyer arising uponlheoutrightsale of a payment right). SeeUCC .§9-XQ2(a)(73). 32 Article 9's criteria for descriptions of property in a security agreement are quite flexible. Generally speaking, any description suffices, whether or not specific, if it reasonably identifies the property. See VCC § 9-108(a)-(b). A "supergeneric" description consisting solely of words such as "all of the debtor's assets" or "all of the debtor's personal property" is not sufficient, however. VCC § 9-108(c). A narrower description, limiting the property to a particular category or type, such as "all notes," is sufficient. For example, a description that refers to "all of the debtor's notes" is sufficient. 33 Se,e VCC § 9-313, As noted in Official Comment 3 to VCC § 9-313, "in determining whether a particular person has possession, the principles of agency apply." VCC § 9-313(c) also contains a rule under which possession by a non-agent (such as a bailee) may constitute possession by the secured party if the person authenticates a record acknowledging itholds theeollateral for the secured party's ..... gossessibn as 3131salsopossession fOH:Plll'poses ofUCe § 9-203. SeeUgC'§ 9"203,Conunent4. 34 VCC §§ 9-203(b)(3)(A)-(B). 7 EXHIBIT A
o Thus, if the secured party (including a buyer) takes possession of the mortgage note pursuant to the security agreement of the debtor (including a seller), this criterion is satisfied even if ihat agreement is oral. o Alternatively, if the debtor authenticates a security agreement describing the note, this criterion is satisfied even if the secured party does not take possession of the note. (Note that inlthis situation, in which the seller of a note may retain possession of the owner of a note can lie a different person than the person entitled to enforce the notei
5 Satisfaction of these three criteria of Section 9-203(b) results in the secured party (including a buyer of the note) obtaining a property right (whether outright ownership or a security interest to secure an obligation) in the note from the debtor (including a seller ofthe note).'6 Question Three - What is the Effed of Transfer of an Interest in the Note OL ."=le Mortgage Securing It? What if a note secured by a mortgage is sold (or the note is used as collateral to :;;ecure an obligation), but the parties do not formally assign the mortgage that secures payment of the note? DeC Section 9-203(g) explicitly provides that the mortgage automatically follows the note: "The attachment of a security interest in a right to payrn.ent or pc:rformance secu;ed by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage, or other lien." (As noted previously, a "security interest" in a note includes the right of a buyer of the note.) Thus, while this matter has engendered some confusion,37 the law is clear,38 and the sale of a mortgage note not. accompanied by a separate conveyance of the mortgage securing the note does not result in a separation of the mortgage from the note. 35 As noted in the discussion of Question One, payment by the maker of a negotiable note to the person entitled to enforce it discharge;s the maker's obligations on the Hote. uec § :l-602. TillS is the case even if the person entitled to enforce the note is not its owner. As between the person entitled to enforce the note and the cwner of the note, the right to t.he money paid by the maker is det.ermincd by the HCe and other applicable law, such as contract and agency law. See, e.g., UCC §§ 3-306 and 9-315(a)(2). cases in which another person claims an interest in the note (whether as ;it result of another "oluntary transfer by the debtor Of otherwise), rc1'erence to Article 9's mles governing perfection and priority nfsecurity may be required in order to ral1k order those claims (and, in some cases, determine whether a party has taken the note free of competing claims to the note). In ,he case of notcs that are negotiable instruments, the Article 3 concept of "holder in due course" (see uec § 3-302) should be considered as well, because a holder in due course takes its rights in an instrument frl:e of competing property claims to it (as well as free of most defenses to obligations on it). See uce §§ 3-305 and With respect to determining whether the owner of a note has effectively transferred a property interest to a tram,feree, however, the perfection and priority rules are largely in-elevane (Of course, application of the perfectiion and priority rules can result in the transferee eithcl' being subordinate to the rights of a competing claimant or being extinguished by the fights of the compe ing claimant.) 37See, e.g., the discussion ofthi8 issue in u.s. Bank v. Ibanez, 458 Mass. 637, 20n WL 38071 (Mass. 2011), at slip op. p. 10. In that discussion, the court citeD M assacllllsetts common law precedents pre-dating the enactment of the Cllm:nt text of Article 9 to the effect that a mortgage cloes not foHow a note in the absence of a separate assignment 8 EXHIBIT A
Question Four -- Maya Person to Whom an Intere;it in the Note Has Been Transferred, hut Who Has not. Taken a Assignment of the Mortgage, Take Steps to Become the Assignee of Record of the Mortgage Securing t.he Note? In some states, a party without a recorded interest in a mortga.ge lnay not enforce the mortgage non-judicially. In l'alch states, even though the buyer of a mortgage note (or a creditor to whom a security interest in the note has been granted to secure an obligation) automatically obtains corresponding rights in the mortgage,39 this may be insufficient as a matter of applicable real estate law to enable that buyer or secured creditor to enforce the mortgage upon default of the maker if the buyer x secured creditor does not have a recordab]e assignment Thehuyethrother secured creditor may, of confse,attempt to obtain snch a recordable assignment rrom?theseller or debtor aHhelime it seeks to enforce the mOltgage,but.such att.attempt maybeunsuccessm1.
40 Article 9 of the DOC provides such a buyer or secured creditor a mechanism by which it can record its interest in the realty records in order to conduct a non-judicial foreclosure. vee Section 9-607(b) provides that "if necessary to enable a secured party [including the buyer ofa mortgage note] to exercise ... the right of [its transferor)to enforce a mortgage llonjudicially," the secured party may record in the office in WhICh the mortgage is recorded (i) a cOPJ.; of the security agreementtransferring an interestin secured party and (ii) the secured party'ssW011l affid::1vitin recordable foml stating that default has occurred
41 partYis
entitled'to enforce ·tliemortgagenoil-judici:Itty.42 of the mortgage, but did not address the effect of Massachusetts's enactment of uee § 9-203(g) on those precedents. Of course, application of uec § 9-203(g) would result in the conclusion that the holder of the note in question had an interest in the mortgage securing the note only if the holder demonstrated that it had an attached security interest (including the interest of a buyer) in the note. Such a conclusion would not, of itself, mean that the holder can enforce the mortgage without a recordable assignment t.:J it That matter is the province of real property law and is addressed, in part, in the discussion of Question 4 below. 38 Official Comment 9 to UCC § 9-203 confirms this point: "Subsection (g) codifies the common-law rule that a transfer of an.obligation secured by a security interest or other lien on personal or real property also transfers the security interest or lien." 39 See discussion of Question Three, supra. 40 In some cases, the seller or debtor may no longer be in business. In other cases, it may simply be unresponsive to requests for execution of documents with respect to a tcransaction in which it no longer has an economic interest. Moreover, in cases in wbich mortgage note was collateral for an obligation owed to the secured party, the defaulting debtor may simply be unwilHng to assist its secured party. Sec Official Comment 8 to UCC § 9-607, 41 The 2010 amendments to Article 9 (promulgated by the American Law Institute and the Uniform Law Commission but not yet enacted) add language to this provision to clarify that "default," in this context, means default with respect to the note or other obligation secured by the mortgage. 42 of course,.UCC§ 9-6C17(b) does not address other that mustbe for judl'cial or rtoft-judlcial enforcement of atnottgage. 9 EXHIBIT A
Summary The Uniform Commercial Code provides four sets of rules that determine matters that are important in the context of enforcement of mortgage notes and the mortgages that secure them: • First, in the case of a mortgage note that is a negotiable instrument, Article 3 of the DCC determines the identity of the person who is entitled to enforce the note and to whom the maker owes its payment obligation; payment to the person entitled to enforce the note discharges the maker's obligation, but failure to pay that party when the note is due constitutes dishonor. • Second, for both negotiable and non-negotiable mortgage notes, Article 9 of the DeC determines whether artransferee of the note from its dwnerhasobtainedan attached propertY-rigHt in the note. • Third, Article 9 of the uee provides that a transferee of a mortgage note .yvbose tirdperty rigl;tt i n the note has attached also automatically has an attached property right in the mortgage that secures the note. • Finally, Article 9 of the uee provides a mechanism by which the owner of a note and the mortgage securing it may, upon default of the maker of the note, record its interest in the mortgage in the realty records in order to conduct a non-judicial foreclosure. Of course, as noted previously, these uee rules do not resolve all issues in this field. The enforcement mortgages by foreclosure is primarily the province of a state's real property law, but legal determinations made pursuant to the four sets ofUee rules described in this Report will, in many cases, be central to administration of that law. In such cases, proper application of real property law requires proper application of the underlying uee rules. 10 EXHIBIT A
One of the charges of the PEB is to issue commentaries "and other articulations as appropriate to reflect the correct interpretation of the [Uniform Commercial] Code and issuing the same in a manner and at times best calculated to advance the uniformity and orderly development of commercial law. Most particularly. infra. Some states have enacted some non-uniform provisions that are generally not relevant to the issues discussed in this Report. the organizations that jointly sponsor the UCC. Of course. and the United States Virgin Islands) in whole or significant part. the enacted text of the UCC in the state whose law is applicable governs. In addition. it has become apparent that not all courts and attorneys are familiar with them.
lIn 1961. but others are addressed in a unifOlID way throughout the United States by provisions of the Uniform Commercial Code (UCC). This Report is based on the current Official Text of the UCC. for important information about variations among different versions of Article 3 of the UCc.PERMANENT EDITORIAL BOARD FOR THE UNU'ORM COMMERCIAL CODE DRAFT REpORT
uec RULES A~apLICABLE TO THE ASSIGNMENT OF MORTGAGE NOTES AND TO
THE OWNERSHIP AND ENFORCEMENT OF THOSE NOTES AND THE MORTGAGES SECURING THEM
Recent economic developments have brought to the forefront complex legal issues about the enforcement and collection of mortgage debt. The Permanent Editorial Board for the Uniform Commercial Code2 has prepared this Report in order to further the understanding of this statutory background by identifying and explaining several key rules in the VCC that govern the transfer and enforcement of notes secured by a mortgage on real property. It has been enacted in every state (as well as the District of Columbia. I Although the UCC provisions have been settled law for a number of years. and enforcement of mortgage notes:
1 The UCC is a uniform l'lW sponsored by the Alnerican Law Institute and the Uniform Law Commission.
Two Articles of the UCC apply to the transfer."
. ownership. the vec does not resolve all issues in this field. the enforcement of real estate mortgages by foreclosure is plimarily the province of a state's real property law (although determinations made pursuant to the VCC are typically relevant under that law). Puerto Rico. Many of these issues are governed by local real property law and local rules of foreclosure procedure. the complexity of some of the rules has proved daunting. See note 4. the American Law Institute and the Uniform Law Commission. established the Permanent Editorial Board for the Uniform Commercial Code (PEB). Of course.
I 04. and the United States Virgin Islands.
A note can have more tiilan one obligor. unless waived. or care prescribed by the Uec. and Official Comment 2 to nee § 9-109. although many section numbers differ. see UCC § 3-116(a)). to UCC § 1-103:
. this is because there is more than one maker (in which case they are jointly and ~evelally liable. the effect of the transfer of ownership of the notes on the ownership of the mortgages securing those notes. private parties cannot make c. A limited set·of amendments to Article 9 was approved by the American Law Institute Hnd the Uniform Law Commission in 20W.
Unlike Article 3 (which has not been enacted h its modem form ill New York). note negotial)le unless it complies with ncc § 3-104.
4 Except for New York.g. Puerto Rico. there may be an indorser. yet been enacted by any state) are not germane to the matters addressed in this Report. and • Determining who owns the rights represented by the note and mortgage. and the United States Virgin Islands) has enacted eith~r the 1990 Official Text of Article 3 or the newer 2002 Official Text (the latter having been adopted in ten states as of the date of this Report). avoid the application of ncc Article 9 to a transaction that falls within its scope. parties may nol. for example. For simplicity. these mles displace any inconsistent common law rules that might have otherwise governed those questions. In cases involving either negotiable or non-negotiable notes. r:very state (as well as the District of Columbia. Unless indicated to the contrary all discussions of provisions in Article 3 apply equally to both versions. the provisions in Articles 3 and 9 of the UCC (along with general prilillcipies that appear in Article 1and that apply to all transactions governed by the ueC) provide legal rules that apply to these questions. and to whom the maker owes that obligation. the cunent version of Arlicle 9 ha. See Official Comment I to uec § 1-302. Variation by agreement is not permitted when the uee so indicate:s (see. In some cases. see UCC § 3-503)). and the right of the transferee. the District of Columhia.
As noted in Official Comment 2. e.
vee § l-103(b). The Report does not. those amendments (which have not.In cases in which the notes fulfill the technical requirements of negotiability. address those aspects of\[ew York's Article 3 that are different than the 1990 or 2002 texts. ie) effect in New York. But the me. 3 Article 3 of the uec4 provides rules goveming the obligations of parties on the notes and the
enforcement of those obligations. 7 Moreover. Sonle states have enacted non-unifom1 provisions that are generally not relevant to the issues discussed in this Report (but see note 24 with respect to one relevant non-uniformity).'. Similarly. to record its interest in the mortgage in the applicable real estate recording office. this Report uses the tem1 "maker" to refer to bo1h makers and indorsers. In other cases. uec § 9-602) or when the variation would disclaim obligations of good faith. Together.
Subject to limitations on the ability to affect the lights of third parties. These differences do not affeet the issues addressed in this Report. s
Those requirements an:. Much of the analysis of uce Article 3 in this Report aliso appiies under the older version of Article:. reasonableness. under certain circumstances. diligence.
This Report explains the application of the rules in both of those Articles to provide guidance in: • Identifying tl1e person who is entitled to enforce the payment obligation of the maker6 of a mortgage note. 'fhe obligation of an indorser is differenl than that of a maker in that the indorser's obligation is ttiggered by dishonor ofthe note (see uee § 3-415) and.. Al1icle 9 of the uec 5 contains important rules governing how ownersh1lp of those notes may be transferred. See id.ons may be varied UCC ~ 1-302."ning of the statute itself cannot be varied by agreement.
by agreement. Thus. the effect of these provisi. indorscrs have additional procedural protections (such as notice of dishonor. been enacted in al150 states. set out in vec § 3·. Except as noted in this Report.
transfer. See UCC § I-I O3(b). such as the law of agency.uss the application of common law principles. including how to determine who may enforce those obligations and to whom those obligations are owed. take steps to become the assignee of record of the mortgage securing the note?9
Question One . and relies on those bodies of law to supplement its provisions in many important ways.Who is The Person Entitled to Enforce a Mortgage Note and to Whom the Obligation to Pay tbe Note is Owed?
If the mortgage note is a negotiable instrument. including contract law. In the absence of such a provision. they may not be used to supplant its provisions. A person need not be the owner of a note to be the person entitled to enforce it.
10 See UCC § 3-104 for the requirements that must be fulfilled in order for a payment obligation to qualify as a negotiable instrument.This Report does not. and not all owners will qualify as persons entitled to enforce. to whom is the obligation to pay the note owed? • How can the owner of a mortgage note effectively transfer ownership of that note to another person or effectively use that note as collateral for an obligation? • What is the effect of transfer of an interest in the note on the mortgage securing it? • Maya person to whom an interest in the note has been transfelTed. That law is beyond the scope of this Report.
The Report does not dis<. unless a specific provision of the Uniform Commercial Code provides otherwise. however. 3
. II In the context of notes that have been sold or used as collateral to secure an obligation. including the common law and equity. Rather. At the same time. the Uniform Commercial Code preempts principles of common law and equity that are inconsistent with either its provisions or its purposes and policies. while principles of common law and equity may supplement provisions of the Uniform Commercial Code. the central concept for making that determination is identification of the "person entitled to enforce" the note. l2 Several issues are resolved by that determination. but who has not taken a recordable assignment of the mortgage. 10 Article 3 of the
uee provides a largely
complete set of rules governing the obligations of parties on the note. II Law other than Article 3. Therefore. that supplement the provisions of the UCC other than to note some situations in which the text or comments of the UCC identify such principles as being relevant. and its rules represent choices made by its drafters and the enacting legislatures about the appropIiate policies to be furthered in the transactions it covers. Rules that address transfer of ownership of a note are addressed in the discussion of Question 2 below. it reviews the rules relating to four specific questions: • Who is the person entitled to enforce a mortgage note and. cOlTespondingly. 12 The concept of "person entitled to enforce" a note is not synonymous with "owner" of the note. Most particularly:
The Uniform Commercial Code was drafted against tbe backdrop of existing bodies of law. governs this determination for non-negotiable mortgage notes. The following discussion analyzes the application of these rules to that deteITnination in the case of mortgage notes that are negotiable instruments. or the purposes and policies those provisions reflect. address all of the rules in the uee relating to enforcement. the Uniform Commercial Code is the primary source of commercial law rules in areas that it governs. and ownership of mortgage notes.
requires that the person be in possession of the note and either (i) the no' ~ is payable to that person or Oi) the note is payable to bearer. Note that "'delivery" of a negotiable instrument is defined in UCC § 1-201(b)(15) as voluntary transfer of possession
17 An indorsement maya Jpear either on the instrument or on a separate piece of paper (usually referred to as an allonge) affixed to the instrument. . Detemllning to whom a aote is payable requires examination not only of the face of the note but also of any indorsements. Comment J ("Delivery to an agent [ofa payee] is delivery to the payee. set out in detail in uee Section 1-201(b)(21)(A). a maker is also discharged by paying a person formerly entitled to enforce the note if the maker has not received adequate notification thaI. may include possession by a third party such as an agent) 16. the amount of the note to the person entitled to enforce the note constitutes dishonor of the note. when due.(i) the maker's obligation on the note is to pay the mnount of the note to the person entitled to enforce the note. a note payable to the order of a named payee that is indorsed in blank by that payee becomes payable to bearer. 18 " The second vvay that a person may be the person entitled to enforce a note is to be a "nonholder in possession of the [note] who has the rights of a holder.ke also DCC § 3-420. 14 and the maker's failure to pay. two of which require the person to be in possession of the note (which. such as the Jaw of
13 lJCC § 3A 12. 4.
.. and an indorser has paid the note to the persoll entitled to enforce it. a person seeking to enforce rights based on the failure of the maker to pay the note must identify the person entitled to enforce the note and establish that that person has not been paid. 15
(ii) (iii) Thus. The discussion of Question Two addresses how ownership of a note may be effectively transferred from an owner to another person. par. See uee § 3-204(a) and Comment 1." o How~an a person who is not the holder of a note have the rights of a holder? This ean occur by olPeration of law outside the DeC. (If the note has been dishonored.)
14UCC § 3-601.").
See uee §§ 3·502. the note has been transferred and that payment is to be made to the transferee. This is because the party to whom a note is payable may be ctanged by indorsement 17 so that. 13 the maker's payment to the person entitied to enforce the note resu1ts in discharge of the maker's obligation. the maker's obligation runs to the indorser. See also uec § 3-60L
See DeC § l--103(b). This portion of the Report sets out the criteria for qualifying as a "person entitled to enforce" a note." This familiar concept. for this purpose. for example. The first way that a person may qualify as the person entitled to enforce 1 note is to be its "holder.
vee Section 3-301 provides only three ways in which a person may qualify as lhe person
entitled to enforce a note. . In states that have enacted thc 2002 Official Text ofUer Article 3.
18UCC Section 3-205 contains the rules concerning the effect of various types of indorsement on the party to whom a note is payable.
a note is transferred "when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument." For example. This method is quite limited. if a holder (who.
Dec § 3-309(a)(iii) (1990 text).f what circumstances does de.22 In such a case. does not require possession of the note. assume that the plyee of a note sells it to an assignee.
2J If the note was transferred for value and the transferee does not qualify as a holder because of the lack of indorsement by the transleror. but was rejected in a federal district court opinion in which tlu~ isme was raised. a person qualifies as a person entitled to enforce the note if the person demonstrates not only that one of those circumstances is present but also demonstrates that the person was
--------. See lICC § 3­ 309(a)(l)(B) (2002). intending to transfer all of the payee's rights to the note..feror to enforce the instrument. 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. the assignee now has all of the payee's rights to enforce the n()te and thereby qualifies as the person entitled to enforce it. a subsequent transfer will result in the subsequent transferee being a person entitled to enforce the note.}plies only in cases in which "the person cannot reasonably obtain possession of the instmment hecause the instmment was destroyed." See uec § 3-203(c).ivery of a note quallfy as a transfer? As stated in uec Section 3-203(a).------­
See Official Comment to UCC § 3-301.20 Thus. 3-309(a)(3) (2002 text). is a person entitled to enforce a note) transfers the note to another person. UCC § 3-203(b). because the transaction between the payee and the assignee qualifies as a transfer. its whereabouts cannot be determined.subrogation or estate administration. see below) because transfer of a note "vests in the transferee any right of the tram. o Und!~. by which one person is the successor to or acquires another person's rights.it 3. unlike the previous two methods. "the transferee has a specifically enforceable right to the unqualified indorsement of the transferor.
. This point was thought to be implicit in the 1990 text. The assignee will not qualify as a holder (because the note is still payable to the payee) but.. 19 It can also occur if the deliwTY of the note to that person constitutes a ''transfer'' (as that term is defined in uec Article 3. The 2002 text goes on to provide that a transferee from the person who lost possession of ill note may also qualify as a person entitled to enforce it. as seen above. the failure to obtain the indorsement of the paye(: does not prevent a person in posseSSlOn of the note from being the person entitled to enforce it. Thus... Similarly. that other person (the transferee) obtaim from the holder the right to enforce the note even if the transferee does not become the holder (as in the example bebw). but demonstrating that status is more diffie-ult This is because the person in possession of the note must also demonstrate the purpose of the delivery of the note to it in order to qualify as the person entitled to enforce?1 • There is a thilrd method of qualifying as a person entitled to enforce a note that. but delivers the note to the assignee without indorsing it.
" 24uee § 9-109(a)(l). • The rules concerning transfer of ownership and other interests in a note. thus. It does not address who "owns" the note. a note is owned by the payee to whom it was issued. the same rules that apply to transactions in which a payment right is collateral for an obligation also apply to transactions in which a payment right is sold. or an interest in it.104 but also notes that do not fulfill those requirements but nonetheless are of a "type that in ordinary business is transferred by delivery with any necessary indorsement or assignment. Ifthat payee seeks either to use the note as collateral ·or sell the note outright. providing the maker with a relatively simple way of determining to whom his or her obligation is owed and.one for transactions in which payment rights are collateral and the other for sales of payment rights . as explained earlier this is not always the case. Initially. payment intangibles. and promissory notes. have been effectively transferred serve different functions: • The rules that determine who is entitled to enforce a note are concerned primarily with the maker of the note. however.formerly in possession of the note and entitled to enforce it when the loss of possession occurred and that the loss of possession was not as a result of transfer (as defined above) or lawful seizure. Dec § 9-109(a)(3). but the court may not enter judgment in favor of the person unless the court finds that the maker is adequately protected against loss that might occur because if the note subsequently reappears?3
Question Two . the person may enforce the note. Article 9 oftpeUCC governsthattransaCit~on and determines whether~. While in many cases the owner of a note and the person entitled to enforce it are the same person. Rather than contain two parallel Sl~ts of rules -. a matter as to which the maker is indifferent so long as it does not affect whom the maker must pay. Article 9 governs the sale of accounts. is entitled to the economic value of the note. As is generally known. as well as the terms of the note.hecreditor or buyer has obtain6d a property right in the note. Article 9 governs transactions in which property is used as collateral for an obligation. this Report addresses identification of the person who is entitled to enforce a note. on the other hand. 25 With very few exceptions." See uee § § 9-102(a)( 65) (definition of "promissory note") and 9-102(a)( 47) (definition of "instrument" as the term is used in Article 9).What Steps Must be Taken for the Owner of a Mortgage Note to Transfer Ownership of the Note to Another Person or Use the Note as Collateral for an Obligation?
In the discussion of Question One. If the person proves those facts.
reasonable means. chattel paper. ­
23 See uee § 3-309(b). This is because the rules that determine who is entitled to enforce a note and the rules that determine whether the note. 24 In addilion. Article 9 governs the sale of most payment rights. including the sale of both negotiable and non-negotiable notes. The term "promissory note" indudes not only notes that fulfill the requirements of a negotiable instmment under uee § 3. among competing claimants. whom to pay in order to be discharged. relate to who. 2S
This subsection goes on to state that "Adequate protection may be provided by any With certain limited exceptions not germane to this Report. 6
• 'Thefitsttwo criteria are stra. See VCC § 9-102(a)(7). SeeUCC .C:§' 93131salsopossession fOH:Plll'poses ofUCe § 9-203. Party must take possession33 . This Report does not address the effect of that omission. fl. however.31 that describes the note 32 or the secured."secufeaparlY. of it pursuant to tbe debt(jr'sseeurity agreement. .noteis' soldP Section 9-203(b) of the Uniform Commercial CodepJ'ovi(res ·thatthfeecfitetial1lust\?~.
28 liCe § 9-~o.' securityinteresf" in the l}ote.Conunent4.)sfbegivert28 at1if tI1.tJfa pron1iss(}ryntJtehasa '. or by accepting delivery 'ofthem Uriliefapreexi&tingq<:iritfltCt for their purchase. limiting the property to a particular category or type. if it reasonably identifies the property. SeeUgC'§ 9"203.) The limitation to transactions governed by Article 9 refers to the exclusion.30 a "security agreement.. 32 Article 9's criteria for descriptions of property in a security agreement are quite flexible. A "supergeneric" description consisting solely of words such as "all of the debtor's assets" or "all of the debtor's personal property" is not sufficient.Article 9 uses nomenclature conventions to apply one set of rules to both types of transactions. (12). and ther\lles 'that apply 10 secl.. . A ~'secur!ty~greemen. such as "all notes. tl1~ .c<JllifiitgtiJem f01) considera:tion but'itlsoa!. VCC § 9-108(c). any description suffices.9d 02(a)(28). A narrower description.~ d~bitJt/sellef musthave rights in the note?9 • The third criterion may be fulfilled in either one of two ways.See'OCC .§§ .''Vallie'' ml.
31 33 Se. 29 VCC § 9-203(b)(2)..~01'~~~(Sj(l51udesnot onlya.iriclua~ .ightforward -. As noted in Official Comment 3 to VCC § 9-313. it: did not enact the amendment to § 1-201.?(p)·( n:' ucc§'1-704 provides that giving"value.quiring them in refilm for a bim:lingcommiiine(l~ to extend credit.tlfilled in order for theoWller of a mortgage note effectively to'create a"security inten~sl" (either an interest in the note securing an obligation or the outright sale of the note to a buyer) in it.orpartlalsatisfactionof a preexisting claim. See Official Comment 6 to VCC § 9-203. Limited rights that are short of full ownership are sufficient for this purpose. (For reasons that are not apparent.·c()nventions · define "debtor" to . 26 As a result. This is accomplished primarily by defining the tefm "security interest" to include not only an interest in property that secures an obligation but also the right of a buyer of a payment right in a transaction governed by Article 9. 34 VCC §§ 9-203(b)(3)(A)-(B).b¥~C.sel1er·of1!JlaYhlentri. when South Carolina enacted the] 998 revised text of VCC Article 9. For example. whether or not specific.
.1'ltnre..:" is an agreement that creates or proyides[or asccutity interest (including the rignts ·of a buyer arising uponlheoutrightsale of a payment right).
(72). as' security for or in complete. gossessibn as contel1lpIated. the principles of agency apply.ib·9jter. 34
See VCC § 1-201(b)(35) [VCC § 1-201(37) in states that have not yet enacted the 2001 revised text ofUCC Article]]. in cases not germane to this Report. which included an amendment to VCC § 1-201 to expand the definition of "security interest" to include the right of a buyer of a promissory note. . forpurpos¢s of Article 9.~t itholds theeollateral for the secured party's be~~fit.i1g indnde tne buyer of ~p:lymentright. 27 · ~jniiIat'ridl11eP<." is sufficient." VCC § 9-313(c) also contains a rule under which possession by a non-agent (such as a bailee) may constitute possession by the secured party if the person authenticates a record acknowledging t~.§9-XQ2(a)(73).ght. Generally speaking. a description that refers to "all of the debtor's notes" is sufficient. See VCC § 9-108(a)-(b).
This term is defined to include signing and its electronic equivalent. "in determining whether a particular person has possession.p:f1:Y interests that secureailobligaiion aIstJ apply totransaetions 'tiWhicb"apromiss(}ry . Either the debtor must "authenticate. of certain assignments of payment rights from the reach of Article 9.e VCC § 9-313.~d"col1aterar" to inc~udeasold p~ym~nt'right. th~.
g.. Bank v. such as contract and agency law. this criterion is satisfied even if the secured party does not take possession of the note. the perfection and priority rules are largely in-elevane (Of course. while this matter has engendered some confusion. in some cases. the court citeD M assacllllsetts common law precedents pre-dating the enactment of the Cllm:nt text of Article 9 to the effect that a mortgage cloes not foHow a note in the absence of a separate assignment
. however.he case of notcs that are negotiable instruments.'6
Question Three .it result of another "oluntary transfer by the debtor Of otherwise). 458 Mass. 2011).feree."=le Mortgage Securing It?
What if a note secured by a mortgage is sold (or the note is used as collateral to :.What is the Effed of Transfer of an Interest in the Note OL . or other lien. o Alternatively. As between the person entitled to enforce the note and the cwner of the note. e. 10. application of the perfectiion and priority rules can result in the transferee eithcl' being subordinate to the rights of a competing claimant or being extinguished by the fights of the compe ing claimant. in which the seller of a note may retain possession of the owner of a note can lie a different person than the person entitled to enforce the notei5 Satisfaction of these three criteria of Section 9-203(b) results in the secured party (including a buyer of the note) obtaining a property right (whether outright ownership or a security interest to secure an obligation) in the note from the debtor (including a seller ofthe note).) 37See . the Article 3 concept of "holder in due course" (see uec § 3-302) should be considered as well. mortgage. a "security interest" in a note includes the right of a buyer of the note. but the parties do not formally assign the mortgage that secures payment of the note? DeC Section 9-203(g) explicitly provides that the mortgage automatically follows the note: "The attachment of a security interest in a right to payrn. accompanied by a separate conveyance of the mortgage securing the note does not result in a separation of the mortgage from the note.ed by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest. 20n WL 38071 (Mass. See.he money paid by the maker is det. the discussion ofthi8 issue in u.37 the law is clear. Ibanez. because a holder in due course takes its rights in an instrument frl:e of competing property claims to it (as well as free of most defenses to obligations on it). this criterion is satisfied even if ihat agreement is oral.s the maker's obligations on the Hote.
3~'or cases in which another person claims an interest in the note (whether as .. uec § :l-602.ermincd by the HCe and other applicable law." (As noted previously. p. 637. the right to t. In that discussion.) Thus. payment by the maker of a negotiable note to the person entitled to enforce it discharge. at slip op. In .
35 As noted in the discussion of Question One..o Thus.ecure an obligation). TillS is the case even if the person entitled to enforce the note is not its owner. UCC §§ 3-306 and 9-315(a)(2). if the secured party (including a buyer) takes possession of the mortgage note pursuant to the security agreement of the debtor (including a seller). e.ent or pc:rformance secu. See uce §§ 3-305 and 3JO()~ With respect to determining whether the owner of a note has effectively transferred a property interest to a tram. determine whether a party has taken the note free of competing claims to the note). (Note that inlthis situation. if the debtor authenticates a security agreement describing the note.38 and the sale of a mortgage note not.g.s. rc1'erence to Article 9's mles governing perfection and priority nfsecurity int~:rests may be required in order to ral1k order those claims (and.
it in the Note Has Been Transferred.such att. vee Section 9-607(b) provides that "if necessary to enable a secured party [including the buyer ofa mortgage note] to exercise .42
of the mortgage."
See discussion of Question Three. the defaulting debtor may simply be unwilHng to assist its secured party. a party without a recorded interest in a mortga..obligation secured by a security interest or other lien on personal or real property also transfers the security interest or lien. application of uec § 9-203(g) would result in the conclusion that the holder of the note in question had an interest in the mortgage securing the note only if the holder demonstrated that it had an attached security interest (including the interest of a buyer) in the note.he Note?
In some states. mean that the holder can enforce the mortgage without a recordable assignment t.Question Four -.
In some cases.Maya Person to Whom an Intere. of itself.ge lnay not enforce the mortgage non-judicially.UCC§ 9-6C17(b) does not address other eonditimi~ that mustbe ~atisfied for judl'cial or rtoft-judlcial enforcement of atnottgage.but. In other cases. Such a conclusion would not. in cases in wbich mortgage note was collateral for an obligation owed to the secured party. even though the buyer of a mortgage note (or a creditor to whom a security interest in the note has been granted to secure an obligation) automatically obtains corresponding rights in the mortgage.
. 42 of course.:J it That matter is the province of real property law and is addressed.. in the discussion of Question 4 below. the seller or debtor may no longer be in business. means default with respect to the note or other obligation secured by the mortgage. it may simply be unresponsive to requests for execution of documents with respect to a tcransaction in which it no longer has an economic interest. in part. In l'alch states. but did not address the effect of Massachusetts's subsequew~ enactment of uee § 9-203(g) on those precedents..attempt maybeun success 40
m1. Of course. Sec Official Comment 8 to UCC § 9-607.. the right of [its transferor)to enforce a mortgage llonjudicially. 38 Official Comment 9 to UCC § 9-203 confirms this point: "Subsection (g) codifies the common-law rule that a transfer of an. hut Who Has not." the secured party may record in the office in WhICh the mortgage is recorded (i) a cOPJ. of confse.
The 2010 amendments to Article 9 (promulgated by the American Law Institute and the Uniform Law Commission but not yet enacted) add language to this provision to clarify that "default." in this context.attempt to obtain snch a recordable assignment rrom?theseller or debtor aHhelime it seeks to enforce the mOltgage. Taken a Recorda~le Assignment of the Mortgage. Take Steps to Become the Assignee of Record of the Mortgage Securing t. of the security agreementtransferring an interestin thejloteto~he secured party and (ii) the secured party'ssW011l affid::1vitin recordable foml stating that default has occurred41 and!~a~4Ithesecure4 partYisi entitled'to enforce ·tliemortgagenoil-judici:Itty. supra. Moreover.39 this may be insufficient as a matter of applicable real estate law to enable that buyer or secured creditor to enforce the mortgage upon default of the maker if the buyer x secured creditor does not have a recordab]e assignment Thehuyethrother secured creditor may.
Article 9 of the DOC provides such a buyer or secured creditor a mechanism by which it can record its interest in the realty records in order to conduct a non-judicial foreclosure.
• Finally. be central to administration of that law. but legal determinations made pursuant to the four sets ofUee rules described in this Report will.tt i n the note has attached also automatically has an attached property right in the mortgage that secures the note. proper application of real property law requires proper application of the underlying uee rules. upon default of the maker of the note. but failure to pay that party when the note is due constitutes dishonor. in the case of a mortgage note that is a negotiable instrument. Article 3 of the DCC determines the identity of the person who is entitled to enforce the note and to whom the maker owes its payment obligation. these uee rules do not resolve all issues in this field. Article 9 of the DeC determines whether artransferee of the note from its dwnerhasobtainedan attached propertY-rigHt in the note.yvbose tirdperty rigl. Article 9 of the uee provides a mechanism by which the owner of a note and the mortgage securing it may. payment to the person entitled to enforce the note discharges the maker's obligation. Article 9 of the uee provides that a transferee of a mortgage note . • Second. Of course. as noted previously.Summary
The Uniform Commercial Code provides four sets of rules that determine matters that are important in the context of enforcement of mortgage notes and the mortgages that secure them: • First. In such cases. The enforcement ofreal l~state mortgages by foreclosure is primarily the province of a state's real property law. for both negotiable and non-negotiable mortgage notes. in many cases. record its interest in the mortgage in the realty records in order to conduct a non-judicial foreclosure. • Third.
Sign up to vote on this titleUsefulNot usefulx a - Ucc Draft Report Assignment Note and Dot by Ronald Ryan0.0 (0)EmbedDownloadRead on Scribd mobile: iPhone, iPad and Android.Copyright: Attribution Non-Commercial (BY-NC)List price: $0.00Download as PDF, TXT or read online from ScribdFlag for inappropriate contentMore informationShow less
RelatedThe Two Notesby A. CampbellHolder in Due Courseby rajuarora40in Negotiable Instrumentby Jonathan GoodwinCook County Certificate of Assumed Nameby Alma McCauleyUCC Report On Mortgagesby Property Defense NetworkDeception in Our Courts 4-15-11 Wowby jgsellersCASE NO 812-cv-690-T-26EAJby Foreclosure FraudWA RCW Laws and the UCC pertaining to forclosureby Sam SalmonFla R Civ P - Feb 2012by Pamela Moorman FeroNegotiable Instrumentsby Santosh BandarupalliTripleEnhancedDVL030111Againby Walter JosephLaw on Negotiable Instumentsby mypc143How to Find Who Owns the Noteby 900adayFIGHTING FORECLOSUREby THEYDONTWINDefendants' Answer, ADs & CCsby Richard F. KohnAre You a Citizen by Choice or by Presumption 131kb 090411by walkingtruthCHASE HAD NO EFFECTIVE CONTROL OVER ITS FORECLOSURE PROCESSES -OIG HUD AUDIT REPORT ON CHASE -MARCH 12 2012--NOTARIES DID ILLEGAL NOTARIZATIONSby 83jjmackSecured Transactions Spring 2010by Joshua Ryan Collums_notes_sovereignty_bill_thorntonby rpepUcc Financing Statement Amendmentby DebbieCook59Citizen Legal Fictionby shelleyFirst Amended Answers Defenses and Counterclaimsby David CamposPEB Draft Re Assignment of Notesby schoepsRevised UCC Article 9 Impact on Wet Funding Mortgage Loan Transactionsby 83jjmackDebt Counter Debt Enhanced Validation Letter RED(2)by Bruce LewisNilby Colleen InfanteNego Notesby Epoy PinoteUCC FORECLOSURE SLIDE SHOWby THEYDONTWINSimilar to x a - Ucc Draft Report Assignment Note and DotSkip carouselThe Two NotesHolder in Due Coursein Negotiable InstrumentCook County Certificate of Assumed NameUCC Report On MortgagesDeception in Our Courts 4-15-11 WowCASE NO 812-cv-690-T-26EAJWA RCW Laws and the UCC pertaining to forclosureFla R Civ P - Feb 2012Negotiable InstrumentsTripleEnhancedDVL030111AgainLaw on Negotiable InstumentsHow to Find Who Owns the NoteFIGHTING FORECLOSUREDefendants' Answer, ADs & CCsAre You a Citizen by Choice or by Presumption 131kb 090411CHASE HAD NO EFFECTIVE CONTROL OVER ITS FORECLOSURE PROCESSES -OIG HUD AUDIT REPORT ON CHASE -MARCH 12 2012--NOTARIES DID ILLEGAL NOTARIZATIONSSecured Transactions Spring 2010_notes_sovereignty_bill_thorntonUcc Financing Statement AmendmentCitizen Legal FictionFirst Amended Answers Defenses and CounterclaimsPEB Draft Re Assignment of NotesRevised UCC Article 9 Impact on Wet Funding Mortgage Loan TransactionsDebt Counter Debt Enhanced Validation Letter RED(2)NilNego NotesUCC FORECLOSURE SLIDE SHOWNEED_ACTVerified Complaint Statutesx a - Ucc Draft Report Assignment Note and Dot