Source: http://certifiedforensicloanauditors.com/articles/07.14/federal-court-in-pennsylvania-strikes-at-the-heart-of-the-residential-mortgage-system.html
Timestamp: 2019-05-24 07:02:55
Document Index: 177839453

Matched Legal Cases: ['§351', '§351', '§351', '§444', '§351', '§351', '§351', '§9', '§351']

Federal Court In Pennsylvania Strikes At The Heart Of The Residential Mortgage System
mondaq.com | July 11, 2014
The district court first announced that §351, and its predecessors as far back as 1863, make recording of conveyances mandatory. The court then acknowledged the contrary lines of Pennsylvania cases describing mortgages variously as conveyances or liens for different purposes. Citing Pines v. Farrell, 848 A.2d 94 (Pa. 2004), however, the district court found that mortgages and mortgage assignments (and mortgage satisfactions and releases) are conveyances subject to the recording mandate of §351. The district court then found that a mortgage and the note it secures are inseparable, such that a transfer of the note effects a transfer of the mortgage. Thus, the district court declared that the failure to create and record documents evidencing the transfers of promissory notes secured by mortgages on real estate in Pennsylvania violates §351. In a footnote, the district court volunteered that this failure also violates 21 P.S. §§444 and 621, the so-called "stale instrument statues," which require that conveyances be recorded within 90 days and mortgages be recorded within six months, respectively.
Unlike the residential MERS system, there is no electronic book entry system for tracking the ownership of commercial secured debt and no club that lenders must join to participate in the ownership and trading of commercial mortgage debt. But in other respects, a commercial syndicated loan is very much like a MERS residential loan. Like MERS in the residential system, the collateral agent in the syndicated loan market serves as the agent for lenders. Like the notes in the residential system, the lenders' interests in the syndicated loan transfer freely and remain secured by the mortgage notwithstanding transfers. Under the reasoning of the district court that the obligation and the mortgage are inseparable, the failure to create and record documents evidencing the transfers of interests in the syndicated loan could be argued to violate §351 and the stale instrument statutes.
Although the mortgages may be assigned of record to a trust, and assignments are often executed and held for recording if necessary, the parties typically rely on the provisions of Article 9 of the Uniform Commercial Code (UCC), which define a "security interest" to include the sale of a promissory note, and govern the "attachment" and "perfection" of a sale of a promissory note and of the liens and security interests that secure it, including a mortgage. Sections 9-203(g) and 9-308(e) of the Pennsylvania UCC, taken together, provide that to the extent a mortgage secures a promissory note, if a party takes the steps necessary under the UCC to acquire a perfected security interest in (which in this context includes assignment of) the promissory note, that party acquires a perfected security interest in (i.e., an assignment of) the related mortgage. Article 9 allows for automatic perfection of a purchaser's interest in a promissory note by the filing of a financing statement or possession of the promissory note by the secured creditor. Therefore, solely under Article 9 of the UCC, recordation of an assignment of mortgage is not considered necessary to create or perfect a security interest in a mortgage securing a note against claims of purchasers from or creditors of the assignor of the note and mortgage. Since these provisions of Article 9 of the UCC, as currently codified, were enacted after §351 and the stale instrument statutes, it can be argued that Article 9 repealed §351 and the stale instrument statutes for transactions covered by Article 9.
The district court in the Montgomery County Recorder case was not presented with this argument. The district court did, however, mention §9-203(g) of the Pennsylvania UCC as being in accord with the general proposition that a mortgage and the note it secures are inseparable. Following the district court's logic, therefore, assigning a promissory note and mortgage by delivering the note to the trustee and filing a financing statement, without also assigning the mortgage of record, would violate §351 and the stale instrument statutes.