The Permanent Editorial Board
for the U.C.C. recently issued a report explaining the Code provisions relevant
to the transfer and enforcement of mortgage notes. This report highlights the
particular provisions of Articles 3 and 9 that pertain to who can enforce
promissory notes in real property transactions and to how those notes can be
used as collateral in secondary transactions.
The secondary mortgage market
has grown considerably over the last decade, and with the recent economic
downturn, more and more holders of mortgage debt have found themselves
resorting to foreclosure on the real property securing the mortgage. Although
many issues related to mortgage foreclosures are governed by local real
property laws, questions regarding the transfer of notes and their accompanying
mortgages in the secondary market are covered by the Uniform Commercial Code.
The Permanent Editorial Board for the U.C.C. recently issued a report
explaining the Code provisions relevant to the transfer and enforcement of
mortgage notes. P.E.B. Report on Application of the Uniform Commercial Code
to Selected Issues Relating to Mortgage Notes (Nov. 14, 2011) ("P.E.B.
Report"). This report highlights the particular provisions of Articles 3
and 9 that pertain to who can enforce promissory notes in real property
transactions and to how those notes can be used as collateral in secondary
The P.E.B. Report addresses the basic scenario in which Borrower borrows money
from Lender to purchase a parcel of real estate. Borrower signs a promissory
note reflecting the obligation to pay back the loan and also gives Lender a
security interest in the real property, i.e., a mortgage, to secure that
obligation. Lender then assigns the note and mortgage to Financer for immediate
cash, and Financer takes possession of both the note and the mortgage. If
Borrower subsequently defaults on his obligation, Financer will seek to enforce
the note and to foreclosure on its mortgage interest in the land.
The first question presented is who is entitled to enforce the mortgage note
under these circumstances, and the P.E.B. Report states that U.C.C. Article 3
largely determines the obligations of parties to negotiable instruments, such
as negotiable mortgage notes. See P.E.B. Report at 4. In the above
scenario, the ideal situation for Financer seeking to enforce Borrower's note
is where Financer has possession of the note and Lender has indorsed the note
either to Financer or in blank. In either case, Financer would be a
"holder" of the note and entitled to enforce it against Borrower. U.C.C.
§§ 1-201 (b)(21)(A), 3-301 (i) (Official Text 2009).
Access the full version of "The Uniform Commercial Code
and the Transfer of Mortgage Notes" with your lexis.com ID. Additional
fees may be incurred.
If you do not have a lexis.com ID, you can purchase this commentary and additional Emerging Issues Commentaries from the LexisNexis Store.
Lexis.com subscribers can access the complete
set of Emerging Issues Analyses for Commercial (UCC) Law and the Commercial (UCC) Area of Law page.
For more information about LexisNexis
products and solutions connect with us through our corporate site.
I had a very good experiance in notes busniess, you only need a sale boosting person, especialy in mortgage notes...