New Report Released on UCC’s Application to Mortgage Notes
by Neil B. Cohen, Director of Research for the Permanent Editorial Board
for the UCC
On November 14, 2011, the Permanent Editorial Board for the Uniform Commercial Code (PEB) issued its report “Application of the Uniform Commercial Code to Selected Issues Relating to Mortgage Notes.” The Report is available online at www.ali.org.
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 uniform way throughout the United States by provisions of the Uniform Commercial Code (UCC).
Although the UCC provisions are settled law, 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 PEB Report advances the understanding of this statutory background by identifying and explaining several key rules in the UCC that govern the transfer and enforcement of notes secured by a mortgage in real property. Issues relating to the transfer, ownership, and enforcement of mortgage notes are primarily governed by two Articles of the UCC: Article 3, which governs the obligations of parties on mortgage notes that are negotiable instruments, and Article 9, which governs how ownership of negotiable and non-negotiable notes may be transferred and the effect of transfer on the ownership of the notes and the mortgages that secure them.
The PEB Report explains the application of the rules in those Articles to issues such as who may enforce a mortgage note, what steps must be taken to transfer ownership of a mortgage note or use the note as collateral for an obligation, the effect of a transfer of a mortgage note on the mortgage securing it, and what steps a person to whom a mortgage note has been transferred may take in order to become an assignee of record of the mortgage note if that step is necessary for nonjudicial foreclosure.