For Immediate Release:
REPORT NOW AVAILABLE ANALYZING THE APPLICATION
OF THE UNIFORM COMMERCIAL CODE TO SELECTED ISSUES
RELATING TO MORTGAGE NOTES
November 18, 2011 – The Permanent Editorial Board for the Uniform Commercial Code (PEB) has recently issued a PEB Report on the Application of the Uniform Commercial Code to Selected Issues Relating to Mortgage Notes. The Report is now available online at www.uniformlaws.org (click here for direct link) or 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 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.
The UCC 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. Accordingly, the PEB Report only provides guidance as to the specific issues that the Report addresses.
Issues relating to the transfer, ownership, and enforcement of mortgage notes are primarily governed by two Articles of the UCC. In cases in which the mortgage note is a negotiable instrument, UCC Article 3 provides rules governing the obligations of parties on the note and the enforcement of those obligations. In cases involving either negotiable or non-negotiable notes, UCC Article 9 contains important rules governing how ownership of those notes may be transferred and the effect of transfer of ownership of the notes.
The PEB Report explains the application of the rules in those Articles to the following four questions:
- To whom is the obligation to pay a mortgage note owed?
- 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?
- 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?
- What actions may a person to whom an interest in a mortgage note has been transferred, but who has not taken a recordable assignment of the mortgage, take in order to become the assignee of record of the mortgage securing the note?
While the enforcement of real estate mortgages by foreclosure remains primarily the province of a state’s real property law, legal determinations made pursuant to the four sets of UCC rules described in the PEB Report will, in many cases, be central to administration of applicable real estate law.
The PEB was established in 1961 by the American Law Institute (ALI) and the Uniform Law Commission (ULC), the organizations that jointly sponsor the Uniform Commercial Code. 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 . . . to advance the uniformity and orderly development of commercial law.” Such commentaries are issued directly by the PEB rather than by action of the ALI and the ULC.
This Report of the PEB is such an articulation, addressing the application of the UCC to issues of legal, economic, and social importance arising from the issuance and transfer of mortgage notes. A draft of the Report was made available to the public for comment on March 29, 2011, and the comments that were received have been taken into account in preparing the final Report.
For further information, please contact:
John Sebert, Chair, Permanent Editorial Board for the Uniform Commercial Code,
john.sebert@uniformlaws.org, 312-450-6600
Deanne Dissinger, Associate Deputy Director, American Law Institute,
ddissinger@ali.org, 215-243-1684
Katie Robinson, Deputy Legislative Director, Uniform Law Commission,
katie.robinson@uniformlaws.org, 312-450-6616
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