Things to keep in mind:
- A complete mortgage loan instrument consists of two different instruments and they are to be construed as one instrument; 1, a Negotiable Instrument (Note) and 2, a Security Instrument (Mortgage/Deed of Trust). Under Texas law “separate instruments or contracts executed at the same time, for the same purpose, and in the course of the same transaction are to be considered as one instrument, and are to be read and construed together.” Jones v. Kelley, 614 S.W.2d 95, 98 (Tex.1981); see also Vista Dev. Joint Venture II v. Pac. Mut. Life Ins. Co., 822 S .W.2d 305, 307 (Tex.App.-Houston [1st Dist.] 1992, writ denied) (applying rule to promissory note and deed of trust).
- The Federal Uniform Commercial Code (UCC) has been adopted by all 50 state’s legislatures therefore the Federal code or state’s equivalent is subject to venue.
- UCC 3-203 is the “only” statute under negotiable instruments that governs the transfer of instruments and rights acquired by transfer.
- A tangible instrument is an instrument in its original physical form e.g. the original paper Note, Mortgage, or Deed of Trust.
- A “Payment Intangible” is defined in UCC 9-102(a)(61) as “a general intangible under which the account debtor’s principal obligation is a monetary obligation” such as the revenue stream (promise to pay) and is governed by UCC 9 et seq.
- An account debtor is defined in UCC 9-102(a)(3) as “a person obligated on an account, chattel paper, or general intangible. The term does not include persons obligated to pay a negotiable instrument, even if the instrument constitutes part of chattel paper.” Notice this statute excludes borrowers (“persons obligated to pay a negotiable instrument”).
- “Promise” means a written undertaking to pay money signed by the person undertaking to pay… UCC 3.301(a)(12) Key word here is, “written”.
- An intangible Note would be an electronic copy (e-note) of the tangible paper document which is governed by 15 USC § 7003 et seq, and UCC Art. 8 et seq.
- A negotiable instrument is defined in UCC 3-104 (in part) as “an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order”, and is governed by UCC Art. 3 et seq.
- Security interests are governed by UCC Art. 9 et seq.
- A 20 day “temporary perfection” is provided by UCC 9-312(e),(f),(g) in which time it must be properly perfected. See respective state’s requirements to public record security interests in real property.
- Pursuant to the above, the only way a party can possess a secured interest is by perfection of the security interest pursuant to recording requirements in public record therefore, logic would dictate that as a matter of law, if a security interest is not perfected within the statutory 20 day period, then on the 21st day it becomes an unsecured interest and lien rights are not acquired.
If a debt validation request is sent to a mortgage servicer chances are the respondent will send back a copy of the negotiable instrument as it exists at the time the request was made. The copy should have a stamp on the last page that reads, “Pay to the Order Of ____________ Without Recourse”. Do not confuse this incomplete stamping with an “endorsement in blank”. There is an unnamed payee on the payee line, but someone will have usually signed the incomplete stamping claiming to be an authorized agent, or an assistant secretary or something of the like.
In today’s secondary markets the tangible negotiable instrument is not what is securitized. The only thing of value (promise to pay) has been stripped from the tangible instrument and sold into a Real Estate Mortgage Investment Conduit (REMIC) it the form of an e-note. Though this is not an illegal act it creates a fatal flaw pursuant to UCC 3-203(d) which provides, “If a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur. The transferee obtains no rights under this Article and has only the rights of a partial assignee.”
The signature of an unnamed payee evidences a failed attempt to negotiate the instrument and chances are the transfer was not publicly recorded therefore no rights were acquired by transfer or at very best only partial rights may have been acquired, and as a result the negotiable instrument is no longer eligible for negotiation.
See respective state’s court records for supporting case law.
Joe Esquivel and I go over this in greater detail in the first our of the Rule of Law Radio broadcast linked here: http://mp3.logosradionetwork.com/ROL/64k/ROL_2013-11-15_64k_Hr1&2.mp3
If you would like to listen to the last two hours of that broadcast please do so here: http://mp3.logosradionetwork.com/ROL/16k/ROL_2013-11-15_16k_Hr1&2.mp3
I hope you enjoy the show.