UCC Hierarchy of Rights to Enforce Note and Mortgage

HAPPY NEW YEAR to readers who celebrate Rosh Hashanah! To all others, have a HAPPY DAY. This is a prescheduled article.


I have assembled a partial list of various possible claimants on the note and various possible claimants on the mortgage. Which one of these scenarios fits with your case? Once you review them you can see why most law students fall asleep when taking a class on bills and notes. Some of these students became practicing attorneys. Some even became judges. All of them think they know, through common sense, who can enforce a note and under what circumstances you can enforce a mortgage.

But common sense does not get you all the way home. It works, once you understand the premises behind the laws that set forth the rights of parties seeking to enforce a note or the parties seeking to enforce a mortgage. The only place to start is (1) knowing the fact pattern alleged as to the note (2) knowing the fact pattern alleged as to the mortgage and (2) looking at the laws of the state in which the foreclosure is pending to see exactly how that state adopted the Uniform Commercial Code as the law of that state.

I don’t pretend that I have covered every base. And it is wise to consider the requirements of law, as applied to the note, and the requirements of equity as applied to the mortgage.

In general, the UCC as adopted by all 50 states makes it fairly easy to enforce a note if you have possession (Article 3).

And in general, the UCC as adopted by all 50 states, increases the hurdles if you wish to enforce a mortgage through foreclosure. (Article 9).

The big one on mortgages is that the foreclosing party must have paid value for the mortgage which means the foreclosing party must have purchased the debt. But that is not the case with notes — except in the case of someone claiming to be a holder of the note in due course. A holder in due course does not step into the lender’s shoes — but all other claimants listed below do step into the lender’s shoes.

The other major issue is that foreclosing on a mortgage invokes the equitable powers of the court whereas suing on the note is simply an action at law. In equity the court takes into consideration whether the outcome of foreclosure is correct in the circumstances. In suits on notes the court disregards such concerns.

Knowing the differences means either winning or losing.

Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult.

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UCC Hierarchy 18-step Program – Notes and Mortgages

The following is a list of attributes wherein a party can seek to enforce the note and mortgage if they plead and prove their status:

  1. Payee with possession of original note and mortgage.
  2. Payee with lost or destroyed original note but has original mortgage.
  3. Payee with lost or destroyed original note and lost or destroyed original mortgage.
  4. Holder in Due Course with original note endorsed by payee and original mortgage and assignment of mortgage by mortgagee.
  5. Holder in due course with lost or destroyed note but has original mortgage.
  6. Holder in due course with lost or destroyed original note and lost or destroyed original mortgage.
  7. Holder with rights to enforce with possession of original note and original mortgage.
  8. Holder with rights to enforce with lost or destroyed original note but has original mortgage.
  9. Holder with rights to enforce with lost or destroyed original note but does not have original mortgage.
  10. Possessor with rights to enforce original note and original mortgage
  11. Former Possessor with rights to enforce lost or destroyed note and original mortgage
  12. Former Possessor with rights to enforce lost or destroyed note but does not have original mortgage.
  13. Non-possessor with rights to enforce original note and original mortgage (3rd party agency)
  14. Non-possessor with rights to enforce lost or destroyed note (3rd party agency) and rights to enforce original mortgage
  15. Non-Possessor with rights to enforce lost or destroyed note (3rd party agency) but does not have the original mortgage.
  16. Assignee of purchased original mortgage with possession of original mortgage but no rights to enforce note.
  17. Assignee of purchased original mortgage without possession of original mortgage and no rights to enforce note.
  18. Purchaser of debt but lacking assignment of mortgage, endorsement on the note, and now has learned that the loan was purchased in the name of a third party and lacking privity with said third party. [This category is not directly addressed in the UCC. It is new, in the world of claims of securitization]

Facts matter. It is only by careful examination of the fact pattern and comparing the facts with the attributes listed in the UCC that you can determine the strategy for a successful foreclosure defense strategy. For example if the XYZ Trust is named as the foreclosing party and 123 Servicing is holding the original note and perhaps even the original mortgage, who has the right to foreclose and under what lawful scenario — and why?

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5 Responses

  1. Charles Reed, I have a novel as it relates to this…Not only are you correct, but in my case I did a FOIA request for certain HUD forms and when they came back, they revealed that GNMA not only accepted the Note with a Qualified endorsement, but also accepted the Note with the signature of someone not authorized to endorse the Note.

    When I first mortgaged my property, Wells Fargo sent me a note with an undated Alonge with a qualified signature. GNMA requires a blank endorsement.

    Now that GNMA has forced the lender to take the Note out of the Pool and reimburse them at PAR, how can I be made to honor a defective Mortgage?

    The Department of VA will not insure Wells Fargo, so now the obligation is unsecured and no longer a Qualified Mortgage.

  2. This is not a legal advise.

    In Rhode Island UCC law says in part:

    CHAPTER 6A-3
    Negotiable Instruments
    PART 6A-3-301
    Enforcement of Instruments
    SECTION 6A-3-309

    § 6A-3-309. Enforcement of lost, destroyed, or stolen instrument.

    (a) A person not in possession of an instrument is entitled to enforce the instrument if (i) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, (ii) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (iii) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.

    Pursuant to clause (iii) does it mean if a bank could not find the Note, it could foreclose a mortgage? Please comment.

  3. As it is known that Ginnie Mae is not a lender and does not purchase any mortgage loans as it is not authorized by Congress. So as Washington Mutual Bank (WaMu) created it’s Ginnie Mae MBS and requires endorsed in blank relinquished to them, plus the title (Mortgage, Deed of Trust, Security Deed) that not assigned to Ginnie but they got possession. Ginnie already admits to not purchasing the debt and Wells Fargo Bank who been the servicer of the WaMu Ginnie MBS pooled loans since Jul 31, 2006, and since Sept 25, 2008, Wells has been forging the titles as if there no broken link in the MERS shell game, to illegally foreclose and sell the Stolen Goods to the Dept of VA and FHA.

    The Mortgage Notes are physically transferred when the building housing the 1.3 million WaMu Ginnie pooled loans is purchased by Wells who is the custodian of records for Ginnie that completes in full view of the public a transferring date that cements UCC3. Ginnie who is not a member of MERS as a lender does not and cannot act as a lender and have title transfer to them. Break in ownership should actually be Jul 31, 2006, as WaMu was in financial trouble and Sept 25, 2008, only made it official to the world that Note ownership was in effect.

    Problem neither Ginnie or Wells could provide proof of purchasing any of the WaMu debt. UCC9 demand that the non-originator of the debt must produce proof of purchase under UCC9. WaMu does not exist and after Sept 25, 2008, cannot have another represent them as they are a “failed bank” that JPMorgan could not and did not purchase the 1.3 million loans worth $140 billion at the time and were fully insured!

  4. Happy New Year to Jewish friends!! I am sure Neil can help unravel all the complexities, and inconsistencies.

    But all this assumes the note is valid. If the loan was charged off before one even refinanced — there is no valid note. Nothing was paid off by the borrower. Again, someone has to ACCOUNT for the note – or there is no securitization.

    This week is the tenth anniversary of the beginning of the exposure of the financial crisis. Senators that were there are speaking out and giving kudos for the way it was handled. Really?? They are saying this is just all about BAD underwriting? Really??

    The underwriting was intentional, There was no BAD underwriting. All about profit. High rates — adjustable rates that would allow the “interest” to go as high as 15%. They knew exactly what they were doing. There was no BAD underwriting. It was all intentional with the goal that if the borrower did not pay – they could wave the fake note and/or mortgage in court and foreclose.

    It was all intended. Bad underwriting is an excuse.


  5. At this level of complexity, IMHO, most attorneys and judges do NOT understand or know about the UCC laws or care to know. The judge here is in on the rigging and will not even attempt to understand the law nor the attorney/homeowner and his rights. Top down rigging of the so-called judicial system.

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