How do I Use Article 9 §203 UCC Requiring Value Be Paid for Debt?

Many of you have essentially asked the same question referring to Article 9 §203 UCC as adopted by the laws of your state. There is no known cause of action for breach of that statute although one might be conjured. It is an interesting suggestion.
My reference to it is simple: the statute says that a condition precedent to enforcement of the security instrument (mortgage or deed of trust) is that the party seeking to enforce must have paid value for the security instrument. Translating that, it automatically means that if someone paid for it then they paid for the debt. BUT all law in all states says that if the “seller” or transferor does  not own the debt then the transfer of the mortgage is a nullity.
A condition precedent means you can’t do one thing without first doing the other. We are a nation of laws and personal bias about this is irrelevant.
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What many lawyers continue to miss is that there is a difference between the laws entitling someone to enforce a note and the laws entitling someone to enforce a mortgage. There are different public policies behind each one. For Notes, the public policy is to encourage the free flow of negotiable instruments in the marketplace. For mortgages, the public policy is to make sure that the civil equivalent of the death penalty (loss of home) is not imposed by someone who actually has no interest in the debt.
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It is an added protection. As a condition precedent it means that standing to enforce the note is different from standing to enforce the mortgage. It is both factual and jurisdictional.
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The grey area occurs because many states adopt the doctrine that if someone has the right to enforce the note they automatically have the right to enforce the mortgage. Although that seems to contradict the Article 9 §203 provision it actually doesn’t. That is because possession of the note by a person who is entitled to enforce it raises the legal presumption that the value was paid by the person on whose behalf the note and mortgage are enforced.
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This is a fuzzy area of the law. But boiled down to its simplest components, it means that possession of the note is deemed (presumed) to be possession of legal title to the debt which, as we know from Article 9 §203 can only be true if the person has value invested in the deal.
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The point of that policy is that if the forced sale of the house is not going to produce proceeds that will be used to pay down the debt, then the foreclosure should not occur. If the person on whose behalf the foreclosure is brought is not the owner of the actual debt then without evidence from the lawyers representing the party named as Plaintiff or Beneficiary, there is no evidence that the proceeds will go towards paying down the debt and the court is required, with no discretion, to enter judgment for the homeowner.
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So the question comes down to whether the party claiming both possession and entitlement to enforce the note is the owner of the debt. The answer is yes if the homeowner does nothing. This presumption can be rebutted. A simple question as to whether the value was paid and if so, how many times, and demanding the dates and parties involved, would clear up the question if the banks had a factual answer. They don’t. They present a legal argument instead. As virtually all lawyers know, their job is to win however they can do it. So if they can’t dazzle the court with facts they can baffle the courts with bullshit.
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Carefully educating the judge who most probably slept through the UCC classes in law school is key to winning on this basis but it has been done many times. All jurisdictions have case decisions that reflect what I have described above. You must find those decisions and present them as part of your pleadings, memoranda and argument in court. 

13 Responses

  1. I’ll post this for the benefit of anyone in a nonjudicial foreclosure state.

    In my State of California, there is a comprehensive statutory scheme governing nonjudicial foreclosures, which supplants all of the Article 9 UCC law, since the nonjudicial foreclosure scheme in California was deemed legislated to provide all of the statutory rules regarding the subject of nonjudicial foreclosures. While it is true that Article 9 says what it says and that can be used in judicial foreclosure states, those concepts are useless in fighting a nonjudicial foreclosure in California, at least based on the current state of the law. See the DeBrunner case if you need confirmation of this (and yes, I am aware many are arguing DeBrunner should be overruled in light of Yvanova, but it hasn’t happened yet).

  2. Kali and Poppy — anything done after the financial crisis, unfortunately, does not apply to us. While some may benefit by new rules in place – we remain the victims and scapegoats of the fraud.

  3. Anyone on this site have the insight, where with all, and grit to align and file a suit challenging the sale(s) of our mortgages to Trusts for the benefit of investors/certificate holders from our payments? This is an egregious deception, no one signed on for…thoughts anyone?

  4. …,

    “Dodd-Frank Title X (see Part I.B.10 above)
    introduced the “federal floor principle” under which
    states can promulgate consumer financial protection
    laws that are more protective of consumers than the
    analogous federal standard. Nonetheless, the
    Comptroller may, pursuant to the standard set forth
    in Barnett Bank v. Nelson, 517 U.S. 25 (1996)
    (“Barnett”), preempt any state consumer financial
    protection law that “prevents or significantly
    interferes with the exercise” by a national bank of
    any power granted under federal law.
    See 76 Fed. Reg. 43549 (July 21, 2011) (final rule)
    (the “2011 Preemption Release”),
    76 Fed. Reg. 30557 (May 26, 2011) (solicitation of
    public comments) (the “2011 Preemption
    Proposal”).
    i) Federal preemption will not apply to a
    subsidiary or affiliate of a national bank if
    such subsidiary or affiliate is not itself a bank
    or thrift. This provision overturns
    Wachovia-Watters, and is significant because
    many banks conduct consumer lending
    businesses through non-bank subsidiaries.”

    [CAPACITIES MATTER, particularly in the context of acknowledged NON-BANKING ACTIVITIES.]

    [One of the core escalating issues is: STATE CONSUMER PROTECTION(s) vs. federal preemption presumption; a rebuttable presumption — at law.

  5. …, to wit:

    “The FDIC adopted regulations regarding insurance
    coverage for custodial and fiduciary mortgage servicing
    accounts that hold payments of principal and interest to
    provide that the funds in such accounts will be insured
    up to the applicable limit for each underlying mortgagor.
    See 74 Fed. Reg. 47711 (Sept. 17, 2009) (final rule);
    73 Fed. Reg. 61658 (Oct. 17, 2008) (interim rule with
    solicitation of public comment).”

    “CFPB rules define the types of non-bank companies
    the CFPB will supervise for compliance with
    consumer protection laws and set forth the
    procedures the CFPB will follow to assert authority
    over other non-bank consumer financial market
    participants.”

    “12 C.F.R. § 7.4009 (1) affirms the
    authority of a national bank to exercise
    all powers authorized under federal law,
    including conducting any activity that is
    part of, or incidental to, the business of
    banking; and (2) provides that, except
    for state laws dealing with
    Non-Preempted Matters or otherwise
    made applicable by federal law, state
    laws that obstruct or condition a bank’s
    exercise of powers granted under federal
    law do not apply to national banks.”

    “12 C.F.R. § 34.4 provides that a national
    bank may make real estate loans without
    regard to state law limitations
    concerning Preempted Lending
    Requirements or such other matters as
    (1) the aggregate amount of funds that
    may be loaned upon the security of real
    estate; (2) processing, origination,
    servicing, sale or purchase of, or
    investment or participation in,
    mortgages; (3) due-on-sale clauses; and
    (4) covenants and restrictions required
    in a lease to qualify the leasehold as
    security for a real estate loan.”

    “No. 1005 (June 10, 2004),
    CCH Fed. Banking L. Rep. ¶ 81-534 (UCC
    not preempted)”

    “Under the Op Sub Rule a national bank that is
    “well capitalized” and “well managed” may
    acquire or establish an operating subsidiary, or
    perform a new activity in an existing
    subsidiary, by providing notice to the
    Comptroller within 10 days after acquiring or
    establishing the subsidiary or commencing the
    activity, so long as the activity is enumerated
    in 12 C.F.R. § 5.34(e)(5)(v) (an “Op Sub
    Notice Activity”). Op Sub Notice Activities
    include the following securities-related
    services:

    Making, purchasing, selling, servicing
    and warehousing loans.”

    “Comptroller Conditional Approval
    No. 767 (Oct. 18, 2006): cash
    management, including money order
    processing; and purchasing, selling,
    servicing and warehousing loans or
    other extensions of credit.”

    “In response to REPO 105, FASB amended the
    accounting standards that determine whether repos
    qualify for sale accounting. That determination
    continues to be based, in part, on whether the entity
    has maintained effective control over the transferred
    financial assets. See FASB Accounting Standards
    Update No. 2011-03, Transfers and Servicing (Topic
    860) (Apr. 2011). FASB has issued new standards
    to improve the financial reporting of repos and other
    similar transactions. The new standards change the
    accounting for repurchase-to-maturity transactions
    and repo financing arrangements and require
    enhanced disclosures. See FASB Accounting
    Standards Update No. 2014-11, Transfers and
    Servicing (Topic 860) (June 2014).”

    “Regulation W (12 C.F.R. § 223.14(c)) clarifies that
    intangible assets (including mortgage servicing
    rights), guarantees, letters of credit, equity securities
    issued by the bank (and debt securities issued by the
    bank that constitute regulatory capital), low quality
    assets and securities issued by an affiliate may not
    be used as collateral.”

    “Dodd-Frank expanded this exclusion to prohibit a
    bank’s acceptance as collateral for a covered
    transaction any debt obligation of an affiliate — such
    as a loan or receivable — rather than simply debt
    securities. However, as of September 15, 2016, the
    Board had not yet proposed revisions to Regulation
    W to implement this expanded prohibition on
    ineligible collateral.”

    “Corporate bond and commercial loan markets are converging. In
    particular, the secondary market for commercial loans has
    assumed many of the characteristics of the corporate bond
    market as depository institutions have moved to originating loans
    and collecting fees for structuring, distributing and servicing
    loan assets. The increased participation of institutional investors
    in the loan market makes the pricing of syndicated loan
    instruments more market-based, and “covenant-lite” loan
    issuances have nearly quadrupled since 2007 (to more than $380
    billion in 2013). Loan and bond markets for distressed debt have,
    in particular, become closely integrated.”

    “For purposes of the Volcker Rule restrictions on investments in
    hedge funds and private equity funds, “loan securitizations” are
    excluded from such restrictions if the assets or holdings of the issuer
    are solely comprised of (a) loans; (b) rights or other assets designed
    to assure the servicing or timely distribution of proceeds to holders
    of the issuer’s ABS and rights or other assets that are related or
    incidental to purchasing or otherwise acquiring and holding loans;
    (c) interest rate or FX derivatives that reduce interest rate or FX risks
    related to the loans (or other permissible assets) or the ABS, the
    terms of which derivatives directly relate to the loans (or other
    permissible assets) or the ABS; and (d) certain special units of
    beneficial interest and collateral certificates representing interests in
    assets the issuer is otherwise permitted to hold under the exclusion.
    Further, excluded loan securitizations are permitted to hold securities
    if such securities are cash equivalents or received in lieu of DPC
    (e.g., in a workout of a loan owned by the issuer). Certain covered
    bond structures and qualifying ABCP conduits are also exempt from
    coverage under the Volcker Rule fund investment restrictions.”

    “Bank Holding Companies
    a. BHC subsidiaries may conduct a wide range of mortgage
    banking activities (see 12 C.F.R. § 225.28(b)(1)), including:
    (i) Originating consumer finance/home equity loans and
    securitizing such loans for sale. See, e.g., Barnett
    Banks, 59 Fed. Reg. 55119 (Nov. 3, 1994) (solicitation
    of public comments) (approved Dec. 7, 1994).
    (ii) Making, acquiring, selling and servicing residential and
    commercial mortgage loans. See, e.g., First Midwest
    Bancorp, 58 Fed. Reg. 61912 (Nov. 23, 1993)
    (solicitation of public comments) (approved Dec. 17,
    1993); Central State Bancorp, 57 Fed. Reg. 39686
    (Sept. 1, 1992) (solicitation of public comments)
    (approved Feb. 22, 1993); MHC, 56 Fed. Reg. 46323
    (Sept. 11, 1991) (solicitation of public comments)
    (approved Sept. 27, 1991) (the “MHC Mortgage
    Approval”); Hudson Valley Holding Co.,
    53 Fed. Reg. 49924 (Dec. 12, 1988) (solicitation of
    public comments) (approved Dec. 28, 1988); Midwest
    Financial Group, 53 Fed. Reg. 5042 (Feb. 19, 1988)
    (solicitation of public comments) (approved Feb. 20,
    1988); Trust Corp., 53 Fed. Reg. 759 (Jan. 12, 1988)
    (solicitation of public comments) (approved Jan. 30,
    1988).
    (iii) Providing asset management services, including
    developing and implementing strategies for the
    packaging and sale of whole or securitized loan
    portfolios. See, e.g., Asset Management Orders.
    (iv) Making, acquiring or servicing loans or other extensions
    of credit for its own account or the account of others
    secured by mortgages or deeds of trust on real property
    or condominia, and participating in the secondary
    mortgage market. See, e.g., First Maryland Bancorp,
    53 Fed. Reg. 49924 (Dec. 12, 1988) (solicitation of
    public comments) (approved Dec. 29, 1988).
    (v) Negotiating, originating, making, acquiring, buying,
    selling, pooling and exchanging, for its own account and
    for the account of others, mortgage loans, notes secured
    by liens on real property and such extensions of credit as
    would be made or arranged by a mortgage company;
    second mortgage financing; and acting as an adviser in
    mortgage loan transactions. See, e.g., NatWest,
    52 Fed. Reg. 42342, 45246 (Nov. 4, 25, 1987)
    (solicitation of public comments) (approved Dec. 11,
    1987); SDNB Financial Corp., 49 Fed. Reg. 45068
    (Nov. 14, 1984) (solicitation of public comments)
    (approved Dec. 5, 1984); Norstar Bancorp,
    48 Fed. Reg. 1113 (Jan. 10, 1983) (solicitation of public
    comments) (approved Feb. 4, 1983).
    (vi) Originating, selling and servicing residential mortgages,
    including selling mortgages to investors in the form of
    government agency pass-through certificates or
    certificates evidencing interests in pools of mortgages.
    See, e.g., Texas Commerce Bancshares,
    72 Fed. Res. Bull. 803 (1986); Texas Commerce Letter
    to Board Legal Division, May 9, 1986; Midlantic Banks,
    48 Fed. Reg. 32866 (July 19, 1983) (solicitation of
    public comments) (approved Aug. 22, 1983).
    (vii) Originating and servicing residential mortgage loans,
    including “participat[ion] in the development of an
    active secondary market in conventional mortgagebacked
    pass-through securities with institutional
    investors”. See, e.g., Citicorp, 65 Fed. Res. Bull. 587
    (1980).”

    https://www.clearygottlieb.com/-/media/organize-archive/cgsh/files/publication-pdfs/guide-to-bank-underwriting-dealing-and-brokerage-activities-2016.pdf

  6. Reposting:

    @ ANON & ALL

    PAY ATTENTION, and do the research on the implication of NON-BANKING CAPACITY by purported “banks” (in name only) <– [This is pulling the curtain away to reveal the Wizard of OZ.]

    12 CFR § 225.28 List of permissible nonbanking activities.

    (a)Closely related nonbanking activities. The activities listed in paragraph (b) of this section are so closely related to banking or managing or controlling banks as to be a proper incident thereto, and may be engaged in by a bank holding company or its subsidiary in accordance with the requirements of this regulation.

    (b)Activities determined by regulation to be permissible –

    (1)Extending credit and servicing loans. Making, acquiring, brokering, or servicing loans or other extensions of credit (including factoring, issuing letters of credit and accepting drafts) for the company's account or for the account of others.

    https://www.govinfo.gov/content/pkg/CFR-2012-title12-vol3/pdf/CFR-2012-title12-vol3-sec225-28.pdf

    In Kalifornia, the implication is Financial Code §22750.

    Research other state's as relevant.

  7. Thank you Mr Garfield

  8. Everyone — investors are not the Lender, not the mortgagee, and have no rights to property. They may have right to claimed cash flows from the security underwriter — but, that is between investors and the security underwriter.

    A security underwriter is not a Lender, They do NOT give mortgages to borrowers.

    A trust is not a Lender — they are a “shell” for the benefit of security investors and do not give mortgages to borrowers. .

    Security investors are NOT Lenders, they invest in (current) cash flows only and do not give mortgaes. .

    A trustee is NOT a Lender – they are the legal holder for benefit of securities for security investors in claimed trust. They do not give mortgages.

    A servicer is not a Lender — they service for the trustee.

    So – Poppy you are right. This “holder” business does not wash.

    And, that is because none of these loans were actual mortgages to begin with. All unsecured already declared default debt. The “Note” was long ago charged off.

    Charles – you are right, but more than Ginnie Mae. All this “Default debt” came from one of the GSEs.

    Now, Barney Frank knew this. He knew exactly what happened. And he asked Congress to change bankruptcy laws to address it. Congress refused.

    No one is saying money is not owed somewhere, but if you signed a mortgage contract, with the stated Lender (now likely long gone) – by which the money borrowed was supposed to pay off the prior loan by YOU, and this did not occur – the contract is breached. I am still paying, but unless Title is cleared – the property will never be mine. No matter what.

    This is what happened — The banks were upset with the Community Reinvestment Act which mandated that they fund the loans, and then sell the loans to the GSEs. There was nothing in that for the banks!!!!
    The banks want profit. So they went to Congress and complained. Suddenly, the complaining stopped. The bank figured out a way around the CRA — get the loans out of the GSEs, by reporting, as servicers (remember the banks were servicers) whatever they wanted to report – including default. Minorities was targeted first, but this quickly spread to all. But the servicer banks to the GSEs were also credit enhancers — ready to purchase collection rights via credit default swaps. All they had to do is say — not collectible. Then what did the banks do? They put on a different hat and became security underwriters. They concocted fake shell trusts with restructured default charged off debt (which cannot be securitized – no asset on anyone’s balance sheet), and made a bundle selling “security” interests in the trusts to any duped investor — including the GSE themselves (didn’t they check their books first??)

    Now, when the whole scheme collapsed – so did any “LENDER.” Without one — there is no contract. Title is the issue. And, the problems go way back. While investors MAY have a right to cash flows — it is not from you. You owe them nothing. And, they have no right to title to your property.

    Unless this is addressed – spinning in circles.

  9. I may have to eat humble pie here, which is fine, but I am so sick of these perjurer lawyers. This “holder” business too…thoughts? Huge difference between a holder in due course, protections, with warranties and representations, no liability. A “holder” carries a bearer instrument and has liabilities, “they are not innocent purchasers”…FTC Rule 16…A Federal claim. This and citizenship diversity cannot be heard non-judicially, in any state court. They have not the jurisdiction or competency. ANON-yes, all they have gotten is collection rights, of “a debt” not your note. They have beat me again and again on procedure…I’m working on that. 100% of every document tells my story. In Federal Appeals Court and state court-again…federal judge says she’s barred by Rooker-Feldman. I got her Rooker-Feldman. Their duplicitous behavior and malignant intent to deceive is the issue. State court judgments have been acquired by willful deception, bad faith and out right lying, by the lawyers. Not the same as the court erring, because they are restricted by Statute and many defenses are not allowed. Just saying…

  10. Thank you Neil for sharing some of the options that come to your mind. You have been a great help to me over the last decade. “Value” seems to be a rather ambiguous word in legalese. Therefore the banks attorneys seem to be more than able to baffle a court with BS even IF the court is there with an open mind.

  11. As I said before that Fed Gov loans are placed into the bank’s Ginnie Mae MBS having only the single mortgage loan created from the initial property closing which must perform the UCC3 procedure and the Note is relinquished to Ginnie!

    There are no Trust and no purchase of the debt as Ginnie is not authorized by the US Congress to ever purchase or sell a mortgage loan.

    I just send to the Dept of VA a complaint that they were not legally authorized to purchase my property as I did not owe Wells Fargo Bank (mortgage servicer) or Ginnie Mae as Washington Mutual Bank (WAMU) was the lender who had stop existing on Sept 25, 2008, which meant that after the date it was impossible for WAMU to ever call the debt due.

    Wells as the servicer after Sept 25, 2008, is not working for a defunct bank and Ginnie having not purchased the debt but having physical possession of the blank endorsed Note cannot act on the Note or Deed of Trust which they are not listed on either document as the “holder in due course”.

    Ginnie openly admits to not owning the debt but accepts most of the proceeds from the foreclosure sale and VA Guaranty Fund insurance claim. The MERS system cannot transfer from a non-existing failed bank, that cannot operate into MERS as its does not exist. Action in MERS are only for current members of the non-binding electronic registry. The chain of ownership is not even valid in the MERS system because Ginnie is not a financial investor of any of the debt!

  12. Poppy — AGREE.Completely. If the prior mortgage note was NOT paid off by the borrower at a refinance (or even purchase) transaction, then the transaction should be VOID. In the case of these REMICs all that was securitized was collection rights of a “default” debt wrongly classified as such. How do we know this? Because, even as Neil has said, these loans never went onto anyone financial balance sheet as an asset.

    If any “note” is procured with fraud (given the refinance transaction did not do what it should do –pay off the prior loan by YOU – — should it still be negotiable? Not an attorney, can an attorney answer that please?

  13. A REMIC, which is what’s before most courts, is not a bearer instrument. If it is, then is not in the Trust, as they say. Wrong party, assignments are not payments. Just saying…

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