Perfected Security Instrument

Follows The Paper Negotiated Promissory Note

The Uniform Commercial Code Theory
Interest In
Personal Property
Paper Promissory Note

Security Instrument

Promissory Note
UCC Article 3

UCC Article 9
Negotiation

Follows
Loan Origination

Interest In Real Property

U.C.C. – Article 9 ‐Secured Transactions;
Sales of Accounts and Chattel Paper
Part 1. Short Title, Applicability and Definitions
§ 9-104. Transactions Excluded From Article
This Article does not apply
(j) except to the extent that provision is made for fixtures in Section 9-313, to
the creation or transfer of an interest in or lien on real estate, including a
lease or rents thereunder - As amended in 1972

[Subpart 2. Applicability of Article] [Table of Contents]

§ 9‐109. SCOPE.
(d) [Inapplicability of article.]
This article does not apply to:
(11) the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder, except to the extent that provision is made for:
(A) liens on real property in Sections 9‐203 and 9‐308;

§ 9‐308. WHEN SECURITY INTEREST OR AGRICULTURAL LIEN IS PERFECTED; CONTINUITY OF PERFECTION.

(d) [Supporting obligation.]
Perfection of a security interest in collateral also perfects a security interest in a supporting obligation for the collateral.

© Copyright 2005 by The American Law Institute and the National Conference of Commissioners on Uniform State Laws; reproduced, published and distributed with the permission of the
Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research.

Copyright 2010 J.Mcguire P O Box 1352, Bedford, Texas 76095-1352

 Assigned – Loss of Perfected Security Instrument
Does Not Follow The Paper Negotiated Promissory Note

Interest In
Personal Property

Security Instrument In MERS as

Loss of Continued Perfection

Paper Promissory Note

Name Does Not Follow

Promissory Note
UCC Article 3

UCC Article 9
Negotiation

Nominee
Loss of
Perfection

Loan Origination

Interest In Real Property

U.C.C. – Article 9 ‐Secured Transactions;
Sales of Accounts and Chattel Paper
Part 1. Short Title, Applicability and Definitions
§ 9-104. Transactions Excluded From Article
This Article does not apply
(j) except to the extent that provision is made for fixtures in Section 9-313, to
the creation or transfer of an interest in or lien on real estate, including a
lease or rents thereunder - As amended in 1972

[Subpart 2. Applicability of Article] [Table of Contents]

§ 9‐109. SCOPE.
(d) [Inapplicability of article.]
This article does not apply to:
(11) the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder, except to the extent that provision is made for:
(A) liens on real property in Sections 9‐203 and 9‐308;

§ 9‐308. WHEN SECURITY INTEREST OR AGRICULTURAL LIEN IS PERFECTED; CONTINUITY OF PERFECTION.

(d) [Supporting obligation.]
Perfection of a security interest in collateral also perfects a security interest in a supporting obligation for the collateral.

© Copyright 2005 by The American Law Institute and the National Conference of Commissioners on Uniform State Laws; reproduced, published and distributed with the permission of the
Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research.

Copyright 2010 J.Mcguire P O Box 1352, Bedford, Texas 76095-1352

 Non-Perfected Security Instrument
Does Not Follow The Electronic Negotiated Promissory Note

Interest In
Personal Property

Security Instrument In MERS as Nominee

Electronic Promissory Note
Lacks Supporting Law

Name Does Not Follow

Invalid Perfection
Promissory Note
UCC Article 3
Negotiation

UCC Article 9
Scanned To
Electronic

Loan Origination

Interest In Real Property

U.C.C. – Article 9 ‐Secured Transactions;
Sales of Accounts and Chattel Paper
Part 1. Short Title, Applicability and Definitions
§ 9-104. Transactions Excluded From Article
This Article does not apply
(j) except to the extent that provision is made for fixtures in Section 9-313, to
the creation or transfer of an interest in or lien on real estate, including a
lease or rents thereunder - As amended in 1972

[Subpart 2. Applicability of Article] [Table of Contents]

§ 9‐109. SCOPE.
(d) [Inapplicability of article.]
This article does not apply to:
(11) the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder, except to the extent that provision is made for:
(A) liens on real property in Sections 9‐203 and 9‐308;

§ 9‐308. WHEN SECURITY INTEREST OR AGRICULTURAL LIEN IS PERFECTED; CONTINUITY OF PERFECTION.

(d) [Supporting obligation.]
Perfection of a security interest in collateral also perfects a security interest in a supporting obligation for the collateral.

© Copyright 2005 by The American Law Institute and the National Conference of Commissioners on Uniform State Laws; reproduced, published and distributed with the permission of the
Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research.

Copyright 2010 J.Mcguire P O Box 1352, Bedford, Texas 76095-1352

 Real – Personal (UCC – E-Sign – UETA)
Interest In Real Property Interest In Personal Property

Collateral

Negotiation 4

Collateral

Negotiation 3

Collateral

Negotiation 2

Collateral

Negotiation 1

Interest In Real Property

U.C.C. – Article 9 ‐Secured Transactions;
Sales of Accounts and Chattel Paper
Part 1. Short Title, Applicability and Definitions
§ 9-104. Transactions Excluded From Article
This Article does not apply
(j) except to the extent that provision is made for fixtures in Section 9-313, to
the creation or transfer of an interest in or lien on real estate, including a
lease or rents thereunder - As amended in 1972

Copyright 2010 J.Mcguire P O Box 1352, Bedford, Texas 76095-1352 (Version 1)

 Fannie Mae – Freddie Mac
Real Property Laws Personal Property Laws

Collateral

Negotiation 3

Collateral

Negotiation 2

Collateral

Negotiation 1

Interest In Real Property

U.C.C. – Article 9 ‐Secured Transactions;
Sales of Accounts and Chattel Paper
Part 1. Short Title, Applicability and Definitions
§ 9-104. Transactions Excluded From Article
This Article does not apply
(j) except to the extent that provision is made for fixtures in Section 9-313, to
the creation or transfer of an interest in or lien on real estate, including a
lease or rents thereunder - As amended in 1972

Copyright 2010 J.Mcguire P O Box 1352, Bedford, Texas 76095-1352 (Version 1)

(a) Except as otherwise provided in subsection (b), this [Act] applies to electronic records and electronic signatures relating to a transaction.

(b) This [Act] does not apply to a transaction to the extent it is governed by:
(1) a law governing the creation and execution of wills, codicils, or testamentary trusts; .
(2) [The Uniform Commercial Code other than Sections 1‐107 and 1‐206, Article 2, and Article 2A];
(3) [the Uniform Computer Information Transactions Act]; and
(4) [other laws, if any, identified by State].

SECTION 16. TRANSFERABLE RECORDS

(a) In this section, “transferable record” means an electronic record that:

(1) would be a note under [Article 3 of the Uniform Commercial Code] or a document under [Article 7 of the Uniform Commercial Code] if the
electronic record were in writing; and
(2) the issuer of the electronic record expressly has agreed is a transferable record.

1. Paper negotiable instruments and documents are unique in the fact that a tangible token – a piece of paper – actually embodies intangible rights and
obligations. The extreme difficulty of creating a unique electronic token which embodies the singular attributes of a paper negotiable document or
instrument dictates that the rules relating to negotiable documents and instruments not be simply amended to allow the use of an electronic record for the
requisite paper writing. However, the desirability of establishing rules by which business parties might be able to acquire some of the benefits of
negotiability in an electronic environment is recognized by the inclusion of this section on Transferable Records.

This section provides legal support for the creation, transferability and enforceability of electronic note and document equivalents, as against the issuer/
obligor. The certainty created by the section provides the requisite incentive for industry to develop the systems and processes, which involve significant
expenditures of time and resources, to enable the use of such electronic documents…………..

2. The definition of transferable record is limited in two significant ways.

First, only the equivalent of paper promissory notes and paper documents of title can be created as transferable records. Notes and Documents of Title do
not impact the broad systems that relate to the broader payments mechanisms related, for example, to checks. Impacting the check collection system by
allowing for “electronic checks” has ramifications well beyond the ability of this Act to address.

Accordingly, this Act excludes from its scope transactions governed by UCC Articles 3 and 4. The limitation to promissory note equivalents in Section 16 is
quite important in that regard because of the ability to deal with many enforcement issues by contract without affecting such systemic
concerns……………………………………

§ 7003. Specific exceptions

(a) Excepted requirements

The provisions of section 7001 of this title shall not apply to a contract or other record to the extent it is governed by—

(1) a statute, regulation, or other rule of law governing the creation and execution of wills, codicils, or testamentary trusts;
(2) a State statute, regulation, or other rule of law governing adoption, divorce, or other matters of family law; or
(3) the Uniform Commercial Code, as in effect in any State, other than sections 1–107 and 1–206 and Articles 2 and 2A.
 Underlying Collateral
Secondary Market Investment Vehicle
Tangible
Promissory Security Intangible
Note Instrument
Lender 5 Laws Local
UCC Article 3 Jurisdiction Secondary Market
Custodian
Electronic (Lender 5)
Mortgage
Package Transfer
(Certificate’s Collateral) Lien Negotiation #4 of Note
[Trustee] Rights Recordation (Lien Perfection)
Security Instrument Investment Vehicle
#4
Pooling & Servicing Agreement

Promissory Security
Note Instrument
Lender 4 Laws Local
UCC Article 3 Jurisdiction Secondary Market
Trustee
Electronic (Lender 4)
Mortgage
Package Transfer
(Certificate’s Collateral) Lien Negotiation #3 of Note
[Depositor] Right Recordation (Lien Perfection)
Security Instrument Investment Vehicle
#3
Pooling & Servicing Agreement

Promissory Security
Note Instrument
Lender 3 Laws Local
UCC Article 3 Jurisdiction Secondary Market
Depositor
Electronic (Lender 3)
Mortgage
Package Transfer
(Certificate’s Collateral) Lien Negotiation #2 of Note
[Securitizer] Rights Recordation (Lien Perfection)
#2 Security Instrument Investment Vehicle
Pooling & Servicing Agreement

Promissory Security
Note Instrument
Lender 2 Laws Local
UCC Article 3 Jurisdiction Secondary Market
Investment Vehicle with Underlying Collateral
Securitizer
(Lender 2)
Electronic Transfer
Mortgage Lien Paper Documents
Package Rights Vaulted
(Certificate’s Collateral) #1 Or Destroyed

Collateral (Mortgage Package)

Conversion – Paper to Electronic

Promissory Security Negotiation #1 of Note

Negotiation #1 Of Note Instrument Recordation (Lien Perfection)
Electronic Note Lender 1 Security Instrument
UCC Article 3 UCC Article 9

Security
Paper Paper Mortgage Package Instrument
Promissory
Perfection
Note
Lender 1
Lender 1
UCC Article 3 Loan Origination Laws of Local
Jurisdiction

Copyright 2010 J.McGuire P O Box 1352, Bedford, Texas 76095-1352 Rev (1) May 27, 2010
 Home Owner
Owner’ss
Paper
p Promissoryy Note
&
S
Security
it Instrument
I t t

Wh did it go??
Where

Copyright 2010 j.mcguire P O Box 1352

Bedford, Texas 76095-1352 1
Wet Ink Signed Paper Closing

Copyright 2010     j.mcguire     P O Box 1352 
2
Bedford, Texas 76095‐1352
 Willful-Intentional
Original Electronic
Voluntary Act
Paper Records
Documents

SCAN/COPY/STORE-DESTROY
SCAN/COPY/STORE DESTROY
PAPER TO ELECTRONIC
Copyright 2010     j.mcguire     P O Box 1352 
3
Bedford, Texas 76095‐1352
 Original
Wet Ink
Signed

Destroyed Stored

Destroyed or Stored

Copyright 2010 j.mcguire     P O Box 1352 
4
Bedford, Texas 76095‐1352
 Lender MERS
1 Public Records

Negotiation Electronic
Promissory Note

Lender
Electronic Promissoryy Note
2

MERS as Nominee (Secur ity Instr ument)

Lender (Negotiable Instr ument)

Copyright 2010     j.mcguire     P O Box 1352 
5
Bedford, Texas 76095‐1352
 Lender Combines
Additional Instruments
Electronic Collateral

Mortgage Backed Security

Mortgage Backed Security

Owner of Electronic Promissory Note
Copyright 2010     j.mcguire     P O Box 1352 
6
Bedford, Texas 76095‐1352
Mortgage Backed Security

Trustee Holds Electronic

Collateral for Benefit of
Certificate Owners

Investment Vehicles
Copyright 2010     j.mcguire     P O Box 1352 
7
Bedford, Texas 76095‐1352
 Collateral Exotic

Investment Vehicle Collateral

Electronic Documents
Copyright 2010     j.mcguire     P O Box 1352 
8
Bedford, Texas 76095‐1352
 Electronic
Promissory
Note

Electronic Negotiable
El N bl Instruments
I
Lack Supporting Laws

Security
Instrument

Failure to Maintain Perfected Lien

(Public Records)

Homeowner/Bank Foreclosure
The Banks Fight
Copyright 2010     j.mcguire     P O Box 1352 
9
Bedford, Texas 76095‐1352
Storage Create
Vault Legal Department
Print

Notice of Assignments filed in Public Records

Created and Filed by Banks Law Firms to give Illusion Of Legality

Original Paper (When Available) Retrieved from Storage

When Originals Unavailable (Lost Note Affidavits Applied)
(Print Out of Electronic Digitized Electronic Promissory Note)

Banks Law Firms

Retrieve or Create
((Illusion of Legality)
g y)

Copyright 2010     j.mcguire     P O Box 1352 
10
Bedford, Texas 76095‐1352
 Sell/Resell

Recycle
L
Loss to Investors
I
1099 Homeowners Foreclose

Homeowner Collection Servicing Fee

Certificate Servicing Fee
Need More Servicing Fees
Need More Profit for the Pocket

Do It To Me Again!
g
Copyright 2010     j.mcguire     P O Box 1352 
11
Bedford, Texas 76095‐1352
 Home Owner
Owner’ss
Paper Promissory Note
&
Security Instrument

Collateral in Mortgage Backed

Securities
Copyright 2010 j.mcguire P O Box 1352, 
1
Bedford, Texas 76095‐1352
Wet Ink Signed Paper Closing
Copyright 2010 j.mcguire P O Box 1352, 
2
Bedford, Texas 76095‐1352
SCAN/COPY/STORE‐DESTROY
SCAN/COPY/STORE DESTROY
PAPER TO ELECTRONIC
Copyright 2010 j.mcguire P O Box 1352, 
3
Bedford, Texas 76095‐1352
 Approval

Analysis

Rejection

ELECTRONIC COPIES PROVIDED
ELECTRONIC COPIES PROVIDED
FOR ANALYSIS TO RATING AGENCIES

Copyright 2010 j.mcguire P O Box 1352, 
4
Bedford, Texas 76095‐1352
Lender MERS
1 Public Records

Lender
2

MERS as Nominee
Copyright 2010 j.mcguire P O Box 1352, 
5
Bedford, Texas 76095‐1352
 Insurance Policy

Electronic Collateral

Mortgage Backed Security

(Exotic Carrier Evaluates

Electronic Furnished Copies)
Insurance
Carrier

Aggregated
gg g Mortgage
g g Pool
Copyright 2010 j.mcguire P O Box 1352, 
6
Bedford, Texas 76095‐1352
 Mortgage
g g Backed Securityy

Exotic
1

Exotic
2

Default Investment Vehicles

Copyright 2010 j.mcguire P O Box 1352, 
7
Bedford, Texas 76095‐1352
 Collateral Exotic

Exotic Collateral - Electronic

Copyright 2010 j.mcguire P O Box 1352, 
8
Bedford, Texas 76095‐1352
 Electronic
Promissory
Note

Electronic Negotiable Instruments

Lack Supporting Laws

Security
Instrument

Failure to Maintain Perfected Lien

(Public Records)

Homeowner/Bank Foreclosure
The Banks Fight
Copyright 2010 j.mcguire P O Box 1352, 
9
Bedford, Texas 76095‐1352
 Notice of Assignments filed in Public Records
Created and Filed by Banks Law Firms to give Illusion Of Legality
(Fraud upon Public Records)
If Filed in Court
(Fraud upon the Court)

B k’ Law
Bank’s L Firms
Fi Create
C Documents
D
((Illusion of Legality)
g y)
Copyright 2010 j.mcguire P O Box 1352, 
10
Bedford, Texas 76095‐1352
 Mortgage Electronic Registration Systems, Inc. (MERS):
Its Impact on The Credit Quality of First Mortgage Jumbo MBS Transactions
Its Impact on The Credit Quality of First‐Mortgage Jumbo MBS Transactions

Although in many states the assignment of mortgage does not have to be recorded when the note is transferred, there are 
some states that require the assignment of mortgage to be recorded so that the buyer of the loan is protected against 
subsequent transferees and creditors of the seller of the mortgage. There are also some states where the law is uncertain as to 
the protection afforded loan buyers against subsequent transferees and creditors of the loan seller
the protection afforded loan buyers against subsequent transferees and creditors of the loan seller.

The name of the beneficial owner of the mortgage will not be a matter of public record. The language in the mortgage or 
assignment of mortgage will read as follows: "MERS, solely as nominee for Lender (as hereinafter defined), as beneficiary, and 
its successors and assigns." If MERS is named in a mortgage or assignment of mortgage, MERSCORP requires that those 
instruments will have to be recorded in the public recording offices.

The original note will be in the possession of the trustee in the MBS transactions. Generally, MERS will not be named on the 
note or the endorsement of the note.

Under common law principles, the mortgage is valid even though the name on the note is different than the name on the 
mortgage. The concept of undisclosed agency in business transactions has been around for a long time. The recording system 
t Th t f di l d i b i t ti h b df l ti Th di t
has been set up to provide notice of security interests, but not necessarily the identity of the secured parties.

Moody’s Investor Services

Comments (1999) Excerpts
Copyright 2010 j.mcguire P O Box 1352, 
11
Bedford, Texas 76095‐1352