Pay To

In the normal course of events, in an obligor’s (homeowner) purchase of a
residential dwelling to finance the purchase, the obligor obtains a loan (mortgage
note) from an obligee (lender). In normal course of business the obligee to further
guarantee that payment of the loan is returned, the obligee in normal course of
business request that the obligor pledge the property as an alternate means to repay
the loan.
For the obligor to grant this alternate right of repayment, the obligor is required by
law to have a clear title to pledge the property as additional security to assure the
loan is repaid. For an obligor under law to be entitled to pledge the alternate the
obligor at closing under contract assures the seller of the real property will receive
value in exchange for obligor receiving title to the real by granting a deed as
named according to each states law. Within Texas such granting of title rights is
usually transferred by a “Warranty Deed.” When a “Warranty Deed with Vendor’s
Lien” is utilized, the vendor’s lien will expire upon the seller being paid the
appropriate value. Why this vendor’s lien is never released of public record is
beyond the scope of this writing.
This writer will not in this writing go into detail as to why aseller or successor’s
and assigns to the loan claim the loan is further secured by a vendor’s lien, as
routinely under law, once the seller is paid the vendor’s lien ceases to exist as an
enforceable right and should be released of record. This writer further will not
explain the mentality that a seller employs by granting their vendor lien rights to
the obligee, for this eliminates any possibility of seller recovering either money or
property if not paid.
As an obligor routinely signs a loan under law being “Order Paper” secured
instrument, for the loan to remain as a secured instrument, identity of parties is
required by law to be known. Whereas it is argued that “Pay to Order of ______”
creates a “Bearer Paper” instrument is not legally possible where an intended party
is not identified, as intent exist for the loan instrument to remain secured and
applying UCC 3-115 an identified party is required by intent that the instrument
remain secured.
Where the loan instrument as being unsecured, intent to identity the subsequent
Payee (obligee 2) is not a legal requirement “and” “or” UCC 3-115 would not
apply. As the loan instrument is unsecured by intent to apply the instrument is
“Bearer Paper” and with a lack of an identified party being named, whereas
security instruments filed of record in public records suggesting that a party
identified within the record does not legally substitute for other laws that apply to
the instrument (negotiable.)
Additionally, if the instrument is truly “Bearer Paper” instrument with the loss of
identity of a subsequent Payee (obligee), in applying agency law, an unidentified
loan party to a security instrument without provable reference evidence to the loan
(note) is a fatal claim to make unless the loan has remained a secured loan.