On November 14, the Permanent Editorial Board for the Uniform Commercial Code (PEB) issued its report, “Application of the Uniform Commercial Code to Selected Issues Relating to Mortgage Notes.” The report was prepared by a working group led by Professor Neil B. Cohen, who is the Director of Research for the PEB.
The Report, which has already been cited in two judicial opinions, addresses matters of pressing legal importance. Recent economic developments have brought to the forefront complex legal issues about the enforcement and collection of mortgage debt. While many of these issues are governed by local real property law and local rules of foreclosure procedure, others are addressed in a uniform way throughout the United States by provisions of the Uniform Commercial Code (UCC).
The UCC, drafted jointly by the American Law Institute (ALI) and the Uniform Law Commission (ULC) and enacted by the legislatures of all 50 states, provides uniform legal treatment across the United States for a wide variety of commercial transactions, ranging from sales of goods to complex financial transactions.
“Although the UCC provisions relating to mortgage notes are settled law, it has become apparent that not all courts and attorneys are familiar with them,” said Professor Cohen. “Additionally, the complexity of some of the rules has proved daunting. The Report advances the understanding of this statutory background by identifying and explaining several key rules in the UCC that govern the transfer and enforcement of notes secured by a mortgage in real property.”
In particular, the PEB Report explains the application of the UCC to the following four questions:
- To whom is the obligation to pay a mortgage note owed?
- What steps must be taken for the owner of a mortgage note to transfer ownership of the note to another person or use the note as collateral for an obligation?
- What is the effect of transfer of an interest in a mortgage note on the mortgage securing it?
- What actions may a person to whom an interest in a mortgage note has been transferred, but who has not taken a recordable assignment of the mortgage, take in order to become the assignee of record of the mortgage securing the note?
Cohen has been involved in drafting the UCC since 1993. He was the Reporter for Article 1 (General Provisions) of the UCC, and has served on the drafting committees for Articles 2, 2A, and 9.