The U.C.C.

and the As signment Process

In o ne of the first art icl es de al in g w ith ho w the securit i zati on p roc ess cre ated significant standing issues in f oreclosure cases, the authors focused primarily on the Unif orm Commercial Code (U.C.C. ) and how it appli es in this situat ion. 40 As the U. C.C. has been adopt ed in some fashion by every state,
41

the U. C.C. analysis is important to a mult i -state analysis of the

standing debate. According t o U.C.C. sect ion 3-309, a missing Notewithout moredoes not prohibit enf orcement of the Note in quest ion.
42

However, [e]nforcement of

[the] Note always requires that the [financial inst itution] seeking to collect show that it is the holder. A holder is an entity that has acquired the Note either as the original payor or tr ansfer 43 by endorsement of order paper or physical possession of bearer paper. 44 So, while a f inancial entity does not need to produce the Note, in order to enf orce a Note through a Mortgage foreclosure, a financial institut ion which was not the original lender must establish that it (1) acquired the Not e through Assignment or (2) show physical possession of the Note.45 http://www.temple.edu/ law/tlaw...1/83.1_Greenber g.pdf No Enti ty can b e a cre di tor i f they do n ot hol d an d o wn the a sset. The a sset would be the Note and/or the collateral (property). A Mortgage Pass Through Trust (i .e. R.E.M.I.C., as d ef i ned i n Ti tl e 26, Subti tl e A, Cha pter 1, Su bch apter M, Part I I 850- 86 2) can not h ol d a sset s, f or if t hey do, t hei r t ax ex em pt stat u s i s v i ol ated an d the Tru st i tsel f i s v oi d ab i ni ti o. Theref ore, ei ther the Trust h a s v oi ded i ts i ntende d Tax Free Statu s, or the a sset i s not i n f act owned by it. Real E st ate M o rtg ag e In v e st men t Co n d u i t (REM IC) : T he most common t ype of mortgage- back ed sec urity. A REM IC entitles the owner to a claim on the principal and interest payments on the particular mort gages underpinning the security. REMICs pay an interest rate that is usually rela ted to t he interest rates the homeowners are paying on their mortgages. The equivalent of the coupon on a mort gage-backed security is a percentage of the int erest and principal paid on the mort gages backing t he sec urity. REM ICs c an tak e different legal forms: Trusts, partnerships, and assets without a legal status. They qualify for special tax treatment. REMICs were establis hed by the Tax Reform Act of 1986.

STANDING

T hi s def i ni t i on of St andi ng i s prov i ded f rom t he f ol l owi ng web si t e: ht t p: / / www. l ect l a w. c om / def 2/ s06 4. ht m The l egal ri ght to i ni ti ate a l awsui t. To do so, a per son m ust b e suf fi ci entl y aff ected by the m atter at ha nd, an d ther e m ust be a ca se or c ontrov ersy th at can be resolv ed by legal action. There are three requirements f or Article III st a ndi ng: ( 1) i nj ury i n f act , whi ch m ean s an i nv asi on of a l egal l y prot ect ed i ntere st that i s ( a) co ncrete and parti cul a ri zed, and ( b) actu al or i mm i nent, not conj ect ur al or hyp ot het i cal ; (2) a c au sal rel at i on shi p b et we en t he i nj ury and t he chal l en ge d con duct , whi ch m ean s t ha t t he i nj ury f ai rl y can be t rac ed t o t h e challenged action of the def endant, and has not resulted f rom the independent acti on of som e thi rd party n ot bef ore th e court; an d (3) a l i kel i hoo d that the i nj ury wi l l be redr e sse d by a f av orabl e de ci si on, whi ch m ean s t hat t he pro spect of obt ai ni ng rel i ef f rom t he i nj ury as a re sul t of a f av orabl e rul i ng i s not t oo sp ecul at i v e. Luj an v . Def ender s of W il dl if e, 112 S. Ct . 21 30, 2 13 6 (19 92) (Luj an). Th e party i nv oki ng f ederal j uri sdi cti on bear s t he b urd en of est abl i shi ng e ach of the se el em ent s. Id. Many of the Legal Rulings that have come down have made their rulings regarding Standing based upon whether or not the Plaintiff (lende r or bank or Trustee or MERS) had a benef icial interest or was a beneficiary. definitions are provided for the next sect ion. http://definitions. uslegal.com/b/ beneficiary/ ASSI G NM E NT S The following inf ormat ion on Assignments was obtained from http://definit ions. uslegal.com/ a/assignments/ . It may help to explain why MERS cannot assign the mort gage or Deed of Trust; it a lso helps to show why the assignments to each of the interim buyers/sellers are so crit ical. Assi gnm ent i n l egal term s m ean s th e tr an sf er of a property ri g ht or ti tl e to som e p art i cul ar per son u nd er an agr eem ent , usual l y i n wri t i ng. Unl e ss an assi g nm ent i s q ual i f i ed i n som e way, i t i s gene ral l y con si der ed t o be a t ra n sf er of the transf eror ' s enti re i nter e st i n the e stat e, chattel , or oth er thi ng assi g ne d. An a ssi g nm ent i s di st i n gui she d f rom a grant i n t hat an a ssi g nm ent i s usual l y l im i ted to the tran sf er of i ntangi bl e ri ght s, i ncl udi ng co ntractu al ri ghts, cho se s i n a ct i on, an d ri ght s i n or co nn ect ed wi t h pr opert y, r at her t h an, a s i n the ca se of a grant, the pr op erty i tsel f . For exa mple, the paye e may as sign his or her rights to collect the Note payments to a bank. Some contract s re stri ct the ri ght of assi gnm ent, so th e te rm s of the contract m ust be r ea d to determ i ne i f assi gnm ent i s pro hi bi ted. In a f urther ex am pl e, a l andl or d m ay Thus, these

perm i t a l ease t o b e a ssi g ned, u sual l y al ong wi t h a n a ssum pt i on agre em ent , wher eby th e ne w ten ant be com es r e sp on si bl e f or paym ents an d othe r duti e s of the ori gi nal l e sse e. An a ssi g n men t, to b e effec ti ve, mu st co n tai n th e fu n d amen tal el emen t s of a contract generally, such as parti es with legal capacity, consideration, consent, and legality of object. W ords of an assi g nm ent are, a ssi g n, tran sf er, and set ov er; but t he word s g rant , b arg ai n, and sel l , or any ot he r wor d s whi ch wi l l sh o w t he i nt e nt of t he part i e s t o m ake a com pl et e t ran sf er, wi l l am ount t o an a ssi g nm ent. The Dee d by whi ch an a ssi gnm ent i s m ade i s al so cal l ed an assi g nm ent. In the a b sen ce of sp eci al sta tutory prov i si on, no word s of art and no sp eci al f orm of word s are nece ssary t o ef f ect an a ssi gnm ent .

Benef ic ial I nt erest

Benef i ci al i nt ere st i s a ri ght , i nt er e st , be nef i t or adv ant age t hat a per son enj oy s f rom a propert y or T ru st , re sul t i ng f rom a cont ract , wi t h out act u al o wn er shi p or c ont r ol of t he propert y. A b enef i ci al i nt ere st can be di st i ngui sh ed f rom t he ri ght s of a T rust ee who h ol d s l e gal t i t l e. A benef i ci ary enj oy s a ben ef i ci al i nterest i n Tru st pro perty and t he Tru ste e hol d s a l egal ti tl e. In a cont ract , f or ex am pl e, if P ent ers i nt o a c ont ract wi t h Q t hat P wi l l pay S cert ai n am ount of m oney, t hen S i s e nt i t l ed t o a b en ef i ci al i nt erest . I n cert ai n ca se s, al tho ug h m i nors ar e not p erm i tted to j oi n partner shi p co ntract s, they are el i gi bl e to a be nef i ci al i ntere st i n the partne r shi p by shari n g the pr of i ts, but not th e l osse s.

A True Sale

(Excerpted f rom 15th Annual Rocky Mountain Bankruptcy Conf erenc e Un der st an di ng the S ecuri ti zati on Proce ss and t he Im pact on Con sum er Bankru ptcy Ca se s, Tara E. Ga sc hl er, Esq., The Ga schl er La w Fi rm LLC) A. T ru e Sal e an d HI DC Sta tu s (Ho l d er i n Du e Co u rse)

The securi ti zati on pr oce ss i s de si g ne d, i n m ost ca se s, to m ake the po ol ed asset s bankruptcy remote. sal e. To acc om pl ish t hi s, the tr an sf er of the pool ed asset s f rom t he O ri gi nat or t o t he SPV m ust b e accom pl i sh ed by way of a t rue If the asset tran sf er i s n ot a tru e sal e, i nv estor s ar e v ul nerabl e to W ithout cl aim s ag ai n st the Ori gi nator, i ncl udi ng t he cl ai m s of a bankru ptcy Tru stee th at mi ght be ap poi nt e d i f t he O ri gi nat or wer e t o f i l e bankrupt cy. bank ruptcy r em otene ss, Inv estor s woul d bear th e ri s k of def aul t i n the und erl yi ng po ol ed a sset s, a s wel l as a ny cl aim by the Ori gi nator s b ankr uptcy Trust ee that th e po ol ed a sset s or c a sh f lo ws f rom those a sset s are part of the bankr uptcy e state whi ch coul d be u sed to sati sf y cl aim s of the Ori gi nators credi tor s. A t rue sal e al so prot ect s t he O ri gi nat or f rom cl aim s by i nv est or s. If the po ol ed a sset s ar e sol d i nto an SPV, t he Inv estor ca n onl y se ek paym ent f rom t hat ent i t y, not f rom t he general rev enu e s of t he O ri gi nat or. In order to cr eat e the d e si red ban kruptc y rem otene ss, the po ol asset s m ust be tran sf erre d by tru e sal e. Suc h a sal e al so prov i des t he SPV wi t h H ol der In ord er to g ai n HIDC stat u s, the The SPV m ust: take i n Due Co ur se (HIDC) st atu s a nd pr otecti on.

SPV m ust sati sf y the req ui rem ents of UC C secti on 3 - 30 2.

t he i nst r um ent f or v al ue, i n good f ai t h, wi t hout n ot i ce t hat t he i n st rum ent i s ov erdue, di sh on ore d or h a s an uncu red d ef aul t , wi t hout not i ce t h at t he i nst rum ent co nt ai n s u naut hori ze d si gnat u re s or h a s be en al t er ed, a nd wi t ho ut notice that any party has a claim or def ense in recoupment . Ad d i ti o n al l y, th e instrument, when issued or negotiated to the holder, cannot bear any evidence of forgery or alteration or have irregularities that would give rise to questions of authenticity. T he m ai n ben ef i t of HI DC st at u s i s t h at t he The HIDC hol der m ay enf orce th e paym ent ri ght s u n der the ne goti abl e i n strum ent f ree f rom al l by a l imi t ed num ber of def ense s as out l i ned i n UC C 3 - 305. parti e s. 1. A. Do es th e T ru st Actu al l y O w n a Se cu ri ti zed O b l i g ati o n ? Challenges t ake s t he N ot e or i n st r um ent f ree f rom com pet i ng cl aim s of own er s hi p by t hi rd

Based on Standing Securi t i zat i on i m pact s con sum er ban kru pt cy pract i ce i n a num ber of way s, m ost f requent l y i n t he co nt ex t of m oti ons f or rel i ef f rom st ay and pro of s of claim. Specif i call y, debt or s co un sel m ust con si der who act ual l y o wn s t h e I s t h e T ru st t hat i s a ssert i n g o wne r shi p t he t r ue o wne r? Mortgage Note, aut o loan or credit card receiv able that has been se curi ti zed.

Many times the answer is NO be cause the T rust has failed to properly acquire ownership of the Note or recei vable. As di sc u sse d ab ov e, the goal

of securi ti zati on i s to ac hi ev e a true sal e so th at the SPV (Tru st), n ot the O ri gi nat or, wi l l be t he o wne r of each obl i gat i on i n t he p ool . In order to achieve this goal, each party in the chain of transfer, from Originator to Ag g r eg ato r, to Dep o si to r, to I ssu er mu st actu al l y p ay v al u e fo r th e as set s in order to acquire them by true sale and be able to transfer them to the next party in the chain.