45 UCC L.J

A National Mortgage Registry: WhyWe Need It, And How To Do ItDale A. Whitman*

Abstract

The legal mechanisms on which the American secondarymortgage market depends are in a pathetic state. Thesemechanisms grew from simple origins, and are completely in-adequate to sustain the massive burdens now placed uponthem. The result is a dysfunctional mess.

In this article I �rst propose to outline in brief form whatis wrong with our legal system as it a�ects the trading ofmortgages. I will then present an alternative system—onethat would require Congressional enactment, and wouldprovide a modern, e�cient electronic method of tracking andassuring title to mortgage loans as they are transferred onthe secondary market.1

Table of ContentsI. What is Wrong with the Secondary Market. . . . . . . . . 2

A. Transferring notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2B. Transferring mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

II. An Alternative System: A Federal MortgageRegistry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10

A. Federal preemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11B. What is being registered? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12C. Initial recording of mortgages . . . . . . . . . . . . . . . . . . . . . . . . 14D. Registration or recording? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14E. Electronic registration and transfer and theproblem of documentauthenticity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

*Professor of Law Emeritus, University of Missouri-Columbia;Distinguished Visiting Professor of Law, University of Arkansas, Fayette-ville.

1A much more detailed version of this article will appear under the

title A Proposal for a National Mortgage Registry: MERS Done Right, inthe Missouri Law Review (forthcoming).

1© 2013 Thomson Reuters E UCC Law Journal E Vol. 45April 2013

F. Registration of servicing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16G. Capturing the entire loan �le . . . . . . . . . . . . . . . . . . . . . . . . . 17H. Transparency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18I. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18J. Notice of registered information . . . . . . . . . . . . . . . . . . . . . . 19K. The holder in due course doctrine . . . . . . . . . . . . . . . . . . . 19

III. Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Appendix: Draft Statute—National Mortgage LoanRegistry Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22

Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Section 101. Registry established . . . . . . . . . . . . . . . . . . . . . . . . 22Section 102. De�nitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Section 103. Acceptance, transfer, and terminationof registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23

Section 104. Outright and security transfers . . . . . . . . . . 24Section 105. Noti�cation of borrowers . . . . . . . . . . . . . . . . . . 24Section 106. Records of servicers. . . . . . . . . . . . . . . . . . . . . . . . . 24Section 107. Loan information . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Section 108. Access to Registry information . . . . . . . . . . . 25Section 109. Rights of loan holder and servicer . . . . . . 25Section 110. Conclusiveness of Registry's certi�-cates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

Section 111. Fees and charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Section 112. Preemption of State law . . . . . . . . . . . . . . . . . . . 26Section 113. Criminal and civil penalties. . . . . . . . . . . . . . 26

I. What is Wrong with the Secondary Market

Almost every aspect of the methods by which mortgageloans are transferred today seems to have been designed forine�ciency and frustration. In this section I will identifysome of these features and explain why they are ine�ectivein the context of a broad national market. There are threeprincipal topics to be covered in this section: the transfer ofpromissory notes, the assignment of mortgages, and the roleof MERS (the Mortgage Electronic Registration System).

A. Transferring notes. The fundamental legal documenta-tion of mortgage loans in American consists of two papers:the promissory note and the mortgage (or, in nearly half ofthe states, its functional equivalent, the deed of trust). Whena loan is transferred, both are important, but the note is themore critical of the two, for it represents the debt. The

Uniform Commercial Code Law Journal [Vol. 45 #1]

2 © 2013 Thomson Reuters E UCC Law Journal E Vol. 45April 2013

mortgage is security for that debt, and if it is not properlytransferred, the debt will become unsecured. But the note isfar more signi�cant, for if its transfer is defective, there willbe no debt to collect and the mortgage will be irrelevant.2

Because of the critical nature of the note, Americanmortgage law long ago adopted the rule that “the mortgagefollows the note.” That is to say that a proper transfer of thenote will carry the mortgage along with it, with no require-ment for any further documentation.3 I will return to thispoint below.

How are notes transferred?4 The answer depends onwhether the note is classi�ed as negotiable—a term of artthat depends on the note's qualifying under the complex andsometimes confusing de�nition in Article 3 of the UniformCommercial Code.5 Article 3 applies only to negotiable notes;6

2See Restatement Third, Property: (Mortgages) § 5.4, comment a

(1997).3The classic statement is Carpenter v. Longan, 83 U.S. 271, 274, 21

L. Ed. 313, 1872 WL 15414 (1872) (“the note and mortgage are inseparable.. . . An assignment of the note carries the mortgage with it, while an as-signment of the latter alone is a nullity.”). There are dozens of modernstatements of the rule; see, e.g., Horvath v. Bank of New York, N.A., 641F.3d 617, 623 (4th Cir. 2011); In re Bryant, 452 B.R. 876, 880 (Bankr. S.D.Ga. 2011); Deutsche Bank Trust Co. Americas v. Codio, 94 A.D.3d 1040,943 N.Y.S.2d 545, 546 (2d Dep't 2012); CPT Asset Backed Certi�cates,Series 2004-EC1 v. Cin Kham, 2012 OK 22, 278 P.3d 586, 77 U.C.C. Rep.Serv. 2d 88 (Okla. 2012); Commonwealth Property Advocates, LLC v.Mortgage Electronic Registration System, Inc., 2011 UT App 232, 263P.3d 397 (Utah Ct. App. 2011), cert. denied, 268 P.3d 192 (Utah 2011).

4For an excellent detailed discussion of the transfer of negotiable

notes, see Permanent Editorial Board for the Uniform Commercial Code,Application of the Uniform Commercial Code to Selected Issues Relatingto Mortgage Notes (Nov. 14, 2011) (hereafter “PEB report”), available athttp://www.ali.org/00021333/PEB%20Report%20-%20November%202011.pdf. For a similar report, reaching virtually identical conclusions, seeAmerican Securitization Forum, White Paper, Transfer and Assignmentof Residential Mortgage Loans in the Secondary Mortgage Market (Nov.16, 2010).

5U.C.C. § 3-104.

6Under U.C.C. § 3-104(b), “instrument” means a negotiable instru-

ment, and under § 3-102(a), “This article applies to negotiableinstruments.”

National Mortgage Registry


if the note is nonnegotiable, its transfer is governed by thecommon law of contracts.7

The matter is further complicated that the fact that theUCC recognizes two distinct aspects of rights in promissorynotes: (1) ownership and (2) entitlement to enforce (whichwe will refer to here as PETE status, with PETE standingfor “person entitled to enforce”). Article 3 deals with PETEstatus (but only if the note is negotiable), while Article 9governs ownership, and operates whether the note is nego-tiable or not.8

This distinction is of great importance, and has been thesource of considerable confusion in judicial decisions andstatutes.9 Ownership refers to the economic bene�ts of thenote: who will be ultimately entitled to the proceeds derivedfrom regular installment payments, a full or partial payo�,or (if the note is secured by a mortgage), the funds derivedfrom a foreclosure? PETE status, on the other hand, refersto the right of enforcement: who is entitled to sue on thenote, agree with the borrower to a modi�cation of its terms,or accept less than full payment in satisfaction of the note?

Ordinarily ownership and PETE status are held by thesame party, but that is not necessarily true; they can bedivided.10 For example, a mortgage loan investor, such asFannie Mae, may be the owner of a note, but may transferPETE status to the loan's servicer so that it can carry out aforeclosure. When the foreclosure is completed, the serviceris obligated, of course, to send the proceeds to Fannie Maeas owner.

We mentioned earlier the principal that “the mortgage fol-lows the note.” But which aspect of the note does it follow, ifownership and PETE status are bifurcated? An answer to

7See, e.g., JPMorgan Chase & Co., Inc. v. Casarano, 2010 WL

3605427 (Mass. Land Ct. 2010), judgment entered, 2010 WL 3605500(Mass. Land Ct. 2010), judgment a�'d, 81 Mass. App. Ct. 353, 963 N.E.2d108 (2012).

8See PEB Report at 4–11.

9See, e.g., CPT Asset Backed Certi�cates, Series 2004-EC1 v. Cin

Kham, 2012 OK 22, 278 P.3d 586, 77 U.C.C. Rep. Serv. 2d 88 (Okla. 2012),where the court provides a meticulous analysis of the doctrine that thePETE is the party entitled to foreclose the mortgage, and then winds upby saying, “[a]s previously stated, in Oklahoma, ownership of the note iscontrolling . . ..”

10See PEB Report at 8.



this question would not have been easy to �nd in older cases,simply because the di�erence between the two concepts wasnot well understood. Today, however, the answer is clear: itis PETE status with which the mortgage runs.11 This makesentirely good sense: after all, mortgage foreclosure is simplyone way of enforcing the note.

This brings us to the ultimate question: How is PETEstatus transferred? Under UCC Article 3, the answer is byphysical delivery of the original promissory note. The origi-nal paper is thought of as an embodiment of the debt, and toenforce the debt one must possess the paper.12 If the note is“bearer” paper, either because it was originally made tobearer or because a previous holder has endorsed it in blank,then possession is all that is required. If it is not bearerpaper, then one may be a PETE by possession of the notewith an endorsement to the possessor (thereby becoming a“holder”), or by possession without endorsement but withproof that possession was transferred for the purpose oftransferring the right of enforcement (a status clumsily knowas being a “nonholder with the rights of a holder”).13 Eitherway, possession of the original note is essential to the rightof enforcement.

There is one exception to the requirement of possession. Ifthe note has been lost, and the correct circumstances arepresent, the purported holder of the note may �le with thecourt a “lost note a�davit” and thereby be treated as if hav-ing possession.14 There are several problems with the “lostnote” procedure; notable is the fact that, under some judicial

11See, e.g., BAC Home Loans Servicing, LP v. Kolenich, 2012-Ohio-

5006, 2012 WL 5306059 (Ohio Ct. App. 12th Dist. Butler County 2012);Edelstein v. Bank of New York Mellon, 286 P.3d 249, 257, 78 U.C.C. Rep.Serv. 2d 721, 128 Nev. Adv. Op. No. 48 (Nev. 2012); Nelson v. FederalNat. Mortg. Ass'n, 97 So. 3d 770 (Ala. Civ. App. 2012); Eaton v. FederalNat. Mortg. Ass'n, 462 Mass. 569, 969 N.E.2d 1118 (2012); CPT AssetBacked Certi�cates, Series 2004-EC1 v. Cin Kham, 2012 OK 22, 278 P.3d586, 77 U.C.C. Rep. Serv. 2d 88 (Okla. 2012); Bain v. Metropolitan Mortg.Group, Inc., 175 Wash. 2d 83, 285 P.3d 34, 44 (2012).

12U.C.C. § 3-301.

13See, e.g., In re Veal, 450 B.R. 897 (B.A.P. 9th Cir. 2011); In re Aum

Shree of Tampa, LLC, 449 B.R. 584 (Bankr. M.D. Fla. 2011); Bank ofAmerica, NA v. Kabba, 2012 OK 23, 276 P.3d 1006, 77 U.C.C. Rep. Serv.2d 99 (Okla. 2012); Leyva v. National Default Servicing Corp., 255 P.3d1275, 75 U.C.C. Rep. Serv. 2d 6, 127 Nev. Adv. Op. No. 40 (Nev. 2011).

14U.C.C. § 3-309.



decisions, the process is available only if the currentpurported holder lost the note, and not if it was lost by aprevious holder.15

Those are the rules in a nutshell. What is problematicabout them? First, there is the requirement of possession ofthe note. Since multiple transfers of mortgage loans on thesecondary market have become very common, great caremust be taken to ensure that the physical note is properlymoved from the old to the new holder. This is not impossible,of course, but it is a great deal of trouble. Fannie Mae andFreddie Mac have been careful in their use of custodians—third parties who hold the documents in their behalf. But inthe heated market conditions that led to the collapse of themortgage market in 2007, many private-label securitizersand their a�liates, sellers, and servicers were not so careful.Thousands, and perhaps millions, of notes were lost or notdelivered to their purchasers.16 People were in a hurry to

15See, e.g., Dennis Joslin Co., LLC v. Robinson Broadcasting Corp.,

977 F. Supp. 491, 33 U.C.C. Rep. Serv. 2d 1170 (D.D.C. 1997); State StreetBank and Trust Co. v. Lord, 851 So. 2d 790, 51 U.C.C. Rep. Serv. 2d 191(Fla. 4th DCA 2003); EquiCredit Corp. of Am. v. Provo, 2006-Ohio-3981,60 U.C.C. Rep. Serv. 2d 250 (Ohio Ct. App. 6th Dist. Lucas County 2006)(not reported in N.E.2d) (mortgagee provided satisfactory proof that it wasin possession of note at the time it was lost). The situation is wellexplained in Zinnecker, Extending Enforcement Rights to Assignees ofLost, Destroyed, or Stolen Negotiable Instruments under U.C.C. Article 3:A Proposal for Reform, 50 U. Kan. L. Rev. 111 (2001). The 2003 amend-ments to Article 3 appear to solve this problem, but have been adopted inonly 10 states.

16For example, a letter to the Florida Supreme Court from the Flor-

ida Bankers Association in 2009 observed, “The reason ‘many �rms �lelost note counts as a standard alternative pleading in the complaint’ isbecause the physical document was deliberately eliminated to avoid confu-sion immediately upon its conversion to an electronic �le.” See NakedCapitalism, FUBAR Mortgage Behavior; Florida Banks Destroyed Notes;Others Never Transferred Them, Sept. 27, 2010, available at http://www.nakedcapitalism.com/2010/09/more-evidence-of-bank-fubar-mortgage-behavior-�orida-banks-destroyed-notes-others-never-transferred-them.html. Itis not clear to what extent notes were destroyed, but it seems obvious thatin many cases the lost note a�davit process has been employed simply toavoid the trouble of looking for the note. One Florida legal aid attorneyestimated that 80% of the foreclosure complaints in his locality were ac-companied by lost note a�davits; see Bob Ivry, Banks Lose to DeadbeatHomeowners as Loans Sold in Bonds Vanish, Bloomberg, Feb. 22, 2008,available at www.bloomberg.com/apps/news?pid=newsarchive&sid=aejJZdqodTCM.



make money, and the necessary discipline to track posses-sion of the notes simply did not exist.

The same was true of endorsements. Often the need forthem was overlooked or ignored. When one considers thattransfers often involved thousands of notes in a single trans-action, and that a given loan might be transferred three,four, or �ve times—or more—it is easy to see how endorse-ments might easily be omitted. A missing endorsement isnot necessarily fatal to enforcement of the note, but it meansthat the party attempting to enforce it must supply individu-alized proof that its possession was transferred for thepurpose of transferring the right of enforcement.17 Given thehuge volume of transactions, that proof might be extremelyinconvenient to adduce.

Nearly 16 million residential mortgages were originated inthe United States in 2005, and another nearly 14 million in2006.18 The vast majority were sold on the secondary market.In light of the vast economic value of this market, it seemsalmost inconceivable that in the 21st Century the system fortrading mortgages is based on writing endorsements on indi-vidual pieces of paper and moving them about the country—but that is the fact. No doubt it can be done, and done cor-rectly, but only at a very substantial cost and inconvenience.

Recall that the discussion above has focused on negotiablenotes. Whether a given note is negotiable or not is a mixedquestion of fact and law: it requires a comparison of theterms of the note with the de�nition of negotiability inU.C.C. § 3-104(a). But American courts have displayed astrong reluctance to engage in this exercise, which is admit-tedly tedious and sometimes uncertain in result. Instead,they nearly always assume that the note involved is

17See, e.g., In re Veal, 450 B.R. 897 (B.A.P. 9th Cir. 2011); In re Aum

Shree of Tampa, LLC, 449 B.R. 584 (Bankr. M.D. Fla. 2011); Bank ofAmerica, NA v. Kabba, 2012 OK 23, 276 P.3d 1006, 77 U.C.C. Rep. Serv.2d 99 (Okla. 2012); Leyva v. National Default Servicing Corp., 255 P.3d1275, 75 U.C.C. Rep. Serv. 2d 6, 127 Nev. Adv. Op. No. 40 (Nev. 2011).

18James Harvey, Trends in Residential Mortgage Loan Originations

and their Impact on Community Banks, Financial Industry Perspectives,Federal Reserve Bank of Kansas City 2 (2009), available at http://www.kansascityfed.org/publicat/�p/prs09-12.pdf.



negotiable.19 Remarkably, until a little more than two yearsago, there were virtually no judicial decisions carefullyanalyzing the standard Fannie Mae-Freddie Mac residentialmortgage note with respect to negotiability, and even therecent decisions have hardly been inspiring of con�dence.20

Perhaps the courts' propensity to avoid this sort of decisionis understandable; there is a clear body of codi�ed rules withrespect to the transfer of negotiable notes, while nonnegotia-ble notes are left to the common law, and little has beenwritten about the topic for more than a hundred years.21 Lifeis so much simpler if one assumes the note in question isnegotiable. Still, it is little short of bizarre that there is somuch uncertainty as to what law applies to the multibilliondollar market in mortgage notes.

B. Transferring mortgages. The traditional practice, whenmortgage loans were sold on the secondary market, was torecord a mortgage assignment in the local public real estaterecords. In an era when secondary market transactions werefairly rare, this was not so burdensome. Today it would be amonumental inconvenience

19See Whitman, How Negotiability Has Fouled up the Secondary

Mortgage Market, and What to Do about It, 37 Pepp. L. Rev. 737 (2010).20

See HSBC Bank USA, Nat. Ass'n v. Gouda, 73 U.C.C. Rep. Serv. 2d226 (N.J. Super. Ct. App. Div. 2010), certi�cation denied, 206 N.J. 64, 17A.3d 1245 (2011) and cert. denied, 132 S. Ct. 1019, 181 L. Ed. 2d 738(2012) (not reported in A.3d), apparently concluding that the clauseobligating the mortgagor to notify the mortgagee of intent to prepay theloan did not render the note nonnegotiable. The opinion is slightly garbled,but at least the court tried. One federal district court, several bankruptcycourts, and the Alabama intermediate appellate court have agreed; seePicatinny Federal Credit Union v. Federal Nat. Mortg. Ass'n, 2011 WL1337507 (D.N.J. 2011) (not reported in F.Supp.2d); In re Walker, 466 B.R.271, 76 U.C.C. Rep. Serv. 2d 818 (Bankr. E.D. Pa. 2012); In re Kain, 2012WL 1098465 (Bankr. D. S.C. 2012); In re Edwards, 76 U.C.C. Rep. Serv.2d 220 (Bankr. E.D. Wis. 2011); Thomas v. Wells Fargo Bank, N.A., 2012WL 3764729 (Ala. Civ. App. 2012). Mesina v. Citibank, NA, 77 U.C.C.Rep. Serv. 2d 987 (Bankr. D. N.J. 2012) agrees with this analysis, andalso holds that negotiability was not destroyed by the Fannie Mae-FreddieMac note's reference to the accompanying mortgage with respect to rightsof acceleration and collateral.

21The Negotiable Instruments Law (the “NIL”), the predecessor of

UCC Article 3, was �rst enacted in New York in 1897; see The NegotiableInstruments Law: Its History and Its Practical Operation, 2 Mich. L. Rev.260 (1904). Since that time, the overwhelming majority of legal writingconcerning promissory notes has focused on negotiable notes.



Still, it is worthwhile to pause and think about whymortgage assignments should be recorded. It is likely thatmany lawyers and mortgage industry participants think theanswer has something to do with one's ability to foreclosethe mortgage, but this is manifestly wrong. Because of theprinciple, mentioned earlier, that the mortgage follows thenote,22 the existence or recording of a mortgage assignmentis completely irrelevant to the power to foreclose—at least,to foreclose by judicial process. If the foreclosing party hasthe right to enforce the note, the right to foreclose themortgage will accompany it automatically.23

Incidentally, this fact belies the often-repeated fallacy that,in the era before MERS became widely used, and in whichmortgage assignments were indeed commonly recorded, aborrower could easily determine who held his or her loan bychecking in the local real estate records.24 Even in that pe-riod, no one had to record an assignment in order to havethe power to foreclose, and there were doubtless many casesin which no recorded assignment accompanied a secondary

22See text supra at note 4.

23A few title-theory states di�er. They hold that the mortgage must

be literally assigned to the noteholder in order to confer the power of fore-closure. However, anyone who holds the mortgage but not the note isregarded as holding the mortgage in trust for the noteholder, and can becompelled in equity to make the necessary assignment. See U.S. BankNat. Ass'n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011) (“the holder ofthe mortgage holds the mortgage in trust for the purchaser of the note,who has an equitable right to obtain an assignment of the mortgage,which may be accomplished by �ling an action in court and obtaining anequitable order of assignment”); Averill v. Cone, 128 Me. 546, 129 Me. 9,149 A. 297, 299 (1930) (“the result in equity is that the legal title passedto the assignee but in naked trust for the owner of the mortgage debt”);Barrett v. Hinkley, 124 Ill. 32, 14 N.E. 863, 868 (1888) (“such [mortgagee's]title exists for the bene�t of the holder of the mortgage indebtedness, andit can only be enforced by an action in furtherance of his interests”);Kinna v. Smith, 3 N.J. Eq. 14, 1834 WL 2362 (Ch. 1834) (heir who receivesmortgage from decedent holds it in trust for personal representative towhom secured note passes). See George Osborne, Mortgages § 224 (1951);II Garrard Glenn, Mortgages § 314 (1943).

24See, e.g., Peterson, Foreclosure, Subprime Mortgage Lending, and

the Mortgage Electronic Registration System, 78 U. Cin. L. Rev. 1359,1403 (2010).



market transfer.25 Hence, one could never be sure that check-ing the real estate records would provide an accurate answerto the question of who held the loan.

Where nonjudicial foreclosure procedures are available—true in about 31 states today—the existence of a mortgageassignment (or chain of assignments, if there have beenmultiple transfers of the loan) may assume greaterimportance. About a dozen of those states, by statute, requireassignments (usually, recorded assignments) in order toconfer the right to use the nonjudicial process.26 Indeed, in afew of those states the courts, almost inexplicably, haveignored their own versions of the Uniform Commercial Codeand held that only the mortgage assignment is necessary totransfer the right to foreclose, and that having the right toenforce the underlying note is irrelevant!27

25For at least 25 years Fannie Mae and Freddie Mac have followed a

policy of not recording assignments at the time they acquire mortgages;see Charles Edson & Barry Jacobs, Secondary Mortgage Market Guide§ 9.03[1][c] (1986). This remains their practice today; see Fannie Mae,Sellers Guide (Jan. 31, 2012) at B8-6-02 (available at https://www.efanniemae.com/sf/guides/ssg/sg/pdf/sel013112.pdf); Freddie Mac Single-FamilySeller/Servicer Guide (Oct. 1, 2009) at 22.14 (available at http://www.allregs.com/tpl/Main.aspx).

26The California picture is unclear. See Cal. Civ. Code § 2932.5 (2011),

requiring recorded assignments, but held applicable only to mortgagesand not to deeds of trust by Calvo v. HSBC Bank USA, N.A., 199 Cal.App. 4th 118, 130 Cal. Rptr. 3d 815 (2d Dist. 2011), review denied, (Jan.4, 2012) and Haynes v. EMC Mortg. Corp., 205 Cal. App. 4th 329, 140 Cal.Rptr. 3d 32 (1st Dist. 2012), review denied, (Aug. 8, 2012). Cf. In re Cruz,457 B.R. 806 (Bankr. S.D. Cal. 2011) and In re Salazar, 448 B.R. 814(Bankr. S.D. Cal. 2011), rev'd and remanded, 470 B.R. 557 (S.D. Cal.2012), disagreeing with Calvo and holding Cal. Civ. Code § 2932.5 ap-plicable to deeds of trust.

Other statutes requiring a chain of assignments as a prerequisite tononjudicial foreclosure include Ga. Code Ann. § 44-14-162(b) (2011); IdahoCode § 45-1505(1) (2012); 14 Me. Rev. Stat. Ann. tit. 14, § 6321 (2011);Mass. Gen. Laws Ann. ch.183 § 21 (2012) (construed in U.S. Bank Nat.Ass'n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40 (2011) to require a writtenassignment or chain of assignments, but not necessarily recorded); Mich.Comp. Laws Ann. § 600.3204(c) (2012); Minn. Stat. 580.02(3) (2012); Nev.Rev. Stat. § 107.086(4) (2011); Or. Rev. Stat. Ann. § 86.735 (2012); S.D.Codi�ed Laws § 21-48-2 (2012); Wyo. Stat. Ann. § 34-4-103 (2012). So faras my research discloses, only the Maine statute applies to judicialforeclosure.

27State appellate cases include Hogan v. Washington Mut. Bank,

N.A., 277 P.3d 781 (Ariz. 2012), as amended, (July 11, 2012); Debrunner



Hence, depending on the particular jurisdiction and onwhether one wants to foreclose nonjudicially, the existenceof a chain of recorded mortgage assignments may beimportant to a secondary market investor's power to fore-close today. There two other primary reasons why recordedassignments may be signi�cant. One is protection againstfraud by the mortgage originator (or a predecessor in thechain of assignments). If no assignment has been recorded,there is nothing to stop the originator from conniving withthe mortgagor and fraudulently recording a release or dis-charge of the mortgage, thereby allowing the mortgagor tosell the property, apparently free and clear of the mortgage,to a good faith purchaser. The courts invariably protect theBFP in this situation, leaving the assignee's mortgage tovanish.28

A second reason to record a mortgage assignment is toprovide notice to the world—and hence to potential liti-gants—of the assignee's identity. This notice could be highlysigni�cant if some third party brought a suit attacking thevalidity or priority of the mortgage, or if a governmentalagency instituted a proceeding based on local codes, zoning,environmental laws, or the like that had the potential to af-fect the property's value adversely. The holder of themortgage assignment might have strong reasons to contestsuch a proceeding, but if no assignment was recorded, might

v. Deutsche Bank Nat. Trust Co., 204 Cal. App. 4th 433, 138 Cal. Rptr. 3d830 (6th Dist. 2012), review denied, (June 13, 2012); Trotter v. Bank ofNew York Mellon, 152 Idaho 842, 275 P.3d 857 (2012); ResidentialFunding Co., L.L.C. v. Saurman, 490 Mich. 909, 805 N.W.2d 183 (2011).Federal courts have taken the same view in Hawaii, Minnesota, andTexas, but it is uncertain whether their prediction of state law will turnout to be correct; see Nottage v. Bank of New York Mellon, 2012 WL5305506 (D. Haw. 2012) (Hawaii law); Stein v. Chase Home Finance,LLC, 662 F.3d 976 (8th Cir.2011) (Minnesota law); Kan v. OneWest Bank,FSB, 823 F. Supp. 2d 464 (W.D. Tex. 2011) (Texas law).

28Ameribanc Sav. Banks, F.S.B. v. Resolution Trust Corp., 858 F.

Supp. 576, 30 Fed. R. Serv. 3d 1116 (E.D. Va. 1994); In re Beaulac, 298B.R. 31, 41 Bankr. Ct. Dec. (CRR) 227 (Bankr. D. Mass. 2003) (trustee inbankruptcy as BFP under strong-arm powers); Kansas City Mortg. Co. v.Crowell, 239 So. 2d 130 (Fla. 4th DCA 1970); Federal Nat. Mortg. Ass'n v.Kuipers, 314 Ill. App. 3d 631, 247 Ill. Dec. 668, 732 N.E.2d 723 (2d Dist.2000); Brenner v. Neu, 28 Ill. App. 2d 219, 170 N.E.2d 897 (4th Dist.1960); Kalen v. Gelderman, 66 S.D. 53, 278 N.W. 165 (1938); Fannin Inv.& Development Co. v. Neuhaus, 427 S.W.2d 82 (Tex. Civ. App. Houston14th Dist. 1968).



never learn of it, since the party instituting the proceedingwould have no way of identifying the assignee from the pub-lic records and hence no obligation to give the assigneenotice.29 In sum, there are good reasons to record mortgageassignments, even in situations where the ability to foreclosethe mortgage is not one of them.

Let us pause for a moment to consider the implications ofwhat has been discussed above. We have seen that a well-advised secondary market investor in mortgage loans willobtain delivery of the original note, properly endorsed, andwill record a mortgage assignment. This sounds straightfor-ward enough, but when one lists the actual responsibilitiesinvolved, the list is daunting. Bear in mind that there areabout 3,600 local recording jurisdictions in the United States,each with its own document standards (page and font size,for example) and its own fee structure. Here's what has to bedone to properly transfer a mortgage loan under the presentlegal regime.

1. Determine to which recording jurisdiction in theUnited States the assignment must be sent forrecordation.

2. Determine the applicable document standards (mar-gins, font, addresses, cover sheet, etc.) imposed by therecording o�ce of the jurisdiction.

3. Prepare, execute, and acknowledge the assignment ofthe mortgage. (Note that the assignment must be handtailored to the speci�c mortgage, since the originalparties, recording information, and land descriptionmust be recited.) Don't forget the notarization!

4. Determine the jurisdiction's fee schedule and calculatethe correct recording fee.

5. Write a check for the fee.6. Transmit the assignment for recording, along with the

fee.7. Locate the original wet-ink signed promissory note,

likely stored in an o�-site vault.8. Endorse the note to the transferee, including a hand-

29Lang v. Butler, 483 P.2d 994 (Colo. App. 1971); Citimortgage, Inc.

v. Barabas, 950 N.E.2d 12 (Ind. Ct. App. 2011), adhered to on reh'g, 955N.E.2d 260 (Ind. Ct. App. 2011) and transfer granted, opinion vacated, INRAP 58(A), 967 N.E.2d 1032 (Ind. 2012) and opinion vacated, 975 N.E.2d805 (Ind. 2012).



written signature. If there is insu�cient space on thenote, it will be necessary to attach an allonge to thenote and write the endorsement on it.

9. Physically transmit the note to the transferee.10. Ensure that the original assignment is forwarded to

the transferee after recording. (The recording o�cemay perform this service.)

When we consider scope and inconvenience of these tasks,it is not hard to see why, in an active, even frenzied market,many of the participants forgot or dismissed some of them—much to the dismay of the lawyers who were later calledupon to represent the mortgage holders in foreclosureproceedings.

The role of MERS. In the mid-1990s a number of the ma-jor players in the secondary market realized that the tasksinvolved in recording mortgage assignments—items 1through 6 on the list above—were becoming increasinglyburdensome. They joined together to create the MortgageElectronic Registration system, which was designed toshortcut the assignment issue. In brief, MERS was based onthe concept was that virtually all residential mortgageswould either be originated with MERS as the mortgagee, orwould be assigned to MERS immediately after origination.So far as the public records stood, MERS would be the holderof the mortgage throughout its life, or at least until foreclo-sure was necessary. However, MERS would serve as anominee for the actual holder of the promissory note, andwould be subject to its instructions at all times. As the notechanged hands, MERS' records would be updated to re�ectthe change, but no assignment would be recorded locally.30

This solution was quite ingenious and actually workedwell until an army of foreclosure defense lawyers, broughtinto being by the foreclosure crisis that began in 2007, beganattacking it vigorously. It should be borne in mind thatMERS did not, and was never intended to, address the issueof promissory note delivery and endorsement. To deal ef-

30See Adam Leitman Bailey & Dov Treiman, Moving Beyond the

Mistakes of MERS to a Secure and Pro�table National Title System, 26Probate & Property 40 (Jul.-Aug. 2012); Carson Mullen, MERS: TrackingMortgages Electronically, Mortgage Banking, May 2000. MERS currentlyestimates that 60% of U.S. mortgages are registered with it; see MERSLaunches Homeowner Education Site, available at http://www.mersinc.org/newsroom/press�details.aspx?id=196.



fectively with notes would have probably required MERS tobecome the custodian of the notes, an ambitious and complextask that would have imposed major additional liabilities onMERS. So MERS was designed only to deal with the issue ofmortgage assignments.

But as events matured, it turned out that the role andauthority of a “nominee,” as MERS styled itself, was notvery well settled or understood by judges. Lawyers for bor-rowers poked at it from every angle. Did a nominee such asMERS have authority to make a further assignment of themortgage (for example, when transferring to a mortgageservicer in order to foreclose)?31 Did it have the authority toforeclose in its own name (as MERS routinely tried to dountil it discontinued the practice in May 2011)?32 Was itentitled to receive notice of �led litigation or other proceed-ings that might a�ect the title or value of the real estate?33

These and similar questions were raised in abundance,embroiling MERS in a virtual avalanche of litigation.34Because MERS was not based on an enabling or authorizing

31See, e.g., In re Madison, 2010 WL 3941858 (Bankr. D. Ariz. 2010);

In re Agard, 444 B.R. 231 (Bankr. E.D. N.Y. 2011), vacated in part, 2012WL 1043690 (E.D. N.Y. 2012); Bellistri v. Ocwen Loan Servicing, LLC,284 S.W.3d 619 (Mo. Ct. App. E.D. 2009); Bank of New York v. Alderazi,28 Misc. 3d 376, 900 N.Y.S.2d 821 (Sup 2010).

32Upholding MERS' right to foreclose in its own name, see, e.g., Velasco

v. Security Nat. Mortg. Co., 823 F. Supp. 2d 1061 (D. Haw. 2011), a�'d,2013 WL 543805 (9th Cir. 2013); In re Burnett, 450 B.R. 589 (Bankr.W.D. Va. 2011); Residential Funding Co., L.L.C. v. Saurman, 490 Mich.909, 805 N.W.2d 183 (2011); Ferguson v. Avelo Mortg., LLC, 126 Cal.Rptr. 3d 586 (Cal. App. 2d Dist. 2011), as modi�ed, (June 20, 2011) andreview denied and ordered not to be o�cially published, (Sept. 14, 2011)and cert. denied, 132 S. Ct. 2772, 183 L. Ed. 2d 642 (2012). RejectingMERS' right to foreclose in its own name, see Mortgage ElectronicRegistration Systems, Inc. v. Graham, 247 P.3d 223 (Kan. Ct. App. 2010),unpublished; Mortgage Electronic Registration Systems, Inc. v. Saunders,2010 ME 79, 2 A.3d 289 (Me. 2010); Weingartner v. Chase Home Finance,LLC, 702 F. Supp. 2d 1276 (D. Nev. 2010).

33Finding that recorded assignments to MERS imposed no duty on

subsequent litigants to notify MERS of the litigation, see Citimortgage,Inc. v. Barabas, 950 N.E.2d 12 (Ind. Ct. App. 2011), adhered to on reh'g,955 N.E.2d 260 (Ind. Ct. App. 2011) and transfer granted, opinion vacated,IN RAP 58(A), 967 N.E.2d 1032 (Ind. 2012) and opinion vacated, 975N.E.2d 805 (Ind. 2012); Landmark Nat. Bank v. Kesler, 216 P.3d 158(Kan.2009).

34See Horstkamp, MERS Case Law Overview, 64 Consumer Fin. L.Q.

Rep. 458 (2010).



statute, but only on common law concepts that were not wellunderstood, it became an attractive target.

MERS and its role as nominee were also attacked byacademics,35 by borrower-oriented web sites,36 and sometimesin the popular press.37 Its actual mortgage assignment opera-tions were carried out by a vast number of nominal corporateo�cers (at one time more than 20,000) who were actuallyemployees of the note holders for whom MERS served asnominee.38 They were sometimes ill-trained and responsiblefor creating so-called “robosigning” issues.39 A number of lo-cal recording jurisdictions sued MERS,40 essentially fordepriving them of the opportunity to record mortgage as-

35See Peterson, Foreclosure, Subprime Mortgage Lending, and the

Mortgage Electronic Registration System, 78 U. Cin. L. Rev. 1359 (2010);Peterson, Two Faces: Demystifying the Mortgage Electronic RegistrationSystem's Land Title Theory, 53 Wm. & Mary L. Rev. 111 (2011).

36See, e.g., Yasha Levine, How an Obscure Out�t Called MERS Is

Subverting Our Entire System of Property Rights, available at http://www.alternet.org/story/149189/how�an�obscure�out�t�called�mers�is�subverting�our�entire�system�of�property�rights/?page=2; EllenBrown, Homeowners' Rebellion: Could 62 Million Homes Be Foreclosure-Proof?, available at http://www.yesmagazine.org/new-economy/homeowners-rebellion-could-62-million-homes-be-foreclosure-proof.

37See, e.g., Ariana Eunjung Cha, Banks' Legal Right to Foreclose is

Questioned, Washington Post, Dec.3, 2010, available at http://www.washingtonpost.com/wp-dyn/content/article/2010/12/02/AR2010120206351.html;Gretchen Morgenson, Mortgage Registry Muddles Foreclosures, New YorkTimes, Sept. 1, 2012, available at http://www.nytimes.com/2012/09/02/business/fair-game-mortgage-registry-muddles-foreclosures.html?�r=2&ref=global.

38See [Video] MERSCORP CEO: “There are 20,000 of those (robosign-

ers) nationwide,” available at http://stopforeclosurefraud.com/2010/11/20/video-merscorp-ceo-there-are-20000-robo-signers-of-those-nationwide/.

39The term “robosigning” is pejorative and imprecise; it presumably

means that someone signs a document without verifying the facts underly-ing it. It is surely not the case that all or most of the people signing onbehalf of MERS did so.

40See David Dayen, Dallas County Sues MERS for Unpaid Recording

Fees, Sept. 23, 2011, available at http://news.�redoglake.com/2011/09/23/dallas-county-sues-mers-for-unpaid-recording-fees/; Bexar County will sueMERS over unpaid fees, Oct. 26, 2011, available at http://www.texasforeclosuredefensenetwork.com/san-antonio/2011/10/26/bexar-county-will-sue-mers-over-unpaid-fees/; Broke Counties Go After Banks and MERS for Fil-ing Fees (undated), available at http://www.sandhillsnc.com/broke-counties-go-after-banks-and-mers-for-�ling-fees.html. Most of these suits weredismissed; see, e.g., Jackson County, Mo. ex rel. Nixon v. MERSCORP,



signments and the fee income that they lost as a result. Inaddition, in late 2011 and early 2012 the Attorneys Generalof New York, Massachusetts, and Delaware sued severallarge banks and MERS, asserting that the MERS record-keeping system was illegal and fraudulent.41 None of theseattacks made much sense, and MERS has largely emergedintact. It has learned from its experiences and eliminated anumber of problematic practices.42 But its reputation hasbeen besmirched, and it is ill-trusted by borrowers and theircounsel. Moreover, because MERS holds mortgages but notnotes, its records of the identity of the noteholders willalways be subject to question and uncertainty.

In sum, if a comprehensive solution to the legal problemsof the secondary mortgage is to be found, it is doubtful thatMERS will provide the pathway to doing so. Any expansionof its role would be aggressively opposed and probably couldnot be enacted.II. An Alternative System: A Federal Mortgage Reg-istry

I begin this section by outlining the characteristics that analternative legal regime for the transfer of mortgages on thesecondary market should have. Much of the cumbersomecharacter of our present system is a result of the UCC's in-sistence that the right to enforce a negotiable promissorynote is intimately tied to physical possession of the originalnote. In 2010 I wrote an article suggesting that this link bebroken by a change in UCC Article 3 to declare that notes

Inc., 2013 WL 142882 (W.D. Mo. 2013). Contra, see Montgomery County,Pa. v. MERSCORP, Inc., 2012 WL 5199361 (E.D. Pa. 2012), �nding re-cording to be compulsory in Pennsylvania and refusing to dismiss thecounty's action against MERS.

41See Reuters, New York Sues 3 Big Banks Over Mortgage Database,

New York Times, Feb.3, 2012, available at http://www.nytimes.com/2012/02/04/business/new-york-suing-3-banks-over-mortgage-database.html;Gretchen Morgenson, Massachusetts Sues 5 Major Banks Over Foreclo-sure Practices, New York Times, Dec. 1, 2011, available at http://www.nytimes.com/2011/12/02/business/major-banks-face-new-foreclosure-suit.html.

42See Consent Order, April 12, 2011, in which the four major federal

�nancial regulators required MERS to improve training and internalcontrols, available at http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47h.pdf.



secured by mortgages were nonnegotiable.43 While this wouldeliminate the necessity of continual transfers of note posses-sion, it would not provide any alternative record-keepingsystem; there is, after all, no general recording or registra-tion system at any governmental level for ordinary contractrights. In my article, I suggested that the mortgage industry,if faced with the UCC change I advocated, would develop analternative—perhaps as an expansion of the role of MERS.This now seems to me an unlikely development, and in anyevent the Permanent Editorial Board of the Uniform Com-mercial Code (the PEB) has shown no disposition to take thestep I recommended and remove mortgage notes from thepurview of Article 3. Perhaps in part the PEB's disinterest isa consequence of the uncertainty that exists as to what wouldfollow such a step. I now propose to describe an alternativerecord-keeping system. It should, I believe, have the follow-ing features:

1. Mortgage notes should be removed from the coverageof UCC Article 3, so that transfers of possession of papernotes is no longer needed to transfer the right of enforcement.Since it appears that this step will not be taken by the PEB,it can and should be done by preemptive federal legislation.

2. A federal-sponsored electronic registry should be cre-ated by act of Congress to serve as an alternative means oftracking the holding—that is to say, the right of enforce-ment—of mortgage notes. Entitlement to enforcement, asshown in such a registry, should be conclusive.

3. The identity of holders of mortgage loans, as shown inthe federal registry, should be made by law a matter of pub-lic notice, in much the same manner as recorded mortgageassignments are public notice today. This would eliminateboth the need to record mortgage assignments locally andthe need for MERS, which would be supplanted by the newsystem. It would also ensure that note holders would beentitled to receive notice of litigation or other legal processes�led against the property or the mortgage.

4. The holder of a mortgage loan, as shown in the federalregistry, would have all rights currently available to noteholders and mortgage assignees under existing state law,including (most obviously) the right to foreclose judicially or

43Whitman, How Negotiability Has Fouled up the Secondary

Mortgage Market, and What to Do about It, 37 Pepp. L. Rev. 737 (2010).



nonjudicially. The registered holder would also have fullpower to modify the loan, accept less than face value as pay-ment, approve a transfer of the property or a short sale, sub-ordinate the mortgage's priority, and in every other waystand in the shoes of the originator so far as the borrowerwas concerned.

5. In the federal registry, the note and the mortgagewould be inseparable. Rights to each would always compre-hend rights to the other. There would, however, be no objec-tion to the registered holder separating “ownership” in thesense of ultimate rights to the proceeds of the note, andtransferring such ownership rights to another party. Becausethe borrower would have no concern for such transactions,the registry would not purport to track them.

With these basic concepts set out, I now turn to a moredetailed description of how the federal registry would be cre-ated and function. At the conclusion of this paper I have ap-pended a draft of a statute that would create and specify theterms of operation of such a registry.

A. Federal preemption. The system I envision must beenacted by Congress in order to preempt state law.44 Thereare at least three reasons preemption is necessary. First,state law is bogged down with the inherent ambiguities ofthe UCC Article 3's de�nition of negotiability, and the factthat only negotiable notes are governed by Article 3.45 One ofthe primary tasks of a federal statute would be to eliminatethis distinction so far as mortgage notes are concerned, andto treat all mortgage notes alike. The uncertainty concerningwhether Article 3 or the common law governs their transferwould become irrelevant.

Second, a federal statute would eliminate the necessity forphysical delivery of the original promissory note as a meansof transferring the right of enforcement, as is now requiredby UCC Article 3 for negotiable notes.46 The embodiment ofthe legal right in the physical instrument made sense in theera in which it was invented, but it is absurdly archaic in atime when records of virtually all property rights aremaintained in electronic data bases. The burdens and risksof transferring such huge volumes of paper are unnecessary

44Draft Statute § 112.

45See text supra at notes 7–8, 21.

46See text supra at notes 13–14.



and unacceptable. Federal preemption can readily eliminatethe need for this practice.

Third, federal preemption can short-circuit the ongoing av-alanche of litigation over precisely what proof is needed toforeclose a mortgage or bring a suit on a mortgage note.American law is a confused morass on this issue. At a stroke,a federal statute can provide that an appropriate certi�cateissued by a national mortgage registry is adequate proof ofthe right to foreclose, whether judicially or nonjudicially, inevery jurisdiction in the country.47

Registering and tracking mortgage loans in the UnitedStates is a national issue that requires a nationwide solution.No existing federal agency has the authority to create such asolution, nor the power to preempt state law in the processof doing so. When mortgage loans were assets traded only atthe local level, or not at all, state law may have beensatisfactory. Today that era has passed. Only action byCongress can address the needs of the national market thatnow exists.

B. What is being registered? It is important to be perfectlyclear about what legal attributes are to be registered in anew registration system. As we have seen, the Uniform Com-mercial Code distinguishes between ownership and the“entitlement to enforce” a note.48 In essence, any party whocan identify the person “entitled to enforce” the note candeal safely with that person. Thus, the basic obligation underthe note is to pay that person, and payment to him or herwill discharge the note, while failure to pay that person whendue will constitute dishonor—in e�ect, a default on the note.49

It is this quality that needs to be tracked in a mortgageregistry, so that all borrowers and third parties can deter-mine, by reviewing the registry's records, that they are deal-ing with the correct person for all purposes. They have noparticular interest in learning the identity of the “owner” ofthe note, in the sense of the party entitled to the ultimateeconomic bene�ts. They simply need to know that if theypay, or to a modi�cation with, or are foreclosed by, the personidenti�ed in the Registry, they are dealing with (or beingdealt with by) the person with the proper authority.

47Draft Statute § 112(a).


49See PEB Report at 4.



In the Draft Statute below, I have chosen to use the term“holder” as a shorthand way of describing the person thatUCC Article 3 would say is “entitled to enforce” the note.50This usage is similar to Article 3's use of the same term, andthus has the advantage of familiarity.51 The Draft Statute,however, expands the grant of authority of the “holder” toinclude all forms of enforcement of the mortgage itself aswell as the note, so as to make it completely clear that thesame party can enforce both instruments, and that the twoinstruments are bound together as if they were one. Themost obvious illustration of this expansion is the positivestatement in the Draft Statute that the holder can foreclosethe mortgage securing the note.52 Likewise, the holder of thenote and mortgage can agree to a modi�cation of the obliga-tion, or consent (under the authority of a due on sale clause)to a transfer of the real estate securing the note. The holdercan also bring an action to enforce any covenant in themortgage (as well as the note, of course), although admit-tedly such actions are not very common. Overall, the conceptadopted in the Draft Statute is that the holder can safely bedealt with by the maker-mortgagor or any other person forany purpose related to the note or the mortgage.53 Finally,only the holder can make a transfer of the mortgage loan toanother holder.54

Thus, the Draft Statute is about registering holders. Theregistry need not be concerned with relations between hold-ers and owners (in the cases in which they are, indeed, dif-ferent), for anyone who deals with the holder will be assuredthat the resulting bargain is binding on the owner as well.Indeed, the Draft Statute provides in e�ect that an ownerwho is not also a holder has no authority to deal with the

50Draft Statute § 102(3).

51This is not to say that the Draft Statute's requirements for becom-

ing a holder are identical to UCC Article 3's requirements. Under theDraft Statute, unlike UCC Article 3, a person need not have taken physi-cal delivery of the note in order to be a holder, and there is no provisionfor (and no need for) a “lost note a�davit” procedure if the original notecannot be produced.

52Draft Statute § 109(1). UCC Article 3 seems to imply this, but never

states it directly, and as we have seen, a cluster of cases appears to denythat it is so; see supra text at note 28.


54Draft Statute § 103(b), (c).



maker or other parties.55 UCC Article 9 governs the rights ofowners as such,56 and will continue to be entirely satisfac-tory if the Draft Statute is adopted, so that there is no needfor the Registry to preempt it or deal with it further.

The Registry must also accommodate “transferrableelectronic records.” This concept was developed to permit theuse of electronic promissory notes in lieu of paper notes, pri-marily in real estate �nancing. The distinguishing feature ofa “transferrable electronic record” is that only one authorita-tive electronic copy can exist at a time. When such a note istransferred, the copy held by the transferee becomes author-itative, while any copy retained by the transferor becomesnonauthoritative. The result is the practical equivalent ofphysical delivery of an original paper note, and satis�es thedelivery requirement for negotiable notes under UCC Article3.57 The person to whom the note is issued or transferred issaid to have “control” of the record, and only that person canauthorize a further transfer or a modi�cation of the record.Both the Uniform Electronic Transactions Act (UETA)58 andthe federal eSign59 statute authorize transferrable electronicrecords in virtually identical language.

Since the use of electronic note is gradually growing, it isobviously desirable for the federal mortgage loan Registry torecognize and register promissory notes in electronic form.Under existing statutory de�nitions, the person having“control” of the record is the holder of the note for purposesof UCC Article 3.60 Hence, the Registry must maintain a rec-ord of, and certify the identity of, that person. The DraftStatute de�nes “holder” to mean the person with control inthe case of a transferrable electronic record,61 so that a cer-


56Article 9 provides in substance that one may become an owner ei-

ther by taking possession of the note or by a written agreement signed bythe transferor. See U.C.C. § 9-203; PEB Report at 9–10.


58Uniform Electronic Transactions Act § 16. UETA has been adopted

in all states except Illinois, New York, and Washington, which havelocally-tailored legislation that is roughly equivalent.

5915 U.S.C.A. § 7021.

60UETA § 16(d); 15 U.S.C.A. § 7021(d).

61Draft Statute § 103(3), (6).



ti�cate from the Registry identifying the holder will ipsofacto certify the identity of the person with control.

C. Initial recording of mortgages. The Draft Statuterequires, as a condition of the registration of any mortgageloan in the registry, that the mortgage itself �rst be recordedor registered in the land records under state law in order toestablish its priority.62 This is absolutely essential, for theregistry is not intended to determine the mortgage's validityor priority as against other interests under state law, or tobe a substitute for local recording of the mortgage itself. Theexisting state recording system works well enough for thatpurpose, and attempting to supplant it with a federal systemwould vastly expand the registry's role, and would createcon�icts and complexities that are entirely unnecessary.

D. Registration or recording? The Draft Statute would cre-ate a registration system, not a recording system. Theprincipal advantage of a registration system is that the cer-ti�cates of the registry would be conclusive.63 In e�ect, thismeans that they could not be legally incorrect. If theregistry's certi�cate states that a mortgage is held by acertain party, then that party is the holder, by legalde�nition. This is a powerful feature; it means that anyonerelying on the registry can do so with complete con�dencethat they know the identity of the mortgage's holder. This isanalogous to the Torrens system of land title registration,64and is quite di�erent than the real estate title recordingsystem used predominantly in the United States. The re-cording system makes no averment whatever as the validityof the documents it contains or their e�ect on title.

However, any system of title registration can makemistakes, both because of human error and because it hasreceived fraudulent information. If such mistakes have thee�ect of vesting the holding of a mortgage loan in the handsof someone who is not entitled to it, someone else will havebeen wrongfully deprived of that mortgage loan. The



64See Hanstad, Designing Land Registration Systems for Developing

Countries, 13 Am. U. Int'l L. Rev. 647 (1998); William B. Stoebuck & DaleA. Whitman, Property § 11.15 (3d ed. 2000); Comment: The TorrensSystem of Title Registration: A New Proposal for E�ective Implementa-tion, 29 UCLA L. Rev. 661 (1982).



deprived party will not be happy, and may come to the regis-try and seek compensation. To be fair and just, the registrymust provide such compensation, and must have funds outof which compensation can be paid.

Fortunately, the risk of error in a registration system formortgage loans is minimal. The system need not be con-cerned with errors the legal description of the land or thepossibility of con�icting deeds or mortgages. Title risks as-sociated with the creation of the mortgage loan will continueto be handled by title insurance, as they are today. Ad-ditional steps can be taken to minimize the risk of theRegistry's issuing erroneous certi�cates. Fraudulent submis-sions to the Registry can be discouraged, if not entirelyavoided, by the existence of heavy criminal penalties andcivil liability.65 Standardized data sets and standardelectronic formats can help avoid errors; indeed, the FederalHousing Finance Agency has been working aggressively ondeveloping just such data sets.66 Moreover, if the Registry is-sues an erroneous certi�cate, it should have the power torevoke it if no person has relied upon it detrimentally and ingood faith.67

E. Electronic registration and transfer and the problem ofdocument authenticity. The registry, as envisioned in the


66The Federal Housing Finance Agency has described its e�orts to

develop mortgage information standards as follows:The Uniform Mortgage Data Program will improve the consistency, quality,and uniformity of data collected at the beginning of the lending process.Developing standard terms, de�nitions, and industry standard data reportingprotocols will decrease costs for originators and appraisers and reducerepurchase risk. It will allow new entrants to use industry standards ratherthan having to develop their own proprietary data systems to compete withother systems already in the market. Common data de�nitions, electronic datacapture, and standardized data protocols will improve e�ciency, lower costsand enhance risk monitoring. Standardizing data will be a key building blockof housing �nance reform.Federal Housing Finance Agency News Release, FHFA Sends Congress Strate-gic Plan for Fannie Mae and Freddie Mac Conservatorships, Feb. 21, 2012, at10, available at http://www.fhfa.gov/web�les/23344/StrategicPlanConservatorshipsFINAL.pdf.

67Draft Statute § 110(c).



Draft Statute, will be a paperless operation.68 Initial registra-tions and all transfers from one holder to another will be ac-complished electronically. This means that the reliabilityand authenticity of the original registration process iscritical.69 The registry can identify an entity registering amortgage loan, and verify the authenticity of the messagecontaining the registration data, through the use of publickey cryptography. There are a number of experienced, reli-able providers of digital signatures based on this technology,and if their services are properly used, one can haveextremely high con�dence in the identity of the sender andthe fact that message as received was exactly what wastransmitted. The same procedure can be used when a holderwishes to transfer an already-registered loan. While thetechnical details of these operations are outside the scope ofthe present paper, they are readily available from othersources.70

This leaves the question of the authenticity of the originalloan documents. The party submitting the mortgage loan forregistration can and should be required to attach scans ofthe note and mortgage, including their signature pages.71 Asnoted above, a mortgagee title insurance policy providesprotection against forgery of the mortgage, at least in thehands of a transferee from the original mortgagee.

But title insurance does not cover the note,72 and amortgage without an accompanying authentic note is

68The Draft Statute permits paper registrations, but it is expected

that they will be rare; Draft Statute § 103(a).69

Draft Statute § 103(c), (d).70

See, e.g., Robertson, Jr., Electronic Commerce on the Internet andthe Statute of Frauds, 49 S.C. L. Rev. 787 (1998), at notes 197–209;Whitman, Are We There Yet? The Case for a Uniform Electronic Record-ing Act, 24 W. New Eng. L. Rev. 245 (2002), at notes 60–63.

71Draft Satute § 107. Other essential documents in the preregistra-

tion “chain of title” of the loan, such as mortgage assignments, noteendorsements or allonges, and any modi�cation, substitution, or assump-tions agreements should also be submitted with registration.

72See First American Title Ins. Co. v. XWarehouse Lending Corp.,

177 Cal. App. 4th 106, 98 Cal. Rptr. 3d 801 (1st Dist. 2009) (title insur-ance policy provided no compensation to holder of forged promissory note).See also Reyes v. Stewart Title of Cal., 2011 WL 3305974 (Cal. App. 2dDist. 2011), unpublished/noncitable (not reported in Cal.Rptr), absolvingan escrow company of liability in a scheme by which a mortgage brokerobtained a borrower's forged or fraudulent signature on a promissory note.



worthless. Of course, this problem is not unique to anelectronic Registry. A paper document purporting to be anoriginal promissory note might be also a forgery, and therehave surely been instances of such false notes being sold onthe secondary market.73 Almost universally, under thepurchase and sale agreement the seller of such a note is ob-ligated to buy it back and reimburse the purchaser.74 Butthis is cold comfort if the seller has been dissolved or isinsolvent, as crooked sellers of mortgage loans tend to be.

The Registry should not assume liability for the legalauthenticity of the underlying note. This would leave theRegistry to say, in e�ect, “We assure anyone relying on ourrecords that the holder of this note and mortgage is indeedthe person our records indicate. However, we do not provideassurance that the note and mortgage themselves areauthentic documents signed by the maker and mortgagor.”75

This position should not produce any great shock in the mar-ket; after all, the traditional recording and title insurancesystem likewise provides no protection against forged orfraudulent notes; investors are protected only by using cau-tion in deciding with which originators or sellers they will dobusiness.

F. Registration of servicing. In most cases, it is not veryuseful for a mortgagor to know the identity of the investorwho holds his or her loan. The reason is that the investorhas usually delegated to a servicer the authority to deal withthe mortgagor; indeed, the investor typically is not equipped

73See, e.g., Maddox v. Summit Mortg. Corp. v. Nationsbanc Mortg.

Corp., 2001 WL 1805883 (Tex.App. 2002) (not reported in S.W.3d).74

See, e.g., Long Beach Securities Corp., Pooling and Servicing Agree-ment, Long Beach Mortgage Loan Trust 2006-3 § 2.3 (Apr. 1, 2006), avail-able at http://content.edgar-online.com/edgar�conv�pdf/2006/04/21/0001277277-06-000388�PSALONGBEACH�20063.PDF:

Upon discovery or receipt of notice of any materially defective document . . .the Trustee shall promptly notify . . . the Seller . . . and request that theSeller . . . cure such defect or breach [and upon its failure to do so] . . . theTrustee shall enforce the obligations of the Seller under the Mortgage LoanPurchase Agreement to repurchase such Mortgage Loan.See, e.g., Lehman Bros. Holdings, Inc. v. 1st New England Mortg. Corp., 2012WL 3984413 (D. Mass. 2012) upholding a loan originator's repurchase obliga-tion where the loan was based on a fraudulent loan application.




to, and does not wish to, have direct contact with borrowers.76Hence, for a registry to be helpful to borrowers, it mustreveal the servicer's name and contact information as wellas that of the holder of the loan.

This is not to suggest that anyone has been trying to hidethis information. MERS, for example, proclaims itself keento help mortgagors contact their servicers.77 Federal lawrequires noti�cation to the mortgagor of a “federally-related”mortgage loan each time servicing is transferred.78 Servicersare usually eager to keep mortgagors up to date, since theywant to avoid any excuse for late or missing payments.

The term “servicer” is not, however, self-de�ning. Aservicer is an agent with speci�c authority, and it is desir-able for the holder of the loan to spell out that authority in away that is available and intelligible to the public. For thisreason, the Draft Statute allows holders to designateservicers in the registry's records79 (as they have a strongself-interest in doing), but requires that those doing so mustprovide a brief description of the servicer's authority.80 Thiscould easily be accomplished with a “check the box” systemfor the usual powers, along with an opportunity to provide atextual explanation of any unusual authority. There wouldbe no objection to a holder identifying multiple servicers,perhaps with di�erent scopes of authority.

G. Capturing the entire loan �le. To be maximally usefulto investors and servicers, the registry should encourage


77See the MERS ServicerID system, https://www.mers-servicerid.org/

sis/; MERS, Information for Homeowners, available at https://www.mers-servicerid.org/sis/.

78The Real Estate Settlement Procedures Act (RESPA), 12 U.S.C.A.

§ 2605, requires the existing servicer to notify the borrower no less than15 days before the transfer, and the new servicer to notify the borrowerwithin 15 days after the transfer. Under 2009 amendments to the Truthin Lending Act, 15 U.S.C.A. § 1641(g)(1), consumer borrowers are alsoentitled to mailed notice of the identity of the new creditor (investor)within 30 days after a transfer of the loan itself.


80For example, does the servicer have authority to modify the loan?

To subordinate it to other liens? To approve a sale of the real estate underthe mortgage's due-on-sale clause? To issue a satisfaction when the loan ispaid? To foreclose? This information should assist borrowers in beingcertain that they are seeking answers from the right entity.



registrants to submit the entire loan �le to the registry'scustody. As mentioned above, full scanned images of thenote and mortgage—the two documents that form the legalcore of the loan transactions—should be held by theregistry.81 Secondary market investors typically insist onreceiving copies of a number of other documents from theloan �le as well: the appraisal, credit report, lender's title in-surance policy, mortgage insurance application and certi�-cate, and any pre-registration assignments, modi�cations, orassumption agreements.

Standards have been developed or are currently indevelopment by the Mortgage Industry Standards Mainte-nance Organization (MISMO) for the representation of all ofthese types of documents in digital form.82 MISMO, estab-lished in 1999, was created to coordinate the developmentand maintenance of Internet-based Extensible MarkupLanguage (XML) data sets for all of the usual documentsemployed in mortgage loan transactions. Using MISMO'sstandards, it would be feasible for a national mortgage Reg-istry to capture and preserve the essential elements of anyloan �le, residential or commercial, in a standardized,compact, and e�cient form.83 There would be no need forscanned images of these documents, as the XML data wouldcontain all of the variable information from them.

Of course, inclusion of this additional data would beoptional with the registrant, but there is reason to expect itto be extremely popular. Centralizing this data in a nationalregistry would mean that it would be unnecessary for onemortgage holder to transfer photocopies of the �le documentsto another when a loan was sold on the secondary market. Atransfer of the loan in registry would automatically makethe full �le available to the loan's new holder. There arehuge e�ciencies to be gained by such a procedure, and itmight be one of the most attractive features of a nationalregistry to the mortgage industry.

H. Transparency. In the United States we have long beenaccustomed to the notion that the identity of a mortgage


82For example, the MISMO standard data sets for the common docu-

ments in residential mortgage transactions may be seen at http://www.mismo.org/Speci�cations/ResidentialSpeci�cations.htm.




holder is a matter of public record. As discussed earlier, inrecent decades this has been far from universally true, asmortgage investors have increasingly abandoned the practiceof recording mortgage assignments on a current basis.84 Ofcourse, virtually all mortgages are recorded, and assign-ments sometimes continue to be recorded as well. Thissalutary practice should be carried over to a nationalmortgage registry. Any member of the public should be ableto inquire, via the internet, and determine the identity ofany mortgage's holder and servicer, and to request copies ofthe basic mortgage and other mortgage-related documents,such as pre-registration assignments, modi�cations, assump-tion agreements, and the like—all of the documents whichwere traditionally recordable and recorded in the existingreal estate records.85

Ready availability of information about servicer identitywould be a particular boon to those who pay o� mortgageloans. Most payo�s are done by “settlement agents” such astitle companies, escrow companies, and lawyers. In the pres-ent environment they are often uncertain of the identity ofthe loan servicer to whom payment should be made, and �ndthemselves relying on information of dubious credibility. Anaccurate and transparent on-line source of this informationwould be a great advantage to them.

With respect to the other information held by the registry,beyond the identity of the investor and servicer and thetraditionally-recorded documents, privacy concerns outweighthe public's need to know. For example, promissory notesare not ordinarily recorded under state law, and makingthem available to the public on the registry would be open toserious criticism from both lenders and borrowers, who mayoften wish to keep the details of their loan agreementcon�dential. Hence, the note and the remainder of the infor-mation held on a particular loan should be accessible only tothe registered holder of the loan, the servicer, the borrower,and any successor owner of the mortgaged real estate.86

I. Fees. A national registry should be �nancially self-sustaining, and hence should be authorized to charge feesappropriate to pay its costs of operation, including a suf-



86Draft Statute § 108(d).



�cient indemnity or insurance fund to cover payouts requiredby errors.87 A fee structure similar to that currently chargedby MERS might be appropriate.88 MERS charges an annualmembership fee that varies from $150 to $7,500, dependingon the volume of loans registered each year. In addition,there is a charge of $11.95 for each registration or transfer.It is likely that fees on this order could sustain a new regis-try adequately. Of course, some federal appropriation ofstartup funds will be needed.

J. Notice of registered information. In order to protect theregistered holder of a loan from a fraudulent release by theoriginal mortgage,89 and to ensure that the registered holderwill get notice of litigation or other proceedings that may af-fect the loan,90 it is essential that the registration providenotice of its contents. Perhaps, as an o�cial public-accessiblerecord, a federal registration would be construed to havethat e�ect under existing state law, but the cases de�ningwhether a particular record gives constructive notice arevariable and unpredictable.91 It is better to include in thegoverning federal statute a clear statement that the registra-tion imparts notice; the Draft Statute does so.92

Of course, in a sense this provision complicates title


88MERS' fee schedule is found at http://www.mersinc.org/mersproduc

ts/pricing.aspx?mpid=1.89

See text supra at notes 35–38.90

See text supra at note 39–41.91

See, e.g., Hahn v. Alaska Title Guaranty Co., 557 P.2d 143 (Alaska1976) (public land order �led with Federal Registrar in Washington DCimparted constructive notice); 765 A.2d 450 (Vt.2000) (the failure to obtaina subdivision permit in violation of state public health regulations was amatter of public record, imparting constructive notice). Contra, see FirstAmerican Title Ins. Co. v. J.B. Ranch, Inc., 966 P.2d 834 (Utah 1998)(road maps �led with county clerk's o�ce gave no constructive notice);City of Lakewood v. Mavromatis, 817 P.2d 90 (Colo. 1991) (delivery ofroad petition to county clerk gave no constructive notice); Ioannou v.Southold Town Planning Bd., 304 A.D.2d 578, 758 N.Y.S.2d 358 (2d Dep't2003) (covenants �led with town planning board gave no constructive no-tice); Story Bed & Breakfast, LLP v. Brown County Area Plan Com'n, 794N.E.2d 519 (Ind. Ct. App. 2003), transfer granted, opinion vacated, INRAP 58(A), 812 N.E.2d 793 (Ind. 2004) and opinion vacated, 819 N.E.2d55 (Ind. 2004) (land use restricted �led with county plan commission's of-�ce gave no constructive notice).

92Draft Statute § 112(c).



searches, since there will now be one additional place asearcher must look for relevant title information. Fortu-nately, this task can be completed quickly on-line, and willimpose only a minor additional burden. Particularly for thosewho are about to commence foreclosures, the transparencyand certainty provided by the Registry will be a highlyadvantageous. Note that nothing in the Draft Statutechanges state foreclosure law or rede�nes who is entitled tonotice of a foreclosure proceeding. It merely allows the Reg-istry to act, just as state recording systems act, to impartconstructive notice of recorded documents and the facts theycontain.

K. The holder in due course doctrine. Where would thisproposal for a national mortgage loan registry leave theholder in due course doctrine? That doctrine, applicable onlyto negotiable notes and embodied in Article 3 of the UniformCommercial Code,93 permits secondary market investors totake notes free of certain “personal” defenses that the makerof the note might raise.94 In the context of mortgage notes,perhaps the most salient illustration is a note the executionof which was induced by fraudulent statements. A holder ofdue course of such a note can collect the note (and foreclosethe accompanying mortgage) notwithstanding the maker'sdefense that he or she was defrauded into signing it.

The registry proposal presented here would have no formalimpact, positive or negative, on the holder in due coursedoctrine. The doctrine has always required that the second-ary market investor must be a “holder” in the Article 3 sense,which in turn means that the investor must have taken pos-session of the original promissory note.95 The experience ofthe past decade suggests that the doctrine is not viewed ashaving much value for investors in notes,96 since there hasbeen a widespread pattern of failure to ensure that the orig-inal note is delivered when a loan is sold. On the other hand,

93U.C.C. § 3-302.

94The “personal” defenses usually identi�ed by commentators (since

they are not listed in the Code itself) are failure or lack of consideration,breach of warranty, unconscionability, and fraud in the inducement; seeWhite and Summers, Uniform Commercial Code § 15-1 (6th ed.).

95U.C.C. § 3-203; PEB Report at 5–6.

96This suggestion was �rst made 15 years ago by Mann, Searching

for Negotiability in Payment and Credit Systems, 44 UCLA L. Rev. 951(1997).



lawyers for some major present-day secondary market inves-tors have told me that they do not think their clients wouldreadily give up holder in due course protection.

Of course, under traditional commercial and mortgage lawthere has been a much more important reason for an inves-tor to insist on a delivery of the note: only by delivery canthe entitlement to enforce a negotiable note be transferred.97Under the registry proposal made here, that will no longerbe true. A properly registered holder of a loan will have theright to enforce the note and foreclose the mortgage whetherpossession of the original note has been delivered or not.Indeed, if this proposal becomes law, becoming a holder isdue course will be the only remaining reason for an investorto bother taking possession of the note. This suggests thattaking possession would be likely to happen very rarelyindeed, and that the holder in due course status of mortgageinvestors as a class would probably wither and die likeMarx's capitalist state. But there would be nothing aboutthe registry system that would prevent an investor fromdemanding possession of the note, and thereby maintainingthe bene�ts of the doctrine, if that should be the investor'sdesire.III. Conclusion.

A national mortgage loan Registry structured along thelines outlined here would resolve all of the major legalproblems that beset the secondary mortgage market today.To be speci�c:

1. The lack of clarity in the distinction between negotia-ble and nonnegotiable notes that exists today would becomeirrelevant for purposes of loan transfer. Negotiable and non-negotiable notes would be treated exactly alike and would betransferred in the same manner.

2. The need to physically deliver original notes in orderto transfer the right of enforcement—an extremely burden-some and inconvenient requirement for negotiable notes intoday's market—would be eliminated. Transfers would takeplace electronically, with assurance that they would berecognized by local law in all jurisdictions.

3. The necessity of recording mortgage assignments in lo-cal recording o�ces would be done away with. MERS wasdesigned to eliminate the need for such assignments (except




at the point when foreclosure was necessary), but thenational Registry would accomplish this without the arti�ci-ality and confusion engendered by MERS' “nominee” status.

4. Borrowers would be protected against competing claimsby purported mortgage holders, since the registry's recordsof loan holdings would be conclusive. Whether in cases ofloan modi�cation, payo� and discharge, approval of a shortsale, or foreclosure, a borrower would know with certaintywhether a purported holder's claim to the loan was authentic,and whether its purported servicer was authorized to act.

5. All foreclosures, both judicial and nonjudicial, could beconducted with assurance that the correct party wasforeclosing. The registry's certi�cate could be recorded understate law and become a part of the chain of title of propertypassing through foreclosure,98 thus permitting future titleexaminers to verify that the foreclosure was conducted bythe person authorized to do so. Concerns of title insurersabout the validity of titles coming through foreclosure, cur-rently a major worry,99 would be largely eliminated.

6. The current confusion and litigation about separationof notes from their mortgages, and about what proof isneeded to foreclose a mortgage, would be brought to an end.The registry's certi�cate would provide all of the documen-tary evidence necessary to foreclose.

7. The holder in due course doctrine, with its potentialfor unfair harm to borrowers, would probably disappear inthe context of mortgage loans as secondary market partici-pants abandoned the practice of physical delivery of mortgagenotes.

The system for transferring mortgage loans with which weare saddled today is a shambles. The result has beenenormous uncertainty and likely huge �nancial loss forinvestors, servicers, and title insurers. It is time for Congressto act to create a sensible, simple, and e�cient alternative.

98Draft Statute § 112(b).

99See, e.g., Ron Lieber, After Foreclosure, a Focus on Title Insurance,

New York Times, Oct. 8, 2010, available at http://www.nytimes.com/2010/10/09/your-money/mortgages/09money.html?pagewanted=all; StephanieArmour, Lack of Title Insurance Could Slow Sales of Foreclosed Homes,USA Today, Oct. 3, 2010, available at http://www.usatoday.com/money/economy/housing/2010-10-01-boa-delays-foreclosures�N.htm.



Appendix: Draft StatuteNational Mortgage Loan Registry Act

An Act to provide for the establishment of a NationalMortgage Loan Registry and to grant legal powers and dutiesto such Registry.

Preamble.The Congress hereby �nds that the existing systems for

establishing, maintaining, and updating records of the hold-ers of mortgage debt in the United States are cumbersome,ine�cient, and often uninformative to borrowers. Confusionarising from this system has impaired the functioning offoreclosure proceedings and has made mortgage modi�ca-tions more di�cult to accomplish. It is therefore desirable toestablish a single, uni�ed national system of records of theholders of mortgage debt.

Section 101. Registry established.There is established in the [Name of agency], a bureau

to be known as the “National Mortgage Loan Registry,”which shall accept and maintain records of the holders ofdebt secured by real property, and of information relatingto such debt.Section 102. De�nitions

For purposes of this title the following de�nitions shallapply:

(1) BORROWER. — The term “borrower” means theperson or persons making or guaranteeing a note orgranting a mortgage on real property, and any successorowners of the real property while the mortgage continuesto encumber it.

(2) FEDERALLY RELATED MORTGAGE LOAN. —The term “federally related mortgage loan” shall havethe meaning given in 12 U.S.C. § 2602(1).

(3) HOLDER. — The term “holder” means a personor legal entity that is entitled to enforce a note and themortgage which secures the note, and in the case of atransferrable electronic record, means the person havingcontrol of the record.

(4) LOAN. — The term “loan” means the combinationof a note and mortgage, as registered with the Registry



in the name of the holder. The note and mortgagecomprising a loan registered with the Registry may notbe separated from one another.

(5) MORTGAGE. — The term “mortgage” means anyinstrument creating an interest in real property tosecure performance of an obligation, including withoutlimitation a mortgage, deed of trust, or security deed.

(6) NOTE. — The term “note” means any instrumentcreating an obligation to pay money, or reducible tomonetary terms, and secured by a mortgage. It includeswithout limitation a promissory note, bond, or contract,and a transferrable electronic record that complies with15 U.S.C. § 7021 or equivalent state law.

(7) REGISTRY. — The term “Registry” means theNational Mortgage Loan Registry, as created by thisTitle.

(8) SERVICER. — The term “servicer” means aperson or entity that is authorized to provide some or allof the following services for the holder of a loan: mainte-nance of borrower payment records, remittance of bor-rower payments to the holder, maintenance of accountsfor payment of taxes and insurance, collection of delin-quent payments, modi�cation of loan terms, approval oftransfers of the real property subject to the mortgage, orforeclosure.

Section 103. Acceptance, transfer, and terminationof registrations.

(a) The Registry is authorized to accept registrations ofloans from holders. No loan may be registered unless itsmortgage has �rst been recorded or registered under statelaw to establish the priority of the mortgage. Registrationsmay be accepted on paper or electronically. Transmittal ofthe note to the Registry is not necessary to register a loan.

(b) The holder of a loan that is registered with the Reg-istry may transfer the loan to a new holder on the recordsof the Registry by submitting an application to transfer.

(c) The holder of a loan that is registered with the Reg-istry may terminate the loan's registration by submittingan application to terminate registration.

(d) The Registry shall establish standards for loans ac-cepted for registration and for applications to transfer andterminate registration. Such standards shall require ade-



quate information security protection to ensure thatelectronic documents are accurate, authentic, adequatelypreserved, and resistant to tampering, and that applica-tions to transfer and terminate registrations are authenticrequests of the holder of the loan. All initial registrations,applications to transfer, and applications to terminateregistration shall comply with the rules and proceduresestablished by the Registry. Such rules and proceduresshall be designed to facilitate e�cient bulk registrations,transfers, and terminations of multiple loans.

(e) The Registry may enter into contracts with “trustedsubmitters” requiring them to employ speci�c securityprocedures, and thereafter permitting them to submit ap-plications and subsequent documents to the Registryunder rules less burdensome than are required of othersubmitters.

(f) The holder of a federally related mortgage loan shallnot make a transfer of the loan to another holder or desig-nate a servicer for the loan except by registration ortransfer in the Registry.

(g) If the holder of a loan holds it as a trustee, anominee, or in any other �duciary or representative capa-city, the name or description of the speci�c trust or otherrelationship shall be stated as part of the holder's identityin the records of the Registry. If such a holder is restrictedby its governing documents from modifying a loan, a copyof the relevant restrictions shall be submitted to the Reg-istry within ten days after the registration of the transferto that holder.Section 104. Outright and security transfers.

An application to transfer a loan on the records of theRegistry may request either an outright transfer or atransfer for security or collateral purposes. The applica-tion, and the records of the Registry, shall clearly desig-nate which form of transfer is intended. If the transfer isfor security purposes, the application and the records ofthe Registry shall include a brief description of the obliga-tion for which the transfer serves as security, and shallstate whether the transferor or the transferee is autho-rized to exercise the rights listed in Section 109. Thedesignation of a transfer as outright or for securitypurposes shall constitute evidence of the intent of theperson making the registration, but shall not conclusivelyestablish the purpose of the transfer.



Section 105. Noti�cation of borrowers.Each loan registration accepted by the Registry shall

include a street address and an electronic mail address ofeach borrower, if available. The Registry shall also accept,and include in its record of each loan, the names, streetaddresses, and electronic mail addresses of any additionalborrowers who submit such information to the Registryfrom time to time. When any loan is transferred orterminated on the records of the Registry, or when anyservicer of the loan is added or terminated, the Registryshall send noti�cation of the change to all persons shownon its records as borrowers with respect to that loan byelectronic mail or, if no electronic mail address is avail-able, by US Postal Service mail.Section 106. Records of servicers.

(a) A current loan holder that designates one or moreservicers to represent the holder in relationships with theborrower of a loan shall register with the Registry theidentity of such servicers. With any such registration of aservicer, the holder shall describe, in summary form, theactivities in which the servicer is authorized to engage onbehalf of the holder.

(b) A current loan holder may, from time to time,terminate the authority of any previously-designatedservicer of the loan.

(c) No purported servicer of a registered loan shall haveany authority to represent the holder in dealing with theborrower unless the servicer's identity and authority havebeen registered as provided in this section.Section 107. Loan information.

(a) Each loan registered with the Registry shall be ac-companied by copies of the note and the mortgage, togetherwith copies of any mortgage assignments, note endorse-ments or allonges, and modi�cation, substitution, or as-sumption agreements executed prior to registration of theloan with the Registry, if the registrant is a party to orpossesses a copy of such documents.

(b) If the loan is modi�ed, a party is substituted, or theloan is assumed by a new borrower after registration withthe Registry, the loan holder shall transmit copies of theapplicable documents to the Registry within ten days aftercompletion of the modi�cation, substitution, or assumption.



(c) At the option of the registrant, a loan may also beaccompanied by copies of or information about other docu-ments related to or associated with the loan, including butnot limited to loan applications, appraisals, credit reports,closing statements, title insurance policies, and hazard in-surance policies.

(d) Copies of all documents referred to in this sectionmay be transmitted electronically, and all copies shall bemaintained by the Registry in a loan �le associated withthe loan to which they relate.Section 108. Access to Registry information.

(a) The Registry, shall issue, upon request, a certi�cateapplicable to any registered loan, stating the identity ofthe loan holder and the identity of any servicers, anddescribing the authority of such servicers as stated by theloan holder in the records of the Registry. Any person mayrequest such a certi�cate with respect to any loan. If theperson so requests, the certi�cate shall be accompaniedby:

(1) a statement of the identities of any successiveholders that have held the loan since the time of itsoriginal registration in the Registry and prior to thepresent holder; and/or

(2) electronic copies of the mortgage and any mort-gage assignments or mortgage modi�cation, substitu-tion, or assumption agreements held by the Registry re-lating to the loan.(b) Copies of other documents in the loan �le shall be

made available by the Registry only to the current loanholder, any servicer of the loan, and the borrower, and toany court under subpoena or court order.

(c) Additional documents relating to a loan may beplaced in the loan �le, as provided in Section 107, only bythe current loan holder, any servicer of the loan, and theborrower.

(d) The Registry shall certify that any copy of a docu-ment provided by the Registry to any person or court is anaccurate and authentic copy of the document as originallysubmitted to the Registry.Section 109. Rights of loan holder and servicer.

Only the current loan holder or any authorized servicerof the loan acting within the scope of its authority, as



shown on the records of the Registry, may take the follow-ing actions with respect to a registered loan:

(1) foreclose the mortgage;(2) pursue an action for recovery of any amount ow-

ing on the note;(3) pursue an action for recovery of damages for

breach of a covenant in the note or the mortgage;(4) enter into a modi�cation agreement with the bor-

rower;(5) release or discharge the note or the mortgage,

whether for the balance due or for a lesser amount;(6) approve or consent to the transfer of the mort-

gaged real property;Section 110. Conclusiveness of Registry's

certi�cates.(a) Except as provided in subsection (c), a certi�cate is-

sued by the Registry shall be conclusively be deemed cor-rect with respect to:

(1) its statement of the identity of loan holder andany servicers;

(2) its statement that the authority of any servicersis as stated by the loan holder registering such servicers;

(2) its representation that the content of any docu-ment provided with the certi�cate is an accurate andauthentic copy of the document as originally submittedto the Registry.(b) A certi�cate issued by the Registry shall not

guarantee the authenticity of any documents executedprior to registration of the loan.

(b) Any person who su�ers actual damage as a conse-quence of deprivation of legal rights due to an error madeby the Registry may maintain an action in Federal DistrictCourt for recovery of such damages.

(c) If a certi�cate is issued by the Registry erroneously,the Registry may revoke the certi�cate by notice to theperson to whom it was furnished if no person has reliedupon it in good faith to his detriment.Section 111. Fees and charges.

The Registry may establish and collect fees and chargesfor initial registration of loans, acceptance of additional



documents into loan �les, terminations of registrationsand servicer authority, and issuance of certi�cates. Feesand charges shall be established, and may be modi�edfrom time to time, so as to produce revenue that will ap-proximate the Registry's expenses of operation, taking intoaccount the need to provide reserve funds for the paymentof damages as provided by Section 110(b).Section 112. Preemption of State law.

(a) A certi�cate of loan holder identity, issued underSection 108, shall be conclusive proof under the law of allStates that—

(1) the identi�ed loan holder is the original mortgageeor recorded assignee of the mortgage, is entitled toenforce the note and the mortgage in any proceeding,judicial or nonjudicial, and to engage in any other actionauthorized under Section 109; and

(2) the identi�ed servicer, if any, is entitled to act onbehalf of the loan holder in any proceeding, judicial ornonjudicial, and any other action authorized under Sec-tion 109 that is within the scope of the authority grantedto the servicer as stated in the certi�cate.(b) A certi�cate issued by the Registry under Section

108 shall be entitled to be recorded or registered in thereal property records under the laws of any State orsubdivision of a State.

(c) All persons acquiring an interest in a registeredmortgage loan or the mortgaged real property, and allpersons instituting a judicial, administrative, or nonjudi-cial proceeding a�ecting a registered mortgage loan or themortgaged real property, are deemed to have notice of theinformation in a certi�cate that would be issued by theRegistry under Section 108 as of the earlier of:

(1) the time of acquisition of such interest or the timesuch proceeding is instituted; or

(2) in the case of a proceeding, the date on which theperson instituting the proceeding must notify holders ofsubordinate interests in order to bind them to theproceeding.(d) Any contrary State constitution, law, or regulation

is preempted to the extent necessary to establish theentitlements described in this Act.



Section 113. Criminal and civil penalties.(a) Any person who shall knowingly submit to the Reg-

istry any false, forged, or fraudulent document or informa-tion

(1) shall be �ned not more than $10,000, or impris-oned for not more than one year, or both, for each viola-tion; and

(2) shall be held civilly liable for any loss or damagecaused to the Registry or any person by such documentor information, and for the Registry's attorneys fees andcosts in any civil action in which the Registry shallprevail.(b) Any person who shall knowingly fail to submit to

the Registry any document required to be submitted bySection 103(g) or Section 107(a) or (b) shall be held civillyliable for any loss or damage caused to the Registry or anyperson on account of failure to submit such document orinformation, and for the Registry's attorneys fees and costsin any civil action in which the Registry shall prevail.

(c) Any person who engages in a pattern or practice ofviolation of subsections (a) or (b) of this section may bebarred by the Registry from the right to register additionalmortgage loans. Such debarment may be for a limited timeor may be permanent. Debarment may be ordered by theRegistry only upon a �nding of such pattern or practice ina hearing comporting with the federal Administrative Pro-cedure Act.



Documents

45 UCC L.J