March 6, 2013
In Application of the Uniform Commercial Code to Selected Issues Related to Mortgage Notes, the Permanent Editorial Board for the Uniform Commercial Code describes the legal difference between the right to enforce a note (governed by Article 3 of the UCC) and ownership of a note (governed by Article 9 of the UCC). The Report identifies the bases for different rules governing the right to enforce and ownership:
- The rules that determine who is entitled to enforce a note are concerned primarily with the maker of the note, providing the maker with a relatively simple way of determining to whom his or her obligation is owed and, thus, whom to pay in order to be discharged.
- The rules concerning transfer of ownership and other interests in a note, on the other hand, primarily relate to who, among competing claimants, is entitled to the economic value of the note.
The Report recognizes that a person may own a mortgage note but not have the right to enforce it. In disputes between parties regarding the rights of finance institutions vis-a-vis other finance institutions or borrowers, that distinction could be important. When the issue relates to the tax status of a mortgage pool, the distinction is relevant for purposes of determining the parties rights with respect to the note.