Perfected Security Instrument Follows The Paper Negotiated Promissory Note The Uniform Commercial Code Theory

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1 Perfected Security Instrument Follows The Paper Negotiated Promissory Note The Uniform Commercial Code Theory Interest In Personal Property UCC Article 3 Negotiation Paper Promissory Note UCC Article 9 Security Instrument Follows Promissory Note Loan Origination Interest In Real Property U.C.C. Article 9 Secured Transactions; Sales of Accounts and Chattel Paper Part 1. Short Title, Applicability and Definitions Transactions Excluded From Article This Article does not apply (j) except to the extent that provision is made for fixtures in Section 9-313, to the creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder - As amended in 1972 [Subpart 2. Applicability of Article] [Table of Contents] SCOPE. (d) [Inapplicability of article.] This article does not apply to: (11) the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder, except to the extent that provision is made for: (A) liens on real property in Sections and 9 308; WHEN SECURITY INTEREST OR AGRICULTURAL LIEN IS PERFECTED; CONTINUITY OF PERFECTION. (d) [Supporting obligation.] Perfection of a security interest in collateral also perfects a security interest in a supporting obligation for the collateral. Copyright 2005 by The American Law Institute and the National Conference of Commissioners on Uniform State Laws; reproduced, published and distributed with the permission of the Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research. Copyright 2010 J.Mcguire P O Box 1352, Bedford, Texas

2 Assigned Loss of Perfected Security Instrument Does Not Follow The Paper Negotiated Promissory Note Interest In Personal Property UCC Article 3 Negotiation Paper Promissory Note UCC Article 9 Security Instrument In MERS as Nominee Name Does Not Follow Promissory Note Loss of Continued Perfection Loss of Perfection Loan Origination Interest In Real Property U.C.C. Article 9 Secured Transactions; Sales of Accounts and Chattel Paper Part 1. Short Title, Applicability and Definitions Transactions Excluded From Article This Article does not apply (j) except to the extent that provision is made for fixtures in Section 9-313, to the creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder - As amended in 1972 [Subpart 2. Applicability of Article] [Table of Contents] SCOPE. (d) [Inapplicability of article.] This article does not apply to: (11) the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder, except to the extent that provision is made for: (A) liens on real property in Sections and 9 308; WHEN SECURITY INTEREST OR AGRICULTURAL LIEN IS PERFECTED; CONTINUITY OF PERFECTION. (d) [Supporting obligation.] Perfection of a security interest in collateral also perfects a security interest in a supporting obligation for the collateral. Copyright 2005 by The American Law Institute and the National Conference of Commissioners on Uniform State Laws; reproduced, published and distributed with the permission of the Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research. Copyright 2010 J.Mcguire P O Box 1352, Bedford, Texas

3 Non-Perfected Security Instrument Does Not Follow The Electronic Negotiated Promissory Note Interest In Personal Property UCC Article 3 Negotiation Electronic Promissory Note Lacks Supporting Law UCC Article 9 Security Instrument In MERS as Nominee Name Does Not Follow Promissory Note Invalid Perfection Scanned To Electronic Loan Origination Interest In Real Property U.C.C. Article 9 Secured Transactions; Sales of Accounts and Chattel Paper Part 1. Short Title, Applicability and Definitions Transactions Excluded From Article This Article does not apply (j) except to the extent that provision is made for fixtures in Section 9-313, to the creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder - As amended in 1972 [Subpart 2. Applicability of Article] [Table of Contents] SCOPE. (d) [Inapplicability of article.] This article does not apply to: (11) the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder, except to the extent that provision is made for: (A) liens on real property in Sections and 9 308; WHEN SECURITY INTEREST OR AGRICULTURAL LIEN IS PERFECTED; CONTINUITY OF PERFECTION. (d) [Supporting obligation.] Perfection of a security interest in collateral also perfects a security interest in a supporting obligation for the collateral. Copyright 2005 by The American Law Institute and the National Conference of Commissioners on Uniform State Laws; reproduced, published and distributed with the permission of the Permanent Editorial Board for the Uniform Commercial Code for the limited purposes of study, teaching, and academic research. Copyright 2010 J.Mcguire P O Box 1352, Bedford, Texas

4 Real Personal (UCC E-Sign UETA) Interest In Real Property Interest In Personal Property Collateral Negotiation 4 Collateral Negotiation 3 Collateral Negotiation 2 Collateral Negotiation 1 Interest In Real Property U.C.C. Article 9 Secured Transactions; Sales of Accounts and Chattel Paper Part 1. Short Title, Applicability and Definitions Transactions Excluded From Article This Article does not apply (j) except to the extent that provision is made for fixtures in Section 9-313, to the creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder - As amended in 1972 Copyright 2010 J.Mcguire P O Box 1352, Bedford, Texas (Version 1)

5 Fannie Mae Freddie Mac Real Property Laws Personal Property Laws Collateral Negotiation 3 Collateral Negotiation 2 Collateral Negotiation 1 Interest In Real Property U.C.C. Article 9 Secured Transactions; Sales of Accounts and Chattel Paper Part 1. Short Title, Applicability and Definitions Transactions Excluded From Article This Article does not apply (j) except to the extent that provision is made for fixtures in Section 9-313, to the creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder - As amended in 1972 Copyright 2010 J.Mcguire P O Box 1352, Bedford, Texas (Version 1)

6 (a) Except as otherwise provided in subsection (b), this [Act] applies to electronic records and electronic signatures relating to a transaction. (b) This [Act] does not apply to a transaction to the extent it is governed by: (1) a law governing the creation and execution of wills, codicils, or testamentary trusts;. (2) [The Uniform Commercial Code other than Sections and 1 206, Article 2, and Article 2A]; (3) [the Uniform Computer Information Transactions Act]; and (4) [other laws, if any, identified by State]. SECTION 16. TRANSFERABLE RECORDS (a) In this section, transferable record means an electronic record that: (1) would be a note under [Article 3 of the Uniform Commercial Code] or a document under [Article 7 of the Uniform Commercial Code] if the electronic record were in writing; and (2) the issuer of the electronic record expressly has agreed is a transferable record. 1. Paper negotiable instruments and documents are unique in the fact that a tangible token a piece of paper actually embodies intangible rights and obligations. The extreme difficulty of creating a unique electronic token which embodies the singular attributes of a paper negotiable document or instrument dictates that the rules relating to negotiable documents and instruments not be simply amended to allow the use of an electronic record for the requisite paper writing. However, the desirability of establishing rules by which business parties might be able to acquire some of the benefits of negotiability in an electronic environment is recognized by the inclusion of this section on Transferable Records. This section provides legal support for the creation, transferability and enforceability of electronic note and document equivalents, as against the issuer/ obligor. The certainty created by the section provides the requisite incentive for industry to develop the systems and processes, which involve significant expenditures of time and resources, to enable the use of such electronic documents.. 2. The definition of transferable record is limited in two significant ways. First, only the equivalent of paper promissory notes and paper documents of title can be created as transferable records. Notes and Documents of Title do not impact the broad systems that relate to the broader payments mechanisms related, for example, to checks. Impacting the check collection system by allowing for electronic checks has ramifications well beyond the ability of this Act to address. Accordingly, this Act excludes from its scope transactions governed by UCC Articles 3 and 4. The limitation to promissory note equivalents in Section 16 is quite important in that regard because of the ability to deal with many enforcement issues by contract without affecting such systemic concerns Specific exceptions (a) Excepted requirements The provisions of section 7001 of this title shall not apply to a contract or other record to the extent it is governed by (1) a statute, regulation, or other rule of law governing the creation and execution of wills, codicils, or testamentary trusts; (2) a State statute, regulation, or other rule of law governing adoption, divorce, or other matters of family law; or (3) the Uniform Commercial Code, as in effect in any State, other than sections and and Articles 2 and 2A.

7 Promissory Note Lender 5 UCC Article 3 Security Instrument Laws Local Jurisdiction Electronic Mortgage Package (Certificate s Collateral) [Trustee] Underlying Collateral Secondary Market Investment Vehicle Tangible Intangible Transfer Lien Rights #4 Negotiation #4 of Note Recordation (Lien Perfection) Security Instrument Secondary Market Custodian (Lender 5) Investment Vehicle Pooling & Servicing Agreement Promissory Note Lender 4 UCC Article 3 Security Instrument Laws Local Jurisdiction Electronic Mortgage Package (Certificate s Collateral) [Depositor] Transfer Lien Right #3 Negotiation #3 of Note Recordation (Lien Perfection) Security Instrument Secondary Market Trustee (Lender 4) Investment Vehicle Pooling & Servicing Agreement Promissory Note Lender 3 UCC Article 3 Security Instrument Laws Local Jurisdiction Electronic Mortgage Package (Certificate s Collateral) [Securitizer] Transfer Lien Rights #2 Negotiation #2 of Note Recordation (Lien Perfection) Security Instrument Secondary Market Depositor (Lender 3) Investment Vehicle Pooling & Servicing Agreement Promissory Note Lender 2 UCC Article 3 Security Instrument Laws Local Jurisdiction Electronic Mortgage Package (Certificate s Collateral) Investment Vehicle with Underlying Collateral Transfer Lien Rights #1 Paper Documents Vaulted Or Destroyed Secondary Market Securitizer (Lender 2) Collateral (Mortgage Package) Conversion Paper to Electronic Negotiation #1 Of Electronic Note Promissory Note Lender 1 UCC Article 3 Security Instrument UCC Article 9 Negotiation #1 of Note Recordation (Lien Perfection) Security Instrument Paper Promissory Note Lender 1 UCC Article 3 Paper Mortgage Package Loan Origination Security Instrument Perfection Lender 1 Laws of Local Jurisdiction Copyright 2010 J.McGuire P O Box 1352, Bedford, Texas Rev (1) May 27, 2010

8 Home Owner s Paper Promissory Note & Security Instrument t Where did it go? Copyright 2010 j.mcguire P O Box 1352 Bedford, Texas

9 Wet Ink Signed Paper Closing Copyright 2010 j.mcguire P O Box

10 Original Paper Documents Willful-Intentional Voluntary Act Electronic Records SCAN/COPY/STORE-DESTROY PAPER TO ELECTRONIC Copyright 2010 j.mcguire P O Box

11 Original Wet Ink Signed Destroyed Stored Destroyed or Stored Copyright 2010 j.mcguire P O Box

12 Lender 1 MERS Public Records Negotiation Electronic Promissory Note Lender 2 Electronic Promissory Note MERS as Nominee (Security Instrument) Lender (Negotiable Instrument) Copyright 2010 j.mcguire P O Box

13 Lender Combines Additional Instruments Electronic Collateral Mortgage Backed Security Mortgage Backed Security Owner of Electronic Promissory Note Copyright 2010 j.mcguire P O Box

14 Mortgage Backed Security Trustee Holds Electronic Collateral for Benefit of Certificate Owners Investment Vehicles Copyright 2010 j.mcguire P O Box

15 Collateral Exotic Investment Vehicle Collateral Electronic Documents Copyright 2010 j.mcguire P O Box

16 Electronic Promissory Note Electronic Negotiable Instruments Lack Supporting Laws Security Instrument Failure to Maintain Perfected Lien (Public Records) Homeowner/Bank Foreclosure The Banks Fight Copyright 2010 j.mcguire P O Box

17 Storage Vault Legal Department Create Print Notice of Assignments filed in Public Records Created and Filed by Banks Law Firms to give Illusion Of Legality Original Paper (When Available) Retrieved from Storage When Originals Unavailable (Lost Note Affidavits Applied) (Print Out of Electronic Digitized Electronic Promissory Note) Banks Law Firms Retrieve or Create (Illusion of Legality) Copyright 2010 j.mcguire P O Box

18 Sell/Resell Loss to Investors 1099 Homeowners Recycle Foreclose Homeowner Collection Servicing Fee Certificate Servicing Fee Need More Servicing Fees Need More Profit for the Pocket Do It To Me Again! Copyright 2010 j.mcguire P O Box

19 Home Owner s Paper Promissory Note & Security Instrument Collateral in Mortgage Backed Securities Copyright 2010 j.mcguire P O Box 1352, 1

20 Wet Ink Signed Paper Closing Copyright 2010 j.mcguire P O Box 1352, 2

21 SCAN/COPY/STORE DESTROY PAPER TO ELECTRONIC Copyright 2010 j.mcguire P O Box 1352, 3

22 Approval Analysis Rejection ELECTRONIC COPIES PROVIDED FOR ANALYSIS TO RATING AGENCIES Copyright 2010 j.mcguire P O Box 1352, 4

23 Lender 1 MERS Public Records Lender 2 MERS as Nominee Copyright 2010 j.mcguire P O Box 1352, 5

24 Insurance Policy Electronic Collateral Mortgage Backed Security (Exotic Carrier Evaluates Electronic Furnished Copies) Insurance Carrier Aggregated g Mortgage g Pool Copyright 2010 j.mcguire P O Box 1352, 6

25 Mortgage g Backed Security Exotic 1 Exotic 2 Default Investment Vehicles Copyright 2010 j.mcguire P O Box 1352, 7

26 Collateral Exotic Exotic Collateral - Electronic Copyright 2010 j.mcguire P O Box 1352, 8

27 Electronic Promissory Note Electronic Negotiable Instruments Lack Supporting Laws Security Instrument Failure to Maintain Perfected Lien (Public Records) Homeowner/Bank Foreclosure The Banks Fight Copyright 2010 j.mcguire P O Box 1352, 9

28 Notice of Assignments filed in Public Records Created and Filed by Banks Law Firms to give Illusion Of Legality (Fraud upon Public Records) If Filed in Court (Fraud upon the Court) Bank s Law Firms Create Documents (Illusion of Legality) Copyright 2010 j.mcguire P O Box 1352, 10

29 Mortgage Electronic Registration Systems, Inc. (MERS): Its Impact on The Credit Quality of First Mortgage Jumbo MBS Transactions Although in many states the assignment of mortgage does not have to be recorded when the note is transferred, there are some states that require the assignment of mortgage to be recorded so that the buyer of the loan is protected against subsequent transferees and creditors of the seller of the mortgage. There are also some states where the law is uncertain as to the protection afforded loan buyersagainst subsequent transferees and creditors of the loan seller. The name of the beneficial owner of the mortgage will not be a matter of public record. The language in the mortgage or assignment of mortgage will read as follows: "MERS, solely as nominee for Lender (as hereinafter defined), as beneficiary, and its successors and assigns." If MERS is named in a mortgage or assignment of mortgage, MERSCORP requires that those instruments will have to be recorded in the public recording offices. The original note will be in the possession of the trustee in the MBS transactions. Generally, MERS will not be named on the note or the endorsement of the note. Under common law principles, the mortgage is valid even though the name on the note is different than the name on the mortgage. The concept of undisclosed d agency in business transactions ti has been around for a long time. The recording system has been set up to provide notice of security interests, but not necessarily the identity of the secured parties. Moody s Investor Services Comments (1999) Excerpts Copyright 2010 j.mcguire P O Box 1352, 11