Professional Documents
Culture Documents
A complete mortgage loan instrument consists of two different instruments and they are
to be construed as one instrument; 1, a Negotiable Instrument (Note) and 2, a Security
Instrument (Mortgage/Deed of Trust). Under Texas law separate instruments or
contracts executed at the same time, for the same purpose, and in the course of the same
transaction are to be considered as one instrument, and are to be read and construed
together. Jones v. Kelley, 614 S.W.2d 95, 98 (Tex.1981); see also Vista Dev. Joint
Venture II v. Pac. Mut. Life Ins. Co., 822 S .W.2d 305, 307 (Tex.App.-Houston [1st Dist.]
1992, writ denied) (applying rule to promissory note and deed of trust).
The Federal Uniform Commercial Code (UCC) has been adopted by all 50 states
legislatures therefore the Federal code or states equivalent is subject to venue.
UCC 3-203 is the only statute under negotiable instruments that governs the transfer of
instruments and rights acquired by transfer.
A tangible instrument is an instrument in its original physical form e.g. the original paper
Note, Mortgage, or Deed of Trust.
Promise means a written undertaking to pay money signed by the person undertaking
to pay UCC 3.301(a)(12) Key word here is, written.
An intangible Note would be an electronic copy (e-note) of the tangible paper document
which is governed by 15 USC 7003 et seq, and UCC Art. 8 et seq.
Pursuant to the above, the only way a party can possess a secured interest is by perfection
of the security interest pursuant to recording requirements in public record therefore,
logic would dictate that as a matter of law, if a security interest is not perfected within the
statutory 20 day period, then on the 21st day it becomes an unsecured interest and lien
rights are not acquired.
If a debt validation request is sent to a mortgage servicer chances are the respondent will send
back a copy of the negotiable instrument as it exists at the time the request was made. The copy
should have a stamp on the last page that reads, Pay to the Order Of ____________ Without
Recourse. Do not confuse this incomplete stamping with an endorsement in blank. There is an
unnamed payee on the payee line, but someone will have usually signed the incomplete stamping
claiming to be an authorized agent, or an assistant secretary or something of the like.
In todays secondary markets the tangible negotiable instrument is not what is securitized. The
only thing of value (promise to pay) has been stripped from the tangible instrument and sold into
a Real Estate Mortgage Investment Conduit (REMIC) it the form of an e-note. Though this is not
an illegal act it creates a fatal flaw pursuant to UCC 3-203(d) which provides, If a transferor
purports to transfer less than the entire instrument, negotiation of the instrument does not occur.
The transferee obtains no rights under this Article and has only the rights of a partial assignee.
The signature of an unnamed payee evidences a failed attempt to negotiate the instrument and
chances are the transfer was not publicly recorded therefore no rights were acquired by transfer
or at very best only partial rights may have been acquired, and as a result the negotiable
instrument is no longer eligible for negotiation.
Joe Esquivel and I go over this in greater detail in the first our of the Rule of Law Radio
broadcast linked here: http://mp3.logosradionetwork.com/ROL/64k/ROL_2013-11-
15_64k_Hr1&2.mp3
If you would like to listen to the last two hours of that broadcast please do so here:
http://mp3.logosradionetwork.com/ROL/16k/ROL_2013-11-15_16k_Hr1&2.mp3
Steve Skidmore