Electronic Terrorists

Notes 101

Negotiability of A Note by itself, free from an attached security lien

A negotiable instrument (note or draft) is simply one that a person, called a “holder in due course,” who is not one of the persons who created the instrument originally, may negotiate or transfer to another person without difficulty, and who has the power, also, to enforce the instrument according to its terms.  If the instrument is a draft, the holder in due course can present it for payment and expect to be paid.  If the instrument is a note, a holder in due course can expect to receive payment when the debt is due.  The holder in due course can do these things even when the relationship between the original parties to the instrument would preclude their enforcement of the instrument for payment.  The holder in due course is the essence of negotia-ble instruments.  Free alienability of these instruments is their important charac-teristic, and holders in due course are the agents of free alienability. 

How does a person become a holder in due course?  He or she does so by taking the instrument in good faith from a prior holder for value without knowledge of any defects in the instru-ment, of any claims against the instrument, or of any defenses that may be asserted against its payment.  The holder in due course, therefore, honestly receives the instrument, has paid for it, and can claim innocence with respect to any transactions which may have involved the instrument prior to its coming into his or her possession.  The characteristic of innocence is, perhaps, primary.

Negotiation involves a specific sequence of acts that make up the transfer to a holder, and from one holder to another.  There are two elements, depending upon the kind of instrument involved.  If the instrument is a bearer instrument, delivery of the instru-ment from one person to another constitutes negotia-tion.  If the instrument is an order instrument, it is negotiated by indorsement of the instrument by the current payee and physical delivery to another person, who becomes a holder.

Negotiability of an Article 3 note with a lien attached is different even in other states. Carpenter v. Longan still lives?

In a mortgage foreclosure action, a plaintiff has standing where it is the holder or assignee of the underlying note at the time the action is commenced (see Aurora Loan Servs., LLC v Taylor, 25 NY3d 355, 361 [2015]; U.S. Bank, N.A. v Collymore, 68 AD3d 752, 753-754 [2009]). "Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident"  - Wells Fargo Bank, NA v. Charlaff, 134 AD 3d 1099 - NY: Appellate Div., 2nd Dept. 2015


Secured creditor’s perspective;

Some lenders making relatively small commercial real estate loans make a conscious decision not to file financing statements to perfect the personal property collateral granted in their mortgage documents (at least where the financed real property isn’t a hotel, skilled nursing facility, furnished apartment building, or other property with a heavy personal property component). They tend to view the personal property to be of little value or importance to the real property. They don’t view the value of making the initial UCC filing and filing continuation statements as worth the cost on a portfolio-wide basis. They are willing to take the risk of losing the personal property in the rare case where there is a conflicting secured creditor (or a bankruptcy trustee or debtor) that wants to make an issue of the personal property. Lenders taking this approach often believe that, by the time a property is in foreclosure, the personal property needs to be replaced anyway. – [Attorney name withheld], but you can find it….

Personal Property

You do understand promissory note is personal property also? The real property can be sold through the private registry to make up for the personal property. Hence the importance of registering the deed of trust into the private registry.

In Texas, It is different; all a party needs is an assignment from a private registry, not a real party in interest;

that in this case MERS assigned BAC both the note and deed of trust

How much more proof is needed to show the courts are either turning a blind eye, or they have got to be the most overpaid bunch of idiots in Texas. MERS does not track paper promissory notes, how does MERS transfer a paper promissory note it does not track? Is this all because of a simple statement?

"settled principle that a mortgage securing a negotiable note is but an incident to the note and partakes of its negotiable character."

More importantly;  partakes of its negotiable character”

Private Registry Rules

Arzola v. ACM PROPERTIES, LP, Tex: Court of Appeals, 4th Dist. 2013

Thanks to the Texas Legislature, they made it possible to strip the deed of trust away from the paper promissory note and allow a private registry to pass around a deed of trust, instead of the paper promissory note.

MERS members, a private registry, transfer transferable records, containing digitized images of deed of trusts, or security instruments to partake in negotiability of the deed of trust instead of the paper promissory note. So says the Texas court?

“Because the incidental deed of trust is negotiable like the note it secures, it is an instrument that may be transferred "for the purpose of giving the person receiving delivery the right to enforce the instrument."

 Private registry tool of choice

This is why private registry members rely heavily upon chapter 51, Texas Property Code for its private transactions, thus bypassing any other law in Texas, or the United States using personal property belonging to private registry members, not real property.

Authority to Enforce the Note

Arzola also seems to contend summary judgment was improper because the documents provided by BAC to establish its right to judgment as a matter of law, i.e., documents to validate its right to foreclose, actually provide conclusive proof that BAC did not have a right to enforce non-judicial foreclosure. The arguments and authority used by Arzola seem to suggest he is relying on what the Fifth Circuit Court of Appeals has recently referred to as the "split-the-note" theory. See Martins v. BAC Home Loans Servicing, L.P., 722 F.3d 249, 254 (5th Cir. 2013) (applying Texas law). Under the split-the note theory, a party seeking to foreclose can do so only if the party holds both the note and the deed of trust. Failure to hold either negates foreclosure authority. See Martins, 722 F.3d at 254. The theory is based on a 1972 case from the Supreme Court, Carpenter v. Longan, 83 U.S. 271, 274 (1872). In that case, the Court held "[t]he note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity." Carpenter, 83 U.S. at 274 (emphasis added). We find no support, with regard to this case, for Arzola's reliance on this theory.

First, the Fifth Circuit held that reliance on Carpenter in cases like Arzola's is misplaced and inapposite because the Court was addressing Colorado territorial law and federal common law. Martins, 722 F.3d at 254. Further, the Texas Supreme Court, citing Carpenter, held that it is a "settled principle that a mortgage securing a negotiable note is but an incident to the note and partakes of its negotiable character." West v. First Baptist Church of Taft, 71 S.W.2d 1090, 1098 (Tex. 1934) (holding that a bona fide holder of a note is also a bona fide holder of the deed of trust executed to secure it) (emphasis added). Because the incidental deed of trust is negotiable like the note it secures, it is an instrument that may be transferred "for the purpose of giving the person receiving delivery the right to enforce the instrument." TEX. BUS. & COM. CODE ANN. § 3.203 (West 2013). Therefore, the supreme court's interpretation of Carpenter does not support Arzola's contention. See West, 71 S.W.2d at 1098-99. Second, and most importantly, even if there were some merit to the "split-the-note" theory, Arzola's complaint would still be without merit because the summary judgment evidence establishes that in this case MERS assigned BAC both the note and deed of trust. Accordingly, contrary to Arzola's contention, BAC's summary judgment evidence established its authority to foreclose, even under a "split-the-note" theory.

Texas courts are turning a blind eye. Texas Courts are overturning age old case law regarding real property, and converting it all to the law of intangibles.

Texas has violated rights guaranteed by the Texas Constitution. Texas is violating rights guaranteed by the U.S. Constitution.

 Texas is allowing a private registry to supersede guaranteed rights.

 Conflict in Texas UETA

Sec. 322.016. TRANSFERABLE RECORDS. (a) In this section, "transferable record" means an electronic record that:

(1) would be a note under Chapter 3, or a document under Chapter 7,

(d) Except as otherwise agreed, a person having control of a transferable record is the holder, as defined in Section 1.201, of the transferable record and has the same rights and defenses as a holder of an equivalent record or writing under the Uniform Commercial Code, including, if the applicable statutory requirements under Section 3.302(a), 7.501, or 9.330 are satisfied, the rights and defenses of a holder in due course, a holder to which a negotiable document of title has been duly negotiated, or a purchaser, respectively. Delivery, possession, and indorsement are not required to obtain or exercise any of the rights under this subsection.

Sec. 322.003.  SCOPE.  (a)  Except as otherwise provided in Subsection (b), this chapter applies to electronic records and electronic signatures relating to a transaction.

(b)  This chapter 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;  or 

(2)  the Uniform Commercial Code, other than Sections 1.107 and 1.206 and Chapters 2 and 2A.

Does 322.003 include 1.201? 3.203? 7.501? 9.330?  No!

Private registry members run amuck in Texas. Terrorists in its latest fashion.

Save the state of Texas!