Produce the Note, An Alternate View, Part 2

Picking up where I left off in Produce the Note, An Alternate View, Part 1, UCC 3-301 is entitled “Person Entitled to Enforce Instrument.” It provides in relevant part that the “Person entitled to enforce” an “instrument” is the holder of the “instrument.” UCC 3-104 defines “instrument” as “an unconditional promise or order to pay a fixed amount of money.” In other words, as far as the UCC is concerned, an instrument is a promissory note. Instruments under the UCC do not include mortgage deeds or deeds of trust. This is the main problem with the produce the note defense. By the express terms of UCC 3-301, the party that can produce the note has nothing more than the right to enforce the note. But, the foreclosing party is not trying to enforce the note. The foreclosing party is trying to enforce the mortgage deed or deed of trust because it’s the mortgage deed or deed of trust, not the note, that describes the lender’s rights to the property and how to exercise those rights.

Not only is UCC 3-301 expressly limited to the enforcement of notes, no court can expand its reach to mortgage deeds or deeds of trust. The statute provides that “[a] person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.” We saw in Part 1 that at common law the owner of the debt is directly injured by its non-payment (“common law” is judge made law as opposed to legislature made law). UCC 3-301 does not require any injury. It gives the right to enforce the note to a nonowner or even a thief, i.e., a person “in wrongful possession of the instrument.” Because the statute provides a right to sue without requiring an injury, it is “in derogation of the common law” or, more simply, changes common law. It is a fairly universal principal that statutes in derogation of the common law must be “strictly construed.” That’s just a complicated way of saying that a judge can’t expand a statute that changes the common law; the statute means only what it says and nothing more. Under this principle, a judge can’t expand UCC 3-301 to apply to the enforcement of mortgage deeds or deeds of trust.

In Part 3, I will discuss how producing the note actually makes it easier for a “lender” to overcome challenges to its standing.