The UCC And Mortgages

Did you know that the Uniform Commercial Code applies to mortgages? For example, did you know that the Note, or promissory note, may or may not be governed under Article 3 as a “negotiable instrument” depending on how the Note is worded? Or that the mortgage is just a form of a security interest under Article 9, and does not actually create the debt but just gives the lender a security interest in the real estate? (The Note creates the debt, by the way.) In fact, as far as I can tell, “mortgage” is only defined in the Massachusetts statutes in the UCC chapter, in Article 9. M.G.L., ch. 106, sec. 9-102(55): “(55) ”Mortgage” means a consensual interest in real property, including fixtures, which secures payment or performance of an obligation.” (https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXV/Chapter106/Article9/Section9-102).

I think the fact that the UCC rules are always in the background often doesn’t get a lot of recognition or respect in mortgage lending, probably because mortgage lending has been given so many of its own specific laws and regulations which override the UCC’s general rules. But the UCC still has a very important role in mortgage lending, often without individuals making the loans realizing it.

You especially see this with fixtures. Fixtures blur the line between real property and goods, so the rules about them can be tricky when seeing how they stand next to mortgages. To make it worse, whether or not something is a fixture is not an easy question to answer. For example, a 45,000 pound machine bolted in place and connected to a power line has been considered not a fixture by one court (In re Park Corrugated Box Corp., 249 F. Supp. 56, 58-59 (D.N.J. 1966)), while a mobile home was considered a fixture in another court (George v. Commercial Credit Corp., 440 F.2d 551, 554 (7th Cir. 1971)). The best a creditor can do is try to make an educated guess about whether something would be a fixture, and protect themselves as much as they can either way.

Anyway, the point is that it’s often overlooked that among all the other rules in play regarding mortgages and lending, ECOA, HMDA, TILA, RESPA, and everything else, the UCC rules are also lurking in the background, subtly guiding and informing how lenders lend.

Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
SPILLANE CONSULTING ASSOCIATES, INC.
501 John Mahar Highway, Suite 101
Braintree, MA  02184
781-356-2772
781-356-2837 (fax)
www.scapartnering.com

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