The Committee met for a second time on March 24 and 25, 2017, in Washington, DC. The Committee had before it a draft of federal National Mortgage Note Registry Act which would establish an electronic registry for notes secured by residential real property and a draft of proposed amendments to Articles 1,3 and 9 of the Uniform Commercial Code to modify the rules for negotiable instruments and secured transactions to accommodate electronic mortgage notes filed in the registry.
The current draft of the amendments provides for a number of changes to the Official Text of the Uniform Commercial Code:
- The term “holder” is to include a person who has submitted a negotiable or transferable record to the repository system that converts to an electronic mortgage note (EMN).
- The term “negotiable instrument” includes an EMN.
- A transfer of an EMN in the records of the repository system is a “negotiation” and “indorsement”. An indorsement other than a general one needs to be evidenced by the records of the repository operator.
- The registrant in the repository system is the person entitled to enforce the instrument.
- A record of discharge in the repository system is a notice is discharge for holder in due course status.
- If the legacy submission to the repository system was not a negotiable instrument or transferrable record, there can be no holder in due course of the EMN.
- A record of an EMN certified by the repository system showing the plaintiff as the registrant evidences the plaintiff’s right to enforce the EMN.
- An instrument converted to an EMN and later destroyed under the system rules is not a lost or destroyed note for purposes of 3-309 and does not discharge the obligor.
- No presentment or notice of dishonor is required for the EMN.
- An EMN is not a security but may be a financial asset if held in a securities account.
- An EMN is located in DC for purposes of the Article 9 choice-of-law rules.
- New 9-313A gives a secured party who is a “registrant” or an “authorized transferor” of an EMN (with the registrant waiving the right to transfer the EMN) “possession” of the EMN for purposes of Article 9 with the same priority as possession of a paper negotiable instrument.
The meeting was attended by a number of observers including representatives from the Federal Reserve Bank of New York who are drafting the federal statute. We had a good discussion on a number of issues and expect to have revised drafts of the federal statute and the amendments available for an initial reading of the amendments at the Annual Meeting this summer in San Diego, California.
Edwin E. Smith
Chair, Committee to Amend Uniform Commercial Code Articles 1, 3 and 9