REAL ESTATE TRANSACTIONS AND FINANCE
Fall Semester 2015
Transfer and Securitization of Mortgage Loans
Reading Assignment: NWBF pp. 516-565, 568-578.
1.
Suppose that last week, Horizon Mortgage Co. made a $150,000 mortgage loan to Mitchell.
Horizon recorded the mortgage. Earlier today, Horizon sold the mortgage loan to Golden Sacks, an
investment bank, which plans to place the mortgage in a pool of mortgages that will back the
issuance of residential mortgaged-backed securities.
a)
If “the mortgage follows the note,” why might Golden Sacks still insist upon a
separate document assigning the mortgage?
b)
If Golden Sacks obtains an assignment of the mortgage but does not record it, should
that have any effect on the ability of Golden Sacks to foreclose the mortgage if
Mitchell defaults?
c)
Suppose that Horizon’s mortgage identified MERS (the Mortgage Electronic
Registration System) as the mortgagee, as a nominee for Horizon (the loan
originator). Can you explain what role MERS is intended to play in the transfer of
mortgage loans?
2.
On September 1, 2015, Lynch purchased a promissory note from Crouch. The promissory
note was dated August 1, 2015, and provided that on September 1, 2015, the maker of the note
(Mitchell) would pay Crouch $1,500 plus accrued interest at 10%. Lynch paid Crouch $1,475 to
purchase the note, and does not know whether Mitchell has any defense to payment. [In fact, Lynch
doesn’t even know Mitchell.]
On September 1, 2015, Lynch presented the note to Mitchell for payment. If Mitchell refuses to pay,
in which (if any) of the following situations can Lynch obtain a judgment against Mitchell, and why?
a)
Mitchell successfully demonstrates that the note was forged by Crouch.
b)
Mitchell successfully demonstrates that he executed the note as a prepayment for
legal services that Crouch agreed to provide Mitchell, and that Crouch has never
provided those services.
3.
What’s the practical difference between a negotiable mortgage note and a nonnegotiable
mortgage note? Does it make sense for the law to retain the concept of “negotiable instruments” in
a world where technology is moving inexorably toward electronic contracting and away from paper?
Why or why not?
4.
In October 2014, Uphoff signed a contract w/Quickie Aluminum Siding (Quickie) to install
aluminum siding on his home. The contract price was $5,700. Uphoff signed a promissory note and
a mortgage in favor of Quickie. Quickie then assigned the note and mortgage to Roosevelt Federal
Savings Bank (Roosevelt) for a price of $5,500. Roosevelt notified Uphoff of the assignment and
directed Uphoff to begin making payments to Roosevelt. In January 2015, after making the first two
monthly payments, Uphoff stopped making payments when the siding began falling off the house.
Can Roosevelt enforce the note and foreclose on the mortgage? Why or why not? Consider the
UCCC, the FTC Rule, and Mo. Rev. Stat. § 408.405, which provides as follows:
The rights of a holder or assignee of an instrument, account, contract, right, chattel
paper or other writing other than a check or draft, which evidences the obligation of
a natural person as buyer, lessee, or borrower in connection with the purchase or
lease of consumer goods or services, are subject to all defenses and setoffs of the
debtor arising from or out of such sale or lease, notwithstanding any agreement to the
contrary, only as to amounts then owing and as a matter of defense to or setoff
against a claim by the holder or assignee; provided, however, with respect to goods
only, the rights of the debtor under this section may be asserted to the seller at the
address at which he did business at the time of the sale and must be so asserted
within ninety days after receipt of the goods.
5.
On June 1, Mitchell borrows $100,000 from Bowman, secured by a mortgage on Mitchell’s
home. On September 1, Bowman sells the note to Uphoff (assume that Bowman indorses the note
to Uphoff and delivers the note). On September 5, Mitchell wins the lottery and decides to pay off
the mortgage. He tenders $100,000 to Bowman, who accepts the payment without telling Mitchell
that he sold the note to Uphoff. Bowman disappears with the money. When Uphoff doesn’t receive
a payment from Mitchell on October 1, he inquires of Mitchell who says “I paid off the note last
month.” Uphoff responds, “No, you didn’t. I have the note, and I expect payment.” Can Uphoff
enforce the note and foreclose the mortgage, or was Mitchell’s obligation on the note discharged?
Why or why not?