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The UCC and Lien Priority: The Answers Lie Within

Posted By USFN, Monday, November 25, 2013
Updated: Wednesday, October 14, 2015

November 25, 2013


by Charles Pullium
Millsap & Singer, LLC – USFN Member (Missouri)

“In the past few years, the courts have been witness to many abuses in the mortgage industry: forged paperwork, inflated claims, “robo-signers,” etc.” Knigge v. SunTrust Mortg., Inc., 472 B.R. 808, 811, 2012 Bankr. LEXIS 1895, 77 U.C.C. Rep. Serv. 2d (Callaghan) 432, 2012 WL 1536343 (Bankr. W.D. Mo. 2012). “While it is incumbent on the Court to be vigilant for these abuses and to protect debtors from overreaching creditors, the Court must also be wary of debtors trying to ride the wave of anti-creditor sentiment to evade liability on valid claims, based on insignificant, technical irregularities, notwithstanding admissions that they borrowed money, secured the loan with a deed of trust, mortgage, etc., and have suffered no abuse by the lender whatsoever (i.e., no improper foreclosure, no excessive fees, no nonfeasance or malfeasance). Notably, these debtors don’t usually allege that they owe the money to a different entity or that a different entity has the standing to enforce a mortgage; rather, they seek to shed the lien and loan altogether — despite the fact they’ve suffered no harm other than the reality that they have to repay the loan to keep their property.” Id. at 812.

Describing all of the various and creative claims mortgagors have used to attack foreclosures would likely prove an impossible task, but a trend has developed around the nation and in Missouri to analyze many borrower claims and the corresponding lender rights or claims of standing in the context of the Uniform Commercial Code (UCC).

Missouri has adopted the UCC, and the UCC as adopted by Missouri governs the enforceability of negotiable notes. Application of the UCC “is straightforward regarding this question of who may enforce the Note.” United States Bank Nat’l Ass’n v. Burns, 406 S.W.3d 495, 497, 2013 Mo. App. LEXIS 990, 2013 WL 4520014 (Mo. Ct. App. 2013). Applying the UCC, the court in Burns held that since U.S. Bank was the holder of the note, which had been endorsed in “blank,” U.S. Bank was therefore also entitled to enforce the deed of trust. Id. at 499. In the case, the Court of Appeals for the Eastern District of Missouri rejected the borrower’s primary argument that a recorded assignment from MERS to U.S. Bank demonstrated a lack of right to enforce the deed of trust. In doing so, the court not only explicitly held that the question of a proper assignment was “irrelevant” in light of U.S. Bank holding the actual note, but also refused to find any significance to the borrower’s claim that an entity described as “MERS, as nominee” presented an infirmity in U.S. Bank’s right to enforce the note.

The UCC is certainly not a new body of law in Missouri nor is its application to the enforcement or transfer of notes a recent concept. To the contrary, the law was written and adopted specifically to address these issues. But the Burns case is significant precisely because it is the clearest and most recent application in Missouri law of the UCC in the context of lien priority of a deed of trust. Both the state and federal courts in Missouri have increasingly looked to the UCC to determine cases, and their legal analysis will prove to be applicable in a broad array of suits involving lien priority, standing, lender liability, right to enforce, and a host of other issues related to mortgage litigation.

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