Deadly Clear Blog is Dead Wrong on UETA, E-Sign & Foreclosure… A Guest Post by Attorney Tom Cox

A few days ago, I received an email containing a link to a post on the blog, Deadly Clear.  It posed the question, “Is the Promissory Note Even Enforceable?”  Considering we’ve lost over six million homes to foreclosure, it would seem an easy question to answer… yes.  But, since this post was apparently being circulated, I felt compelled to take a look.

I’ve pretty much had enough with the misinformation that gets circulated… just because someone has an idea, doesn’t mean it should be sent around, citing cases and various laws, as if the idea has been validated.  Homeowners read these sorts of things and too often end up believing things that simply aren’t true.

So, now I find Deadly Clear’s post, which says that one can claim a promissory note unenforceable based on the Uniform Electronic Transaction Act (“UETA”), which has to do with electronic notes.  And one sentence from Deadly’s post caught my eye immediately: “The hard core fact here is that in order to securitize the loan documents – they need to be electronically transferable.”

Nope, there was no chance that sentence was true.  Securitization has been around a lot longer than UETA (1999) and the E-Sign Act (2000), so there’s no way that in order to securitize loans, anything had to be electronically anything.

The post also claimed that the transfer of electronic notes was somehow under the purview of Article 8 of the UCC.  Not Article 3 or Article 9?  I hated having to learn about the UCC in the first place… so the last thing I wanted to do was look up Article 8.

Instead, I decided to call a few UCC experts to get their take on the Deadly Clear post.  One of those calls was to attorney Tom Cox, from Portland, Maine, because not only is Tom expert in the UCC, as it pertains to promissory notes, but he’s also one of the most respected foreclosure defense lawyers in the entire country.

It only took Tom a few minutes to understand what I was talking about and he offered to take a look at the post, so I sent him the link and awaited his return call… which came quickly.  He explained that the post was wrong… about essentially everything, as it pertained to foreclosure. As I was listening to him explain the issues, I was getting a headache at the thought of having to write yet another straighten-things-out-type-article… and I told him as much.

Any chance you’d want to take this one?  Write the response and I’ll just make it a guest post?  I’m tired.”  He chuckled and said he would send me something later that evening or the following day.

You’ll find his response to the Deadly Clear post below in its entirety, but the short answer is that the only thing that’s deadly clear about the post, “Is the Promissory Note Even Enforceable?” … is that if you try using it to fight your foreclosure… you’ll lose.

Mandelman out.

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MEMORANDUM                                                                                October 8, 2013 

TO:                  Martin Andelman, Mandelman Matters

FROM:           Thomas A. Cox, Esq.

RE:         “Is the Promissory Note Even Enforceable?” by unknown author but appearing at


This article so far off base, and twisted in its fallacious reasoning, that it is difficult to know where to begin to pull it apart.  Lets talk about some basic concepts first.

There are two possible media in which mortgage notes can be created.  The traditional method is for them to be created as paper documents with the paper note bearing the physically executed ink signature of the borrower.  The alternative (and so far seldom seen) method is for the creation of an electronic note where the borrower signs the note, which appears on an electronic screen, using a stylus to sign on the electronic screen in the same manner that many of us now sign credit card charges electronically.

Here is some of what lawyers call “black letter law”:  a note that is created in paper form, and signed on the paper note itself, can never become an electronic note.  A note that is created and signed in electronic form can never be converted into a paper note such that the laws applicable to paper notes will apply to it.

Paper printouts of electronic notes can be created, but those paper printouts are not proper evidence of the electronic note–only the electronic transferrable record itself is the proper evidence.  Original paper notes may be scanned into electronic images (such as a PDF file), but that does not constitute them as “electronic transferrable records” under UETA (the Uniform Electronic Transaction Act) or the federal E-Sign Act.

      The fundamentals:

1.  Enforcement of paper notes that are negotiable is controlled exclusively by Article 3 of the Uniform Commercial Code.

2.  Enforcement of electronic notes is controlled exclusively by the Uniform Electronic Transactions Act (“UETA”) in the forty-seven states that have adopted UETA.

Illinois, New York and Washington State are the only states that have not adopted UETA, and in those states the federal E-Sign Act will apply.  The E-Sign Act specifically provides that it does not preempt UETA in those states that have adopted UETA.  For the purposes of this memorandum, the provisions of UETA and E-Sign are consistent and similar.

A few more fundamental facts:

1.  While UETA and E-Sign were created in 1999 and 2000 respectively, their enactments substantially preceded the creation by the lending industry of the technology and processing standards sufficient to allow the creation of secure, unique and “single authoritative copies” of an electronic note.

2.  While Fannie Mae and Freddie Mac opened their doors around 2002 to the purchase of mortgages where electronic notes were used, the lending industry has been very slow to start originating mortgage loans where electronic notes are used.

3. Virtually none of the pooling and servicing agreements used for the creation of securitized trusts during the decade beginning in the year 2000 allowed for such trusts to purchase electronic notes. I know of no securitized trust that has ever         claimed to own an electronic note.

What this means is that virtually nothing in this fallacious and fictitious article, which is wholly focused upon theories relating to (nonexistent) electronic notes, has any applicability to any mortgage loans now in foreclosure, unless those mortgages were originated within the last couple of years.  In my five and one half years of representing homeowners in Maine, I have never seen a foreclosure involving an electronic note.  I subscribe to national listservs used by foreclosure defense lawyers all over the country and have never seen a report by any lawyer anywhere in the country involving a foreclosure of a mortgage involving an electronic note.

  Now, to try to expose rest of the nonsense in this article.

Devious planning by the banks schmoozed legislators into passing a law allowing your signature on any document (with very few exceptions) to be transferred electronically.” 

This is nonsense. Nothing in UETA or E-Sign allows a signature on a document to be “transferred”.  A paper note bearing a borrower’s signature can be transferred in accordance with UCC Article 3, or an electronic note bearing an electronic signature can be transferred in accordance with UETA.  But there is no way that a signature itself can be transferred.  No statute allows a lifting of a signature from one document and a movement of it to an entirely different document.  That would be fraud. The law prohibits fraud.

The author asks “how many homeowners were aware of E-Sign and UETA when they signed their mortgage loans?”

There is no reason that homeowners should have been made aware of E-Sign and UETA by the lenders, because E-Sign and UETA simply did not apply to those paper mortgage notes.  UETA does indeed require a statement on an electronic note that the borrower agrees that it will be controlled by UETA and E-Sign, but since there simply are no electronic notes that came out of the securization debacle this a meaningless statement.

“The hard core fact here is that in order to securitize the loan documents – they need to be electronically transferable.”

This is preposterous nonsense.  Beginning in 2002, Fannie and Freddie permitted loans sold to it to include electronic notes, but they have never mandated that electronic notes be used.  As to the securitized trusts, I have never seen one that even permitted the purchase by the trust of a loan involving an electronic note. There has never been a “need [for notes] to be electronically transferrable” in order for them to be sold into securitized trusts.  I challenge the author of this absurd statement try to back it up with hard facts and law.  He or she won’t be able to do it.

While online agreements cover a good deal of Internet activity; promissory notes, however are viewed bit differently. Even if it was downloaded from the Internet – UETA still mandates that an explicit agreement be made at the time of issuance…”

The Internet has nothing to do with UETA or whether a note is a paper note or an electronic note (actually the correct term for an electronic note under UETA is “electronic transferrable record”).  If you download a mortgage note form from the Internet, print it out and sign it, then it is a paper note controlled by UCC Article 3.  If you go online to one of those PDF forms that is a note, and that allow you to fill in the blanks and paste a copy of your signature onto it, that is not a note at all–it is not a paper note or an electronic note.  It is not a paper note because it does not exist in paper form when you paste your signature on it, and it does not meet the requirements of UETA necessary to qualify as an electronic transferrable record.

Going on to greater heights of absurdity, the author takes the “I understand that the Lender may transfer this Note” sentence from Paragraph 1 of the Fannie/Freddie Uniform Instrument note form and twists that into a totally specious argument against the enforceability of these notes.

He or she argues that the warehouse lender / investment banker had already taken the ‘transfer’ when it funded the loan before the homeowner ever signed.”   Before the piece of paper intended to be a mortgage note is signed, it is just a piece of paper.  That piece of paper only becomes a note when it is signed.   Thus, the “note” cannot possibly be “transferred” “before the homeowner ever signed” because it does not exist before the homeowner signs.  UCC Article 3-203 governs the “transfer” of a negotiable note and specifies that the note must be physically “delivered” in order for there to be a transfer.  If the note does not exist yet (because it is not signed) then it can’t be delivered and there could not have been a transfer of it before it is signed.

Next appears the statement: “Here we have homeowners thinking that they are contracting for a traditional mortgage when in fact behind the scenes it has already been designated as a security instrument…You sign a negotiable instrument that is ‘intended’ to be whisked away and materially altered into a securities certificate under UCC Article 8–but you don’t know it.” (Emphasis added.) 

These statements and the paragraphs in which they appear evidence either an astonishing failure of the author to understand the UCC or, if the UCC is truly understood, an intent to deceive the reader.

A negotiable note signed as part of a mortgage loan, remains a negotiable note for so long it remains unpaid and remains in existence.  The sale of the loan evidenced by the negotiable note into a securitized trust does not change the character of that document as a negotiable note.  When a loan evidenced by the note is sold, it is not “materially altered”  due to its being sold into a securitized trust.

A note can only be materially altered if something is written on the note to alter its terms.  Nothing is written on a note when it is sold, except, possibly, for an indorsement, and under UCC §3-204, and indorsement is not an alteration.  Under UCC § 3-407 an alteration is only an unauthorized change in the note that modifies the obligations of a party to it. A sale of a note to a securitized trust simply does not do that.

Any lender who receives a negotiable note has the right to sell it.  There is nothing in the UCC that says that such a lender must first disclose to the borrower his intent to sell the note.  The implication by this author that a borrower thinks he is “contacting for a traditional mortgage” but is getting something different when the lender has a pre-existing intent to sell the loan is just nonsense, unsupported by any provision in the UCC and unsupported by any court decision anywhere in the country.

The author asserts that a lender’s intent to sell promissory notes originated by it to a securitized trust means that these notes were designed to be transferred and reckoned with under UCC Article 8–not Article 3.” 

Utter nonsense yet again.  Whether a negotiable note is kept by the original lender or sold to a securitized trust, the enforcement of that note remains controlled solely by Article 3 of the UCC.  Nothing–repeat, nothing–that is done with that note can change that fact.  I have no idea what the author means by the phase “reckoned with”, but I know to a certainty that the only law applicable to the homeowner’s liability to pay, and the note holder’s right to enforce, such a note is Article 3 of the UCC.

Article 8 of the UCC simply has nothing to do with these issues.  There is nothing whatsoever in Article 8 of the UCC that affects in any way the obligation of a borrower to repay a loan made to him that is evidenced by his negotiable note.

The author makes a big deal out of the UETA requirement that an electronic transferrable record (electronic note) can only be created if the party electronically signing “the electronic record has agreed [that it] is a transferrable record.”  The author repeatedly beats on his claim that none of the notes being foreclosed upon contain the borrower’s agreement that the note is a transferrable record or can be electronically transferred.

The obvious reason that these notes do not contain such an agreement is that the damned notes just aren’t transferrable records–they are paper notes controlled by UCC Article 3 and not by UETA.  The author goes on to twist this absurd argument even further, asserting that borrowers had to have been given explicit notice of the intent of the lender to securitize that loan.

That is utter nonsense. Nothing in the law requires notice of such an intention.  I challenge the author to produce any court decision that supports this absurd claim.

This part of the author’s article gets really heard to understand, primarily because it makes no sense, but he seems to argue that, because the lender had a secret intent to sell the borrower’s note, there was no “meeting of the minds” between the lender and the borrower in making the note, and therefor no contract was formed for the borrower to repay the money that he borrowed, and therefor he doesn’t have to pay back the money that he got.  These notes contain the explicitly clear promise of the borrower to pay back the money that he got.

There absolutely is a meeting of the minds on this point.  No court anywhere, ever, has held otherwise. No court anywhere, ever, has held that these notes are “too vague” to be enforceable. No court anywhere, ever, has held that these notes are not valid.

I am weary of dealing with this author’s nonsense.  The are many other points of Alice in Wonderland fantasy in the article that I could highlight, but hopefully the comments above will be enough to cause any reader of the article to ignore everything in it.

Unfortunately, the authors asks us to “Stay tuned for Part 2”.  I sure hope that no one does.

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Well, I’d say that about covered it.  Thank you, Tom.

Why does this sort of thing have to go on?  I know the author of the Deadly Clear blog and I don’t believe there is any intent to mislead homeowners going on here.  In fact, I believe Deadly’s author, along with others, do want to help homeowners.  So, why do we have so much posting of things that have not been researched at all, and as a result are simply flat out incorrect?

Perhaps it’s because the people posting don’t know their wrong.  Well, okay… but they have a responsibility to the homeowners they claim they want to help to make sure they don’t post things without verifying that what they’re saying is true.  It’s time consuming, I know.  Many of the articles I write take 20-30 hours to complete… the average article takes me 8-10 hours… some have taken me well over 40 hours before they were posted on Mandelman Matters.  But my facts are always accurate.

Homeowners are having a terrible time finding their way through this nightmare, how can someone who professes to want to help, be willing to be careless or lazy about making sure that what they post as “important information,” actually is.  People’s homes are on the line, for God’s sake.  This is no time to be throwing ill-conceived ideas around as if they are facts.

I just want everyone to know that I HATE having to do this sort of thing.  But, I can’t stand the idea that on top of what homeowners are being forced to endure at the hands of servicers and their foreclosure mill attorneys, that they should also have to fear being misled and harmed by members of their own team.

So, I guess I’ll stop and soon as this stops…

Mandelmam out.


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