Rebalancing Public and Private in the Law of Mortgage Transfer
54 Pages Posted: 25 Jul 2012 Last revised: 8 Jul 2013
Date Written: February 10, 2013
The law governing the United States’ $13 trillion mortgage market is broken. Courts and legislatures around the country continue to struggle with the fallout from the effort to build a 21st century global market in mortgages on a fragmented, arguably archaic legal foundation. These authorities’ struggles stem in large part from the lack of clarity about the legal requirements for mortgage transfer, the key process for contemporary mortgage finance.
We demonstrate two respects in which American mortgage transfer law is unclear and offer suggestions for fixing it. It is currently unclear whether a recorded mortgage assignment is needed to make sure that a mortgage transferee has a protected interest in the mortgage. It also is unclear whether a recorded assignment is needed to make sure that the transferee can lawfully foreclose on the mortgage. Revisions to the Uniform Commercial Code adopted around the turn of the century may be interpreted as doing away with preexisting laws arguably requiring parties to record their ownership interests to protect them. But the interaction of these revisions and preexisting state recording laws is most unclear, with consequences for borrowers, investors, and securitization arrangers.
We suggest an approach to law reform that would provide needed clarity and bring about an appropriate balance between private and public. The Article 9 revisions reflect a preoccupation, prevalent in the 1990s, with reducing the cost of mortgage transfers to the transacting parties. Obviating public recording, as the Article 9 revisions purport to do, does reduce cost, but it also tends to eliminate public records of mortgage ownership. As we show, these public records have value not just for parties that may transact in mortgages, but for the public more generally. A more balanced approach would clearly require transacting parties to record their interests in order to protect them, but would adopt this change in tandem with an expansion of low-cost digital recording. This approach provides the public benefits of high-quality mortgage records while reducing the cost and inconvenience of recording to transacting parties.
Keywords: foreclosure, foreclosure litigation, MERS, securitization, mortgages, mortgage securitization, U.C.C., commercial law, mortgage transfer
JEL Classification: G21, K11, K12, R00, L85
Suggested Citation: Suggested Citation