PETE's Missing: Now What?

In the previous article we discussed the “Person Entitled to Enforce,” hereinafter abbreviated to “PETE.” A PETE analysis applies the UCC Article 3 framework to determine whether a proper PETE exists. In this article we look at what happens when there is no PETE. This is a question that gets asked, but no answer is given by the party looking to foreclose.

The Party Had a Choice

The party attempting to foreclose had a choice to make before filing. That party could:

1. Seek monetary relief by utilizing the Tangible Promissory Note, or
2. Attempt foreclosure by using the Security Instrument that was to be attached to a properly perfected Tangible Promissory Note.

The problem is this. For a party to seek collection of a debt evidenced by a Tangible Promissory Note, that party must hold a valid Tangible Negotiable Instrument under UCC § 3-301 before seeking relief. You cannot seek monetary damages and attempt foreclosure on a Security Instrument at the same time. You must choose: either foreclosure or collection of the debt.

The Creation of New Instruments

Add to the mix of the Tangible Promissory Note (which evidences the debt) and the Security Instrument (which is to be attached to the debt) the creation of a new instrument. This is the eNote and the eMortgage, along with an intangible obligation created from the payment stream of the borrower’s Tangible Promissory Note.

This sounds confusing because it is. There is now an identical twin of the tangible in an intangible format. Intangible means: incapable of being perceived by the sense of touch, as incorporeal or immaterial things, impalpable. It is an electronic copy of a transferable record utilized by an electronic agent, not a natural person as required in most paper commercial transactions. These instruments are governed by UCC Article 8, or your state’s equivalent, not UCC Article 3 which is reserved for Tangible Negotiable Instruments. The problem arises when this electronic file is used in transactions that pertain to the Tangible Instrument when they are not.

The Root of the Problem

An intangible obligation is created by an Account Debtor using this electronic file. The problem is that this obligation is not created by the Tangible Obligee, the Borrower. This intangible obligation is created using the payment stream of the Borrower’s Tangible Promissory Note. It is affected when there is a presumed deficiency on the payment stream pertaining to the Tangible Promissory Note.

There is the root of the problem:

• There was no proper transfer of the Mortgage Loan Instrument in its entirety
• There was no transfer of rights
• There is no PETE to the Tangible Promissory Note
• There is no PETE to the Security Instrument

The Mismatch

The party named in public record does not match the party, if there is one named, on the Tangible Promissory Note. Both PETE designations should be the same. They are not. They are different. The chain of title shows these mismatches clearly.

In the cases I have examined over 12 years of forensic mortgage investigation, this mismatch is not the exception. It is the rule. The party claiming the right to enforce holds an intangible obligation created from a payment stream, not the Tangible Promissory Note itself. Under UCC § 3-301, the right to enforce belongs to the holder of the instrument, a nonholder in possession, or a person not in possession who is entitled to enforce under Section 3-309. When none of these apply, there is no PETE.

It is time to wake up and realize that there is no PETE, and he is not coming back. He no longer has a home.

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Joseph Esquivel, Mortgage Compliance Investigators. Copyrighted 2013.