Who is PETE? The Person Entitled to Enforce

Let us start from the beginning. When the borrower signs the Tangible Promissory Note, the borrower automatically incurs the obligation under the Uniform Commercial Code or your state’s statutory equivalence of UCC Article 3-412. The obligation of the issuer of the Tangible Promissory Note will be paid to a “person entitled to enforce” the note.

Defining PETE

“Person entitled to enforce,” hereinafter abbreviated to “PETE,” is defined in UCC Article 3-301 as:

“Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d).

The judicial requirements have not changed. What has changed is the understanding of how to correctly articulate those requirements. The arguments being presented to the courts are multifarious and not complete. In my experience investigating these cases over the past 12 years, I have seen attorneys miss the mark by failing to identify PETE with specificity and particularity. A professional PETE analysis applies the UCC Article 3 framework to determine whether a proper PETE exists in your case.

The Golden Rule of Mortgage Foreclosure

The Golden Rule of Mortgage Foreclosure is straightforward: the Uniform Commercial Code forbids foreclosure of the mortgage loan unless the creditor possesses the properly-negotiated original promissory note. If this cannot be done, the foreclosure must stop. It is a fundamental requisite to a foreclosure proceeding that the party seeking foreclosure have standing to seek relief. McLean v. JP Morgan Chase Bank, N.A., 79 So. 3d 170 (Fla. Dist. Ct. App. 2012).

What Actually Happens vs. What Should Happen

Very seldom does this actually happen. What does happen is the judicial system and the public record system is led to believe that certain transactions and events have taken place when in fact they have not. The reason is simple. Corners were cut. The statutory requirements of law were not followed because following them took time, and time cost money. The result is the same in case after case I investigate: there is no PETE. A chain of title analysis can expose these gaps in the transfer record.

With the Tangible Promissory Note not being properly negotiated, transferred, and delivered, negotiation does not take place. PETE cannot exist.

Two Different Obligations

An obligation does still exist. But to whom, and what obligation are we talking about?

• Are we talking about the obligation which is evidenced by the Tangible Promissory Note?
• Or are we talking about the intangible obligation that was created by the Tangible Obligee also known as the Account Debtor?

The Account Debtor is defined in UCC 9-102(3) or your state’s equivalence as: “account debtor” means a person obligated on an account, chattel paper, or general intangible. The term does not include persons obligated to pay a negotiable instrument, even if the instrument constitutes part of chattel paper.

The Creation of a Second Obligation

A second obligation has been created using the payment stream of the Tangible Promissory Note. This is how it is consummated. After the borrower signed the documents at closing, the security instrument (being either a Deed of Trust or Mortgage) is sent to the County Recorder’s Office where it is filed, indexed, and recorded. When the documents come back from the county recorder’s office within 48 to 72 hours, they are scanned into a digitized format, or better known as an electronic copy. It is this electronic copy that is now used for negotiation, not the Tangible Originals.

This is what is sold to an Intangible Obligee. The problem is that the Intangible Obligee has taken possession of an “Electronic Mortgage Loan Package” and is lacking legal rights to the tangible security instrument. Think of it this way: you cannot enforce a knife with a spoon. The Intangible Obligee is holding a spoon and claiming it can cut.

The Non-Holder in Due Course

Many times it is a Non-Holder in Due Course that is alleging a default. It is this Non-Holder in Due Course that has not been damaged. Only when challenges have been made to the validity or claim of PETE will the judicial system take a second look. This is what we must do.

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Joseph Esquivel, Mortgage Compliance Investigators. Copyrighted 2013.