Legal Question in Real Estate Law in California
California UCC � 9-318(a) says: "A debtor that has sold an account, chattel paper, payment intangible, or promissory note does not retain a legal or equitable interest in the collateral sold."
My question is, who is the debtor that � 9-318(a) is referring to? It can't be the homeowner, who doesn't possess the note and who would be far better advised to shred the note than to sell it. But rather, is it referring to the party that used to be the lender and is now a servicer, expected to pass the payments on to the new creditor after selling the note? Thanks.
1 Answer from Attorneys
Well, first of all, Division 9 of the Uniform Commercial Code has, in general but with a few limited exceptions, NO application to real property lending.
See, for example UCC section 9109(d)(11): "This division does not apply to any of the following ............... The creation or transfer of an interest in or lien on real property, including a lease or rents thereunder, except ....... (and then it specifies a handful of exceptions that do not seem to apply).
A homeowner who becomes a debtor to a lender/creditor by executing a note and deed of trust does not SELL the note; he or she MAKES the note. This is another reason why 9318 doesn't apply. It addresses commercial debtors who, being already the owners of IOUs, then sell them to a third party. Remember that promissory notes are negotiable, and can be put up as collateral to a third party by the original holder.
UCC 9318 has nothing to do with loan servicers, either. It is directed to establishing the attachment of security interests, and the priority of liens, in commercial transactions in personal property. Security interests in real property are governed by the recording statutes, not the UCC.
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