UCC 3-501 allows borrower to discontinue payments WITHOUT DISHONOR

Posted: November 1, 2009 in OUR Housing & Mortgage Crisis

UCC 3-501 allows borrower to discontinue payments WITHOUT DISHONOR
From: Mario Kenny’s site
October 25, 2009


I am an attorney who has taken “produce the note” one step further. I am current on my mortgage, and actually what prompted me to take the action I am taking is that I had paid off my second mortgage but my lender refused to surrender my paid off second mortgage note. My lender also refused to prove to me that it had my first mortgage note or that it had the authority to make payment demands.  So I decided to sue my lender.


I decided that if the “produce the note” strategy was working for people who were in default, it would work for those who are not in default. If the bank doesn’t have the right to foreclose, it doesn’t have the right to demand payment either.


The Uniform Commercial Code is the homeowner’s best friend.


UCC 3-501 requires a lender to “exhibit the note” when the lender makes demand for payment, and the borrower demands to see the note. Technically a demand for payment occurs every month, and it also occurs when a bank begins foreclosure proceedings.


UCC 3-501 also requires a servicer to show authority to make a demand for payment, if it does not own the note, but is merely servicing it. In the event a noteholder or servicer or will not exhibit the note or perform other legal requirements when requested to do so by the borrower, this UCC section allows the borrower to discontinue payments WITHOUT DISHONOR until such time as the noteholder or servicer complies with all laws or contract provisions.


Also helpful is UCC 3-309. UCC 3-309 requires the lender go through certain steps to prove up a note (make it enforceable) that is lost or destroyed. This is not easy for the lender to do, if one is willing to contest everything the lender does to try to prove up the note. This proof takes witnesses, who may not be able to say what the law requires, if the witnesses are thoroughly cross-examined. (Tip: Don’t let the lender get by with self-serving affidavits; take their
witnesses’ depositions). Moreover, this section requires the lender to give adequate protection in the event the lender can make the lost note enforceable. That may be difficult for a lender that is under FDIC scrutiny and whose stock is in the tank.


I filed suit in March and so far my lender has vigorously put off answering my suit with what I believe was a meritless motion to dismiss, but has not yet produced either note, and has confirmed my unpaid note was sold to Fannie Mae. This is clearly a justiciable controversy as will be clear when I ask the court to allow me to put my future payments into the registry of the court until the note is proven up and authority to make demand is proven.


If the bank really believed it had the evidence to compel me to pay, it would have gladly produced the note by now with proof of authority to demand payment. They have steadfastly avoided having to do this. Chances are the note is lost or destroyed.


It gets even better. MERS is the sole beneficiary of my Deed of Trust (quite often the case for homeowners on Deeds of Trust since 2000).  The Arkansas Supreme Court has just ruled in March of this year that MERS was not the beneficiary of a Deed of Trust (with language verbatim to mine) despite what the Deed of Trust said, because MERS has no interest in the note payments or in the corpus of the trust (homeowner’s obligation to pay). No beneficiary means the Deed of Trust is fatally flawed.


More and more it is looking like I will have the lien on my home removed and I may well never have a noteholder to pay. I could even get some of my money back.

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  1. N says:

    Can you please guide me. I am in the State of Oregon and I have recently filed bankruptcy to delay the sale of my home. Please Please advise.

  2. Andrew says:

    WOW UCC. TY Tony. I am trying to keep up with ALL of this, but, this blogging stuff is so new to me it is hard to stay afront of every issue. I cannot apologize for my flaws, I just accept them. Again. TY, Andrew

  3. Hoyt says:

    If i had found this sooner i would have helped you N. Research Jerome Daly v. First National Bank of Montgomery credit river decision and understand it. It is extremely important that you understand this US SUPREME COURT RULING and combine this knowledge with the knowledge of UCC 1-308 (formally 1-207) and Howard Freeman. Just google these subjects. It will take more than a day to understand but I assure you that this is the knowledge you are seeking.

  4. Arriaga says:

    Awesome info….I think it’s the UCC 3 Articles that have info regarding the mortgage being void once separated from the note, too.

  5. Pamela Zander says:

    Forensic Documents Research/Loan Examiner
    760) 244-6248

    Dear Readers,
    I am certified in Loan Processing, Escrow II, American School of Mortgage Banking and worked at Pioneer Title as a proof reader/Contract Department.

    In all my years of Real Estate, little did I know I would be socked into a predatory loan. After the Notary left our home, she knew we wanted to cancel the loan docs due to predatory lending practices of fraudulent terms and conditions. She scooped up the documents and left, with unsigned papers, while my husbands signature was forged on the note and recorded. I immediately mailed in the 3 day Notice to Rescind. I have been fighting this since. I filed a lawsuit against the bank and lost because the bank immediately retaliated with a UD, piggy-backed the case under the UD, while the lawyer I hired abandoned my husband and I in front of the judge.

    NO DISCOVERY, and what a nightmare. COULD WE have used the UCC ruling? Judges in CA
    are old students of old contracts. Judges have no continued education and lack the wherewithall to judge these loans. The subprime loan is complicated and can become convoluted due to the extensive laws. Many which protect the borrower. But that takes a judge!!!

    • Kevin says:

      You can use California Commercial Code section 3501. It is the exact same thing enacted on your state level. You can always find the state equivalent of the ucc by searching in a search engine (Your State Name) commercial code.

      Example: California Commercial Code
      UCC 3-501 California Commercial Code
      Good luck.

    • You have to learn what your lawyer wont in order for your to win your home back. Are you willing to learn land lending ?

  6. Reblogged this on Celtic White Willow and commented:
    Paying A Mortgage? Real Estate Justice For All Explains How To Discontinue Payments WITHOUT DISHONOR!

  7. sue says:

    wonderful -absolutely wonderful i am so happy for you-love and blessings.

  8. Thanks, this is the best information, But in order for me to move forward I would like to have additional information. or if you can show me how to help other facing foreclosure.I would be forever grateful.

  9. Paul Meatheringham says:

    I’m on Australia and a financial instution had a mortgagee sale on my property and forced me onto selling another property for the shortfall I believe
    They had unsold the note This all happen 5 tears ago.
    Paul. Meatheringham


  10. Z says:

    There’s many who win against the banks but more folks are utterly defeated and become homeless.

    There are many facets to being helped by the UCC… I was looking at once provision that helps folks get a like a bailout and their debt is paid off, period.

    The administrative cost to do so depends upon the amount of the debt. Just under 10 grand pays off 300,000.00.

    100,000.00 can administrate a payoff of just under 20,000,000.00.

    The process is just as complex as the foreclosure defenses now-days offered but so far as I can tell, the end result is an absolute debt payoff!!!

    All I know for sure is this… Everyone needs to stay in their homes if we are to save the us economy. I’d love emails to tzoom at live dot com for anyone needing aforementioned solution.

  11. Pamela Zander/(760) 617-7989 says:

    I have found few lawyers who truly understand the foreclosure process, however when the judges retire, relying on their pension plans that are based on the failed CMO’S, only them will we hear the screams across the nation. It will be massive heart failure.

    I have extensive knowledge of the subprime loan failure, as I attended the American School of Mortgage Banking, Certified in Loan Processing, Escrow II, Principles of Real Estate, past Notary and Loan Signing Specialist, worked at Pioneer Title as a Contract Proof Reader, but certainly never thought I would become a victim to foreclosure fraud, because this kind of banking business is a trap of collusion, and grand theft “home.”

    I have found the UCC 3.501 a useful tool and will be using the actual copy of the Instrument, the Trustee’s Deed Upon Sale to throw it back in their face. Writing across the top of it write “Refused for Cause of Commercial Dishonor, without Recourse. UCC 3.501, then signing my name stating, Without Prejudice next to the statement: UCC- 1.207/208, then mailing it certified to the foreclosure Trustee.

    I am also mail a certified letter forcing the trustee to respond under the FAIR DEBT COLLECTION PRACTICES ACT and the FAIR CREDIT BILLING ACT, to force the issue, as most collection letters from the Trustees claim they are a creditor, collecting a debt. See Glaski v. Bank of America (2013) CA Supreme Court. In the event they probably will not return correspondence, it therefore bars the assertion at a later date. I will File a suit.

    However, I have learned after the fact, I can now stop a sale in a heart beat. Please remember, the court house steps although public, is not involved in the sale.

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