The Uniform Commercial Code (UCC) is a comprehensive code addressing most aspects of commercial law. First published in 1952, its purpose is to help commerce flow smoothly. In real estate, if the note is transferred properly, then the mortgage automatically follows the note according to the UCC. However, the UCC was designed as a set of default provisions in the absence of a contract.
Fifty years ago this was not an issue because the bank held the loan for the period of the loan. The bank was the servicer and held the note and mortgage. Then about the 1970’s, securitization started with Fannie Mae and Freddie Mac bundling only low risk loans. In the 1990’s, securitization began to include high risk loans. The loans were sold to companies created strictly for the securitization process to transfer those loans into trusts, which would be sold as securities.
There are a lot of laws in play, and a lot of sorting out which is superior. With a trust, the trust document is where you have to start. If the trust document says the trust cannot hold the note…then the trust cannot hold the note. Thus the documents in the pooling and servicing agreement trump the UCC.
Financial institutions insist on the application of UCC rules where trusts exist, a convenient injustice in foreclosure cases.