©2010 j.mcguire P O Box 1352, Bedford, Texas, USA 76095‐1352
eNotes – eClosing – eMortages – eSign
Perfection and Loss of Perfection (Security Instrument)
By J. McGuire
The collection rights given in the Paper Promissory Note, if transferred, assigned, or sold
to a Mortgage Backed Security, must be a Negotiable Instrument, must be “in writing”
(tangible form) identifying an indebtedness which is governed by the Uniform
Commercial Code Article 3: Negotiable Instruments or the states equivalence. This Paper
Promissory Note by itself is an “Unsecured” indebtedness.
Where the lender requires a Security Instrument to be part of the loan package, this
Security Instrument states the property is to be used as collateral for the repayment of
the indebtedness noted in the Paper Promissory Note. This Security Instrument contains
language that stating that if the indebtedness, the lender, as the secured party, (Holder in
Due Course with rights to the Paper Promissory Note), by the authority granted in the
Security Instrument, could foreclose and sale the property to satisfy the indebtedness.
When the Paper Promissory Note is accompanied by a Security Instrument such
indebtedness is considered to be a “Secured” indebtedness.
The “Secured” indebtedness will survive through a bankruptcy action, whereas an
“Unsecured” indebtedness may or may not survive through a bankruptcy action.
One has to wonder how a large corporation can emerge from bankruptcy in a matter of
months with a lot of indebtedness gone; he who has a secured loan and he who does not
is the answer. Example, GM: how many debts were “Secured” and how many were
“Unsecured”? The banks’ loans usually are “Secured” while all others are “Unsecured.”
Banks get paid and stockholders and investors get the empty baby bottle. Consider this:
the banks generally write all the contracts ‐ as such, the banks will wri