Entries in Article 3 UCC (2)

Monday
May072012

UCC Article 3 and Mortgage Backed Securities

Borrowing money to buy a home used to be straight forward.  Nowadays, the promise to pay back the borrowed money (Note) is transferred into securities, known as mortgage backed securities (MBS), and pieces of this MBS are sold in the form of certificates to investors all over the world.  The Deed of Trust, which secures the promise to pay with the home, also known as a mortgage, lives in a virtual world somewhere between your home and the investors in the security holding your Note. 

 UNIFORM COMMERCIAL CODE 

The transfer of the Note into securities is governed by the Uniform Commercial Code (“UCC”)[1].   The UCC is a set of laws adopted by most states to maintain uniformity in commercial transactions.  The sale and transfer of promissory notes are commercial transactions governed by the UCC.  UCC Article 3 and Article 9 are the substantive provision applying to the transfer of promissory notes and their status once inside a MBS. [2]   C.R.S. 38-38-101 et seq.  are the procedural laws governing foreclosure under    Allen v. Bailey, 91 Colo. 260, 14 P.2d 1087 (Colo. 1932).   Article 9 governs if there is conflict with Article 3.[3]

Article 3 applies to “negotiable” instruments.  Article 9 applies to “security interests”.  Promissory notes can be both “negotiable instrument” and “security interests”.    While there is some discussion whether Notes are negotiable and therefore the applicability of Article 3[4], Article 9 specifically identifies the “sale of a promissory note” (Note) as a commercial transaction covered by Article 9.[5]

 ARTICLE 3

Article 3 lays out the requirements that allow Notes to travel from one owner to another. [6] Think of checks you write as “instruments” showing your promise to pay a sum of money.  Article 3 uses the terms “transfer” or “negotiation” to define the type of travel.   The minimum requirement for transferring a Note is an indorsement.[7] An indorsement can be made out “to order” of a specific person or “to bearer”.[8]   For example a check made out to a specific person is “to order” and a check made out in blank can be cashed by anyone who has possession.

With limited exceptions, possession of the Note with an indorsement is required to enforce the Note and it does not matter if coming into possession is “wrongful”.   A person in possession of the Note with an indorsement is considered a “holder” of the Note with the right to enforce the Note.[9]  

The reason for focusing on possession of a Note to enforce it, regardless of how one comes into possession, is the premium placed on keeping commercial activity moving.  Commercial activity moves when the one obligated to pay a sum of money knows who to pay.   Possession is the best way to identify who to pay.  And, to complete the symmetry, the only way to discharge a debt is to pay the one who has the power to enforce it[10] or simply the one in possession.

ARTICLE 9

Prior to 2001 Article 9 applied only to personal property.  In 2001 Article 9 was changed to apply to the sale of promissory notes.[11]   Under Article 9, the Note takes on a legal significance different from a “negotiable instrument” under Article 3.   The Note becomes security for its underlying obligation to pay a certain sum of money.   The Note does not lose its identity as a promise to pay because it is transferred into a MBS. [12]    A Note, once lodged in a MBS, is both a promise to pay and a security interest for the promise to pay. 

The concept that a Note becomes the security for itself is a strange concept when compared to the original structure of a home loan in which the home secures the promise to pay with a deed of trust or mortgage.  

The concept is less strange when one understands that the reason for allowing Notes to lodge in mortgage backed securities is to provide more money in order that more homes can be bought.

Article 3 and Article 9 are similar in their requirements that a promissory note signed by a homeowner to purchase a home and sold into the stream of commerce must be in possession of the person or entity enforcing the Note after a default.

A person or entity comes into possession of a “promissory note”[13] through a sale and is a considered “secured party” [14]  with a right to “enforce” the note if three requirements are met:

1)      Value is given,( which means any consideration that would support a simple contract) ;

2)      Debtor has rights in the collateral or power to transfer the collateral; and

3)      Collateral is in possession of the Debtor pursuant to debtor’s security agreement.[15]

A person or entity in possession[16]  of a promissory note has the right to enforce the Note by any judicial procedure, including “foreclosure”.[17]   Article 9 helps with foreclosure by specifically providing that the deed of trust follows the note,[18] a concept reaffirmed by the Colorado Supreme Court in Columbus Investment v. Lewis, 48 P.3d 1222 (Colo. 2002).[19]

If one were to challenge the standing of a trustee of a MBS to bring a foreclosure on a Note within a MBS, a challenge might focus on whether “value” was given or whether the MBS ever obtained possession of the Note.

As “value”[20] is defined as any consideration to support a simple contract, the consideration of transferring a Note into a MBS would not be hard to find.   The MBS buys the Note at a discount and assumes the right and obligation to collect the monthly mortgage payments and disperse these monthly payments minus administrative and other deductions to investors in the MBS.  Either the money or the assumption of responsibility for holding the Note constitute consideration to satisfy the requirement of “value”.

POSSESSION 

Possession of a security interest would necessarily follow the Pooling and Service Agreement of the MBS as mandated by securities regulations and explored in an earlier post, titled PSA Defense.

A difference between Article 9 and Article 3 is whether the Trustee of a MBS must prove its right to enforce the Note by filing an affidavit in the public land records pursuant to UCC 4-9-607.[21] Colorado’s non-judicial foreclosure statute provides for the filing of this affidavit with the Public Trustee at the same time as it is filed with County Clerk and Recorder. [22]   It is not clear if any foreclosures comply with this requirement.   A reason for not complying with this voluntary recording is the penalty provisions of C.R.S. § 38-35-109(3) for filing a knowingly false document. [23]  

Another difference between Article 9 and Article 3 is that there appears to be no corollary requirement for an indorsement.[24]  Indorsements insure the person or entity enforcing the Note has rightful possession of the Note.   If the Note is not covered by Article 3 because it is not negotiable, the only way to insure that the Note is in possession of the person or entity entitled to enforce the Note is that the person or entity has actual possession of the Note.    

But does possession alone show that the one in possession is entitled to enforce the Note through a foreclosure?   UCC § 4-9-203 states that possession is “pursuant to a security agreement”.    A “security agreement” is defined as “an agreement that creates a security interest.”[25]   A security interest is defined as an interest of a buyer of “a promissory note in a transaction that is subject to article 9 of this title.”[26]  Comment 4 to UCC § 4-9-203 states that: “In the unlikely event that possession is obtained without the debtor's agreement, possession would not suffice as a substitute for an authenticated security agreement.”  Therefore the only agreement that qualifies as a debtor security agreement would be the Note itself. 

Promissory notes contain language similar to:  “I understand that he Lender may transfer this Note.  The Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the “Note Holder”.  “Transfer” is defined in C.R.S. § 4-3-203 (a):  “An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.”

According to the above traverse of the UCC, it appears that no indorsement is necessary to show that the person or entity trying to foreclose is entitled to foreclose under Article 3 but is necessary for Article 9.  All the more reason to insist on production of the original note in a foreclosure.    

 


[1] “UCC” in this Blog refers to Colorado statutes adopting the UCC at C.R.S. §4-1-101 et seq.

[2]  UCC 4-3-104 and UCC 4-1-201(35)

[3]  UCC 4-3-102

[4] “Mortgage Documentation Issues Close to (my) Home” by Jean Braucher, Credit Slips, October 28, 2011, http://www.creditslips.org/creditslips/2011/10/mortgage-documentation-issues-close-to-my-home.html#more

[5]  UCC 4-9-109 Comment 7: Security Interest in Obligation Secured by Non-Article 9 Transaction. Subsection (b) is unchanged in substance from former Section 9-102(3). The following example provides an illustration. O borrows $10,000 from M and secures its repayment obligation, evidenced by a promissory note, by granting to M a mortgage on O's land. This Article does not apply to the creation of the real-property mortgage. However, if M sells the promissory note to X or gives a security interest in the note to secure M's own obligation to X, this Article applies to the security interest thereby created in favor of X. The security interest in the promissory note is covered by this Article even though the note is secured by a real-property mortgage. Also, X's security interest in the note gives X an attached security interest in the mortgage lien that secures the note and, if the security interest in the note is perfected, the security interest in the mortgage lien likewise is perfected. See Sections 9-203, 9-308.

[6] UCC 4-3-104  Negotiable instrument(a) Except as provided in subsections (c) and (d) of this section, “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it: (1) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder; (2) Is payable on demand or at a definite time; and (3) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.

[7] UCC 4-3-204 (a) “Indorsement” means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (i) negotiating the instrument…”

[8] UCC 4-3-109

[9] UCC 4-3-301. Person entitled to enforce instrument: “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 4-3-309 or 4-3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

[10] Comment 2 to UCC 4-3-102. “The issuer of a negotiable instrument, on the other hand, may discharge its obligation to pay the instrument only by paying a person entitled to enforce under Section 3-301.”

[11] UCC 4-1-201 (35) “Security interest” means an interest in personal property or fixtures that secures payment or performance of an obligation. The term also includes any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible, or a promissory note in a transaction that is subject to article 9 of this title.

[12] Be aware of any outfit who says differently.  Mortgage Securitization reports or analysis are not legal documents.

[13] UCC 4-9-102 (68) “Promissory note” means an instrument that evidences a promise to pay a monetary obligation …”

[14] UCC 4-9-102(75) “Secured party” means: (D) A person to which accounts, chattel paper, payment intangibles, or promissory notes have been sold;”

[15]  UCC 4-9-203. Attachment and enforceability of security interest; proceeds; supporting obligations; formal requisites(a) A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.(b) Except as otherwise provided in subsections (c) to (i) of this section, a security interest is enforceable against the debtor and third parties with respect to the collateral only if: (1) Value has been given; (2) The debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and (3) One of the following conditions is met: (A) The debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned; (B) The collateral is not a certificated security and is in the possession of the secured party under section 4-9-313 pursuant to the debtor's security agreement;

[16] UCC 4-9-313. When possession by or delivery to secured party perfects security interest without filing (a) Except as otherwise provided in subsection (b) of this section, a secured party may perfect a security interest in tangible negotiable documents, goods, instruments, money, or tangible chattel paper by taking possession of the collateral.

[17]  UCC 4-9-601(a) After default, a secured party has the rights provided in this part 6 and, except as otherwise provided in section 4-9-602, those provided by agreement of the parties. A secured party: (1) May reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any available judicial procedure;

[18] UCC 4-9-203 (g) The attachment of a security interest in a right to payment or performance secured by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage, or other lien.

[19] Curious that this case, with a rather harsh result, applied Article 9 prior to its amendment adding promissory notes as a “secured interest”.

[20] UCC 4-1-204.  Value Except as otherwise provided in articles 3, 4, and 5 of this title, a person gives value for rights if the person acquires them:(1) In return for a binding commitment to extend credit or for the extension of immediately available credit, whether or not drawn upon and whether or not a charge-back is provided for in the event of difficulties in collection;(2) As security for, or in total or partial satisfaction of, a preexisting claim;(3) By accepting delivery under a preexisting contract for purchase; or(4) In return for any consideration sufficient to support a simple contract.

[21] (b) If necessary to enable a secured party to exercise under paragraph (3) of subsection (a) of this section the right of a debtor to enforce a mortgage non-judicially, the secured party may record in the office in which a record of the mortgage is recorded:(1) A copy of the security agreement that creates or provides for a security interest in the obligation secured by the mortgage; and(2) The secured party's sworn affidavit in recordable form stating that:(A) A default has occurred; and(B) The secured party is entitled to enforce the mortgage non-judicially. (c) A secured party shall proceed in a commercially reasonable manner if the secured party:

[22] C.R.S. § 38-38-101(f) (f) Any affidavit recorded pursuant to section 38-35-109(5) affecting the deed of trust described in paragraph (c) of this subsection (1), which affidavit shall be accepted by the public trustee as modifying the deed of trust for all purposes under this article only if the affidavit is filed with the public trustee at the same time as the other documents required under this subsection (1);

[23] (3) Any person who offers to have recorded or filed in the office of the county clerk and recorder any document purporting to convey, encumber, create a lien against, or otherwise affect the title to real property, knowing or having a reason to know that such document is forged or groundless, contains a material misstatement or false claim, or is otherwise invalid, shall be liable to the owner of such real property for the sum of not less than one thousand dollars or for actual damages caused thereby, whichever is greater, together with reasonable attorney fees. Any grantee or other person purportedly benefited by a recorded document that purports to convey, encumber, create a lien against, or otherwise affect the title to real property and is forged or groundless, contains a material misstatement or false claim, or is otherwise invalid who willfully refuses to release such document of record upon request of the owner of the real property affected shall be liable to such owner for the damages and attorney fees provided for in this subsection (3).

[24] Comment to UCC 4-3-203 states that: “Because the transferee's rights are derivative of the transferor's rights, those rights must be proved. Because the transferee is not a holder, there is no presumption under Section 3-308 that the transferee, by producing the instrument, is entitled to payment. The instrument, by its terms, is not payable to the transferee and the transferee must account for possession of the unindorsed instrument by proving the transaction through which the transferee acquired it. Proof of a transfer to the transferee by a holder is proof that the transferee has acquired the rights of a holder.”

[25] UCC § 4-9-102(76).

[26] UCC § 4-1-201(35).

 

Wednesday
Aug312011

Who Is The Real Party For A PSA Foreclosure?

To foreclose you need possession of the original note and deed to trust representing the residential home loan.   If the note and deed of trust have been transferred to a trust as part of securitization, the trustee must comply with Pooling and Servicing Agreement (“PSA”) which gives the Trustee power over all the notes and deed of trust in that particular security.[1]

 

A PSA foreclosure defense is the failure of the note and deed of trust to be transferred into its particular trust or security according to the Pooling and Service Agreement.  An argument that a PSA foreclosure defense does not apply to a foreclosure by a Trustee because the homeowner is not a party to the PSA as a third party beneficiary is a misunderstanding of the PSA foreclosure defense.[2]

 

A PSA foreclosure defense is not based on the homeowner being a third party beneficiary to the PSA but is based on whether the Trustee has possession of the note and deed of trust, which is a standing issue.

 

A basic rule of contract law is that “a person not a party to an express contract may bring an action on such contract if the parties to the agreement intended to benefit the non-party, provided that the benefit claim is a direct and not merely an incidental benefit of the contract.” E.B. Roberts Construction Co. v. Concrete Contractors, Inc., 704 P.2d 859, 865 (Colo.1985).  Jefferson County School Dist. No. R-1 v. Shorey, 826 P.2d 830
(Colo., 1992).

 

A homeowner is not a third party beneficiary to a PSA because the PSA is not intended to directly benefit the homeowners.[3]  The investors in the security which contains a pool of home loans are third party beneficiaries to the PSA because they benefit from the PSA’s requirement that the Trustee oversee the collection of the monthly loan payments and transfer of these funds to the investors. 

 

If the home loan (the note and deed of trust) is not transferred to the trust according to the explicit requirements of the PSA on the transfer of the home loan into the security, the Trustee does not possess the home loan and is precluded from bringing a foreclosure action.  

 

In Colorado, a homeowner can challenge the foreclosing party’s right to bring a foreclosure action in a Rule 120 hearing.   Goodwin v. District Court In and For Sixteenth Judicial Dist. 779 P.2d 837, (Colo.1989).   Goodwin allows a court in C.R.C.P. 120 motion to decide whether the moving party is a real party in interest.  

 

Courts have the authority to whether a party has a right to bring a foreclosure action because of due process.  Due process is a constitutional principle that no person can be deprived of life or liberty or property without adequate legal procedures and safeguards.  C.R.S.A. Const. Art. 2, § 25. Plymouth Capital Co., Inc. v. District Court of Elbert County 955 P.2d 1014 (Colo., 1998)

 

In Colorado, C.R.C.P. Rule 17(a) provides the necessary mechanism to comply with due process by ensuring the “real party in interest” is bringing the foreclosure action.  C.R.C.P. 17(a) provides that "every action shall be prosecuted in the name of the real party in interest." "The real party in interest is the party who, by virtue of substantive law, has the right to invoke the aid of the court to vindicate the legal interest in question." In re Goodwin, supra.   

 

Simply, Rule 17(a) ensures the person or entity bringing a foreclosure action has the right to foreclose by asking do they have an "interest," which is material (not incidental) and properly before the court.

 

With respect to a Trustee bringing a foreclosure action on a home loan within a securitized trust, the question is does the Trustee have an “interest” in the note and deed of trust.    

 

There is Colorado case law that states a trustee who holds legal title to property is a real party in interest.  Koch v. Story 47 Colo. 335, 107 P. 1093 (Colo. 1910). Elk-Rifle Water Co. v. Templeton, 173 Colo. 438, 484 P.2d 1211 (Colo. 1971).  However, this rule does not apply to a Trustee of a securitized home loan.   Colorado is lien theory state, which provides that the holder of a note and deed of trust does not hold legal title to the property. “Colorado has adopted the lien theory of mortgages under which the mortgage or deed of trust creates a lien against real property but does not convey title. Section 38-35-117, C.R.S.[4]   Hohn v. Morrison, 870 P.2d 513 (Colo. App. 1993).

 

A Trustee can foreclose on a home loan if it has an “interest” in the home loan according to “substantive law” governing the transfer of notes and deeds of trusts into a security.  

 

“We mean by substantive law the positive law of duties and rights which gives rise to a cause of action, as distinguished from adjective law, which pertains to practice and procedure, or the legal machinery by which the substantive law is made effective.”  Allen v. Bailey, 91 Colo. 260, 14 P.2d 1087 (Colo. 1932). 

 

In the context of a Rule 120 hearing, the “substantive law” governing the “rights which give” a trustee an “interest” in the home loan and thus the right to foreclose is Article 3 of the Uniform Commercial Code (“UCC”) (C.R.S. §4-3-101 et seq.).

 

The Colorado foreclosure statute (C.R.S. § 38-38-101 et seq.) sets forth the procedure for foreclosing on a defaulted home loan and is, as such, “adjective law” and not dispositive on who can bring a foreclosure action.

 

The “substantive law” of Article 3 applies because when the note and deed of trust travel from the original lender in Colorado into a security managed by a Trustee in New York the note becomes a “negotiable instrument”.[5]  In fact the foreclosure statute references Article 3 when it identifies the person entitled to bring a foreclosure action as the “holder” [6] and defines “holder” in similar terms to Article 3.       

 

The “substantive law” of Article 3 of the Uniform Commercial Code determines whether or not a foreclosing entity is a “entitled to enforce an evidence of debt”.  C.R.S. § 4-3-301 provides a Person entitled to enforce” an instrument[7] 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 4-3-309 or 4-3-418(d).  A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument .”

 

 The right to enforce a note in foreclosure depends on the transfer of the note to a person entitled to enforce the “negotiable instrument”.   “To be a holder one must meet the two conditions in section 4-1-201(b)(20): (1) he or she must have possession (2) of an instrument drawn, issued, or indorsed to him or her. With rare exceptions, those claiming to be holders have physical ownership of the instrument in question.”[8]  

 

Possession is designed to prevent two or more claimants from qualifying as holders who could take free of the other party's claim of ownership.  

 

The right to possession of the note depends on the transfer.  Article 3 provides two ways to transfer a note: “negotiation”[9] and “transfer”[10].    A “negotiation” of a note gives the person in possession the rights of “holder”.  A “transfer” gives the person in possession the “right to enforce” the note.

 

UCC Comment 1 to C.R.S. § 4-3-203(a) explains:

“The right to enforce an instrument and ownership of the instrument are two different concepts….A thief who steals a check payable to bearer becomes the holder of the check and a person entitled to enforce it, but does not become the owner of the check….Moreover, a person who has an ownership right in an instrument might not be a person entitled to enforce the instrument…The right to payment is transferred by delivery of possession of the instrument “by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.” 

 

Under both the Colorado foreclosure statute and Article 3, a “holder”  is  person in rightful possession of the note:  C.R.S. § 4-1-201(20) “Holder” means: (A) the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession;  C.R.S. §38-38-100.3(10)(c) “Holder of an evidence of debt” means the person in actual possession of or person entitled to enforce an evidence of debt. §38-38-100.3(10)(c).

 

The safest way to transfer a note to ensure a right to payments is to deliver possession with an endorsement [11] on the note specifying the name of the party taking ownership of the note.  The second safest way to transfer a note is to deliver possession of the note to a party endorsed in blank or endorsed to bearer[12].  In both instances the person who has possession of the note is deemed a “holder” with a right to payment on the note. 

 

Endorsement is important because it is the way to know if the person in possession is rightfully in possession.  When notes are transferred into a trust for the purpose of securitization, the requirements for endorsements are all the more important.  For an outline for all the reason why transfer of a home loan into a securitized trust is stricter than that allowed under Article 3 and state foreclosure laws please refer to my prior blog post “A Chink in the Armor- A Foreclosure Defense”.

 

The UCC allows stricter requirements for transfers of notes by agreement.[13] The PSA requires proof of the transfers of the note or a chain of title from original lender to the deposit of the note into a securitized trust for the trust to own the note.  The reason for a clear chain of title from lender to the trust serves several purposes.  One main reason is to establish the integrity of the trust in order that certificates in the trust can be sold to investors.  Another reason is to obtain favorable tax treatment. 

  

A sample of the PSA language which requires a clear chain of title of the note into the trust states:

“In  connection  with the above  transfer and  assignment,  the Sponsor  hereby  deposits with the Trustee or the related Custodian, on behalf of the Trustee, with respect to each Mortgage Loan: (i)  the original  Mortgage Note,  endorsed  without recourse (A) in blank or to the order of the  Trustee  or (B) in the case of a Mortgage  Loan  registered  on the MERS  system,  in blank,  and in each case showing an unbroken chain of endorsements.” 

 

If there is no documented chain of title tracking the delivery of the note into the security, the note is not properly lodged within the   security and the Trustee has no right to foreclosure as the “real party in interest”.

 

Therefore, an argument that a homeowner has no right to contest a Trustee’s status as a “real party interest” because the homeowner is not a third party beneficiary of the PSA is an opportunity to explain why a Trustee is bound by the PSA.  

 


[1] Asset Securitization: Comptroller's Handbook, Office of the Comptroller of the Currency, November1997, http://www.occ.treas.gov/handbook/assetsec.pdf.

[2]Standing to Invoke PSAs as a Foreclosure Defense”, posted by Adam Levitan, Credit Slips, August 4, 2011.

[3] See my previous Blog, “Chink in the Armor, A Foreclosure defense”  citing an Alabama case, Horace vs. LaSalle Bank National Association, et al., CV-2008-000362.00, (3/30/11) Circuit Court of Russell County Alabama, where Judge found homeowner was third party beneficiary because without the homeowner the security would not be funded.  

[4] § 38-35-117. Mortgages, not a conveyance--lien theory:  Mortgages, trust deeds, or other instruments intended to secure the payment of an obligation affecting title to or an interest in real property shall not be deemed a conveyance, regardless of its terms, so as to enable the owner of the obligation secured to recover possession of real property without foreclosure and sale, but the same shall be deemed a lien.

[5] C.R.S. 4-3-104(a) Except as provided in subsections (c) and (d) of this section, “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:(1) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;(2) Is payable on demand or at a definite time; and(3) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.

[6] C.R.S. § 38-38-101. Holder of evidence of debt may elect to foreclose.  §38-38-100.3(10) “Holder of an evidence of debt” means the person in actual possession of or person entitled to enforce an evidence of debt. §38-38-100.3(10)(c) The person in possession of a negotiable instrument evidencing a debt, which has been duly negotiated to such person or to bearer or indorsed in blank.  Possession of a Note without a proper indorsement to a specific person or “to bearer” is enforceable if the person in possession can “account for possession of the unindorsed instrument by proving the transaction through which the transferee acquired it.” Comment 2,

C.R.S. § 4-3-203, 

[7] “Instrument” means a negotiable instrument.  C.R.S. §4-3-104.

[8] Georg v. Metro Fixtures Contractors, Inc. 178 P.3d 1209 (Colo. 2008). 

[9] “Negotiation” means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder. C.R.S. § 4-3-201(a).

[10] An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument. C.R.S. § 4-3-203(a).

[11] “Indorsement” means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (i) negotiating the instrument. C.R.S. §4-3-204.

[12] “Bearer” means a person in control of a negotiable electronic document of title or a person in possession of a negotiable instrument, negotiable tangible document of title, or certificated security that is payable to bearer or indorsed in blank. C.R.S. § 4-1-201(5).

[13] Except as otherwise provided in subsection (b) of this section or elsewhere in this title, the effect of provisions of this title may be varied by agreement. C.R.S. § 4-1-302(1).