Fraud and Deception ­ Transferable Record 

  
 To  move  quantum  volumes  of  mortgage  loans  to  Wall  Street  at  hyper  speed,  the  stagecoach  method  of 
negotiating  the  paper  negotiable  instrument  was  replaced  with  an  electronic  Transferable  Record  to  make 
hyper  speed  profits  for  those  involved.  15  USC  7003  1,  ESIGN  excludes  items  governed  by  UCC  Article  3  – 
Negotiable  Instruments.  Scanning  of  the  paper  note  into  a  transferable  record,  which  creates  only  a  binary 
data file residing within a computer system, does not meet the UCC definition of a negotiable instrument. 
 
Florida Bankers Association2 has gone further to explain their process that after scanning, the paper note is 
routinely destroyed. This willful intentional destruction is alarming as under the UCC this destruction is one 
method for discharging the debt. 

June 2001, the Federal Trade Commission (Bureau of Consumer Protection) and the Department of Commerce 
(National  Telecommunications  and  Information  Administration)  published  “Electronic  Signatures  in  Global 
and  National  Commerce  Act”  3  and  warned  that  fraud  and  deception  were  possible  and  that  the  ESIGN  Act 
would prevent the criminal acts. ESIGN, when misapplied, gave the banks an entirely new method to rob and 
steal  on  an  unprecedented  scale.  Why  rob  a  stagecoach  when  you  can  instead  use  a  keyboard  to  sack  the 
global economy? 

“As enacted, ESIGN gives appropriate consideration to the threat that fraud and deception on the Internet pose 
to the growth and public acceptance of electronic commerce. It establishes safeguards that can avert many of 
the  abusive  practices  that  marked  earlier  technological  innovations  in  the  marketplace.  Most  laws  protecting 
consumers  against  fraud  and  deception  are  implemented  after  fraud  has  been  committed  and  documented. 
ESIGN attempts to address fraud before it occurs. Nothing is more likely to undermine consumer confidence in 
the  electronic  marketplace  than  exploitation  by  unscrupulous  marketers,  who  would  take  advantage  of 
electronic records and signatures as yet another way to deceive consumers.” 
 
The right hand column on the chart reflects the banks’ securitization of the un‐negotiable transferable record; 
the left column illustrates a vaulted paper note (if not destroyed) that is not negotiated, which explains why 
in many court cases, only the original indorsement stamp by the originating lender appears on the face of the 
note. Destruction also explains the many Lost Note Affidavits, which are not addressed in this writing. MERS 
only tracks the transferable record and who has rights to control the custodian of the vaulted records. 
 
An  Authoritative  Copy  of  the  paper  note  was  created  by  scanning  the  paper  note  which  contained  an 
indorsement in blank from the originating lender appearing on the face of the paper note. The paper note is 
then vaulted (or destroyed) as the paper note is no longer required in the securitization process and is not 
further negotiated by indorsement. The authoritative copy is then compiled into a Transferable Record along 
with all the other scanned closing documents.  
 
Subsequent Purchasers purchase the transferable record relying upon the authoritative copy to be the lawful 
negotiable  instrument.  The  Alleged  Negotiation  is  the  purchase  of  the  transferable  record  containing  the 
authoritative copy. Again, the MERS system provides notice as to who owns the transferable record, and who 
has rights and control over the custodian, and reflects who owns the paper note, if such note still exists. 
 
If  legal  conditions  warrant,  one  could  reach  into  the  custodial  vault  and  retrieve  the  paper  note,  stand  in 
court, wave it in the air and claim to be “Holder”; one could be in physical possession of the paper note but 
lack rights as “Holder.” 
 
One cannot achieve Holder, or Holder in due course of a paper note utilizing a transferable record. ESIGN did 
not  prevent  crime  as  intended;  the  unscrupulous  financial  institutions  that  exploited  ESIGN  executed  their 
crimes in nano seconds. 
                                                            
1
 http://www.law.cornell.edu/uscode/15/7003.html 
2
 http://www.scribd.com/doc/33631481/Florida‐Banker‐s‐Association‐Lost‐Notes‐09‐1460‐093009‐comments‐Fba‐1 
3
 http://www.ftc.gov/os/2001/06/esign7.htm 
R6                                                                                                          01/23/2011   
 
 What they say they did
MERS as Nominee Trust Trustee
and what they really did
Agent of an Unidentified “Indorsee In Blank”
Agent of Blank
Registry Update
Alleged Negotiation
Investment “In Blank”
Owner Unidentified Indorsee
Vehicle
Authoritative Copy
Controller Electronic Note
Custodial Vault
Electronic Security
Negotiated
“In Blank”
Unidentified Indorsee Subsequent Purchaser

Transferable Record
Trust Trustee
MERS as Nominee Trust Depositor
Agent of Blank
Registry Update
Negotiated Alleged Negotiation
“In Blank” “In Blank”
Unidentified Indorsee Owner Unidentified Indorsee
Authoritative Copy
Trust Depositor Controller Electronic Note
Custodial Vault
Electronic Security

Negotiated
Subsequent Purchaser
“In Blank”
Unidentified Indorsee
Transferable Record

Trust Securitizer MERS as Nominee Trust Securitizer

Agent of Blank
Registry Update
Alleged Negotiation
Negotiated “In Blank”
“In Blank” Owner Unidentified Indorsee
Authoritative Copy
Controller Electronic Note
Loan Originator Custodial Vault
Electronic Security

MERS Subsequent Purchaser

Paper Note
Registered
Transferable Record
Paper Security
Owner Loan Originator
MERS As Beneficiary Authoritative Copy
Controller Alleged Negotiation
Custodial Custodial Vault “In Blank”
VAULT
Step x
Paper Note Electronic Note

Obligor Paper Security

Scan Electronic Security
Copy
MERS As Beneficiary
© Copyrighted 2011 j.mcguire@swbell.net (817) 420‐4151 P O Box 1352, Bedford, Texas, 76095‐1352
 Rating Credit Risk
Investors
Agencies Insurance

Copy of Copy of Copy of

Transferable Record Transferable Record Transferable Record

(Electronic Digitized Graphic Image)

Scanned Digitized Copy of the Paper Note

Loan Originator

Originating Lender Indorsed “In Blank”

Alleged Negotiation

Scanned Digitized Copy of All Closing Documents

Scanned Digitized Copy of the Security Instrument

Transferable Record

Subsequent Purchase 1
Paper Note
“NON”
Paper Security
MERS As Beneficiary Subsequent Purchase 2
Negotiated
Custodial
VAULT
Subsequent Purchase 3
© Copyrighted 2011 j.mcguire@swbell.net (817) 420‐4151 P O Box 1352, Bedford, Texas, 76095‐1352
 The Authoritative Copy of the Promissory Note-Slice & Dice
Promissory Note
“ ORIGINALS “ Indebtedness
Vaulted Security Instrument
Or Step x Electronic Note
Deed of Trust-Mortgage-Security Deed
Destroyed
After Scanning the Scan Security Instrument
Continuous Perfected
Promissory Note Lien Follows the Note
Copy
Into Laws of Local Jurisdiction
Authoritative Copy

Authoritative Copy
Seller/Securitizer Trust (Certificate)
Owner/Holder Payment Intangible
Payment Intangible as Collateral follows the Certificate
UCC Article 9
Promissory Note Retrieved or Printed copy from

Payment Intangible (Transferable Record)

Owner Holder of Authoritative Copy of Note
Controller of Custodian/Owner of Custodial Paper
The Transferable Record for

Electronic Note / Authoritative Copy

Security Instrument
Litigation Issues

Depositor Trust (Certificate)

Owner/Holder Payment Intangible
Payment Intangible as Collateral follows the Certificate
UCC Article 9

Trustee Trust (Certificate)

Owner/Holder Payment Intangible
Payment Intangible as Collateral follows the Certificate
UCC Article 9

Owner 1 Owner 2 Owner 3 Owner 4 Owner 5 Owner 6

Slice Slice Slice Slice Slice Slice

& & & & & &
Dice Dice Dice Dice Dice Dice
© Copyrighted 2011 j.mcguire@swbell.net P O Box 1352, Bedford, Texas, 76095-1352
 Trust Certificate
Owner/Holder of Certificate
Certificate – Owner/Holder of Payment Intangible as Collateral
Securitization - Multiple Subsequent Purchasers of the Underlying Collateral
Security Instrument

Transferable Record
Payment Intangible

Closing of Mortgage Loan ‐ Security Instrument Attached and Temporary Perfected

Security Instrument Filed of Record – Permanent Perfection
Assignment of Mortgage (Rights to a Continuously Perfected Lien)
Recorded of Record – Perfection in Subsequent Purchasers Name
Memorialization of Paper Note Negotiation

Scanned Digitized Copy of the Paper Note

Authoritative Copy
Registered/Tracked MERS Registry
Authoritative Copy Registry
Originating Lender Indorsed “In Blank”
Alleged Negotiation

Scanned Digitized Copy Paper Note

All Closing Documents
Scanned Digitized Copy
Security Instrument
Paper Security
MERS As Beneficiary
Subsequent Purchaser
Owner - Contents of Vault
Control over Custodian

BAC HOME LOANS SERVICING, LP FKA COUNTRYWIDE HOME LOANS SERVICING LP, its assignees and/or successors in interest, Movant,
v.
MIKE ZITTA AND IRENA ZITTA, Respondents.

No. 09-bk-19154-SSC UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF ARIZONA

The sole issue to be addressed by the Appellate Court was whether Article Nine of the Uniform Commercial Code (as adopted in Arizona)
applied to the creation and perfection of a security interest in a promissory note when the note itself was secured by a deed of trust in
real property.

The Court concluded that “Arizona case law holds that a mortgage note and the debt evidenced thereby are personal property (citing to
Hill v. Favour, 52 Ariz. at 571, 84 P.2d at 579). Article Nine of the UCC applies to security interests in personal property….” Id. at 437.
However, Article Nine of the Uniform Commercial Code does not apply to obtaining a lien on real property.

© Copyrighted 2011 j.mcguire@swbell.net (817) 420‐4151 P O Box 1352, Bedford, Texas, 76095‐1352
 Uniform Commercial Code
Article 3
Obligor Paper Note “ESIGN”
Transferable
Record
Local Laws of Jurisdiction
Authoritative Copy
Paper Security

MERS As Beneficiary
15 USC 7003
Exclusions
PUBLIC RECORDS Article 3 & 9
Lien Perfection
Subsequent
Purchaser
Seller/Securitizer
Transferable Record

Paper Note
From Vault
Non-Negotiated Transferable Record

Authoritative Copy
Printed (Forgery) NON-Holder in due Course
Paper Note (Copy) Unperfected Security Instrument
Electronic Security
Laws Local Jurisdiction

Unperfected
Security Instrument
Subsequent
Purchaser
Depositor
Transferable Record

Transferable Record
Transferable Record

Transferable Record
Subsequent
Purchaser
Trustee

Authoritative Copy Authoritative Copy

Electronic Security Electronic Security

Laws Local Jurisdiction Laws Local Jurisdiction

Authoritative Copy Lacks Supporting Law

Lien Perfection Alleged Under UCC Article 9

© Copyrighted 2011 j.mcguire@swbell.net (817) 420‐4151 P O Box 1352, Bedford, Texas 76095‐1352