Owner and Holder Issues - Various Sources of Repayment
Promissory Note
Historically the owner and holder of negotiable instruments, bearer instruments, etc. have been very important in contractual financial relationships. However, promissory notes contain repayment obligations of the maker that may be contractually limited. Confusion exists as to the legal necessity of "holder and owner" legal requirements. The new structured financial instruments have caused concern about the owner/holder status in various contractual relationships. The primary applicability of owner and holder status relates to enforcement of the promissory note by the holder against the maker. However, many structured financial instruments are non-recourse as to the maker of the obligation. If the promissory note is non-recourse, the secured party must look to other sources of repayment.
Deed of Trust Contractual Real Property Source of Repayment
In Texas the deed of trust and Property Code §51.0001, et seq., define the legal requirements for selling real property collateral by foreclosure, and applying the sale proceeds against the unpaid promissory note. Property Code §51.0025 allows a mortgage servicer to administer the foreclosure of property without requiring the mortgage servicer to be the owner and holder of the promissory note. The contractual right to foreclose is found in the deed of trust and Property Code §51.00025 allows the mortgage servicer to administer the foreclosure sale.
Personal Property Security Interest
Like the contractual deed of trust, the foreclosure of personal property may be exercised in accordance with the security agreement and Article 9 of the Texas Business and Commerce Code. The disposition of personal property is pursuant to the contractual security agreement and Article 9.
Guaranty
Guaranty is a contractual relationship between the guarantors and the contractual payees of promissory notes. Like deeds of trust and personal property security instruments, guarantys are another source of repayment of contractual payment obligations.
