Uniform Mortgage Modification Act of 2025

Government of the District of Columbia
UNIFORM LAW COMMISSION
  

October 30, 2025

The Honorable Phil Mendelson
Chairman
Council of the District of Columbia
The John A. Wilson Building,
1350 Pennsylvania Avenue, NW
Washington, DC 20004

RE: Request for introduction of the Uniform Mortgage Modification Act.

Dear Chairman Mendelson:

Pursuant to Rule 401(b)(1) of the Rules of Organization and Procedure for the
Council, this is to request, on behalf of the District of Co lumbia Uniform Law
Commission, that you introduce the proposed “Uniform Mortgage Modification Ac t of
2025.”

The uniform act would facilitate modifications to mortgages that allow the parties
to continue their relationship with their current mortgagor, without resorting to
foreclosure. The Act protects businesses with commercial mortgages and famil ies with
residential mortgages alike by establishing several types of “safe harbor” modifications
that can be made to a mortgage. The Act does not disrupt existing law for modifications
outside of the safe harbors. Modifications that would materially prej udice a junior
lienholder are outside of the safe harbors and accordingly are not governed by the Act.
By eliminating many legal uncertainties, the act saves borrowers time and money.
Although the uniform act was finalized recently, at the end of 2024, it has already been
enacted by two states (Utah and Nevada) and has been introduced in West Virginia.

A proposed “Uniform Mortgage Modification Act of 2025” is being filed with this
letter. In addition, the following documents have been filed: ( 1) a summary of the
uniform act; (2) a statement as to why the uniform act should be adopted; and (3) the
official version of the uniform act with comments.

Brian Flowers or I would be pleased to answer any questions and to provide any
additional information requested.

2

Sincerely,

James C. McKay, Jr.
Chair
D.C. Uniform Law Commission

cc: Uniform Law Commissioners

~ ~& ~ tofthe
4 District of Columbia Uniform Law Commission
5
6
7
8
9 ABaL
10
11
12 IN THE COUNCIL O F THE DISTRICT OF COLUMBIA
13
14 To enact the Uniform Mortgage Modification Act, to create safe harbors for specific, common
15 modification, clearly providing that the mortgage continues to secure the obligation as
16 modified, the modification does not affect the priority of the mortgage, the mortgage retains
17 its priority regardless of whether a modification agreement is recorded, and the modification
I 8 is not a novation, and for other purposes.
19
20 BE IT ENACTED BY THE COUNCIL OF THE DISTRICT OF COLUMBIA, That this
21 act may be cited as the "U niform Mortgage Modification Act of 2025."
22 Sec. 2. Definitions.
23 In this act:
24 (I) "E lectronic" means relating to technology having electrical, digital, magnetic,
25 wireless, optical, electromagnetic, or similar capabilities.
26 (2) "Financial covenant" means an undertaking to demonstrate an obligor's
27 creditworthiness or the adequacy of security provided by an obligor.
28 (3) "Mo dification" includes change, amendment, revision, correction, addition,
29 supplementation, elimination, waiver, and restatement.
30 (4) "Mortgage":
31 (A) Means an agreement that creates a consensual interest in real property
32 to secure payment or performance of an obligation, regardless of:
33 (i) How the agreement is denominated, including a mortgage, deed
2
of trust, trust deed, security deed, indenture, and deed to secure debt; and 1
(ii) Whether the agreement also creates a security interest in 2
personal property; and 3
(B) Does not include an agreement that creates a consensual interest to 4
secure a liability owed by a unit owner to a condominium association, owners’ association, or 5
cooperative housing association for association dues, fees, or assessments. 6
(5) “Mortgage modification” means modification of: 7
(A) A mortgage; 8
(B) An agreement that creates an obligation, including a promissory note, 9
loan agreement, or credit agreement; or 10
(C) An agreement that creates other security or credit enhancement for an 11
obligation, including an assignment of leases or rents or a guaranty. 12
(6) “Obligation” means a debt, duty, or other liability, secured by a mortgage. 13
(7) “Obligor” means a person that: 14
(A) Owes payment or performance of an obligation; 15
(B) Sgns a mortgage; or 16
(C) Is otherwise accountable, or whose property serves as collateral, for 17
payment or performance of an obligation. 18
(8) “Person” means an individual, estate, business or nonprofit entity, government 19
or governmental subdivision, agency, or instrumentality, or other legal entity. 20
(9) “Recognized index” means an index to which changes in the interest rate may 21
be linked that is: 22
(A) Readily available to, and verifiable by, the obligor; and 23
3
(B) Beyond the control of the person to whom the obligation is owed. 1
(10) “Record”, used as a noun, means information: 2
(A) Inscribed on a tangible medium; or 3
(B) Stored in an electronic or other medium and retrievable in perceivable 4
form. 5
(11) “Sign” means, with present intent to authenticate or adopt a record: 6
(A) Execute or adopt a tangible symbol; or 7
(B) Attach to or logically associate with the record an electronic symbol, 8
sound, or process. 9
Sec. 3. Scope. 10
(a) Except as provided in subsection (c), this act applies to a mortgage modification. 11
(b) This act does not affect: 12
(1) Law governing the required content of a mortgage; 13
(2) A statute of limitations or other law governing the expiration or termination of 14
a right to enforce an obligation or a mortgage; 15
(3) A recording statute; 16
(4) A statute governing the priority of a tax lien or other governmental lien; 17
(5) A statute of frauds or [cite to state’s Uniform Electronic Transactions Act or 18
similar statute]; or 19
(6) Except as provided in Sec. 4(b)(8), law governing the priority of a future 20
advance. 21
(c) This act does not apply to any of the following modifications: 22
(1) A release of, or addition to, property encumbered by a mortgage; 23
4
(2) A release of, addition of, or other change in an obligor; or 1
(3) An assignment or other transfer of a mortgage or an obligation. 2
Sec. 4. Effect of mortgage modification. 3
(a) For a mortgage modification described in subsection (b): 4
(1) The mortgage continues to secure the obligation as modified; 5
(2) The priority of the mortgage is not affected by the modification; 6
(3) The mortgage retains its priority regardless of whether a record of the 7
mortgage modification is recorded in the public land records; and 8
(4) the modification is not a novation. 9
(b) Subsection (a) applies to one or more of the following mortgage modifications: 10
(1) An extension of the maturity date of an obligation; 11
(2) A decrease in the interest rate of an obligation; 12
(3) If the change does not result in an increase in the interest rate of an obligation 13
as calculated on the date the modification becomes effective: 14
(A) A change to a different index that is a recognized index if the previous 15
index to which changes in the interest rate were linked is no longer available; 16
(B) A change in the differential between the index and the interest rate; 17
(C) A change from a floating or adjustable rate to a fixed rate; or 18
(D ) A change from a fixed rate to a floating or adjustable rate based on a 19
recognized index; 20
(4) A capitaliz ation of unpaid interest or other unpaid monetary obligation; 21
(5) A forgiveness , forbearance, or other reduction of principal, accrued interest, or 22
other monetary obligation; 23
5
(6) A modification of a requirement for maintaining an escrow or reserve account 1
for payment of an obligation, including taxes and insurance premiums; 2
(7) A modification of a requirement for acquiring or maintaining insurance; 3
(8) A modification of a n existing condition to advance funds; 4
(9) A modification of a financial covenant ; and 5
(10) A modification of the payment amount or schedule resulting from another 6
modification described in this subsection. 7
(c ) The effect of a mortgage modification not described in subsection (b) is governed by 8
other law. 9
Sec. 5. Uniformity of application and construction. 10
In applying and construing this uniform act, a court shall consider the promotion of 11
uniformity of the law among jurisdictions that enact it. 12
Sec. 6. Relation to Electronic Signatures in Global and National Commerce Act 13
This [act] modifies, limits, or supersedes the Electronic Signatures in Global and National 14
Commerce Act, 15 U.S.C. §7001 et seq., as amended, but does not modify, limit, or supersede 15 15
U.S.C. §7001(c), or authorize electronic delivery of any of the notices described in 15 U.S.C. § 16
7003(b). 17
18
Sec. 7. Transitional provision. 19
T his act applies to a mortgage modification made on or after the effective date of this act 20
regardless of when the mortgage or the obligation was created. 21
Sec. 8. Fiscal impact statement. 22
The Council adopts the attached fiscal impact statement as the fiscal impact statement 23
required by section 602(c)(3) of the District of Columbia Home Rule Act, approved December 24
6
24, 1973 (87 Stat. 813; D.C. Official Code § 1-206.02(c)(3)). 1
Sec. 9. Effective date 2
This act shall take effect following approval by the Mayor (or in the event of veto by the 3
Mayor, action by the Council to override the veto), a 30-day period of Congressional review as 4
provided in section 602(c)(1) of the District of Columbia Home Rule Act, approved December 5
24, 1973 (87 Stat. 813; D.C. Official Code § 1-206.02(c)(1)), and publication in the District of 6
Columbia Register. 7
The ULC is a nonprofit formed in 1892 to create nonpartisan state legislation. Over 350 volunteer commissioners—lawyers,
judges, law professors, legislative staff, and others—work together to draft laws ranging from the Uniform Commercial Code to
acts on property, trusts and estates, family law, criminal law and other areas where uniformity of state law is desirable.
NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS
Uniform Law Commission
111 N. Wabash Ave.
Suite 1010
Chicago, IL 60602
(312) 450-6600 tel
www.uniformlaws.org
UNIFORM MORTGAGE MODIFICATION ACT
Summary
The Uniform Mortgage Modification Act modernizes the law surrounding modifications of
mortgages. Mortgage modifications are not uncommon: residential or commercial borrowers may
avoid foreclosure by modifying their loans, construction loans may be converted to permanent
loans, or credit facilities may be updated periodically to reflect changing market conditions or to
substitute portions of debt.
Existing state law creates questions about the effect of a modification on the priority of the
mortgage. Priority dictates the order in which creditors are paid in case of a foreclosure. Lenders
want their mortgage priority to stay the same in case of a modification, so they can still recover as
much as possible if the mortgage is foreclosed.
At best, this uncertainty leads to delays and higher transaction costs, which are ultimately passed
on to the borrower. At worst, this uncertainty may discourage lenders from considering a
reasonable request for a modification. Alternatively, a lender may request consent to the
modification from a junior lender (one with lower priority), but the junior lender can demand a
ransom payment from the borrower in exchange for its consent.
Even if a state has its own law addressing mortgage modifications and their priority, many local
borrowers depend on financing from out of state, where the law is different. Out -of-state lenders,
being unfamiliar with the local law, may refuse to rely on i t and proceed as if the state had no
statute at all.
For these reasons, there is a need for a widely enacted uniform law to govern mortgage
modifications.
The act creates safe harbors for specific, common modifications. For a modification within a safe
harbor, the act clearly provides that: (1) the mortgage continues to secure the obligation as
modified, (2) the modification does not affect the priority of the mortgage, (3) the mortgage retains
its priority regardless of whether a modification agreement is recorded, and (4) the modification is
not a novation. (Novation is a technical legal doctrine that may result in the loss of priority of the
entire loan.)
The following common modifications are safe harbor modifications under the act: (1) extending
the maturity date; (2) decreasing the interest rate; (3) modifying the method of calculating interest
rates in certain ways; (4) capitalizing unpaid interest or another unpaid obligation; (5) forgiveness,
forbearance, or other reduction of principal, accrued interest, or other monetary obligation; (6)
modifying escrow or reserve requirements; (7) modifying insurance requirements; (8) modifying
existing conditions to advance funds; (9) modifying a financial covenant; or (10) modifying the
payment amount or schedule as a result of one of the other safe harbor modifications.
2
These safe harbors generally would not be considered materially prejudicial to a junior creditor.
They are also generally consistent with the common law, which is the law in the absence of a
statute. The advantage of a uniform law on this subject is that a statute provides certainty, reduces
the need for litigation, and reduces transaction costs.
A uniform law is also useful for interstate and multistate transactions. A lender in one state will
not have to become familiar with the mortgage modification laws of other states and can rely with
confidence on the same uniform law in another state. A borrower in one state can rely with
confidence on the same uniform law of a lender in another state.
The act defers to other state law for modifications outside of the safe harbors, such as increases in
the principal or the interest rate.
Other modifications are explicitly excluded from the act, such as additions to or releases of
collateral, transfers of a loan, and changes in the borrower or guarantor. The act also defers to other
state law governing the priority of tax or other governmental liens, future advances (except as
specifically provided in the act), the statute of frauds, and recording acts.
Although the act does not require the recording of the mortgage modification to preserve priority,
nothing prohibits a party from recording the document, and the act defers to other state laws that
may require recording for a purpose other than priority, such as the statute of limitations or a state
law that governs the required content of a mortgage.
The Uniform Mortgage Modification a ct is a game changer. It benefits borrowers and lenders,
large and small, commercial and residential. It facilitates loan modifications to avoid foreclosure.
The act makes the law more certain and protects the priority of mortgage modifications within the
safe harbors. It adopts an appropriate balance between the right of the parties to a mortgage to
modify their loan and the right of parties who have junior priority to avoid material prejudice to
their position.
For further information about the Uniform Mortgage Modification Act, please contact Jane
Sternecky, ULC Legislative Counsel, at (312) 450-6622 or jsternecky@uniformlaws.org.

The ULC is a nonprofit formed in 1892 to create nonpartisan state legislation. Over 350 volunteer commissioners—lawyers,
judges, law professors, legislative staff, and others—work together to draft laws ranging from the Uniform Commercial Code to
acts on property, trusts and estates, family law, criminal law and other areas where uniformity of state law is desirable.
NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS
Uniform Law Commission
111 N. Wabash Ave.
Suite 1010
Chicago, IL 60602
(312) 450-6600 tel
(312) 450-6601 fax
www.uniformlaws.org
WHY YOUR STATE SHOULD ADOPT THE
UNIFORM MORTGAGE MODIFICATION ACT

The Uniform Mortgage Modification Act, first approved by the Uniform Law Commission in 2024, clarifies
and simplifies the law governing common modifications of residential and commercial mortgages.

• The Act provides alternatives to foreclosure. The Act facilitates modifications to mortgages that
allow the parties to continue their relationship without resorting to foreclosure. The Act protects
businesses with commercial mortgages and families with residential mortgages alike by
establishing several types of “safe harbor” modifications that can be made to a mortgage.

• The Act establishes that mortgage priority is not affected by safe harbor modifications. Borrowers
and lenders can agree to modify a mortgage, but a lender will lose priority under common law if a
modification has a material adverse effect on a junior lienholder. However, the common law does
not clearly establish whether m any mortgage modifications affect the priority of the mortgage
against junior lienholders. To address this, the Act clearly states that the priority of the mortgage is
not affected by safe harbor mortgage modifications. In addition, for safe harbor modifications,
recording a modification agreement is not necessary to maintain the priority of the mortgage.

• The Act saves borrowers’ time and money. Existing uncertainties in the law surrounding mortgage
modifications delay the process and cause unnecessary expenses that are passed on to borrowers .
Similarly, the legal uncertainty may cause a lender to deny a reasonable request for modification ,
or the lender may request consent to the modification from a junior lienholder, who can demand a
ransom payment from the borrower for its consent. By clarifying the law, the Act creates
opportunities for straightforward modifications when appropriate and reduces costs.

• The Act does not disrupt existing law for modifications outside of the safe harbors. Modifications
that would materially prejudice a junior lienholder are outside of the safe harbors and accordingly
are not governed by the Act. Additionally, the Act defers to other law , such as a statute of
limitations, that may make recording of a modification agreement necessary or desirable for other
purposes.

• The Act facilitates financing across state lines. Many local borrowers receive financing from out
of state where the law is different. Conversely, local lenders lend money across state lines to
borrowers in states where the law is different. Widespread enactment of the Act will add
predictability and certainty to these transactions and will save time and reduce costs.

For further information about the Uniform Mortgage Modification Act, please contact ULC Legislative
Counsel Jane Sternecky at (312) 450-6622 or jsternecky@uniformlaws.org.
Uniform Mortgage Modification Act
drafted by the
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
and by it
APPROVED AND RECOMMENDED FOR ENACTMENT
IN ALL THE STATES
WITH PREFATORY NOTE AND COMMENTS
Copyright © 2024
National Conference of Commissioners
on Uniform State Laws
October 11, 2024

Uniform Mortgage Modification Act
The committee appointed by and representing the National Conference of Commissioners on
Uniform State Laws in preparing this act consists of the following individuals:
John P. Burton New Mexico, Chair
Jacqueline T. Lenmark Montana, Vice Chair
Carl H. Lisman Vermont, Vice Chair
Ellen F. Dyke Virginia
Patricia Brumfield Fry Missouri
Patrick A. Guida Rhode Island
Lyle W. Hillyard Utah
David S. Jensen Idaho
Robert L. McCurley Alabama
John T. McGarvey Kentucky
Greg Nibert New Mexico
Raymond P. Pepe Pennsylvania
Dean Plocher Missouri
J. Cliff McKinney II Arkansas, Division Chair
Timothy J. Berg Arizona, President
Other Participants
Julie P. Forrester Rogers Texas, Reporter
Charles L. Menges Virginia, American Bar Association Advisor
Steve Gottheim District of Columbia, Advisor
John Valdivielso Virginia, Advisor
Ira J. Waldman California, Advisor
Dale Whitman Arizona, Advisor
Louise M. Nadeau Connecticut, Style Liaison
Tim Schnabel Illinois, Executive Director
Copies of this act may be obtained from:
Uniform Law Commission
111 N. Wabash Ave., Suite 1010
Chicago, Illinois 60602
(312) 450-6600
www.uniformlaws.org
Uniform Mortgage Modification Act
Table of Contents
Prefatory Note ................................................................................................................................. 1
Section 1. Title ................................................................................................................................ 5
Section 2. Definitions...................................................................................................................... 5
Section 3. Scope.............................................................................................................................. 8
Section 4. Effect of Mortgage Modification ................................................................................. 11
Section 5. Uniformity of Application and Construction ............................................................... 17
Section 6. Relation to Electronic Signatures in Global and National Commerce Act.................. 17
Section 7. Transitional Provision .................................................................................................. 18
[Section 8. Severability]................................................................................................................ 18
Section 9. Effective Date .............................................................................................................. 19
1
Uniform Mortgage Modification Act
Prefatory Note
I. Purpose of the Act
The Uniform Mortgage Modification Act clarifies and simplifies the law governing
mortgage modifications. It saves borrowers time and money by reducing legal uncertainties and
transaction costs. Specifically, the act creates safe harbors for common modifications, while
leaving others to existing law.
A mortgage is an agreement that creates an interest in real property to secure a debt or
other obligation. Some states use agreements with different names such as deed of trust, trust
deed, or indenture. Whatever its name, the agreement is called a mortgage in this act.
This prefatory note explains why this act is needed and how it works.
II. Why the Act Is Needed
A. Why Mortgages Are Modified
Mortgage modifications are not uncommon. There are many reasons that parties to a
mortgage may wish to modify the mortgage or the obligations it secures. Residential or
commercial borrowers may avoid a default or foreclosure with a modification that reduces
payments, extends the loan, or capitalizes unpaid interest. The parties may convert a construction
loan into permanent financing. Some credit facilities are updated periodically to reflect changing
market conditions or to substitute portions of debt. Some borrowers may wish to increase the
amount of their loans.
The parties often find that questions about the effect of a modification on the priority of
the mortgage cause delay or prevent them from completing the modification. At best, this
uncertainty about priority leads to increased transaction costs, which are ultimately passed on to
the borrower. At worst, this uncertainty may discourage lenders from even considering a request
to modify a mortgage loan.
B. Why Priority Is Important
The priority of a mortgage determines which mortgage loan gets paid first if the borrower
stops paying and goes into bankruptcy or is foreclosed upon. Obviously, maintaining a first lien
priority is better for lenders, but it also benefits borrowers because a lender is less likely to agree
to a modification if the lender’s priority is at risk.
C. Problems Existing Without a Statute
Without a statute, the law is not clear whether a modification of a mortgage loan affects
the priority of the mortgage. Litigation over priority may be required even for common
2
modifications. See, e.g., Fraction v. Jacklily, LLC (In re Fraction), 622 B.R. 643, 648 (Bankr.
E.D. Pa. 2020), aff’d, 2021 WL 4037508 (E.D. Pa. 2021) (involving modifications to extend
maturity date of loan, reduce interest rate, and capitalize unpaid interest and escrow payments).
Generally, courts focus on whether a modification has a material adverse effect on junior
lienholders, ruling that priority may be lost, in whole or in part, if junior lienholders are
materially prejudiced by the modification. Results may differ among various courts. Compare
Fraction, supra, at 650-652 (finding no loss of priority due to extension of maturity and other
modifications) with Citizens & Southern National Bank of South Carolina v. Smith, 284 S.E.2d
770 (S.C. 1981) (holding that extension of maturity of mortgage caused loss of priority as against
junior lienholder).
To avoid the risk of losing priority, a senior lienholder may request a junior lienholder’s
consent to a modification. But the junior lienholder may refuse consent even when it has no
legitimate reason to refuse. Or the junior lienholder may demand a ransom payment for its
consent.
In addition, without a statute, if a modification is found to constitute a novation of an
obligation (i.e. found to be so substantial as to create a “new” obligation), the result of the
modification may be that the mortgage no longer secures the original obligation, but only the
“new” obligation. See, e.g., In re Fair Finance Co., 834 F.3d 651 (2016). The result is that the
entire loan loses its priority.
Further, confusion exists as to whether a mortgage modification agreement must be
recorded in order to maintain mortgage priority. See, e.g., Fraction v. Jacklily, LLC (In re
Fraction), 622 B.R. 643, 651 n.11 (Bankr. E.D. Pa. 2020), aff’d, 2021 WL 4037508 (E.D. Pa.
2021). For residential borrowers, obtaining the acknowledgment required for recording a
modification agreement presents a barrier to completing the loan modification.
Finally, even if a state has its own statute designed to address mortgage modifications
and their priority, the locals depend to a greater or lesser extent on out-of-state lenders for
financing. Out-of-state lenders, being unfamiliar with a local statute, may refuse to rely on it and
proceed as if the state had no statute at all.
For these reasons, there is a need for a widely enacted uniform law to govern mortgage
modifications.
III. How the Act Works to Fix These Problems
A. Safe Harbors
This act creates safe harbors for specific common mortgage modifications. For a
modification within a safe harbor, Section 4(a) clearly establishes as a matter of law that:
1. The mortgage continues to secure the obligation as modified,
2. The modification does not affect the priority of the mortgage,
3
3. The mortgage retains its priority regardless of whether a modification agreement is
recorded, and
4. The modification is not a novation.
The effect of Section 4(a) is to eliminate or lower the transaction costs of common
modifications, saving time and money. These transaction costs on many loans may include, but
are not limited to, recording fees, title insurance endorsements, and legal opinions. Section 4(a)
will benefit borrowers and lenders, large and small, commercial and residential.
The following common modifications, called safe harbors, are listed in Section 4(b) of
the act:
1. Extension of the maturity date of the obligation,
2. A decrease in the interest rate,
3. Certain changes in the method of calculating interest,
4. Capitalization of interest or other unpaid obligations,
5. Forgiveness, forbearance, or reduction of a secured debt or other obligation,
6. Modification of escrow or reserve account requirements,
7. Modification of insurance requirements,
8. Modification of an existing condition to an advance of funds,
9. Modification of a financial covenant, and
10. Modification of the payment amount or schedule resulting from another safe harbor
modification.
Material prejudice or a similar standard is the common law basis for determining whether
a modification causes a loss of priority. The safe harbor modifications in the act generally would
not be considered materially prejudicial to a junior lienholder. So, Section 4(b) is generally
consistent with the common law of material prejudice. And the act, like common law, protects
the rights of junior lienholders.
The advantage of a uniform law on this subject is that a statute provides certainty,
reduces the need for litigation, and reduces transaction costs. A uniform law is also useful for
interstate transactions and multistate transactions. A lender in one state will not have to become
familiar with the mortgage modification laws of other states and can rely with confidence on the
same uniform law in another state. A borrower operating in several states will need to become
familiar with only one mortgage modification law.
B. Modifications Outside the Safe Harbors
Modifications that fall outside the safe harbors or are excluded from the act are governed
by other law. These modifications may or may not prejudice a junior lienholder and so, under
other law, may or may not cause a loss of priority.
An example of a modification that falls outside of the safe harbor is a new advance of
funds not contemplated by the original loan. This increase in the principal of the loan is not in
the safe harbor because it would materially prejudice a junior lienholder. Cases hold that the
4
senior lienholder loses priority to the extent of the increase. See, e.g., Burney v. McLaughlin, 63
S.W.3d 223, 233-34 (Mo. Ct. App. 2001); Lennar Partners, 57 Cal.Rptr.2d 435, 440-42 (Cal. Ct.
App. 1996). Another example is an increase in the interest rate of a loan because such an
increase can materially prejudice a junior lienholder. See Burney, supra, at 233; Shultis v.
Woodstock Land Dev. Assocs. 594 N.Y.S.2d 890, 893 (N.Y. App. Div. 1993).
Other modifications that fall outside of the safe harbor list may not prejudice a junior
lienholder and thus under other law would not cause a loss of priority.
C. Exclusions from Operation and Effect of Act
Some modifications are excluded by Section 3(c) from the operation of this act. These
modifications are governed by other law:
1. A release of, or addition to, the collateral,
2. Changes in the borrower or guarantor, and
3. Transfers of a loan.
Changes to the collateral or changes to the borrower or a guarantor are excluded because
they may prejudice a junior lienholder depending upon the circumstances. Loan transfers are
excluded because they are governed by the Uniform Commercial Code.
Section 3(b) makes it clear that the act does not affect certain existing law. The act does
not affect:
1. Law governing the required content of a mortgage,
2. A statute of limitations or other law governing the expiration or termination of the right
to enforce an obligation,
3. A recording statute,
4. A statute governing the priority of a tax or other governmental lien,
5. A statute of frauds or the Uniform Electronic Transactions Act or similar statute, or
6. Law governing the priority of a future advance, except as provided in the act.
For modifications within the safe harbor, recording a mortgage modification is not
required to maintain the priority of the mortgage. However, recording may be necessary or
desirable for other reasons. For example, when the maturity of an obligation is extended, some
states have statutes that make recordation necessary in order to extend the right to enforce the
obligation. The act does not affect these statutes.
IV. Summary
The act is a game-changer that will benefit borrowers and lenders, large and small,
commercial and residential. It makes the law more certain and protects the priority of a mortgage
for modifications within the safe harbors. It adopts an appropriate balance between the right of
the parties to a senior mortgage to modify loans and the right of junior lienholders to avoid
material prejudice to their lien position. With greater clarity, borrowers and lenders should be
able to avoid undesirable transaction costs and the threat of litigation over priority issues for
common modifications. The act will also facilitate loan modifications to avoid foreclosure.
5
Uniform Mortgage Modification Act
Section 1. Title
This [act] may be cited as the Uniform Mortgage Modification Act.
Section 2. Definitions
In this [act]:
(1) “Electronic” means relating to technology having electrical, digital, magnetic,
wireless, optical, electromagnetic, or similar capabilities.
(2) “Financial covenant” means an undertaking to demonstrate an obligor’s
creditworthiness or the adequacy of security provided by an obligor.
(3) “Modification” includes change, amendment, revision, correction, addition,
supplementation, elimination, waiver, and restatement.
(4) “Mortgage”:
(A) means an agreement that creates a consensual interest in real property
to secure payment or performance of an obligation, regardless of:
(i) how the agreement is denominated, including a mortgage, deed
of trust, trust deed, security deed, indenture, and deed to secure debt; and
(ii) whether the agreement also creates a security interest in
personal property; and
(B) does not include an agreement that creates a consensual interest to
secure a liability owed by a unit owner to a condominium association, owners’ association, or
cooperative housing association for association dues, fees, or assessments.
(5) “Mortgage modification” means modification of:
(A) a mortgage;
6
(B) an agreement that creates an obligation, including a promissory note,
loan agreement, or credit agreement; or
(C) an agreement that creates other security or credit enhancement for an
obligation, including an assignment of leases or rents or a guaranty.
(6) “Obligation” means a debt, duty, or other liability, secured by a mortgage.
(7) “Obligor” means a person that:
(A) owes payment or performance of an obligation;
(B) signs a mortgage; or
(C) is otherwise accountable, or whose property serves as collateral, for
payment or performance of an obligation.
(8) “Person” means an individual, estate, business or nonprofit entity, government
or governmental subdivision, agency, or instrumentality, or other legal entity.
(9) “Recognized index” means an index to which changes in the interest rate may
be linked that is:
(A) readily available to, and verifiable by, the obligor; and
(B) beyond the control of the person to whom the obligation is owed.
(10) “Record”, used as a noun, means information:
(A) inscribed on a tangible medium; or
(B) stored in an electronic or other medium and retrievable in perceivable
form.
(11) “Sign” means, with present intent to authenticate or adopt a record:
(A) execute or adopt a tangible symbol; or
(B) attach to or logically associate with the record an electronic symbol,
7
sound, or process.
Comment
1. Electronic. The definition of “electronic” is the standard Uniform Law Commission
definition.
2. Financial Covenant. Examples of financial covenants include requirements for a
borrower, guarantor, or other obligor to maintain a certain level of income or net worth, for
maintenance of a certain loan-to-value ratio or debt-service ratio, for furnishing financial records,
for production of tax returns, and for maintenance of deposit accounts with the lender.
3. Modification. The term “modification” is broad and encompasses a change,
amendment, revision, correction, addition, supplementation, elimination, waiver, or restatement.
A modification may be made by any enforceable means of agreement or communication,
although a waiver may sometimes occur by act or omission.
4. Mortgage. A “mortgage” is any agreement that creates a consensual interest in real
property to secure payment or performance of an obligation. Depending upon local usage and
custom, an agreement that creates a consensual interest in real property to secure payment or
performance of an obligation may be denominated a mortgage, deed of trust, trust deed, security
deed, indenture, deed to secure debt, or the like. An installment land contract, sometimes called a
contract for deed, is included within the definition of a mortgage if under state law it creates a
consensual interest in real property to secure payment or performance of an obligation. A
mortgage may also create a security interest in fixtures and personal property in addition to the
real property that it encumbers, and in such a case, it is still a mortgage. A security interest in
personal property created in a mortgage is, of course, governed by the Uniform Commercial
Code, including its rules for perfection and priority.
The definition of mortgage excludes an agreement that creates a consensual interest to
secure an obligation owed by a unit owner to a condominium association, owners’ association, or
cooperative housing association for association dues, fees, or assessments because the act is not
intended to apply to the modification of a declaration of covenants, conditions, and restrictions or
other agreement that creates an obligation owed by a unit owner to the association for association
dues, fees, or assessments. A unit owner includes a homeowner, condominium owner, or
cooperative unit owner or lessee who is a member of the association (or a shareholder in the case
of a cooperative). The reason for the exclusion is that the modification of such an agreement
does not raise the same types of issues raised by modifications of other consensual liens.
The definition of mortgage is based on definitions in recent real property acts such as the
Uniform Home Foreclosure Procedures Act, the Model Negotiated Alternative to Foreclosure
Act, and the Uniform Nonjudicial Foreclosure Act; however, the definition is tailored
specifically for this act. Real property acts have not used a consistent definition for the term
mortgage because the various acts need different definitions.
5. Mortgage modification. A “mortgage modification” is a modification of the terms of
8
the mortgage itself, of an agreement that creates an obligation secured by the mortgage, or of an
agreement that creates other security or credit enhancement. The term includes the modification
of a promissory note, loan agreement, credit agreement, guaranty, assignment of leases or rents,
and the like.
A change that occurs upon condition under the existing terms of a mortgage or other
record is not a mortgage modification because it is not a modification of the agreement. Such a
change is dictated by the terms of the agreement and does not change the agreement. For
example, a promissory note may provide for an increase in the interest rate upon a default by the
borrower (a so-called “default interest rate”). Similarly, the promissory note may provide for an
adjustment of the interest rate at specified time intervals or when changes occur in an index rate.
As another example, a mortgage may provide for the creation of an escrow account upon the
occurrence of certain conditions. These changes are not mortgage modifications but are existing
terms of the agreement between the parties.
6. Obligation. An obligation as defined in the act is one that is secured by a mortgage.
The term includes a non-recourse debt, whether the debt is non-recourse due to the application of
anti-deficiency judgment legislation, agreement of the parties, or for other reasons.
7. Obligor. This definition is based on the definition of the term in the Uniform Home
Foreclosure Procedures Act. Subsection (a) covers the borrower or debtor; subsection (b) covers
a mortgagor who is not the borrower or debtor; and subsection (c) covers a guarantor, including a
guarantor whose obligation arises upon a condition, and a party who has encumbered other
property to secure an obligation.
8. Person. The definition of “person” is the standard Uniform Law Commission
definition.
9. Recognized index. This definition is based on Office of the Comptroller of the
Currency regulations of the index for an adjustable-rate mortgage loan at 12 C.F.R. § 34.22.
10. Record. The definition of “record”, used as a noun, is the standard Uniform Law
Commission definition.
11. Sign. The definition of “sign” is the standard Uniform Law Commission definition.
Section 3. Scope
(a) Except as provided in subsection (c), this [act] applies to a mortgage modification.
(b) This [act] does not affect:
(1) law governing the required content of a mortgage;
(2) a statute of limitations or other law governing the expiration or termination of
9
a right to enforce an obligation or a mortgage;
(3) a recording statute;
(4) a statute governing the priority of a tax lien or other governmental lien;
(5) a statute of frauds or [cite to state’s Uniform Electronic Transactions Act or
similar statute]; or
(6) except as provided in Section 4(b)(8), law governing the priority of a future
advance.
(c) This [act] does not apply to any of the following modifications:
(1) a release of, or addition to, property encumbered by a mortgage;
(2) a release of, addition of, or other change in an obligor; or
(3) an assignment or other transfer of a mortgage or an obligation.
Comment
1. Scope. Except as provided in subsections (b) or (c), the act applies to a mortgage
modification, defined as the modification of the terms of a mortgage, of an agreement that
creates an obligation secured by the mortgage, or of an agreement that creates other security or
credit enhancement. An agreement that creates an obligation secured by a mortgage may include
a promissory note, loan agreement, or a credit agreement. An agreement that creates security or
other credit enhancement may include an assignment of leases or rents, a guaranty, security
agreement, pledge agreement, or deposit account control agreement.
2. Exclusions. The act does not change or override certain laws, and subsection (b) lists
those laws. Subsection (c) lists modifications to which the act does not apply. Exclusions and
other provisions herein that refer to “law” or “laws” refer to statutes, regulations, and the
common law.
3. Laws governing contents of a mortgage. The act does not affect any law that requires
a mortgage to include certain terms, such as a law that requires that a mortgage state the
maximum principal of a loan. If the parties modify one of the required terms, a modification
agreement may need to be recorded to satisfy the requirements of the law.
4. Statutes of limitations. The act does not override statutes of limitations, statutes of
repose, marketable title acts, or other laws that govern the expiration or termination of the right
to enforce an obligation or a mortgage and that may depend upon the maturity date of a loan as
stated in a recorded mortgage. For example, some states have statutes that make recordation a
10
necessity in order to extend the right to enforce an obligation or a mortgage based on the
maturity date of the obligation as stated in the recorded mortgage or extension agreement. See,
e.g., Ariz. Stat. 33-714(A); Tex. Civ. Prac. & Rem. Code § 16.036.
5. Recording statutes. The act does not affect recording statutes. Recording statutes vary
but are generally classified as race, notice, or race-notice acts. Recording statutes determine the
priority of a subsequent purchaser’s interest and may reverse the common law priority rule of
first-in-time, first-in-right. Recording statutes generally do not require recording of a record that
creates an interest in real property but rather make recording necessary in order to protect against
loss of priority. Thus, a mortgagee will want to record a mortgage to preserve its priority. A
modification agreement generally does not create a new interest in real property but modifies a
mortgage or obligation. Thus, a mortgage modification agreement does not need to be recorded
except if necessary to extend the statute of limitations as discussed in Comment 4 above, when
the modification changes a required mortgage term as discussed in Comment 3 above, or if
otherwise required by a statute such as the Ohio statute referenced below. Section 4(a)(3)
provides that, for safe harbor modifications, failure to record a modification agreement will not
cause a loss of priority.
In Ohio a mortgage modification does not take effect until it is delivered to the recorder.
Ohio Rev. Code Ann. § 5301.231. Ohio legislators should consider whether to amend that statute
or to add it as an exclusion from the scope of the act in this section and omit section 4(a)(3).
6. Statutes governing priority of governmental liens. The act does not affect any
statute that dictates the priority of a tax lien or other governmental lien.
7. Statutes of frauds and Uniform Electronic Transactions Act. The act does not
affect the statute of frauds or the state’s Uniform Electronic Transactions Act or similar statute
governing electronic transactions.
8. Laws governing the priority of a future advance. The act does not override existing
law governing future advances except that a modification of an existing condition to an advance
of funds is within the safe harbor as provided in Section 4(b)(8). Most states have legislation
addressing the priority of future advances and abrogating completely or partly the distinction
between obligatory and optional advances. See, e.g., Mich. Comp. Laws § 565.902; Wash. Rev.
Code § 61.12.190. Some states retain the common law distinction between optional and
obligatory advances. The act does not affect existing law in this area except to the extent that a
modification (including waiver) of an existing condition to an advance of funds does not cause a
loss of priority for the advance under Section 4(b)(8).
9. Release of or addition to collateral. The act does not apply to a modification of a
mortgage that releases or adds to the mortgaged property. Other modifications completed in the
same transaction as a release or addition of mortgaged property may be covered by the act and
fall within the safe harbors. Other law governs the effect of a modification that releases or adds
to the mortgaged property.
10. Release, addition, or change in obligor. The act does not apply to a release of,
11
addition of, or other change in the identity of a borrower, mortgagor, guarantor, or other obligor.
Other modifications completed in the same transaction as a release, addition, or change in an
obligor may be covered by the act and fall within the safe harbors. Other law governs a
modification that changes the identity of the borrower, mortgagor, guarantor, or other obligor.
11. Assignment of a mortgage or an obligation. The act does not apply to the
assignment or other transfer of a mortgage loan or other obligation secured by a mortgage. This
section makes clear that these transfers are not covered by the act. Other modifications
completed at the same time as an assignment of a mortgage or obligation may be covered by the
act and fall within the safe harbors. Other law governs assignment or other transfer of a mortgage
loan or other obligation secured by a mortgage.
Section 4. Effect of Mortgage Modification
(a) For a mortgage modification described in subsection (b):
(1) the mortgage continues to secure the obligation as modified;
(2) the priority of the mortgage is not affected by the modification;
(3) the mortgage retains its priority regardless of whether a record of the mortgage
modification is recorded in the [public land records]; and
(4) the modification is not a novation.
(b) Subsection (a) applies to one or more of the following mortgage modifications:
(1) an extension of the maturity date of an obligation;
(2) a decrease in the interest rate of an obligation;
(3) if the change does not result in an increase in the interest rate of an obligation
as calculated on the date the modification becomes effective:
(A) a change to a different index that is a recognized index if the previous
index to which changes in the interest rate were linked is no longer available;
(B) a change in the differential between the index and the interest rate;
(C) a change from a floating or adjustable rate to a fixed rate; or
(D) a change from a fixed rate to a floating or adjustable rate based on a
recognized index;
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(4) a capitalization of unpaid interest or other unpaid monetary obligation;
(5) a forgiveness, forbearance, or other reduction of principal, accrued interest, or
other monetary obligation;
(6) a modification of a requirement for maintaining an escrow or reserve account
for payment of an obligation, including taxes and insurance premiums;
(7) a modification of a requirement for acquiring or maintaining insurance;
(8) a modification of an existing condition to advance funds;
(9) a modification of a financial covenant; and
(10) a modification of the payment amount or schedule resulting from another
modification described in this subsection.
(c) The effect of a mortgage modification not described in subsection (b) is governed by
other law.
Comment
1. Applicability. Section 4 applies to a modification of the terms of a mortgage, of an
agreement that creates an obligation, or of an agreement that creates other security or credit
enhancement, including modification of a promissory note, loan agreement, credit agreement,
assignment of leases or rents, or guaranty. The provisions of subsection (a) apply to
modifications that are within the list in subsection (b) of safe harbor modifications. Other law
governs modifications that are not within the list.
2. Security. Most mortgages state explicitly that the mortgage continues to secure
obligations as modified. For modifications within the safe harbor, the mortgage continues to
secure obligations as modified even without such a provision, and modifications within the safe
harbor are not a novation.
3. Priority. The act creates a safe harbor for modifications that will not cause the loss of
priority of a mortgage. Under common law and the Restatement, if an obligation secured by a
mortgage is modified, the mortgage “retains priority as against junior interests in the real estate,
except to the extent that the modification is materially prejudicial to the holders of such interests
. . . .” Restatement (Third) of Property—Mortgages § 7.3(b). The act creates certainty by
providing that certain modifications of obligations do not cause a loss of priority.
Commercial loans typically prohibit secondary financing without the first lender’s
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consent and contain a due-on-encumbrance clause. If the holder of a senior mortgage agrees to a
junior mortgage, the parties will generally enter into an intercreditor agreement defining their
respective rights and obligations with respect to the collateral and the loans, and the act does not
affect an intercreditor agreement that dictates priority as between the parties thereto. However,
priority issues that arise with respect to judgment liens and mechanics’ liens or in the absence of
an intercreditor agreement are governed by the act for modifications within the safe harbor.
For residential lenders, the Garn-St. Germain Act, 12 U.S.C. 1701j-3, prohibits the
exercise of a due-on-encumbrance clause in a residential mortgage. Thus, residential borrowers
may and often do obtain secondary financing such as a home equity loan. The act prevents loss
of priority for modifications of a residential mortgage that fall within the safe harbor.
4. Recording. For modifications within the safe harbor, recording a record of a mortgage
modification is not required to maintain the priority of the mortgage. Although recording of a
modification agreement is not necessary to maintain the priority of the mortgage, recording may
be necessary or desirable for other reasons. The act does not affect a state’s recording statute or
any law governing the required content of a mortgage. Section 3(b)(1), (3). For example, a lender
may choose to record a modification agreement to give notice to third parties. If the maturity
date of a loan is extended, a lender may want to record a modification agreement to give public
notice of the extension of the statute of limitations for enforcement of the mortgage. Some states
have statutes that make recordation a necessity in order to extend the right to enforce an
obligation or a mortgage based on the maturity date of the obligation as stated in the recorded
mortgage or extension agreement. See, e.g., Ariz. Stat. 33-714(A); Tex. Civ. Prac. & Rem. Code
§ 16.036.
In Ohio a mortgage modification does not take effect until it is delivered to the recorder.
Ohio Rev. Code Ann. § 5301.231. Ohio legislators should consider whether to amend that statute
or to add it as an exclusion from the scope of the act and omit 4(a)(3).
5. No novation. A novation, in the context of a mortgage loan, means a replacement of
the existing obligation with a new obligation. Courts may find that a modification of a loan is so
substantial that it is treated as a new loan. If a modification is so substantial as to constitute a
novation of the loan, some cases have held that the mortgage no longer secures the modified
loan. See, e.g., In re Fair Finance Co., 834 F.3d 651 (2016). Subsection (a)(4) specifies that
modifications that fall within the safe harbor do not constitute a novation. Thus, if a modification
is within the safe harbor, the modified loan does not replace the original loan with a new loan,
and the mortgage continues to secure the obligation.
6. Safe harbor modifications. Subsection (b) lists modifications that fall within the safe
harbor. The listed modifications are common modifications that generally would not be
materially prejudicial to a junior interest holder under common law. Some of the listed
modifications, such as decreasing the interest rate or forgiving unpaid interest, would always be
of benefit to a junior interest holder. Other modifications in the list would usually be beneficial
to a junior interest holder or would not be materially prejudicial. So, to a great extent, Subsection
(b) is consistent with existing law with respect to priority. These safe harbor modifications are:
14
a. Extension of maturity date. Most courts hold that a junior lienholder is not
materially prejudiced by the extension of the maturity date of a loan. See, e.g., Lennar Northeast
Partners v. Buice, 57 Cal. Rptr. 2d 435, 440 (Cal. Ct. App. 1996); Shultis v. Woodstock Land
Dev. Assocs., 594 N.Y.S.2d 890, 893 (N.Y. App. Div. 1993); Guleserian v. Fields, 218 N.E.2d
397, 401-02 (Mass. 1966) (“The holder of the junior encumbrance is regarded as necessarily
taking the risk of a postponement (frequently an advantage to a second mortgagee) of the date of
payment of the whole or part of the senior mortgage debt.”). The Restatement position is that an
extension of the maturity of a senior mortgage loan is generally beneficial to junior lienholders
because it makes foreclosure of the senior lien less likely. See Restatement (Third) of Property—
Mortgages § 7.3 cmt. c & illus. 7, 8. Occasionally, courts hold otherwise, see, e.g., Citizens &
Southern National Bank of South Carolina v. Smith, 284 S.E.2d 770 (S.C. 1981), thus illustrating
the importance of uniform legislation in the area. An extension of the maturity of a loan is a very
common modification, and clarity that it does not cause a loss of priority will save time and
expense, facilitate loan modification to avoid foreclosure, and avoid litigation.
b. Decrease in interest rate. A decrease in the interest rate does not prejudice a
junior interest holder. Instead, a decrease in the interest rate benefits the junior interest holder by
decreasing the amount of the obligation and by making it more likely that the borrower can pay.
c. Modification of method of calculating interest. When an interest rate index
becomes unavailable, the parties must designate a different index for calculating interest,
together with a change in the spread between the interest rate and the index. In addition, parties
may change from a fixed to a floating or adjustable rate or vice versa. Such a modification may
result in an increase or decrease in the amount of interest owed, and the parties may not know at
the time of the modification whether it will ultimately result in an increase or decrease in the
total amount of interest to be paid. Subsection (b)(3) creates a safe harbor for those changes that
do not result in an increase in the interest rate as calculated at the time of the modification.
Whether a change is within the safe harbor is determined based on the interest rate index on the
date of the modification.
d. Capitalization of unpaid interest or another unpaid obligation.
Capitalization of unpaid interest increases the principal of a loan; however, unpaid obligations
are already owed and secured by a mortgage. Thus, it does not prejudice a junior lienholder in
the same way that a new advance would. See Fraction v. Jacklily, LLC (In re Fraction), 622 B.R.
642 (Bankr. E.D. Pa. 2020), aff’d, 2021 WL 4037508 (E.D. Pa. 2021). Capitalization of unpaid
interest is a modification that commonly occurs when a borrower is in default and the lender has
agreed to the modification as an alternative to foreclosure. Avoiding foreclosure by a senior
mortgage holder benefits a junior lienholder. In addition, when unpaid amounts are capitalized,
the loan is no longer in default; thus, default interest and late charges will stop accruing, which
also benefits a junior lienholder.
e. Forgiveness, forbearance, or reduction of obligation. Forgiving or otherwise
reducing a monetary obligation benefits a junior interest holder.
f. Insurance and escrow requirements. Changes in the requirements for
maintaining insurance and changes in requirements for maintaining an escrow or reserve account
15
should not prejudice a junior lienholder and may be a benefit if the modification better protects
the collateral and insures the payment of insurance premiums, taxes, or other obligations.
g. Modification of an existing condition to advance funds. If a loan already
provides for an advance, the waiver or modification of a condition to that advance should not
materially prejudice a junior lienholder in most circumstances. In a construction loan, the
advance of funds allows the borrower to continue construction and to pay contractors and
subcontractors, which should be of benefit to a junior lienholder.
h. Modification of a financial covenant. A financial covenant is an undertaking
to demonstrate the creditworthiness of a borrower, guarantor, or other obligor or the adequacy of
security provided by the borrower, guarantor, or other obligor. Financial covenants are
commonly modified in commercial loans and should not generally cause material prejudice to a
junior lienholder. Examples of financial covenants include requirements for a borrower to
maintain a certain level of income or net worth, for maintenance of a certain loan-to-value ratio
or debt service ratio, for furnishing financial records, for production of tax returns, and for
maintenance of deposit accounts with the lender.
i. Modification of payment amount or schedule. Some of the safe harbor
modifications may result in changes in the payment amount or schedule. For example, a decrease
in the interest rate may result in lower payments, and an extension of the maturity date of a loan
will result in a changed payment schedule. These modifications are also within the safe harbor.
7. Modifications not within the safe harbor. Modifications that are not within the safe
harbor are governed by other law. Under common law, a mortgage as modified retains its
priority except to the extent that a modification materially prejudices junior interest holders. See
Fraction v. Jacklily, LLC (In re Fraction), 622 B.R. 642, 649 (Bankr. E.D. Pa. 2020), aff’d, 2021
WL 4037508 (E.D. Pa. 2021). Under the Restatement, a “mortgage as modified retains priority
as against junior interests in the real estate, except to the extent that the modification is
materially prejudicial to the holders of such interests . . . .” Restatement (Third) of Property—
Mortgages § 7.3(b). The safe harbor modifications in this act are those that generally would not
prejudice a junior interest holder. Other modifications may or may not materially prejudice a
junior interest holder and thus may or may not cause a loss of priority. Note that a modification
may result in a split priority with the senior mortgage losing priority only to the extent the that
the modification prejudices the junior interest holder. See, e.g., Burney v. McLaughlin, 63
S.W.3d 223, 233-34 (Mo. Ct. App. 2001); Shultis v. Woodstock Land Dev. Assocs., 594
N.Y.S.2d 890, 893 (N.Y. App. Div. 1993).
8. Examples. The following examples illustrate the operation of this section.
a. Example 1: A lender makes a loan evidenced by a promissory note in the
principal amount of $100,000 secured by a mortgage. The interest rate on the loan is 7% per
annum. A creditor obtains a judgment lien against the mortgaged property. The borrower and
lender subsequently agree to extend the term of the loan for an additional five years, to reduce
the interest rate to 6% per annum, and to require flood insurance. The modifications result in a
change in the borrower’s payments. Because the modifications are all within the safe harbor list,
16
the lender retains its priority as against the judgment lien creditor. Recordation of a modification
agreement is not necessary to retain priority, but the lender may choose to require recordation in
order to give notice to third parties of the new maturity date.
b. Example 2: A lender makes a loan evidenced by a promissory note in the
principal amount of $100,000 secured by a mortgage. The loan does not provide for additional
advances. A creditor obtains a judgment lien against the mortgaged property. The borrower and
lender subsequently agree to modify the loan to increase the principal amount of the loan to
$150,000, and the lender advances the additional $50,000. Because this modification is not
within the safe harbor list and materially prejudices a junior interest holder, the lender may lose
priority to the extent that the judgment lien creditor is prejudiced. Most courts would hold that
the priority is split, with the lender retaining priority as to the original loan terms and losing
priority only as to the new advance. See, e.g., Shultis v. Woodstock Land Dev. Assocs., 594
N.Y.S.2d 890, 893 (N.Y. App. Div. 1993) (split priority for increase in interest rate).
c. Example 3: A lender makes a loan evidenced by a promissory note in the
principal amount of $100,000 secured by a mortgage on the borrower’s home. The borrower
subsequently obtains a home equity loan in the amount of $20,000. The borrower later goes into
default on the first mortgage loan and negotiates with the loan servicer to modify the loan.
Modifications include an extension of the maturity date of the loan by three years, a reduction in
the interest rate on the loan for two years, the capitalization of unpaid interest, and the addition
of an escrow requirement for taxes and insurance. The first lien lender retains its priority as
against the home equity loan because the modifications are all within the safe harbor.
Recordation of a modification agreement is not necessary to retain priority.
d. Example 4: A lender makes a construction loan in the principal amount of
$100,000 secured by a mortgage. The loan agreement lists conditions which must be satisfied
before each advance of funds. The lender agrees to waive one of the conditions to an advance so
that construction may continue. The lender retains its priority as against any mechanic’s liens
because the waiver of the condition is within the safe harbor list. Recordation of a modification
agreement is not necessary to retain priority.
e. Example 5: A lender makes a construction loan in the principal amount of
$100,000 secured by a mortgage with a floating interest rate based on an index. Because of a
dispute with a subcontractor, the subcontractor has filed a mechanic’s lien, which is subordinate
to the lender’s construction loan. After construction is complete, the parties negotiate to extend
the maturity of the loan by five years, to fix the interest rate at a rate that is 1% lower than the
floating rate on the date of the closing of the modification, and to add financial covenants. The
promissory note is restated with only the listed modifications. The lender retains its priority as
against the mechanic’s liens because the modifications are all within the safe harbor list.
Recordation of a modification agreement is not necessary to retain priority. If the lender elects to
record the modification agreement to reflect the change in the loan from a construction loan to a
permanent loan, the recordation does not affect the lender’s retention of its priority.
f. Example 6: A lender makes a loan evidenced by a promissory note in the
principal amount of $100,000 secured by a mortgage. The interest rate on the loan is fixed at 7%
17
per annum. A creditor obtains a judgment lien against the mortgaged property. The borrower and
lender subsequently agree to change the interest rate to 1% above SOFR. On the date that the
modification becomes effective, the interest rate calculated as 1% above SOFR is less than 7%.
Because the modification of the interest rate is within the safe harbor list, the lender retains its
priority as against the judgment lien creditor.
g. Example 7: A lender makes a loan evidenced by a promissory note in the
principal amount of $100,000 secured by a mortgage. A creditor subsequently obtains a
judgment lien against the mortgaged property. The borrower is in financial distress, and the
borrower and lender negotiate numerous modifications to the loan. Some of the modifications are
within the safe harbor list and others are not. If a court determines that the modifications not
within the safe harbor are not materially prejudicial to the judgment lien creditor, the lender
retains its priority under common law.
h. Example 8: A lender makes a loan evidenced by a promissory note in the
principal amount of $100,000 secured by a mortgage. A creditor subsequently obtains a
judgment lien against the mortgaged property. The loan is assigned to a new lender, and in
connection with the assignment, the interest rate of the loan is reduced and the maturity of the
loan is extended. Because the interest rate reduction and extension of maturity are within the safe
harbor, the lender retains its priority under the act. Because an assignment of a mortgage loan
does not affect its priority, the lender retains its priority under common law.
i. Example 9: A lender makes a loan evidenced by a promissory note in the
principal amount of $100,000 secured by a mortgage on the borrower’s home. The borrower
subsequently obtains a home equity loan in the amount of $20,000. The borrower later goes into
default on the first mortgage loan and negotiates with the loan servicer to modify the loan. The
lender splits the loan into two parts with one part bearing an increased interest rate and the other
part bearing no interest. These changes result in lower payments, and the total amount of interest
that the borrower is paying on both parts of the loan is less than the amount of interest before the
modification. This modification is a reduction in the interest rate on the loan, and the lender
retains its priority under the act.
Section 5. Uniformity of Application and Construction
In applying and construing this uniform act, a court shall consider the promotion of
uniformity of the law among jurisdictions that enact it.
Section 6. Relation to Electronic Signatures in Global and National Commerce Act
This [act] modifies, limits, or supersedes the Electronic Signatures in Global and National
Commerce Act, 15 U.S.C. Section 7001 et seq.[, as amended], but does not modify, limit, or
supersede 15 U.S.C. Section 7001(c), or authorize electronic delivery of any of the notices
18
described in 15 U.S.C. Section 7003(b).
Legislative Note: It is the intent of this act to incorporate future amendments to the cited federal
law. A state in which the constitution or other law does not permit incorporation of future
amendments when a federal statute is incorporated into state law should omit the phrase “, as
amended”. A state in which, in the absence of a legislative declaration, future amendments are
incorporated into state law also should omit the phrase.
Comment
The federal Electronic Signatures in Global and National Commerce Act, popularly
known as “E-Sign”, was adopted in 2000 to facilitate the use of electronic records and signatures
in commercial transactions. Subject to exceptions not relevant here, E-Sign mandates the
acceptance of electronic contracts and electronic signatures in interstate or foreign commerce. It
largely tracks the Uniform Electronic Transactions Act, adopted by the ULC in 1999, but
includes consumer consent provisions and prohibits state law from giving greater legal effect to
any specific technology or technical specification. Under Section 102 of E-Sign, state legislation
attempting to regulate electronic records and signatures can opt out of federal preemption,
allowing some modification to the federal law, so long as the State treats the records or
signatures consistent with E-Sign. In order to take advantage of the exception to preemption, the
state law must take specific reference to E-Sign as provided in Section 6. See 15 U.S.C. Section
7002(a)(2)(B).
Section 7. Transitional Provision
This [act] applies to a mortgage modification made on or after [the effective date of this
[act]] regardless of when the mortgage or the obligation was created.
Comment
1. Prospective application. The act applies prospectively to mortgage modifications that
occur on or after the effective date of the act. It does not apply retroactively to modifications that
occurred before the effective date of the act. The act can apply to a modification made to the
terms of a mortgage created before the effective date of the act or to an agreement that creates,
secures, or provides credit enhancement for an obligation that was created before the effective
date of the act as long as the modification occurs after the effective date of the act.
2. Example: At the time that the act becomes effective, A has a first mortgage, and B has
a second mortgage on a borrower’s property. After the effective date of the act, A and the
borrower modify the first mortgage loan to extend its maturity. The act applies, and A does not
lose priority.
[Section 8. Severability
If a provision of this [act] or its application to a person or circumstance is held invalid,
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the invalidity does not affect another provision or application that can be given effect without the
invalid provision.]
Legislative Note: Include this section only if the state lacks a general severability statute or a
decision by the highest court of the state stating a general rule of severability.
Section 9. Effective Date
This [act] takes effect . . .