## Facts

- Janice Walker owned a residence in Exton, Pennsylvania and executed a $248,000 mortgage note and mortgage in August 2005.
- The note required monthly payments over 30 years and permitted prepayment, requiring written notice to the noteholder if principal was prepaid.
- The loan was later transferred into a securitized trust governed by a pooling and servicing agreement (PSA); Bank of New York Mellon (BNYM) acted as trustee for the trust and asserted enforcement rights.
- Walker filed a Chapter 13 petition on March 31, 2010.
- BNYM filed a secured proof of claim for approximately $264,855.72 based on the note and mortgage.
- Walker objected, contending (i) alleged PSA noncompliance meant the trust never validly acquired the loan and BNYM lacked a right to payment, and (ii) the note was not a negotiable instrument because the prepayment-notice term imposed a nonmonetary obligation.

## Issues

1. Whether the mortgage note was a negotiable instrument under Pennsylvania UCC Article 3 despite requiring written notice of prepayment.
2. Whether BNYM’s entitlement to enforce the note was determined by Pennsylvania UCC Article 3 or could be defeated by alleged noncompliance with the PSA.
3. Whether the debtor, as a non-party to the PSA, had standing to challenge the claim based on alleged defects in the assignment or transfer under the PSA.

## Decision

- The court overruled Walker’s objection and allowed BNYM’s secured proof of claim.
- The court held the note was a negotiable instrument under Pennsylvania UCC Article 3; the prepayment-notice requirement was a minor nonmonetary term that did not defeat negotiability.
- The court held BNYM’s right to enforce was governed by Pennsylvania’s UCC, not exclusively by the PSA, and BNYM proved it was entitled to enforce the note under the UCC.
- The court held Walker lacked standing to challenge alleged PSA noncompliance because, as maker, she was protected by UCC discharge-by-payment principles (Pa. UCC § 3-602).

## Legal Principles

- A promissory note that otherwise meets Article 3 criteria remains negotiable even if it includes minor nonmonetary obligations such as written notice of prepayment.
- In Pennsylvania, the right to enforce a negotiable note is determined by UCC Article 3 “person entitled to enforce” rules, not by alleged failures to follow internal securitization agreements.
- A borrower who is not a party or intended beneficiary of a PSA generally cannot contest enforcement or a bankruptcy proof of claim based solely on alleged PSA transfer defects.
- Because payment to a “person entitled to enforce” discharges the maker’s obligation under Pa. UCC § 3-602, the maker generally cannot rely on upstream assignment or PSA compliance disputes to avoid liability.

## Conclusion

The bankruptcy court allowed the trustee’s secured claim, ruling that the mortgage note was negotiable, that enforcement turned on Pennsylvania UCC Article 3 rather than alleged PSA defects, and that the Chapter 13 debtor lacked standing to challenge the claim based on purported PSA noncompliance given her ability to obtain discharge by paying a UCC-qualified enforcing party.


In re Walker, 466 B.R. 271 (Bankr. E.D. Pa. 2012)