February 2026

• The Uniform Mortgage Modification Act

By Scott Thompson

The Uniform Mortgage Modification Act (UMMA), approved by the Uniform Law Commission (ULC) in 2024, represents a significant attempt in modernizing real estate backed financing. Designed to bring clarity and predictability to the process of modifying both residential and commercial mortgages, the Act provides a vital “safe harbor” framework with the intent of benefiting borrowers, lenders, and the stability of the housing market. Before the UMMA, the legal landscape surrounding loan modifications was often fraught with uncertainty, primarily concerning the priority of liens, which could discourage lenders from offering beneficial modifications and, consequently, lead to unnecessary foreclosures and litigation.

This article delves into the core purpose of the UMMA, examines its key terms and provisions, analyzes the substantial benefits it offers to various stakeholders, and considers any potential drawbacks or limitations.

Purpose and Impetus of the UMMA

The primary purpose of the Uniform Mortgage Modification Act is to clarify and simplify the law governing common mortgage modifications. It aims to eliminate ambiguities that exist under common law regarding the effect of a loan modification on the priority of a recorded senior mortgage against junior lienholders.

The Problem of Lien Priority Uncertainty

As every banker knows, the concept of lien priority is paramount when it comes to lending collateralized by real estate. Priority determines which lender gets paid first from the proceeds of a foreclosure sale. Generally, the first lien recorded holds the highest priority (the “senior” lien).

However, under common law in many states, including Oklahoma, if a senior mortgage is substantially modified, particularly in a way that is deemed to materially prejudice or harm a junior lienholder (such as a second mortgage lender or a home equity line of credit provider), that modification could potentially cause the senior lien to lose its priority, at least with respect to the modified terms. In the most extreme interpretation, some modifications risked being treated as a novation, legally terminating the original obligation and creating an entirely new one, which could strip the senior lender of its original priority date and subordinate it to junior liens.  However, in Oklahoma, the courts have typically applied the materially prejudiced rule which favors partial subordination over the rigid common law doctrine of novation.

This uncertainty creates significant roadblocks to modifications:

• Lender Reluctance: Faced with the risk of losing their primary lien position, senior lenders are often hesitant to agree to reasonable modifications, even when such changes could have prevented a borrower’s default and a costly foreclosure.
• Transaction Costs: To mitigate the priority risk, lenders would often have to incur costs for title insurance endorsements, legal opinions, and negotiating subordination agreements with junior lienholders, all of which often passed down to the borrower, making the modification process more expensive and slow.
• Avoidable Foreclosures: The friction and expense in the modification process often prevented mutually beneficial restructurings, leading to unnecessary foreclosures and greater instability for borrowers and communities.

The UMMA was drafted to resolve this patchwork of state laws and common law ambiguity, providing a uniform, national standard that encourages loan modifications by offering clear, safe legal grounds for their execution.

Key Terms and Provisions

The central mechanism of the UMMA is the creation of “safe harbor” modifications, specific types of changes to a mortgage that are legally protected from altering the priority of the senior lien.

Defining “Safe Harbor” Modifications

The Act explicitly lists modifications that, if enacted, do not affect the priority of the senior mortgage and are not considered a novation. For these “safe harbor” changes, the senior mortgage continues to secure the obligation as modified and retains its original priority, regardless of whether the modification agreement is recorded.

While the exact list might ultimately vary slightly between state enactments, the common and critical safe harbor modifications typically include:

1. Extension of the Maturity Date: Extending the final payment date of the loan. This is one of the most common and crucial modifications for improving affordability.
2. Decrease in the Interest Rate: Lowering the interest rate applied to the obligation.
3. Interest Rate Adjustments (Non-Increasing): Certain changes to the method of calculating the interest rate, provided the change does not result in an increase in the interest rate as calculated on the effective date of the modification. Examples include:
   • Changing to a different, nationally recognized index if the previous one is unavailable.
   • Changing the differential (margin) between the index and the interest rate.
   • Changing from a fixed rate to a floating rate, or vice-versa, provided the new rate does not increase the rate at the time of modification.
4. Capitalization of Unpaid Amounts: The addition of unpaid interest, escrow shortages, or other unpaid monetary obligations to the principal balance (as long as the modified principal amount doesn’t exceed the original maximum secured amount contemplated by the mortgage).
5. Forgiveness, Forbearance, or Reduction of Obligation: Any reduction, forgiveness, or forbearance (temporary suspension) of principal, accrued interest, or other monetary obligations.
6. Modification of Escrow or Insurance Requirements: Changes to the requirements for maintaining an escrow account for taxes and insurance or changes to insurance requirements.
7. Modification of an existing condition to an advance of funds: Modification to the conditions that must be met to advance funds such as completion rate or LTV.
8. Modification of a financial covenant: Modification or waiver of financial covenants such as DSCR requirements, occupancy rates, or LTV.
9. Modification of Payment Amount or Schedule: A change to the payment amount or schedule that is a result of another safe harbor modification listed above.

The Effect of a Safe Harbor Modification

For any modification that falls within one or more of the safe harbors, the UMMA establishes four core effects, which are the cornerstone of the Act’s protections:

1. Continued Security: The mortgage continues to secure the obligation as modified.
2. Priority Preservation: The priority of the mortgage is not affected by the modification.
3. No Recordation Requirement: The mortgage retains its priority regardless of whether a record of the mortgage modification is recorded. This is a major cost and time saver.
4. No Novation: The modification is not a novation—it does not extinguish the original obligation, thereby preserving the original lien and its priority date.

Modifications Outside the Safe Harbor

Crucially, the UMMA does not govern all modifications. Modifications that fall outside the defined safe harbors, specifically those that would materially prejudice a junior lienholder, remain subject to existing state law. In other words, if the modification isn’t on the safe harbor list, the common law rules continue to apply.

The most common example of a non-safe harbor modification that could still face priority challenges is a modification that increases the principal amount of the loan beyond any capitalization allowed, or one that increases the interest rate in a way not covered by the safe harbor exceptions. Such changes, because they harm the financial recovery prospects of junior lienholders, must still be handled with caution under common law principles and may require the lender to record the modification or obtain subordination agreements from junior parties to maintain priority for the increased amount.

Benefits of the Uniform Mortgage Modification Act

The enactment of the UMMA offers potential benefits for the entire real estate finance ecosystem:

1. Facilitating Foreclosure Avoidance and Loss Mitigation

For Borrowers facing financial distress, the UMMA directly supports the creation of sustainable, affordable mortgage payments. By providing lenders with clear legal assurance that their lien priority will be preserved, the Act removes a major hurdle in the negotiation process. Lenders are more confident and willing to extend the loan term, decrease the interest rate, or reduce the principal, knowing they won’t inadvertently jeopardize their senior position. This may result in faster, more frequent, and less expensive loan modifications, helping families and businesses stay in their properties and avoiding the destructive consequences of foreclosure.

2. Reduced Costs and Transaction Friction

The clear “no recordation required” rule for safe harbor modifications eliminates significant administrative overhead. Lenders can proceed with modification agreements without the time-consuming and costly process of:

• Ordering title searches to identify junior lienholders.
• Preparing and recording complex modification documents.
• Obtaining title insurance endorsements.
• Negotiating and paying for subordination agreements from junior lienholders.

This reduction in transaction costs is particularly impactful during economic downturns when modifications surge.

3. Greater Certainty and Predictability

For Junior Lienholders, while the primary concern is preventing their interest from being harmed, the UMMA brings clarity. By codifying which modifications are not materially prejudicial, it provides a predictable legal framework. In many cases, a modification that helps a senior borrower avoid default (e.g., term extension or rate decrease) is ultimately beneficial to the junior lienholder as well, as a foreclosure sale often wipes out or reduces their recovery. The UMMA provides a mechanism that allows the senior lender to provide relief while still protecting the junior party from unexpected adverse changes.

4. Harmonizing State Law

The UMMA offers uniformity. As a model act, its widespread adoption across different states could streamline operations for national lenders and servicers. A consistent set of rules simplifies legal compliance, reducing complexity and operational risk across state lines, which ultimately contributes to a more efficient and liquid national mortgage market.

5. Potential Downsides and Considerations

While the UMMA is widely praised as a progressive legal reform, its implementation and potential effects are not without scrutiny and require careful consideration:

Limited Scope and Remaining Uncertainty

The UMMA is not a universal solution; it only governs the specified “safe harbor” modifications. Changes that fall outside this scope, especially those that substantially increase the total obligation (like an unexpected increase in principal or interest rate), still revert to the often-unclear common law of material prejudice. This means parties must still consult state-specific common law for the most significant modifications, maintaining some legal complexity.

Furthermore, the determination of what constitutes “material prejudice” for non-safe harbor changes remains a fact-specific judicial determination. While the UMMA resolves the ambiguity for common, benign modifications, it does not fully replace the underlying legal principles for more drastic restructuring. It is also possible that courts reviewing non-safe harbor changes become more likely to find material prejudice. Since those modifications that clearly do not materially prejudice junior lienholders are listed in the UMMA’s safe harbor provisions, reviewing courts may view those modifications that fall outside the scope of those provisions as being almost de facto prejudicial.

State-Specific Adoption and Variation

As a Uniform Act, the UMMA only becomes law in a state if its legislature adopts it. The lack of universal, immediate adoption means a patchwork of laws will continue to exist until the UMMA is widely enacted. Some states may adopt the model act with modifications or variations, potentially undermining the goal of perfect uniformity. Lenders and borrowers operating in non-adopting states must continue to follow older procedures.

 Junior Lienholder Disclosure and Recourse

Although the safe harbor modifications are deemed not to materially prejudice junior lienholders, some critics argue that any extension of the senior loan’s term could be seen as an adverse effect. For instance, a junior lienholder that expected the senior loan to be paid off in 10 years might find their potential recovery pushed out by another 20 years due to a term extension, potentially reducing the net present value of their collateral.

The Act relies on the determination that the safe harbor modifications are generally beneficial (or at least non-harmful) to the junior lienholder by preventing a foreclosure. However, in an individual case, a junior lienholder may still feel disadvantaged and could, under certain circumstances, still pursue a legal challenge, though the UMMA provides the senior lender with a strong statutory defense.

Risk of Lender Over-Reliance on “No Recordation”

The provision that safe harbor modifications do not need to be recorded to maintain priority is a significant benefit, but it could introduce a risk if not handled with care. While the priority is preserved, the modification agreement itself, which details the new terms (e.g., the new payment schedule or maturity date), is not publicly available on the land records. A subsequent buyer of the junior lien might be unaware of the modified terms of the senior loan, creating a potential diligence issue, though the Act is designed to ensure the lien itself still holds its place. The senior lender may still choose to record the modification for their own administrative clarity and to provide public notice of the change in the secured obligation.

Strategic Default

Some financial analysts have raised concerns about the moral hazard of strategic default by financially capable buyers. Strategic default is when a borrower who is able to make payments triggers a default, often by missing a few payments, in order to try to negotiate better loan terms such as a lower interest rate or longer repayment schedule. While strategic default certainly pre-dates UMMA, there has been some concern that savvy borrowers who know that the lender can safely make certain modifications without risk of losing priority or incurring significant costs might be willing to strategically default in order to trigger a renegotiation of terms. The borrower will gamble that with the risk of losing priority gone and modification costs reduced, the lender will make concessions to save the loan.

Conclusion

The Uniform Mortgage Modification Act is a legal reform designed to address a friction point in the world of residential and commercial real estate finance. By creating clear “safe harbor” provisions, the Act removes the legal uncertainty surrounding lien priority for specific common loan modifications. A bill adopting the UMMA has been introduced in this legislative session (HB 4352). If you have any thoughts about whether adoption is a positive or negative development for Oklahoma banking, please feel free to let me know at Scott@oba.com.

Dormant accounts

By Pauli Loeffler

We have recently, received several questions about imposing charges on dormant accounts.   While this has been covered before, it seems beneficial to revisit the subject again.

Bankers commonly use the term “dormant account.”  Unfortunately, that term is undefined by the Oklahoma statutes.  It is left up to each bank to determine when an account will be treated as “dormant.”

Alas, no provisions exist that specifically outline what is permitted for dormant accounts. Instead, Oklahoma has one statute covering prohibited practices with regard to dormant accounts.

Unclaimed Property Laws.

Title 60 O.S. Section 652(C) under Unclaimed Property has prohibitions with regard to dormant accounts.  When depositors owning dormant accounts later show up and complain, a financial institution cannot on a regular basis reverse dormant account fees that have already been charged, other than fees charged in error, nor can the bank regularly reinstate any accrual of interest that was discontinued because of dormancy, unless the bank also grants a reversal of fees and reinstatement of interest to a similarly large percentage of all dormant accounts .

In other words, if a bank waives the dormant account fees for 75% of the customers who show up to complain, it must automatically waive the fees for 75% of all the other dormant accounts where no one shows up.  Although it’s natural to want to appease an unhappy customer, a bank’s practice of waiving dormant account fees for angry customers who complain will effectively wipe out the bank’s ability to charge dormant account fees to anyone else.

The board of directors of the bank must approve a dormant account fee and/or curtailment of interest, and the provisions must be disclosed to the account owner, for these to be legally imposed. Further, the bank can only refunds such fees or interest when it has made a mistake, e.g., there was account activity and the dormancy fee was charged in error, or payment of interest was curtailed due to inactivity but the account had activity. If the bank reimburses or credit interests on the request of the customer rather than due to a bank error, then the bank cannot deduct the fees or curtail interest without violating this section and will owe these to Unclaimed Property Division of the Oklahoma Treasurer.

You should also review  See Title 735: 80-5-1 (a) and (c) of the administrative code, below.

   735:80-5-1. Charges and deductions that may be withheld

(a) Charges shall not be deducted from unclaimed intangible property unless:

(1) A reasonable notice of service charges or deductions is given to the owner at the time the account is opened; or

(2) A schedule of service charges or deductions has been mailed to the owner; or

(3) A statement concerning such charges has been incorporated in the rules, regulations, or bylaws of the holder.

(b) Such charges or fees may not be excluded, withheld, or deducted from property subject to the Uniform Unclaimed Property Act if, under its policy or procedure, the holder would not have excluded, withheld or deducted such charges or fees in the event the property had been claimed by the owner prior to being reported or remitted to OST.

(c) If charges are deducted from property, a holder shall include or attach as a part of the report filed pursuant to the Uniform Unclaimed Property Act:

(1) The value or amount of each item or property before any charges are deducted therefrom;

(2) The amount of the charges deducted from each item and the date or dates on which such charges were deducted.

(3) Policy that the holder regularly imposes such charges and does not regularly reverse or otherwise cancel them.

(4) Such other information or documentation that substantiates the deduction of the charges.

In considering whether to impose a dormant account fee on particular types of accounts, and how much the fee should be, a bank should try to “get it right” from the beginning, in terms of when the fees are imposed, and on what types of accounts—because the bank needs to avoid reversal of the fees, in light of Section 652.

The bank probably won’t want to impose dormant fees across the board, because doing so will unnecessarily place fees on some accounts that remain profitable to the bank even when there is no activity. If a particular account remains attractive to a bank under all of the circumstances, the bank will tend to waive its dormant fee to retain the account if the depositor gets mad.  Waiving fees will in turn jeopardize the bank’s ability to legally charge dormant fees on other accounts.

Ideally, a bank’s dormant account policy should be like a “scalpel,” carefully affecting only those accounts that should properly be subject to the fees.  One possible approach is to cause the bank’s definition of dormant account to include both (1) a “failure to maintain a certain balance” element, and (2) an “inactivity” element, so that dormant fees fall only where they are needed and proper.

The answer is, the State of Oklahoma wants unclaimed property to be turned over to the state.  If a fee or charge only applies (without being waived) to unclaimed deposits of persons who never show up again to collect the money, this fee seems targeted at wiping away the balance of unclaimed deposit accounts before the state can take over those deposits.  Such a fee is against public policy.

 Disclosure of Dormant Fees  

The same Section 652(C) requires certain disclosures concerning dormant account fees.  Before charging the fee, a bank must give the depositor “reasonable notice” that the fee may be imposed.  This notice can be given (1) at the time the account is opened, (2) through a schedule of charges sent to the owner, or (3) through a statement in the bank’s rules that the fee may be imposed.

Regulation DD disclosure of the dormant account fee is also adequate to satisfy Section 652(C). Before an account is opened, Section 230.4(b)(4) of Reg DD requires a bank to disclose “[t]he amount of any fee that may be imposed in connection with the account . . . and the conditions under which the fee may be imposed.” If a dormant account fee is not already part of a bank’s fee schedule when an account is opened, Section 230.5(a)(1) of Reg DD would allow a bank to impose such a fee after giving 30 days’ advance notice that such fee may be imposed.

If a bank changes its dormant fee policy after an account has been opened, the new dormant fee can go into effect 30 days after a notice of change of terms is provided to customers on whose accounts the fee would be applied.  If a bank is not making other changes to its fee schedule, one strategy would be not to notify all existing customers of a change in bank policy regarding dormant accounts, but rather to send a notice only to those persons whose accounts become dormant, telling them that the dormant fee will go into effect not earlier than 30 days following the date of the notice.

Non Consumer accounts are not subject to Reg DD disclosure requirements. However, Oklahoma Unclaimed Property Section 652(C) will still require commercial depositors to receive “reasonable notice” of the dormant account fee before it is applied to an account.

 Which Accounts Should Be Defined as Dormant?

It is a misconception that every account with no activity for six months or twelve months must be treated as dormant if some accounts are; or that every savings account (regardless of how   high the balance) must be treated as dormant if some savings accounts are.  A bank can establish its “dormant account” definitions so that they only apply to certain types of account, or they only apply below a certain deposit balance amount (which can be different for each type of account).

Garnishment Gotchas

By Pauli Loeffler

1. Determine who the judgment debtor is. Always, always, always check the Garnishment Affidavit and the Garnishment Summons to determine who is named as the judgment debtor! A garnishment may name one or persons as judgment debtors, and your answer must reflect each person named as a judgment debtor. This may require additional pages in your Answer/Affidavit or filing more than one answer. Do not assume that the judgment debtor is always a defendant named in the case or even a defendant at all. If there were several defendants named, the judgment debtor may be part of the “et al.” (Latin meaning “and others”) which is used quite often after the petition is filed. Further, the plaintiff may have named John Brown as defendant when the case was filed but later added Jerry Black and Black’s Whistle Stop LLC as defendants. Once the petition is filed, the plaintiff and defendant fields are often set in stone, and the caption may not show all defendants. Under either scenario, if you fail to freeze the named judgment debtor, the bank faces liability. For instance, if Jerry Black is the judgment debtor, but you fail to freeze his account, the bank is liable for whatever funds were in Jerry’s account when the garnishment was served. On the other hand if you freeze John Brown’s account, he has an action against the bank for wrongful dishonor if any items are returned or his debit card transaction is declined. Occasionally, the plaintiff may end up as the judgment debtor either due to the defendant prevailing on a counter-claim in the lawsuit or for attorney’s fees owed to the defendant. The plaintiff may also be the judgment debtor when he owes money to his own attorney.

 

2. A garnishment also attaches to a safe deposit box owned/leased by the judgment debtor. In conversations with various bankers, I have discovered that some banks totally disregard Sec. 1312 of the Banking Code (Title 6 of the Oklahoma Statutes):

 

“In any action wherein garnishment summons is served on the lessor or a party to an action seeks to subject a box or contents thereof to the garnishment or order of court, the lessor, upon being served with such garnishment or court order, shall seal the box and deny access thereto to all persons except as ordered by the court. A court of record may, in a proceeding wherein the lessee is a party, in aid of execution or for the purpose of enforcing its orders, direct the sheriff or marshal to enter a box, remove the contents therefrom and hold, deliver or sell such contents as permitted by law. Damages suffered by the lessor by reason of forcible entry as provided herein shall be assessed as costs and paid to the lessor by the garnishment creditor. If no court order directing entry into the box is served upon the lessor within thirty (30) days after a garnishment summons is received by the lessor, the box shall be unsealed and the lessor shall no longer be required to deny access to parties entitled thereto.”

When you receive a garnishment, seal the box and do not allow anyone (judgment debtor, joint lessee or deputy) access for 30 days after the receipt.