Quattlebaum, Grooms, Tull & Burrow
In 1987, Arkansas passed the Statutory Foreclosure Act of 1987 (Ark. Code Ann. §§ 18-50-101, et seq. (the “Act”)). The Act has been successfully used by mortgage lenders in Arkansas to complete foreclosures in a far more efficient manner. Prior to the Act, in order to foreclose, a mortgage lender was required to initiate a lawsuit, incur litigation expenses and, as for the borrower, the result often ended up with a deficiency judgment making personal economic recovery more difficult. Under the Act, far less time and expense is required for mortgage loan foreclosure and the result, as to the foreclosed property, is similar, i.e. the lender or a purchaser at the foreclosure sale obtains title but, under the Act, a deficiency judgment is not obtained.
Ark. Code Ann. §18-50-117 requires any lender seeking to utilize the provisions of the Act first be “authorized to do business in this state.” Since, under state and federal banking laws, national banks are authorized to do business in Arkansas, it was generally assumed that no further “qualification” was necessary in order for a national bank to utilize the Act. Similarly, any state bank authorized under banking law to have a presence in Arkansas was similarly assumed to meet the requirements of the statute.
In the fall of 2011, the United States Bankruptcy Court for the Eastern District of Arkansas issued an opinion (460 B.R. 234) concluding that national banks must, in order to foreclose under the Act, “register” with the Arkansas Secretary of State. This decision seemed contrary to understanding and offered the possibility of disputed land titles since foreclosures from 1987 to present might become subject to a cloud of uncertainty. Several title insurers ceased insuring any title with an Act foreclosure in its past and residential foreclosures ground to a near halt as mortgage holders attempted to determine the impact of the Bankruptcy Court’s decision. Fortunately, the case was appealed to the United States District Court and the Honorable Judge J. Leon Holmes reversed the decision of the Bankruptcy Court. Foreclosures have resumed and title insurers have relaxed requirements regarding insuring titles involving a prior or existing foreclosure conducted under authority of the Act.
The Arkansas REALTORS® Association, along with other affected trade associations, hailed the decision of Judge Holmes. However, issues remain with regard to the Act for entities which were not before the Court, such as out-of-state banks who lend in Arkansas and operating subsidiaries of national banks (such as a mortgage subsidiary). These and other issues will likely result in an attempt to repeal or materially alter §18-50-117 during the 2013 General Assembly. Any lender who makes a mortgage investment in Arkansas should be permitted full utilization of remedies provided to foreclosing lenders without an artificial “qualification” trap. Any statute that impedes or discourages mortgage lending investment in our great State should not be tolerated and does not reflect good economic or legislative policy.