Arkansas Foreclosure Laws

Answers

How are mortgage liens treated in Arkansas?

Arkansas is generally moving to a title theory state where the property title remains in the hands of the lender until payment in full occurs for the underlying loan. For many years, Arkansas operated primarily through the judicial foreclosure mode under the lien theory. Both foreclosure methodologies are available to lenders in Arkansas.  The document that secures the title in Arkansas is called a deed of trust, but is sometimes referred to as a trustee's deed or mortgagees' deed but may also be referred to simply as a mortgage. The instrument that represents the borrower’s personal promise to pay the loan is known as a promissory note.

How are Arkansas mortgages foreclosed?

One primary method of foreclosure in Arkansas involves what is known as non-judicial foreclosure. When the deed of trust is initially signed it will usually contain a provision called a power of sale clause, which upon default allows sale of the property in order to satisfy the underlying loan. Arkansas uses the typical deed of trust where the trustee acts as a representative of the lender and/or is the holder of the deed of trust. Foreclosure sales will typically occur in the form of an auction at the courthouse. Because this is a non-judicial remedy there are very stringent notice requirements and the legal documents are required to contain the power of sale language in order to use this type of foreclosure method.

Power of Sale Notice Requirements:

1. Prior to initiating a foreclosure the lender must record a notice of default and an intention to sell in the county in which the property is located. There must be a current loan default and only certain parties can serve as trustees, including attorneys and others. At least sixty (60) days must elapse after the filing before any further foreclosure action can occur.
2. The notice of default and intention to sell must be mailed within thirty (30) days of the date of recording by certified mail and the notice must contain property information, the date of the proposed sale, and other pertinent information. The lender must then publish the notice of the scheduled foreclosure sale in the county newspaper in which the property is located once a week for four (4) consecutive weeks before the sale. The final publication must occur within ten (10) days of the sale. The notice must also be posted using a third-party posting service at the courthouse and the lender must also publish notice on the Internet by a third-party Internet posting service.
3. Foreclosure sales must take place on the between 10AM and 4PM at the courthouse or at the subject property and cannot be held on Saturday, Sunday or a legal holiday. The trustee will auction the property to the highest bidder at the courthouse steps or at the property location. No bid will be accepted unless it is at least 2/3 of the indebtedness under the mortgage loan. The sale may be postponed and no further notice need to be given unless the postponement is for more than thirty (30) days.

In Arkansas, the lenders can also go to court in what is known as a judicial foreclosure proceeding where the court must issue a final judgment of foreclosure. If the deed of trust does not contain the power of sale language or a standard mortgage is used the lender usually must seek judicial foreclosure. The property is then sold as part of a publicly noticed sale. A complaint is filed in circuit court along with what is known a lis pendens. A lis pendens is a recorded document that provides public notice that the property is being foreclosed upon.

What are the legal instruments that establish an Arkansas mortgage?

The documents are known as the mortgage, promissory note, and in a commercial transaction, a security agreement. Sometimes the mortgage document is combined with the security agreement. Alternatively, a mortgage is filed to evidence the underlying debt and terms of repayment, which is set forth in the promissory note.

How long does it take to foreclose a property in Arkansas?

Depending on the timing of the various required notices, it usually takes approximately 120 days to effectuate an uncontested non-judicial foreclosure. This process may be delayed if the borrower contests the action in court, seeks delays and adjournments of sales, or files for bankruptcy.

Is there a right of redemption in Arkansas?

Once a deed of trust under power of sale is issued to a successful bidder at the foreclosure sale, Arkansas has no statutory right of redemption, which would allow a party whose property has been foreclosed to reclaim that property by making payment in full of the sum of the unpaid loan plus costs. There is a one (1) year right of redemption for judicial foreclosures; however this right can be waived initially in the loan documents.

Are deficiency judgments permitted in Arkansas?

Yes, a deficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount that the underlying mortgage secures. Under the power of sale statute (Arkansas Statutes, Title 18-50-112) the lender must seek a deficiency judgment within twelve (12) months after the foreclosure sale. The deficiency cannot exceed the lesser of the amount due less fair market or the amount due less the amount of the sale.

What statutes govern Arkansas foreclosures?

The laws that govern Arkansas foreclosures are found in of Arkansas Code, Title 18 (Property), Subtitle 4 (Mortgages And Liens) Chapter 49 (Enforcement of Mortgages—which deals with Judicial foreclosures) or Chapter 50 which deals with Statutory (Non-judicial) Foreclosures.