Arkansas Foreclosure Laws and Procedures
Loans must be serviced and foreclosed in accordance with federal and state laws. Arkansas has a foreclosure process that must be followed by the bank. Many borrowers are protected by several of these regulations.
Servicers are usually required to give borrowers options to try and keep their house, help mitigate the losses, keep track of each stage of the foreclosure stage, and strictly comply with foreclosure regulations.
In an Arkansas foreclosure, you’ll most likely get the right to:
- get a preforeclosure notice
- apply for loss mitigation
- receive notice of the foreclosure
- receive special protections if you’re in the military
- stop the foreclosure by paying off the overdue payments and bring the loan current
- pay off the loan to prevent a sale
- file for bankruptcy, and
- get any excess money after a foreclosure sale.
What Is Pre-foreclosure?
Pre-foreclosure is a process where the homeowner gets notified that they are in default and gives them time to cure the default before the property goes into foreclosure. The preforeclosure period usually lasts for about 120 days, but it can be extended if there’s a pending bankruptcy or other legal action.
During this time, you should try to get in touch with your servicer for information about loss mitigation procedures. If you are facing foreclosure in Arkansas, the best thing to do is get informed on federal and state laws that protect homeowners before it’s too late. During this time, the servicer can charge you various fees, like late charges and inspection fees, and, in most cases, must inform you about ways to avoid foreclosure and send you a pre-foreclosure notice called a “demand letter.”
While going through the foreclosure process many different laws apply: There are federal mortgage servicing laws, federal foreclosure laws, and Arkansas foreclosure laws.
What Is the Foreclosure Process in Arkansas?
If you default on your Arkansas mortgage payments, the bank may use the judicial or nonjudicial foreclosure methods.
How Judicial Foreclosures Work in Arkansas
A foreclosure sale occurs when the bank files a lawsuit asking for an order allowing for a foreclosure sale. If you do not respond to the complaint after being served, the bank will win automatically. This is called a default judgment.
If you choose to fight the foreclosure action, however, the court will evaluate the evidence and determine the winner. If the bank wins, the judge will issue a decision and order for a foreclosure sale. This order sets the date and time for when the bank may sell your house at auction to pay off what you owe on your mortgage.
How Nonjudicial Foreclosures Work in Arkansas
If the bank opts for a nonjudicial foreclosure, it must follow the state law provisions for out-of-court procedures. After completing the required activities, the bank can sell the property at a foreclosure sale. Because it’s faster and less expensive than going to court about it, most banks choose to use the nonjudicial procedure.
The Demand Letter
The first notification the borrower receives in the mail is a demand letter, also known as a breach letter, which informs them of the default and offers them a set period of time to mend it. If not cured within that time frame, the letter warns that the debt will be accelerated and all funds immediately due. There is no statutory regulation of the demands letter in Arkansas. As a result, the debtor’s security instrument takes precedence. The typical security instrument allows the borrower thirty days to remedy the situation before it is deemed in default. If the problem isn’t resolved within that time frame, the debt will be accelerated, and foreclosure proceedings will begin.
The Fair Debt Letter
The first notice the borrower typically receives after acceleration is a Fair Debt Collection Letter, according to the Fair Debt Collection Practices Act (15 US Code 1692g). The firm conducting the foreclosure for the mortgage servicer usually sends this letter. The notice informs you of the reason for the default, how much you still owe, and when your loan was last paid in full. It also advises the borrower that he or she has thirty days to challenge the debt’s authenticity after receiving this letter. If a debtor disputes the validity of the debt within 30 days after receiving this letter, the mortgage servicer must prove the debt is valid before proceeding with the foreclosure sale.
Arkansas Foreclosure Packet
Arkansas’s Foreclosure Act also requires the bank to send you a packet of information at least 10 days prior to initiation of the foreclosure action (Ark. Code Ann. § 18-50-103).
The packet must be mailed to you at either the property address or your mailing address and must include the following information and documents: (1) the name of the bank who has the mortgage and physical location of the original note; (2) information, including the phone number and website, regarding the availability to the debtor of each program for a loan modification or forbearance assistance offered; (3) a copy of the promissory note with all required endorsements; (4) a copy of the mortgage or deed of trust, and if in the possession of the mortgage company, each assignment of the mortgage or deed of trust; (5) and if the default is for nonpayment, a copy of the payment history showing the date of default.
The Arkansas legislature amended the Act in 2011 to require this packet to be sent prior to initiation of the foreclosure. It provides the debtor with the documents and information most often requested before the foreclosure is even initiated. This packet is not required to be sent to debtors when pursuing a judicial foreclosure.
Notice of Default
The Arkansas Foreclosure Act also requires a Notice of Default and Intention to Sale be filed (Ark. Code Ann. §18-50-104). The Notice of Default must be recorded in the property records, and must be mailed to you and anyone who has a lein on the property. It must include a bold warning as follows: “YOU MAY LOSE YOUR PROPERTY IF YOU DO NOT TAKE IMMEDIATE ACTION.”
It must provide the time, date, and place of sale; the recording information of the deed of trust or mortgage to be foreclosed; the names of the parties to the mortgage or deed of trust; the legal description and street address of the property; the default for which the foreclosure is made; and the name, address and phone number of the party initiating the foreclosure. It must be mailed within thirty days after it is recorded in the property records by certified mail and first-class mail.
The notice must also be published in the newspaper for four weeks in a row prior to the foreclosure sale, and be posted both online and at the county courthouse (Ark. Code Ann. §18-50-105). The Act also requires the trustee or attorney-in-fact conducting the sale on behalf of the bank to record an affidavit confirming compliance with the Act’s mailing and publication requirements (Ark. Code Ann. §18-50-106).
With so many notifications sent to a debtor who is facing statutory foreclosure in Arkansas, it may be difficult to prove a “lack of notice” defense against the process.
How Can I Stop a Foreclosure in Arkansas?
Arkansas law allows you the right to reinstate the mortgage before the sale happens. (Ark. Code Ann. § 18-50-114).
Redeeming the Property Before the Sale
One way to stop a foreclosure is by “redeeming” the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale. This is the full amount, not just the amount you were behind.
Some states also provide foreclosed borrowers with a redemption period after the foreclosure sale, during which they can buy back the home. But Arkansas law doesn’t provide a redemption period following a nonjudicial foreclosure. (Ark. Code Ann. § 18-50-116(d)(1)).
Filing for Bankruptcy
If you are facing a foreclosure, bankruptcy is most likely your best option. When you file bankruptcy you can stop the sale without paying the amount owed upfront. You can also get 5 years to make up the amount you are behind on your loan. In fact, if a foreclosure sale is expected to take place in the next day or so, the greatest approach to prevent it immediately is to file for bankruptcy. Once your petition for bankruptcy is filed an “automatic stay” is activated. The stay stops the bank from moving forward with the foreclosure.
In a Chapter 13 Bankruptcy, the bankruptcy court will determine what your monthly payment obligations are for necessary living expenses, and use leftover income for monthly payments to the bank on your past due mortgage payments, as well as your other creditors. So, in that way, bankruptcy can help you get caught up on your mortgage, in addition to any other creditor payments you’re behind on. Since the single monthly payment you’ll have under your bankruptcy is based on your disposable income, the payments are usually fairly small, and spread out over three to five years. Once you reach the end of the payment period, most people are caught up on their past due payments, and can resume paying their monthly payments as they were before the bankruptcy filing.
What if it Sells for less than I owed?
In a foreclosure, your total debt might be more than the foreclosure sale price. The difference between the total debt and the sale price is called a “deficiency.” For example, say the total debt owed is $250,000, but the home sells for $200,000 at the foreclosure sale. The deficiency is $50,000. In Arkansas, the lender can seek a personal judgment against the debtor to recover the deficiency.
In Arkansas, the lender may file a lawsuit to get a deficiency judgment after a nonjudicial foreclosure. The amount of the judgment will be the lesser of:
- the total debt minus the fair market value of the property or
- the total debt minus the foreclosure sale price. (Bids for less than two-thirds of the entire indebtedness can’t be accepted at the sale.) (Ark. Code Ann. § 18-50-107).
The lawsuit for a deficiency judgment must be filed within 12 months after the sale. (Ark. Code Ann. § 18-50-112).
How to Stop a Deficiency Judgment in Arkansas
If you have a deficiency judgment, bankruptcy may be the best option to deal with that amount owed. It will be an unsecured debt in the bankruptcy court and in most bankruptcies you do not have to pay your unsecured debt back. It will depend on your situation at the time you file, but it most likely is your best option. Read more here: Bankruptcy and Unsecured Debt.
Have questions? Contact a bankruptcy lawyer in North Little Rock today or feel free to give us a text or call. We are an experienced law firm that has helped numerous Arkansans stop foreclosures. We offer a free evaluation and can help stop foreclosure. You can click here to schedule your no-risk free consultation. We can help stop the foreclosure process.