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American College of Mortgage Attorneys — Partner with the Best®

Formed in 1974, the American College of Mortgage Attorneys (ACMA) is comprised of over 500 lawyers in North America who are experts in mortgage law.

United States

Arkansas

While using a mortgage form is much more common, mortgages and deeds of trust are used interchangeably, each having the same effect. There are no statutory forms.

SECURITY INSTRUMENT USED

Location A mortgage or a deed of trust must be acknowledged and then filed for record in the county or counties where the land is located to become an enforceable lien against third parties. Arkansas has ten counties with dual county seats; thus, parties should ensure that the instrument is recorded in the correct district. With only minor amendments, Arkansas adopted the Uniform Real Property Electronic Recording Act, codified as Ark. Code Ann. &sect; 14-2-301 et seq., allowing county recorders to accept records in electronic form. Acknowledgment Arkansas adopted the Uniform Acknowledgment Act as codified in Ark. Code Ann. &sect; 16-47-201 et seq. Arkansas also passed the Arkansas Electronic Notary Public Act, codified at Ark. Code Ann. &sect; 21-14-301 et seq., which permits electronic notarial signatures and seals and, following a modification in 2021, allows for remote online notarization using electronic communication technology, thereby eliminating the physical presence requirement if strict guidelines are followed. Substantive Requirements Under Ark. Code Ann. &sect;&nbsp;18-1-101 and Ark. Code Ann. &sect;&nbsp;14-15-403, a recorded instrument must have the name and address of the person who prepared the instrument displayed on the first page, and mortgagees (except FDIC-insured financial institutions) are required to include the mortgagee's name, address, and telephone number in the mortgage, together with the name and title of the person authorized to release the lien. Failure to do so will not affect the lien's validity or priority, but such failure could cause recording problems. Under Ark. Code Ann. &sect;&nbsp;14-15-402, certain top, bottom, and side margins and other “facial” requirements are mandated for documents to be recorded, and the statute provides only that the clerk may waive those requirements for “good cause” (which is not defined). Penalties Ark. Code Ann. &sect;&nbsp;5-37-226 provides that: (i)&nbsp;it shall be a crime for any person with knowledge of the instrument's lack of authenticity or genuineness to record in the records of any county recorder or the Arkansas Secretary of State any instrument clouding or adversely affecting title to real property; (ii)&nbsp;the criminal sanctions are enhanced from misdemeanor to felony if the recording is made because of the performance of official duties by the victim, and the victim is a judge, prosecuting attorney, law enforcement officer, or similar official; and (iii)&nbsp;the subject real property's owner, lessee, or assignee may bring a civil action to remove any cloud from his or her title or interest in the subject real property or to clear his or her title or interest in the subject real property and is entitled to 3 times the actual damages, punitive damages, and costs, including any reasonable attorney's fees or other costs of litigation reasonably incurred.

RECORDING REQUIREMENTS

Homestead exemption; right of redemption; dower and curtesy. Although the statutory right of appraisement was abolished in 1987, the traditional “waiver” terminology most often seen in mortgages is “Mortgagor waives, releases, and relinquishes unto Mortgagee, its successors and assigns, all rights of appraisement, redemption, homestead, dower, and curtsey under the laws of the State of Arkansas, including, without limitation, the rights of redemption under the Act of May 8, 1899, as amended from time to time, codified at Ark. Code Ann. &sect;&nbsp;18-49-106, and Ark Code Ann. &sect; 16-66-502.”

STATUTES TO BE WAIVED

Prepayment privilege for agricultural and livestock borrowers Under Ark. Code Ann. &sect;&nbsp;23-32-203, agricultural or livestock borrowers have a special statutorily granted privilege to prepay up to 20% of the initial principal amount of a loan in any year following the first anniversary of the loan date. Further, such a borrower may prepay the loan in full at any time with a sliding scale prepayment fee beginning at 5% during the first year and disappearing during the 6th year. The borrower may waive statutory privilege if the instrument contains a statement in boldface type that such statute does not apply and the borrower, after the lender points out and explains the provisions to the borrower, signs a statement on the instrument that the statute has been explained and that the borrower agrees. Oral leases of farmland Under Ark. Code Ann. &sect; 18-16-105, an owner of farmland leased under an oral rental or lease agreement may terminate the oral rental or lease agreement for the following calendar year only by giving written notice of termination by certified mail to the renter or lessee on or before June 30 of the preceding year. If the required notice is not timely given, the oral rental or lease of farmland cannot be terminated for the following calendar year. As a result, a purchaser (or mortgagee) of Arkansas farmland will want to ensure that at closing, an owner's title policy will be issued that does not contain an exception for rights or claims of persons in possession not shown by the public records. Arkansas Farm Mediation Act The Arkansas Farm Mediation Act (the “AFMA”), codified as Ark. Code Ann. &sect; 2-7-101 et seq., applies to any secured agricultural loan of more than $20,000 owed by a “farmer” (defined as any person engaged in farming or ranching and who owns or leases more than 50 acres land that is principally used in farming or ranching or who has gross sales of farm products of at least $20,000 in of the preceding three years). If applicable, the AFMA mandates that the secured lender, before foreclosing real or personal agricultural property, must give the farmer written notice that the farmer has a right to request mediation under the AFMA. If the farmer thereafter makes a timely request for mediation, the secured lender must proceed as required under the AFMA. However, no express penalties for violation of the AFMA are provided. The mediation process under the AFMA takes approximately 60 days.

UNUSUAL TREATMENT OF STANDARD PROVISIONS

Mortgages executed before September 1, 2021 Future advances are secured if the mortgage or deed of trust so provides. Courts look to the intent of the parties to determine whether the future advance clause is sufficient. Generally, a clause referencing “all sums, arising at any time hereafter, related or unrelated, and owed from debtor to creditor” is sufficient. Without future advance language, courts will only extend the mortgage to secure new debts incurred for the same purpose as the primary debt. The Arkansas Court of Appeals created a stricter rule for determining whether a mortgage secures pre-existing debt (as opposed to future advances) in Equity Bank v. Southside Baptist Church of Lead Hill, 2020 Ark. App. 199, 599 S.W.3d 133. Because pre-existing debt may be more definitely described than future advances, the court required more explicit language to identify the included pre-existing debt. Phrases like “all other indebtedness” or “now existing” are insufficient. Mortgages executed on or after September 1, 2021 In 2021, the Arkansas Legislature attempted to overrule the Equity Bank rule for all security agreements, instruments, mortgages, and deeds of trust entered into on and after September 1, 2021. Ark. Code Ann. &sect; 4-56-105 validates cross-collateralization clauses for future advances and pre-existing debt whether or not the cross-collateralization clause is specific or general, identifies existing debts, or secures debts incurred for the same purpose as the primary debt. This rule applies to both consumer and commercial debts. Arkansas courts will ultimately determine whether Ark. Code Ann. &sect; 4-56-105 effectively overruled Equity Bank. Obligatory and optional future advances For priority purposes, Arkansas distinguishes between obligatory and optional future advances. In Ashdown Hardware Co. v. Hughes, 223 Ark. 541, 267 S.W.2d 294 (1954), the Arkansas Supreme Court held that an optional future advance will have the same priority as the initial advance unless the mortgagee has “actual” notice (as opposed to constructive notice) of an intervening lien at the time the optional future advance is made. Obligatory future advances enjoy the same priority as the initial advance.

SECURING FUTURE ADVANCES

Protective advances for taxes, insurance, maintenance, etc., are secured if the mortgage or deed of trust so provides and will retain the same priority as the principal debt.

SECURING ADDITIONAL ADVANCES TO PROTECT THE COLLATERAL

A trustee under a deed of trust may either be a corporate or other legal entity or an individual person. However, special rules apply to a “statutory foreclosure” mortgagee or trustee, as discussed in the “Foreclosure” section herein.

CORPORATE OR INDIVIDUAL

None, except for the special “residency” rules concerning the statutory foreclosure procedure.

RESIDENCY REQUIREMENT

Overview of foreclosures Arkansas has historically been a judicial foreclosure state since a judicial foreclosure was always required to bar the equity of redemption. In 1987, the Arkansas Legislature enacted a “statutory foreclosure” procedure, which provides for nonjudicial or “statutory” foreclosure and results in a bar of all redemption rights upon a mortgagee or trustee's sale, even if the redemption right is not waived in the subject loan documents. The statutory foreclosure procedure may be used to foreclose residential property and commercial property but may not be used to foreclose property that is primarily used for agricultural purposes. Jurisdiction over real property foreclosures is in the circuit courts. It should be noted that the judicial foreclosure of a prior lien or encumbrance may discharge United States judgment liens. Still, such liens cannot be discharged by statutory foreclosure. See 28 U.S.C. &sect;&nbsp;2410. Traditionally, the foreclosure procedures last 60 to 90 days if there is no defense, and 120 to 180 days, or longer if contested. There is no minimum bid requirement in a judicial foreclosure, but case law is to the effect that the successful bid should not be so low as to “shock the conscience of the Court.” If the statutory foreclosure procedure is used, the minimum bid must be not less than 2/3 of the entire debt due at the date of sale. Parties authorized to statutorily foreclose The applicable statute, Ark. Code Ann. &sect;&nbsp;18-50-102, provides that “Parties” authorized to foreclose a mortgage or deed of trust statutorily are limited to: (1)&nbsp;a trustee or attorney-in-fact who is an active licensed member of the Bar of the Supreme Court of the State or a law firm among whose members includes such an attorney if the attorney or law firm maintains an office that: (A)&nbsp;is located within this state; (B)&nbsp;is accessible to the public during regular business hours; and (C)&nbsp;has the ability to accept funds from a grantor, mortgagor, or obligor to reinstate or pay off a mortgage or deed of trust; (2)&nbsp;a state or nationally chartered bank, a state or federally chartered savings and loan association or credit union, or a mortgage loan company subject to licensing, supervision, and auditing by a federal agency, a government-sponsored enterprise, and the Bank Commissioner or Securities Commissioner, in consultation with the Bank Commissioner, as applicable, as an approved mortgage loan servicer authorized to do business under the laws of the State if the state or nationally chartered bank, state or federally chartered savings and loan association, state or federally chartered credit union, or mortgage loan company: (A)&nbsp;has a physical business location open for business for normal banking hours located within the State; (B)&nbsp;is either the holder or the mortgage loan servicer for the holder of a note secured by a mortgage or deed of trust; and (C)&nbsp;does not collect a fee or cost for any action taken under this chapter unless authorized by a court order; or (3)&nbsp;an agency or authority of the State where not otherwise prohibited by law. Arkansas does not allow persons and entities not authorized to do business in Arkansas to avail themselves of the statutory foreclosure procedures. However, in JPMorgan Chase Bank, N.A. v Johnson, 719 F.3d 1010 (8th Cir. 2013), the Court of Appeals for the Eighth Circuit ruled that a national bank chartered by the Office of the Controller of the Currency is, ipso facto, authorized to do business in Arkansas, and thus qualified in Arkansas to employ the “statutory foreclosure” procedure provided in Ark. Code Ann. &sect;&sect; 18-50-101, et seq. The Arkansas Supreme Court similarly held that national banks are authorized to do business in Arkansas in Dickinson v. SunTrust National Mortgage Inc., 2014 Ark 513, 451 S.W.3d 576. Additional statutory foreclosure requirements The Arkansas Legislature amended the statutory foreclosure procedure to: (i)&nbsp;impose an additional number of specific pre-conditions that the beneficiary or mortgagee must satisfy “before initiating” a foreclosure under the statutory foreclosure procedure; (ii)&nbsp;impose an additional number of specific pre-conditions that the trustee or mortgagee must satisfy “before selling” property pursuant to the statutory foreclosure procedure; and (iii)&nbsp;specifically provide that the mortgagee or trustee must engage a third party that is licensed to sell real estate and licensed to act as an auctioneer to conduct the sale and act as the auctioneer. In Davis v. PennyMac Loan Services, LLC, 2020 Ark. 180, 599 S.W.3d 128, the Arkansas Supreme Court held that foreclosing parties in a statutory foreclosure must provide the specific default for which foreclosure is made (as opposed to a general statement that a default has occurred) in the notice of default filed with the county recorder. Parties may challenge a statutory foreclosure sale for failure to strictly comply with the statutory procedure (see Ark. Code Ann. &sect; 18-50-116(d)(2)(B)(ii)); therefore, the Davis decision placed statutory foreclosures in jeopardy for defective notices of default. Importantly, parties had no time limit on claims for failure to strictly comply with the foreclosure rules. In response, the Arkansas Legislature provided a date of finality for statutory foreclosure sales in Act 1108 of 2021—requiring any claim under Ark. Code Ann. &sect; 18-50-116(d)(2)(B)(ii) contesting the validity of statutory foreclosure to be made within 30 days of the foreclosure sale. Statutory foreclosures today Statutory foreclosure remains Arkansas's preferred method for defaulted residential real estate mortgages. Many Arkansas lawyers are not comfortable with using the statutory foreclosure procedure for commercial foreclosures; therefore, judicial foreclosure is the typical proceeding for commercial foreclosures, culminating in a final decree and a commissioner's sale.

BRIEF DESCRIPTION OF PROCEDURE

There is a 1-year statutory redemption period after the date of a judicial foreclosure sale unless the right is waived in the mortgage or deed of trust. Under the statutory foreclosure procedure, there is no statutory redemption period after a sale. If, for some reason, the right of redemption has not been waived in the mortgage or deed of trust, the statutory redemption price following a judicial foreclosure sale is the amount for which the real property is sold, plus interest and costs.

REDEMPTION PERIOD AND PRICE

The post-sale right of redemption, as indicated above, may be waived in the mortgage or deed of trust. As noted above, there is no post-sale redemption period in statutory foreclosures.

WAIVER OF REDEMPTION; REDUCTION OF REDEMPTION PERIOD

A judgment in favor of the lender is part of the judicial foreclosure decree. A deficiency automatically results when the property is sold at a commissioner's sale for less than judgment, interest, and costs. If the statutory foreclosure procedure has been used, an action must be brought for judgment within 12 months after the statutory foreclosure sale, but any such judgment shall not exceed the lesser of (i)&nbsp;the amount by which the debt due on the sale date exceeds the property's fair market value, or (ii)&nbsp;the amount by which the debt due on the sale date exceeds the foreclosure sale price. See Ark. Code Ann. &sect;&nbsp;18-50-112(b). The practical result is that lenders in statutory foreclosures typically obtain deficiency judgments only when the outstanding debt's value exceeds the property's value.

DEFICIENCIES

Leases entered into after the execution and recording of the mortgage may be extinguished through either judicial foreclosure or the statutory foreclosure procedure. If the lessee is joined in the foreclosure action, then the lease is terminated automatically upon the judicial or statutory foreclosure. Alternatively, the lease is not terminated if the lender had actual or constructive notice of the lease but did not join the lessee in the foreclosure action.

EFFECT OF FORECLOSURE UPON LEASES

Jury trial waivers In Tilley v. Malvern National Bank, 2017 Ark. 343, 532 S.W.3d 570 (“Tilley I”), the Arkansas Supreme Court held that pre-dispute jury trial waivers in loan agreements violate the Arkansas Constitution. The Arkansas Constitution states that the “right of trial by jury shall remain inviolate, and shall extend to all cases at law, without regard to the amount in controversy; but a jury trial may be waived by the parties in all cases in the manner prescribed by law.” Art. 2, &sect; 7 (emphasis added). The Court in Tilley I found no law allowing for pre-dispute jury trial waivers; therefore, the Court declared the pre-dispute jury trial waiver in the loan agreement in question to be unenforceable. The Arkansas Legislature passed Ark. Code Ann. &sect; 16-30-104 in response to Tilley I, expressly validating pre-dispute jury trial waivers in “contract[s] to borrow money or to lend money.” In response to the passage of Ark. Code Ann. &sect; 16-30-104, the circuit judge hearing the remand from Tilley I ruled that the jury trial waiver was valid and enforceable. Tilley appealed the decision back to the Arkansas Supreme Court, which heard the matter in Tilley v. Malvern National Bank, 2019 Ark. 376, 590 S.W.3d 137 (“Tilley II”). In Tilley II, the Court held that the mandate rule and the law of the case doctrine prevented the circuit court from considering Act 13 in Tilley's case, declining to recognize intervening changes of controlling law as an exception to the mandate rule or the law of the case doctrine. Ultimately, the Court refused to comment on the constitutionality or effectiveness of Ark. Code Ann. &sect; 16-30-104. Until the Court confirms the constitutionality of Ark. Code Ann. &sect; 16-30-104, lenders should reference Tilley I, Tilley II, and Ark. Code Ann. &sect; 16-30-104 in jury trial waivers and familiarize themselves with Rules 38 and 39 of the Arkansas Rules of Civil Procedure. Rules 38 and 39 provide the procedure for jury trial requests and waivers after the commencement of a case, which the Court has recognized as constitutional and valid. Post-foreclosure eviction In In re Wells, 536 B.R. 264 (Bankr. E.D. Ark. 2015), a lender foreclosed against a debtor and obtained court confirmation of the sale. The debtor remained on the property, making him a tenant at sufferance under Arkansas law. Ten days after the sale, the debtor filed for bankruptcy. The bankruptcy court prohibited the lender from evicting the debtor, holding that the automatic stay applied to the tenant's possessory property interest—the tenancy at sufferance. This case should encourage lenders to secure possession of foreclosed property as soon as possible after a sale.

NEW FORECLOSURE CASE LAW

Ark. Code Ann. &sect;&nbsp;17-42-110 allows a “broker's price opinion” (defined at Ark. Code Ann. &sect;&nbsp;17-42-103(3)) as “an estimate prepared by a licensee that details the probable selling price of real estate and provides a varying level of detail about the real estate's condition, market, and neighborhood, and information about sales of comparable real estate”) to be used by lenders to the extent presently allowed by federal law.

BROKER PRICE OPINIONS

History Due to Congress' passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, Pub. L. No. 103328, 108 Stat. 2338 (1994), and subsequent interpretive rulings by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation in 1998, out-of-state banks with branches in Arkansas have been authorized, despite Arkansas' usury limits, to “import” interest rates into Arkansas from their home states so long as certain qualifications are met. Subsequently, with the 1999 passage of Section 731 of the Gramm-Leach-Bliley Act, codified as 12 U.S.C. &sect;&nbsp;1831U-(f), and because of insured depository institutions with Alabama or South Dakota as their home state branching into Arkansas, all usury limits applicable to state and federally chartered banks organized in Arkansas have been, in effect, removed. Usury amendment to Arkansas Constitution Under Amendment 89 to the Arkansas Constitution, which took effect January 1, 2011, loans by federally insured depository institutions with their main offices in Arkansas and issuers of Arkansas state and local governmental unit bonds have no usury ceiling, and all “other” lenders are subject to a usury ceiling of 17%; provided, however, that: (i)&nbsp;the Arkansas Legislature may, from time to time, fix interest rates on governmental bonds; and (ii)&nbsp;out of state banks with branches in Arkansas are still able to “import” interest rates into Arkansas from their home states as such rates existed on March 1, 2009. With regard to the 17% usury ceiling imposed on all lenders who are neither federally insured depository institutions with their main offices in Arkansas nor issuers of Arkansas state and local governmental unit bonds, Amendment 89 provides that all contracts having a rate over the maximum lawful rate shall be void as to principal and interest and the Arkansas Legislature shall prohibit the same by law. Loan fees, commitment fees, origination fees, and other charges can all be considered part of the interest rate calculation under Arkansas case law. Thus, for lenders who do not enjoy federal preemption, pre-Amendment 89 case law will likely determine whether the interest charged in any year is usurious, with the first year of a loan being critical due to origination and other closing fees.<a href="#_ftn2" name="_ftnref2">[2]</a> Amendment 89 applies only to loans made after the January 1, 2011 effective date, and loans made before that date are governed by applicable law as of the date such loan was entered into, absent an extension or renewal of the loan.

USURY CEILING

In addition to the exceptions noted above, with regard to any purchase money loan made after March 31, 1980, by an individual who finances the sale or exchange of residential real property that such individual owns and occupies or has occupied as his principal residence, and if such purchase money loan is secured by a first lien on that residential real property, then such purchase money loan is exempt from Arkansas usury limitations by federal preemption, as Arkansas did not elect the “opt-out” privilege provided for in the federal preemption. See 12 U.S.C. &sect;&nbsp;11735f-5(b); and 12 U.S.C. &sect;&nbsp;1735f-7. Lenders and lawyers have relied upon this federal preemption for over 30 years. Still, the Arkansas Court of Appeals, in Mercer v. Engle, 2012 Ark. App. 277, may have cast some doubt on its continuing availability as a result of the Court's apparent incomplete reading of the applicable federal statute, which resulted in the contract for deed not being considered a first lien.

USURY EXCEPTIONS

Arkansas adopted a revised Article 9 to the UCC, which incorporates some changes from the uniform text. Arkansas follows the uniform text concerning fixture filings. However, the Arkansas Legislature created the offense of fraudulently filing a UCC financing statement where there is no underlying security agreement. The first offense is a Class A misdemeanor, and a subsequent offense is a Class D felony. In addition, a person aggrieved or damaged by such a filing may sue the violator for injunctive and other curative relief and may also recover up to $10,000, court costs, reasonable attorney's fees, investigation expenses, and punitive damages. See Ark. Code Ann. &sect;&nbsp;5-37-215.

REVISED ARTICLE 9 OF THE UCC

Under Ark. Code Ann. &sect;&sect;&nbsp;18-41-101 and 103, (a)&nbsp;a farm landlord has statutory liens on the crop grown on the landlord's land for rent, and the value of any advances made by the landlord to make or gather the crop and (b)&nbsp;said statutory liens (i)&nbsp;are perfected without filing, (ii)&nbsp;have priority over all conflicting security interests in, or agricultural liens against, the crops regardless of when the conflicting security interests or agricultural liens were perfected, and (iii)&nbsp;continue for six months after the date the last installment of rent under the rental agreement is due to the farm landlord. Under Ark. Code &sect; 18-41-105, a waiver of this landlord's lien may be procured, but it is to be recited in the mortgage. Any waiver not recited in the mortgage is invalid against any subsequent mortgagee, purchaser, or assignee. In addition, under Ark. Code Ann. &sect;&nbsp;18-16-108, all property placed on the leased premises by a tenant is subject to a statutory lien in favor of the landlord to secure all payments due under the lease. However, such statutory lien in favor of the landlord is inferior to a perfected purchase money security interest in such property.

LANDLORD'S LIENS

Ark. Code Ann. &sect;&nbsp;4-9-501 provides for the central filing of most financing statements in the office of the Arkansas Secretary of State, except for the “standard” local (i.e., in the county where the property is located) financing statement filing requirements for as-extracted collateral, timber to be cut, and fixtures. (NOTE: Before 2013, Arkansas law required certain non-standard local filings concerning farm-stored commodities financed by a loan through the Commodity Credit Corporation of the United States Department of Agriculture. Some of these filings may remain of record and active.)

LOCATIONS FOR FILING

A mortgage is, from the date of recording, effective as a fixture filing if the mortgage instrument describes the real property, is recorded in the real estate records, and otherwise satisfies the requirements of a financing statement as to fixtures. The standard 5-year life for financing statements does not apply to mortgages, therefore, a mortgage is effective as a fixture filing for the duration of the instrument's life.

SECURITY INSTRUMENT USED AS FIXTURE FILING

None, but case law holds that guarantors, particularly if uncompensated, are “favorites of the law,” and that a guaranty will be strictly construed in a guarantor's favor.

UNUSUAL PROVISIONS OR REQUIREMENTS

None, so long as the guaranty's wording is clear and contains both broad waivers by a guarantor and broad exculpatory clauses in favor of a lender.

SPECIAL PROBLEMS IN ENFORCEMENT OF GUARANTY

None, except as noted above. A guaranty of “payment,” instead of a guaranty of “collection,” is the form of guaranty almost exclusively seen.

ISSUES AND GUIDELINES RELATED TO SEEKING/OBTAINING DEFICIENCY JUDGMENTS

Within five years after the stated due date, or if the stated due date is accelerated, within five years after the accelerated due date. Ark. Code Ann. &sect; 16-56-111. To extend or renew, as to third parties, the maturity of a debt or note secured by a mortgage, the parties must execute and acknowledge a written agreement that sets forth the terms of the extension or renewal and describes the property and then file and record the written agreement in the real estate records of the county in which the property is located. Ark. Code Ann. &sect; 18-40-103. Ark. Code Ann. &sect;&nbsp;16-65-117(d)(1) states that judgment liens continue in force for ten years commencing on the date of the judgment and may only be revived under Ark. Code Ann. &sect;&nbsp;16-65-501, which provides that before the expiration of a judgment lien the lien holder “may sue out of a scire facias to revive the judgment.” Additionally, Ark. Code Ann. &sect;&nbsp;16-65-117(d)(1)(B) states that the duration of a judgment lien shall not be revived or extended by an act or circumstance that tolls or renews the limitations period outlined in Ark. Code Ann. &sect;&nbsp;16-56-114 (providing that all actions on judgments and decrees shall be commenced within ten years after the cause of action accrues).

STATUTE OF LIMITATION PERIOD

A written instrument in recordable form. Under Ark. Code Ann. &sect; 18-40-104, if satisfaction of a mortgage is not acknowledged of record within 60 days after it is requested, (i) the person receiving the satisfaction shall forfeit to the party aggrieved any sum not exceeding the amount of the mortgage money, to be recovered by a civil action in any court of competent jurisdiction and (ii) or fails to cause the trustee under a deed of trust to reconvey the property to the person entitled to possession, a satisfaction affidavit may be executed and recorded instead of an acknowledgment, and shall have the same effect. The satisfaction affidavit may be executed and recorded by: (i)&nbsp;the attorney who prepared the mortgage or deed of trust; (ii)&nbsp;the attorney who represents either the person who made or received the satisfaction; or (iii)&nbsp;the title agent employed by the title company that tendered the satisfaction. Ark. Code Ann. &sect;&nbsp;18-40-104(f). The satisfaction affidavit must be sworn to and acknowledged and conspicuously identify in its title that it is a “Satisfaction Affidavit.” Ark. Code Ann. &sect;&nbsp;18-40-104(g)(1), (2). The affidavit must also contain: (i)&nbsp;the names of all parties to the original instrument; (ii)&nbsp;recording information of the original instrument (including the date of the original instrument); (iii)&nbsp;the date and amount of the payment satisfying the indebtedness; and (iv)&nbsp;the statement that more than 60 days has passed since request for the acknowledgment of satisfaction was made. Ark. Code Ann. &sect;&nbsp;18-40-104(g)(3). Ark. Code Ann. &sect; 18-40-104(h) contains a model form of satisfaction affidavit. A satisfaction affidavit must substantially comply with the model form, be filed for record in the county where the subject property is located, and be indexed by the recorder's office in the same manner as an acknowledgment of satisfaction. Ark. Code Ann. &sect; 18-40-104(i).

REQUIREMENTS FOR RELEASE OF LIEN

The homestead of any resident of Arkansas who is married or the head of a family is “exempt from the lien of any judgment or decree of any court, or to sale under execution.” The property claimed as a homestead must be owned and occupied as a residence. The homestead exemption is subject to certain exceptions, including purchase money mortgage liens, laborers' and mechanics' liens, and tax liens. If the property is determined to be “rural,” the exemption can apply to up to 80 acres of land and improvements regardless of value. If the property is determined to be “urban,” the exemption may cover up to &frac14; of an acre regardless of value. A conveyance, mortgage, or other instrument executed by one spouse and affecting the homestead is void - except for taxes and laborers' and mechanics' liens - unless the other spouse joins in the execution of the instrument or conveys by separate instrument and acknowledges the instrument. In Fitton v. Bank of Little Rock, 2010 Ark. 280, 365 S.W.3d 888, the Arkansas Supreme Court held that a homestead exemption in Arkansas could be enforced even though the subject real property had been previously transferred into a revocable trust.

HOMESTEAD ISSUES

Arkansas is not a community property state; however, similar concepts apply for purposes of marital dissolution. See Ark. Code Ann. &sect; 9-12-315.

COMMUNITY PROPERTY

MORTGAGE TAX

For conveyances of real property for consideration over $100, documentary stamp tax is $3.30 for each $1,000, or fractional part thereof, of consideration. Ark. Code Ann. &sect;&nbsp;26-60-105 provides that the documentary stamp tax shall be based solely on the value given for lands, tenements, and other realty, and not any consideration given for tangible or intangible personal property. Certain transactions exempt from the documentary stamp tax are outlined in Ark. Code Ann. &sect;&nbsp;26-60-102. On Note: None. On Foreclosure Sale or Deed in Lieu of Foreclosure: Under Ark. Code Ann. &sect;&nbsp;26-60-102, a commissioner's deed, a trustee's deed, or a deed instead of foreclosure (judicial or non-judicial) given to the secured party is exempt from the stamp tax. A commissioner's deed or a trustee's deed to a third-party purchaser is subject to the stamp tax of $3.30 for each $1,000, or fractional part thereof, of consideration.

DOCUMENTARY STAMP TAX

No Transfer Tax except for Documentary Stamp Tax, as discussed above.

TRANSFER TAX

A choice of law provision in an agreement will be enforced by an Arkansas court if the state whose law is chosen to govern has a “substantial contact” or “reasonable relationship” with the transaction, with the customary proviso always being that any such choice must not be a “sham” or a “cloak” to avoid application of the Arkansas usury laws. For almost the last 50 years, and despite the aforesaid usury proviso, the choice of another state's law has been the method most often employed by “out-of-state” bank and non-bank lenders in large commercial transactions to avoid the application of Arkansas substantive law, including Arkansas usury laws, and such choices, so long as reasonably supported in the loan documentation, have been enforced with only a few aberrant “usury” exceptions over the years.

ENFORCEABILITY OF AGREEMENTS AS TO CHOICE OF LAW

By statute, a receiver may be appointed if the property is in danger of being lost, removed, or materially injured or the mortgage conditions have not been met and the property is probably insufficient to discharge the debt. In addition, under the Arkansas Rules of Civil Procedure, Arkansas Circuit Courts may appoint receivers for any lawful purpose when such appointment is deemed necessary and proper.

RECEIVERSHIP

As discussed above, longstanding Arkansas case law provides that loan fees, commitment fees, origination fees, and other charges that are used to defray general expenses of a lender, as contrasted with specific expenses incurred in connection with the particular loan, will almost certainly be counted as interest if Arkansas law either is or is not found to be controlling. Accordingly, title insurance premiums, closing costs, attorneys' fees, appraisal fees, recording fees, guaranty fees, and environmental audit costs, if collected from a borrower and paid to a third party, will not be considered interest.

ANY PROHIBITION OR SPECIAL RULES REGARDING LOAN APPLICATION, LOAN FEES OR COMMITMENT FEES

With regard to loans primarily for personal, family, or household use and secured by residential real estate, mortgage brokers and mortgage bankers dealing in such loans are required, unless covered by a specific statutory exemption, to be licensed by the Arkansas Securities Commissioner under Ark. Code Ann. &sect;&nbsp;23-39-501 et seq. Ark. Code Ann. &sect; 23-39-502(9)(B) provides a list of exempt persons, which include state or federal chartered banks, operating subsidiaries of state-chartered banks regulated by the State Bank Department, a savings bank, a savings and loan association, or a credit union, whose accounts are insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration. Ark. Code Ann. &sect; 23-39-510 requires licensed mortgage brokers, mortgage bankers, and mortgage services to establish, implement, update and enforce written physical security and cybersecurity policies and procedures reasonably designed to ensure the confidentiality, integrity, and availability of physical electronic records and information. The Arkansas Securities Commissioner has the power to impose additional conditions to clarify the requirements of such required policy or procedure but has yet to do so.

LENDER QUALIFICATION AND/OR LICENSURE

Except as outlined in Statute of Limitation Period above, none.

MODIFICATION - UNUSUAL PROVISIONS OR REQUIREMENTS FOR MODIFICATIONS OF EXISTING MORTGAGE LOANS

Ark. Code Ann. &sect;&nbsp;8-7-516 imposes an environmental cleanup lien on contaminated property only if the owner of the property is responsible, in whole or in part, for the contamination, and the lien is effective only upon the filing of a notice of the lien in the real estate records of the county where the property is located. Arkansas law provides for a super-priority lien under the Surface Coal Mining and Reclamation Act, codified at Ark. Code Ann. &sect;&nbsp;15-58-401 et seq., with the specific lien provisions and procedures being outlined in Ark. Code Ann. &sect;&nbsp;15-58-404.

ENVIRONMENTAL LIEN LAW ISSUES

Arkansas does not have a local bar opinion report that articulates standard accepted opinion practices.

LEGAL OPINIONS

INCEPTION OF LABORERS AND MATERIALMEN'S LIEN (Priority of Lien of Deed of Trust or Mortgage): An L&M Lien (called a “Mechanics' and Materialmen's” lien in Arkansas) will be held to be before the lien of a construction mortgage unless: (i)&nbsp;the construction mortgage is recorded prior to commencement of construction and (ii)&nbsp;the construction mortgage contains “purpose language” and “mandatory advance” language. If the construction loan proceeds are to be used in part for the “purpose” of acquiring the real property on which the improvements are to be constructed, Ashdown Hardware Co. v. Hughes, 223 Ark. 541, 267 S.W.2d 294 (1954), instructs that the acquisition money and the construction money must be broken out with exact, separate amounts for each being specified in the construction mortgage. “Purpose Language” consists simply of language affirming that the loan proceeds will be used solely to acquire the mortgaged property and the balance to construct improvements upon the mortgaged property. “Mandatory Advance Language” is simply an affirmation that the recording of the mortgage binds the lender to make obligatory future advances up to the total amount of the loan as disclosed in the debt instrument, but only if the borrower is not otherwise in default. Case law holds that the lender must be “unequivocally bound” to make the advances for construction, but only if the borrower is not otherwise in default. Optional future advances will not be prior to even a subsequently attaching L&M Lien if the lender had actual notice of an intervening L&M lien at the time the optional future advance is made. Commencement of construction is a fact question to be determined by evidence presented. There is no objective standard, such as an affidavit or notice of commencement. Prudent construction lenders will take a picture of the construction site immediately after recording the construction mortgage to establish that there is no visible evidence of any construction work in progress and that no materials have been delivered. Commencement of construction is also important in that the L&M Lien (as to all lien claimants) will “relate back” and have priority as of such commencement, regardless of the date work was performed or materials supplied. See Ark. Code Ann. &sect;&nbsp;18-44-110(a)(1). Arkansas' L&M Lien statute is codified at Ark. Code Ann. &sect;&nbsp;18-44-101 et seq. and provides that every contractor, subcontractor, or material supplier (as each is defined in Ark. Code Ann. &sect;&nbsp;18-44-107) who supplies labor, services, material, fixtures, engines, boilers, or machinery in the construction or repair of improvement to real estate, or any boat or vessel of any kind, by virtue of a contract with the owner, proprietor, contractor or subcontractor, or agent thereof, upon compliance with Arkansas' L&M Lien statute, shall have, to secure payment, a lien upon the improvement and up to 1 acre of land upon which the improvement is situated, or to the extent of any number of acres of land upon which work has been done or improvements erected or repaired. Arkansas' L&M Lien statute sets forth very specific and detailed notice and other requirements that must be strictly complied with to claim and enforce an L&M lien in Arkansas successfully. Some of those requirements will vary depending on whether or not the real estate involved is residential real estate containing four or fewer units. Under Ark. Code Ann. &sect;&nbsp;18-44-105, engineers, architects, surveyors, appraisers, landscapers, abstractors, and title insurance agents, if they have a written agreement with the owner or his agent for performance of work on any land, are also entitled to claim and then enforce liens against such land and the improvements thereon. This is subject to the same notice and other requirements mentioned above for L&M liens. However, in Crafton, Tull, Sparks, & Assocs., Inc. v. Ruskin Heights, LLC, 2015 Ark. 1, 453 S.W.3d 667, the Arkansas Supreme Court held the statute allowing materialmen's, laborer's, and mechanic's liens to relate back to the date on which construction or repair first commenced does not allow for an engineer's lien to relate back to the date of construction.

LABOR AND MATERIAL LIEN CLAIMS (“L&M LIEN”) - PRIORITY ISSUES

Generally, a security interest in fixtures is subordinate to a construction mortgage recorded before the goods become fixtures if the goods become fixtures before the completion of the construction. To the extent that it is given to refinance a construction mortgage, a mortgage has this priority to the same extent as the construction mortgage. However, a perfected security interest in fixtures has priority over the conflicting interest of an encumbrancer or owner of the real estate where the fixtures are readily removable factory or office machines or readily removable replacements of domestic appliances that are consumer goods, and before the goods become fixtures the security interest is perfected by any method permitted by Arkansas law. The term “removable fixture” is a misnomer that might cause confusion. If the fixture in question is determined to be personal property, then the foregoing rules apply. If, however, it is a “real estate fixture,” priority will be determined according to the general rules as to priority between construction mortgages and materialmen's liens.

PRIORITY AS TO REMOVABLE FIXTURES (Priority of Lien of Mortgage or Deed of Trust)

Mobile homes are treated as vehicles for purposes of attachment and perfection of security interests. Ark. Code Ann. &sect;&nbsp;27-14-802 provides that a security interest in a mobile home is perfected by filing the lien documents with the Office of Motor Vehicles and noting the lien on the certificate of title for the mobile home. Such a perfected security interest will prevail even over a prior encumbrance on the real property to which the home might be attached. In addition, the Arkansas Legislature also provided an optional method for perfecting a lien against mobile homes and other motor vehicles, commonly referred to as a “Direct Lien” or a “Dollar Lien.” Under Ark. Code Ann. &sect;&nbsp;27-14-806, at the lienholder's option, the lienholder may record the lien on the existing manufacturer's statement of origin or on the existing certificate of title and then file with the Revenue Division of the Arkansas Department of Finance and Administration a certified copy of the instrument creating and evidencing the lien or encumbrance. While the language in Ark. Code Ann. &sect;&nbsp;27-14-806 is often less than clear, the statute is generally understood to require a lienholder to file with Revenue Division a certified copy of either the existing manufacturer's statement of origin or the existing certificate of title, with the lienholder's lien recorded thereon, and a certified copy of the security agreement or other document granting the subject lien. The cost of perfecting a lien under this optional method is only a $1 fee to be paid to the Revenue Division, and such cheap perfection protection has often saved a lienholder's collateral when there has been some unforeseen delay in the normal title application process and an intervening debtor bankruptcy occurs. Ark. Code Ann. &sect;&nbsp;27-14-1603 allows an owner or lienholder to cancel the title on any mobile home upon its being permanently affixed to real estate. The term “permanently affixed to real estate” is defined as attachment of the mobile home to a permanent foundation system in accordance with the manufacturer's requirement for anchoring, support, and maintenance, as appropriate for soil conditions on the real estate. Any application to the Arkansas Department of Finance and Administration to cancel the title to a mobile home must be signed by all parties holding a lien or security interest in the mobile home as evidence of consent to the cancellation of title.

MOBILE HOME LIENS/SECURITY INTERESTS

The Reverse Mortgage Protection Act of 2005, codified at Ark. Code Ann. &sect;&nbsp;23-54-101 et seq., is a comprehensive enactment that defines and regulates Reverse Mortgages. A “Reverse Mortgage” is a non-recourse loan, secured by a borrower's principal residence, that provides cash advances based upon the amount of equity in the residence and requires no payment of principal or interest until the entire loan becomes due and payable. The Act prescribes mandatory provisions that must be included in a Reverse Mortgage, provides for full disclosure using a prescribed form, fixes the commencement of the applicable statute of limitations, and provides for remedies in the event of default.

REVERSE MORTGAGES

Loan Policy (Form 2021). However, some title insurers may still only be offering Form 2006.

ALTA FORM USUALLY REQUIRED BY LENDER

Title insurance premiums are not regulated in Arkansas and can be negotiated with the title insurance company.&nbsp;

COSTS

Several different ALTA endorsements are available in Arkansas, and of those, the endorsements most often required by lenders in Arkansas are:Access Endorsement: insures the lender for loss if the land does not abut an open public street, has vehicular and pedestrian access, and has use of existing curb cuts.Comprehensive Endorsement: insures the lender against loss or damage due to violations of covenants, conditions, and restrictions of record and from encroachments of existing improvements across the boundary lines of the subject property.Contiguity Endorsement: insures the lender against loss or damage if certain tracts of land are not contiguous to each other.Condominium Endorsement: insures that the condominium regime has been properly created and extends protection against violation of the covenants, conditions, and restrictions.Environmental Endorsement: provides affirmative coverage to the lender against lack of priority of the insured lien over certain federal and state liens for environmental cleanup costs.Planned Unit Development Endorsement: insures as to any encroachments and rights of first refusal, insures against present violations of restrictive covenants, and insures that any breaches of covenants will not cause a forfeiture or reversion.Survey Endorsement: insures the lender that the land described in the policy is the same as shown on the survey identified in the endorsement.Tax Parcel Identification Number Endorsement: states the applicable tax parcel identification number and insures the lender against loss or damage suffered due to inaccuracy.Zoning Endorsement: insures the lender against loss or damage suffered because of the property being zoned other than as shown on the endorsement and also provides insurance as to the use or uses that are allowed under the zoning classifications shown on the endorsement; requires an acceptable certification by the surveyor or the appropriate governmental entity.NOTE: Most of the above ALTA endorsements will require, among other pre-conditions, a current survey that satisfies the minimum standard detail requirements of the title company and the title company's underwriter.

ENDORSEMENTS AVAILABLE

Ark. Code Ann. § 23-103-401 et seq. mandates that only licensed title insurers may issue closing protection letters or issue, as an insurer, title insurance policies.

Arkansas

Mortgage Law Summary

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Mortgage Law Summary for Arkansas

Arkansas

Mortgage Law Summary

Continue reading theMortgage Law Summary for Arkansas

Continue reading the
Mortgage Law Summary for Arkansas