Bankruptcy Court Ruling Slows Down Foreclosure Sales In State

Ethan Nobles with First Arkansas News reports on a court decision that is causing many waves in the state’s real estate and title circles.

J.P. Morgan Chase Bank has been using a non-judicial foreclosure mechanism to take back homes with defaulted mortgages, but a bankruptcy court ruling has the proceedings in limbo. In turn, that ruling has caused a ripple effect in the state’s real estate industry as title companies and realtors are unsure whether some transactions are in compliance with state laws.

Nobles reports:

A Chapter 13 bankruptcy case in the Eastern District of Arkansas, Jonesboro Division, has caused title companies in the state to investigate foreclosure sales to determine if the properties were properly taken back by lenders.

In a Sept. 29 decision, the court held that a lender not authorized to do business in the state of Arkansas was not in compliance with the state’s non-judicial foreclosure laws. That case, In Re Johnson, concerned objections filed by J.P. Morgan Chase Bank and the related Chase Home Finance regarding the confirmation of three Chapter 13 plans for debtors who had lost their homes to the lenders through non-judicial foreclosure proceedings.

A non-judicial foreclosure has become the preferred method for taking back homes from debtors who have defaulted on mortgages held by J.P. Morgan. It is an abbreviated process that is less expensive than a traditional judicial foreclosure proceeding that is litigated in the courts system.

J.P. Morgan, in the In Re Johnson case, objected to the Chapter 13 plans of which the debtors sought court approval. A Chapter 13 bankruptcy plan is designed to pay creditors at least a percentage of what they are owed by the debtors over a period of years. J.P. Morgan argued that it was owed its the costs and fees it had incurred through the non-judicial foreclosure proceedings and those were not considered in the plans.

The court sided with the debtors, stating J.P. Morgan was not in compliance with Arkansas’ non-judicial foreclosure statutes as it was not authorized to do business in Arkansas. The court ruled the debtors did not owe the foreclosure fees and costs sought by J.P. Morgan. Furthermore, the court ruled J.P. Morgan owed the debtors’ attorneys fees incurred in litigating the issue.

With that unfolding of events, realtors and title company executives have chimed in.  The ruling is holding up certain transactions involving foreclosed properties and a resolution is unclear.

You can read more at this link.