A May 11 ruling from U.S. District Court Judge J. Leon Holmes is expected to unplug a bottleneck of foreclosure filings that began in the fall of 2011 when a bankruptcy court ruling essentially halted the sale of foreclosed homes.
In a Sept. 29 decision involving a Chapter 13 bankruptcy case in the Eastern District of Arkansas, Jonesboro Division, 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.
Arkansas’ Statutory Foreclosure Act was first approved in 1987. In 2003, the Arkansas Legislature added the following language: “No person, firm, company, association, fiduciary, or partnership, either domestic or foreign, shall avail themselves of the procedures under this chapter unless authorized to do business in this state.”
The action caused title companies in the state to investigate foreclosure sales to determine if the properties were properly taken back by lenders.
Results of the legal ruling became obvious in the first quarter foreclosure filings. For the first three months of 2012, properties in a phase of foreclosure numbers 1,107, down 79% from the same period in 2011.
In Benton and Washington counties in Northwest Arkansas, first quarter 2012 foreclosure properties numbers 371, well below the 1,786 during the same period of 2011.
In Crawford and Sebastian counties in the Fort Smith region, first quarter 2012 foreclosure properties numbers 64, down 80.6% compared to the same period of 2011.
Judge Holmes rejected the notion that JPMorgan was out of compliance simply because it was not an Arkansas-based company.
“A national bank chartered by the Office of the Comptroller of the Currency is authorized to do business within Arkansas, which is all that is required by Ark. Code Ann.18-50-117. Therefore, as a national banking association, JPMorgan Chase Bank, N.A., was authorized to avail itself of the Arkansas Statutory Foreclosure Act,” Holmes noted in his ruling.
He also said Arkansas law was never written to imply exclusion.
“Had the General Assembly intended to require that an entity obtain a certificate of authority from the Arkansas Secretary of State, the Arkansas Bank Commissioner, or some other state office, as a prerequisite to performing nonjudicial foreclosures, the Statutory Foreclosure Act would have said so,” Holmes ruled.
"At first glance, this ruling appears to be a good thing for the housing market. The immediate problem with the ruling is that some people who purchased homes that had been foreclosed upon were in limbo,” said Ethan Nobles, association executive with the Benton-Bryant Realtors Association and a data manager for The City Wire’s The Arkansas Home Sales Report.
Nobles said clearing the backlog could reduce uncertainty in the state’s housing market.
“A lot of inventory was stacking up as banks impacted by the ruling weren't sure how to proceed. All in all, the reversal of the court's decision in the case should get inventory moving again and that's good news for a housing market that is dealing with more than its fair share of issues. With any luck, we'll see sales increase as the foreclosure picture is a bit clearer,” Nobles explained.
Link here for a PDF of Holmes' ruling.