If you get a loan to buy a home in Arkansas, you'll likely sign two documents: a promissory note and a mortgage. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The mortgage is the document that gives the lender a security interest in the property. If you fail to make the payments, the mortgage gives the lender the right to sell the home to recoup the money it loaned you.
After you default on your home loan payments in Arkansas, the servicer (on behalf of the loan owner, called the “lender” in this article) will eventually begin the foreclosure process. The method will most likely be nonjudicial, although judicial foreclosures are also allowed. Arkansas law specifies how nonjudicial procedures work, and both federal and state laws give you rights and protections throughout the foreclosure.
If you miss a payment, the servicer can usually charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you’ll incur late charges. To find out the grace period in your situation and the amount of the late fee, review the promissory note or your monthly billing statement.
If you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect. In most cases, federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called “loss mitigation” options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many mortgages in Arkansas have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default. If you don’t cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. But in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
Again, most foreclosures in Arkansas are nonjudicial.
At least ten days before starting a nonjudicial foreclosure in Arkansas, the lender has to mail a notice to you (the borrower). This notice must include information about the availability of loan modification assistance, along with details about the loan, like a payment history showing the date of default. (Ark. Code Ann. § 18-50-103).
To officially start the foreclosure, the lender records a notice of default and intention to sell with the county recorder. The lender then mails a copy of the notice to you and various other parties by both certified and first-class mail within 30 days after recording the notice. (Ark. Code Ann. § 18-50-104).
The lender also has to:
The sale is an auction, open to all bidders. The sale can’t happen until at least 60 days have passed since the recordation of the notice of default. (Ark. Code Ann. § 18-50-104).
At the sale, the lender bids on the property using a "credit bid" rather than bidding cash. With a credit bid, the lender gets a credit up to the amount of the borrower’s debt. But bids for less than two-thirds of the entire indebtedness aren’t allowed. (Ark. Code Ann. § 18-50-107). The highest bidder at the sale becomes the new owner of the property.
“Reinstating” is when a borrower pays the overdue amount, plus fees and costs, to bring the loan current and stop a foreclosure. Under Arkansas law, you can reinstate the mortgage at any time after the lender records the notice of default and before the sale. (Ark. Code Ann. § 18-50-114).
Sometimes, a foreclosure sale doesn’t bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a “deficiency balance.” Many states allow the lender to get a personal judgment, called a “deficiency judgment,” for this amount against the borrower.
In Arkansas, the lender may sue you for a deficiency judgment following a nonjudicial foreclosure if it does so within 12 months after the foreclosure sale. The amount of the judgment is limited to the lesser of:
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. But in Arkansas, you don’t get a redemption period after a nonjudicial foreclosure. (Ark. Code Ann. § 18-50-108).
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure. Or, you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.