Until recently, Arkansas foreclosure attorneys have had to rely upon a federal opinion when faced with due process attacks against the Arkansas Statutory Foreclosure Act. Defaulting homeowners have asserted that the Act violates their rights to due process by not affording them a hearing prior to a taking of their property.

Contributing author: Billy Glass, Esq.

 

B.A. Glass is an attorney in the litigation department at the creditor’s rights law firm of Wilson & Associates, P.L.L.C. A life-long Arkansas resident, he is admitted to the Bar of the State of Arkansas and is a member of the Arkansas Bar Association. His primary area of practice is foreclosure.

For quite some time, mortgage companies have been relying upon the findings in Hernandez v. Fleet Mortgage Corporation (USDC ED AR, 4:01-CV-442-WRW) to defend against due process claims brought by homeowners in relation to foreclosure actions. In that case, the homeowner brought a federal suit against the mortgage company claiming that state action was involved, and as a result, the homeowner’s due process rights were violated. The Federal District Court ruled that the requisite state action was not present and as such, the homeowner was not entitled to due process protections. While this was beneficial to mortgage companies holding liens in the State of Arkansas, there was no state precedent holding the state courts to this finding. In March 2007, the Arkansas Supreme Court clarified the issue as it applies to both the United States Constitution and the Arkansas Constitution. When a homeowner asserted that her due process rights under both Constitutions were violated, the Court found against her noting that the requisite state action was not present. In Parker v. BancorpSouth, 369 Ark 300, 2007 WL 853459 (2007), the lender non-judicially foreclosed on the homeowner’s property in accordance with Arkansas Code Annotated §18-50-101 et al. The homeowner contested the subsequent eviction by asserting that the Mortgagee’s Deed delivered to the bank was invalid because the sale was unconstitutional, thus making the resulting deed invalid. The homeowner argued that her property was taken without just compensation in violation of her due process rights,. She further claimed that the Arkansas Statutory Foreclosure had the requisite state action based on the fact that the Arkansas Legislature enacted the statute. The trial court ruled that the Arkansas Statutory Foreclosure Act was not unconstitutional. It based its ruling upon trial briefs, a stipulation of facts submitted by the parties, and the reasoning set forth in Hernandez v. Fleet Mortgage Company. The Arkansas Supreme Court was not persuaded by the homeowner’s argument and affirmed the trial court’s decision. The Court, in delivering its opinion, cited decisions in several states, which consistently found no state action in non-judicial foreclosures. It relied upon the fact that the requisite state action is not present in a non-judicial foreclosure. The Court specifically cited the Georgia Supreme Court in Coffey Enterprises Realty & Development Company, Inc. v. Holmes, 233 Ga. 937, 938, 213 S.E.2d 882,884(1975) in which that Court stated “there is insufficient meaningful government involvement to constitute state action by the mere adoption of statutes providing for the sale of real estate under powers contained in mortgages, debts, deeds or other lien contracts where the grant of such power is contained in the contract between the parties thereto. No government official or agency is involved in such process.” The Arkansas Supreme Court agreed with this logic by saying that a mortgage is a contract, and the mere fact that the Legislature has placed requirements to enforce that contract does not rise to the level of required state action. It found that “there is clearly no involvement by a state official, no aid from state officials, nor any conduct otherwise chargeable to the state, during the foreclosure process. Accordingly, there can be no state due-process violation.” The Court clarified the issue that the bank is essentially the only actor in the foreclosure process. The Statutory Foreclosure Act was put in place for the benefit of both the lending institutions and for the persons borrowing from these institutions. By setting specific requirements, the Act is ensuring that homeowners receive notice that their property may be taken pursuant to terms of the Note and Mortgage that were signed. The focal point of the Court’s ruling is that the laws governing non-judicial foreclosure in Arkansas are grounded in that of contract rather than upon the principles related to public takings. Since no state action is present, the Act provides strict guidelines to enforce this specific type of contractual relationship. The Parker case has finally settled the long held position of creditors’ counsel that due process is not applicable to a non-judicial foreclosure under the Arkansas Statutory foreclosure Act, and the efforts of the plaintiff’s bar to create such a due process issue have been irrevocably thwarted.