Bulletin: AR2020002

Dear Associates:

On May 7, the Supreme Court of Arkansas delivered its opinion (hereinafter “Opinion”) in Davis vs. PennyMac Loan Services, LLC, 2020 Ark. 180, in response to a certified question of law from the United States Bankruptcy Court for the Western District of Arkansas concerning the specificity of the event of default described in a trustee’s Notice of Default and Intention to Sell prior to a statutory foreclosure sale in the State of Arkansas.

Under Rule 6-8 of the Arkansas Rules of the Supreme Court and Court of Appeals, federal courts are authorized to certify questions of law directly to the Arkansas Supreme Court. In its discretion, the Arkansas Supreme Court may choose to answer the question with a final, determinative opinion on the matter of law under certain circumstances. In this instance, the question posed to the Arkansas Supreme Court was whether a trustee’s Notice of Default and Intention to Sell must specifically describe the event of default under the terms of the mortgage agreement OR simply contain a mere acknowledgment that default has occurred.

Arkansas Code §18-50-104(b) establishes seven (7) elements for a mortgagee’s or trustee’s notice of default and intention to sell: In order to be statutory compliant, the mortgagee's or trustee's notice of default and intention to sell shall set forth: 

(1) The names of the parties to the mortgage or deed of trust;

(2) A legal description of the trust property and, if applicable, the street address of the property;

(3) The book and page numbers where the mortgage or deed of trust is recorded or the recorder's document number;

(4) The default for which foreclosure is made;

(5) The mortgagee's or trustee's intention to sell the trust property to satisfy the obligation, including in conspicuous type a warning as follows: “YOU MAY LOSE YOUR PROPERTY IF YOU DO NOT TAKE IMMEDIATE ACTION”;

(6) The time, date, and place of sale; and

(7) The name, address, and telephone number of the party initiating
             foreclosure. 

In its Opinion, the Court found that the plain meaning of the language used in §18-50-104(b)(4) of the Arkansas Code requires disclosure of the specific default under the terms of the mortgage agreement. Where the terms of the mortgage list specific events of default, the Notice of Default and Intention to Sell must specify which specific event caused the default for which notice is being given. For example: if the mortgage lists “failure to make payments when due” as one of its specific events of default and that applies to the foreclosure in question, then the Notice of Default and Intention to Sell should specifically list that language as the default in question. It is no longer sufficient for a Notice of Default and Intention to Sell to merely assert default generally, such as: “a default has occurred under the terms of the mortgage that would give rise to the power of sale contained within said mortgage.”

Underwriting Implications

To insure title following a statutory foreclosure, we will require a thorough review of the foreclosure process and confirmation that the Notice of Default and Intention to Sell specifically describes the event of default as stated in the terms of the mortgage or deed of trust being foreclosed upon. Any defect in the statutory foreclosure process, including the required notice of default and intention to sell, could invalidate the foreclosure sale and necessitate curative measures prior to insuring title.

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