Bulletin: AR2023001

Dear Associates:

The following is a summary of legislation that was passed during the 94th General Assembly that may impact the title industry.

Charging Orders Under the Uniform Limited Liability Company Act

HB 1020 / Act 795. This act amends Arkansas Code §§ 4-38-502 and 4-38-503 to make changes to the application and process for charging orders against the interests of members of an LLC. The court may charge the transferrable interest or possibly the whole interest of a member of an LLC upon the application of a judgment creditor of the member and the charging order will create a foreclosable lien on the member’s interest.

What you should know: Although the charging order application and lien process have undergone substantial revisions with this act, there is little impact as to the title of the real property vested in the LLC. For our purposes, we are looking at the act’s allowance of a judgment creditor to foreclose on the lien that the charging order constitutes against the whole membership interest of the member in a sole member LLC. This would impact who has the authority to manage the affairs of the LLC and control the assets (including real property) of the LLC. (Effective July 31, 2023).

Cancellation of Redemption Deed or Tax Sale Deed by Commissioner of State Lands

HB 1224 / Act 173. This act adds the additional section of Arkansas Code § 26-37-317 to allow the Commissioner of State Lands to cancel, set aside, and hold for naught a redemption deed or tax sale deed due to failures in or dishonoring of payment made by the redeemer or purchaser.

What you should know: There were various bills proposed and passed this session regarding the duty, responsibilities, or processes of the Commissioner of State Lands. While most were clerical corrections or of little impact to our industry, this act may impact a chain of title in the event of dispute of a tax sale requiring redemption by the tax debtor or a subsequent tax sale. A dispute may result in the necessity of a quiet title and confirmation suit. (Effective July 31, 2023).

Tax Sale and Redemption Procedure

HB 1263 / Act 241. This act amends Arkansas Code §§ 26-37-202, 26-37-302, and 26-37-310 to make changes to the procedure for notifying interested parties of a pending sale of tax-delinquent property. The Commissioner of State Lands must notify interested parties by regular mail of a pending tax sale at least 30 days prior to the date of sale for an in-person auction. If the tax-delinquent property is offered for sale online, the Commissioner of State Lands must notify interested parties of the date of the sale and right to redeem by certified mail after the first bid is received. Any interested parties will have the right to redeem before 4:00 pm (CST) on the last business day before the date of sale.

What you should know: Title derived from a limited warranty deed as a result of a tax sale is not insurable unless certain underwriting requirements are met. Changes in the tax sale procedure could result in more defective tax sales and potential for challenges. Contact your state underwriter regarding necessary requirements. (Effective March 9, 2023).

Rule Against Perpetuities

HB 1339 / Act 719. This act amends Arkansas Code § 18-3-101 to extend the time period for an interest to vest or terminate in order to be valid under the rule against perpetuities. Under the change to the statutory rule against perpetuities, a nonvested property interest is invalid unless: 1) when the interest is created it is certain to vest or terminate no later than 21 years after the death of an individual then alive or 2) the interest either vests or terminates within 365 years after its creation.

What you should know: Issues or violations of the rule against perpetuities come up in regards to estate distributions and the vesting of title in devisees under a will. If you cannot determine who holds title to property under a properly probated will due to a condition precedent or unclear devising provisions, it may be necessary for the probate court to make a determination or reformation of the disposition to determine who is vested with title to the real property. (Effective July 31, 2023).

Uniform Easement Relocation Act

HB 1408 / Act 505. This act adds the additional subchapter 7 to Arkansas Code Title 18, Chapter 11 to enact the Uniform Easement Relocation Act (UERA). The UERA creates a procedure for judicial relocation of an easement by a servient estate holder subject to the veto or challenge of the dominant estate holder (easement holder). A summons and petition must be served by the servient estate holder on the easement holder, a security interest holder, a lessee of the dominant estate, or other real property interest holder affected by the relocation. Before the relocation can take place, an order granting the relocation of the easement must be recorded in the land records. The easement holder may use the prior easement if construction is required for the relocated easement up until the servient estate holder: 1) records in the land records an affidavit of relocation stating that the relocation is complete and 2) sends by certified mail a copy of the recorded affidavit to the parties of the civil action.

What you should know: Due to the nature of relocation and not invalidating the easement, there is no requirement for a lis pendens to be filed in the required procedure for this civil action. That said, interested parties must receive notice and be summoned. The petitioner will be responsible for reasonable expenses of the relocation including any cost of title insurance. (Effective July 31, 2023).

Uniform Community Property Disposition at Death Act

HB 1409 / Act 582. This act adds the additional chapter 15 to Arkansas Code Title 28 to enact the Uniform Community Property Disposition at Death Act (UCPDDA). The UCPDDA replaces the 1971 version of the law previously adopted in Arkansas. Community property acquired by a married couple retains its character as community property despite relocating their residence to Arkansas.

What you should know: One change that should result in the act having little impact is that any claimed application of the UCPDDA in Arkansas must be asserted well within the claims period of a testate estate or intestate estate. (Effective July 31, 2023).

Homestead Property Tax Credit for LLC Owned Property

HB 1454 / Act 541. This act amends Arkansas Code §§ 26-26-1118 and 26-26-1122 to allow for an LLC registered with the Arkansas Secretary of State and in good standing to claim a homestead property tax credit on one property owned by the LLC used by the member (and a spouse) as a principal place of residence.

What you should know: This creates a new possibility for LLC owned property to be claimed as homestead property. (Effective for assessment years beginning on or after January 1, 2024).

County Property Reappraisal

SB 198 / Act 139. This act amends Arkansas Code § 26-26-1902 to require that county assessors reassess and appraise real property at fair market value every four years. Counties may be granted an exception allowing the appraisal to stay on a 3- or 5-year cycle so as to reach an equal number of counties undergoing reappraisal each year.

What you should know: This should result in higher real property taxes as more property value rises in a market with low supply. In the past, reappraisal cycles have been determined by the amount of growth a county experiences. (Effective July 31, 2023).

Foreign Ownership and Possession of Real Property

SB 383 / Act 636. This act amends Arkansas Code § 18-11-101, adds § 18-11-110, and also adds a new Subchapter 7 to Title 18, Chapter 11 regarding foreign ownership and possession of real property. Certain individuals, entities, trusts, and foreign governments with connections to specific foreign countries and foreign entities identified by the federal government are restricted from owning real property. Any such property owners suspected of violating the act will be subject to a court proceeding filed by the Attorney General, which could lead to a judicial foreclosure of the property. No prior owner or interest holder can void title or divest a property owner in violation.

What you should know: Please see Bulletin AR2023002. (Effective July 31, 2023).

Municipal Development Regulations

SB 547 / Act 884. This act adds an additional section 104 to Arkansas Code Title 14, Chapter 56, Subchapter 1 to give property owners the option to choose municipal development regulations when applying for a permit to development if their property lies within two or more municipalities. The property owner must give written notice of the choice to each municipality’s governing body and each property owner whose property is within 500’ of the property subject to development regulations chosen.

What you should know: This change would impact the city authority from which documentation is required to provide additional endorsement coverage as to zoning ordinances. (Effective July 31, 2023).

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

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