Recent Federal Case Creates Uncertainty In Arkansas Foreclosures

In Jonesboro, Arkansas, The City Wire reports:

• 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.”

***

• 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.(1)

For the story, see Holmes’ ruling to open foreclosure bottleneck.

For Judge Holmes' ruling, see JP Morgan Chase Bank, N.A. v. Johnson, No. 3:11CV00249 JLH (E.D. Ark. (May 11, 2012).

Thanks to Deontos for the heads-up on the story.

(1) Except for the actual litigants involved, unless and until this or a similar Arkansas case is referred out of the federal court system and to the Arkansas Supreme Court for a final adjudication, the legal issues involved in this case will never ultimately be resolved in Arkansas (and, contrary to The City Wire's headline, the foreclosure bottleneck will not be opened - unless, of course, the title insurance underwriters decide to proceed recklessly, anyway).

Under federal law, based on the so-called Erie Doctrine (see Erie Railroad Co. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938), and the 'handful' of cases thereunder), federal court rulings implicating issues of state substantive (as opposed to procedural) law do not necessarily constitute binding precedent on state or federal courts in subsequent similar cases. The final authority on issues of substantive state law, as the U.S. Supreme Court has reminded us a numerous occasions, is the highest court of the state, regardless of whether the federal court's jurisdiction in a particular case is based on diversity jurisdiction, or not (as is the case here).

• "This is not a diversity case but the same principle may be applied for the same reasons, viz., the underlying substantive rule involved is based on state law and the State's highest court is the best authority on its own law." Commissioner v. Estate of Bosch, 387 U.S. 456 (1967).