Arkansas Chapter 13 Bankruptcy Ruling Slows Foreclosures
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Arkansas Bankruptcy Ruling Slows Foreclosures

November 16, 2011

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A ruling in a Chapter 13 bankruptcy case in Jonesboro, Arkansas, could have a significant impact on how mortgage foreclosure cases are handled in that state. According to TheCityWire.com, the Chapter 13 bankruptcy cases involve the foreclosure of homes with mortgages through J.P. Morgan.

In their Chapter 13 repayment plans, the filers apparently did not include fees associated with the foreclosure of their homes, including court and administrative fees. J.P. Morgan, it seems, felt that it was owed those costs and so objected to the repayment plans. But after hearing arguments on the issue, the bankruptcy judge ruled in favor of the debtors.

That decision was based on compliance with Arkansas’ non-judicial foreclosure laws. In recent years, non-judicial foreclosure (that is, foreclosures that do not go through the court system) have become more popular. Because of the sheer number of foreclosure currently in process, going through the court system would be unfeasible for many lenders and mortgage debt holders.

J.P. Morgan’s foreclosures in Arkansas reportedly fell into the non-judicial category, but, according to the bankruptcy judge, did not follow the state’s laws for such proceedings. The problem, according to sources, is that J.P. Morgan was not properly licensed to conduct business in Arkansas.

Further, the judge ruled that J.P. Morgan was responsible for paying the legal and court fees the Chapter 13 filers had incurred while arguing their cases.

Effects on Other Arkansas Foreclosure Victims

The ruling could have significant impact on others fighting foreclosure and/or filing for Chapter 13 bankruptcy protection in Arkansas. The ruling has also affected those purchasing foreclosed homes.

Because title insurance issuers refuse to insure titles when the home sale did not comply with state law, any foreclosed property that passed through the non-judicial foreclosure process could be in limbo.

Thanks to the judge’s ruling, Arkansas residents in real estate and related fields are scrambling to figure out what will happen to properties foreclosed through non-judicial channels. One possibility is that more foreclosures will have to be processed through the court system, a move that could be seen as a small victory for homeowners, as judicial foreclosures tend to require more personal attention to the matters at hand.


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