An opinion was delivered by the Arkansas Supreme Court on May 7, 2020 that may have an impact on your foreclosures:
Davis v. PennyMac Loan Services, LLC, 2020 Ark. 180, S.W.3d (2020). Delivered May 7, 2020
PennyMac sought to foreclose on a mortgage Davis had executed in 2013. In August 2017, PennyMac sent Davis a Notice of Default and Intent to Accelerate stating that Davis was “in default under the terms of the document creating and securing your Loan…for failure to pay the amounts due.” In August 2018, PennyMac caused to be filed Notice of Default and Intention to Sell (the first legal in Arkansas). The Notice stated in pertinent part “WHEREAS, default has been made with respect to a provision in the mortgage that authorized sale in the event of the default of said provision and the same is now, therefore, wholly due.”
On November 8, 2018, the property was sold to PennyMac at foreclosure sale. On November 12, 2018, a Mortgagee’s Deed was executed in favor of PennyMac and filed of record on November 15, 2018. On November 21, 2018, Davis filed a bankruptcy petition and sought to include the foreclosed property in the estate. PennyMac filed a post-sale motion for relief stating that Davis no longer had an interest in the property, and it should not be included in the estate. Davis responded that the Notice was defective and the foreclosure was not valid. The bankruptcy court took the matter under advisement and certified a question to the Arkansas Supreme Court: “Whether mere acknowledgement that a default has occurred is sufficient for the trustee’s Notice of Default and Intention to Sell or does the Arkansas statute require disclosure of the specific default under the terms of the mortgage agreement.”
Holding: The Notice of Default must list the specific reason for default, and not merely state that there is a default under the terms of the mortgage. Arkansas statute 18-50-104(b)(4) requires the Notice to include “The default for which foreclosure is made,” and not just a statement that the mortgage is in default. The Court holds that the legislature’s inclusion of the word “The” before default must be recognized, and a blanket statement that the loan is in default will not suffice.
Action Needed: Clients should ensure their attorneys in Arkansas are drafting their notices of default to specifically state that the default is due to a failure to make the payments due under the terms of the Note and Security Instrument. Any foreclosure that is based on a Notice of Default with more general language may be subject to attack post-sale. The ALAW notices of default have listed “default has occurred in the payment of said indebtedness” as the reason for default since 2016. Please also note that when referring a file for a non-payment related default (reverse mortgages, due on sale violations, etc.) that the reason for default is clearly noted so your attorneys may adjust the Notice of Default accordingly.
As always, if you have any questions or concerns about this case, or any other Arkansas matters, please contact James McPherson at email@example.com.