Foreclosures in Arkansas can be conducted both judicially and non-judicially. Non-judicial foreclosure is the most common type of foreclosure in Arkansas as mortgages are being created more often by a deed of trust. A deficiency is created when a lender forecloses on a property and receives less than what was owed on the property. A deficiency judgment is created when a lender sues and gets a judgment on the amount still owed on the loan after the foreclosure. Arkansas has the following restrictions on obtaining a deficiency judgment:
- No bid can be accepted that is less than 2/3 of the entire amount owed on the mortgage (Arkansas Code Section 18-50-107(b)(3));
- A lawsuit to collect on a deficiency balance must be brought within one year after the foreclosure (Arkansas Code Section 18-50-112(a)(1); and
- A deficiency judgment is limited to the lesser of 1) the sale price at the foreclosure minus the amount owed (including costs); or the fair market value of the property minus the amount owed (including costs) (Arkansas Code Section 18-50-112(b).
Regarding the last bullet point, in a situation where $100,000 was owed on the property when foreclosed upon, the property sold at foreclosure for $70,000, and the property was actually worth $90,000, a mortgage company could only seek a $10,000 deficiency (the amount owed minus the fair market value) even though it actually lost $30,000 (the amount owed minus the foreclosure sale price).
What the fair market value of a property is can be difficult to determine and the homeowner and the mortgage company will likely disagree as to that value. If you live in Arkansas and have questions about whether your particular situation might give rise to a deficiency judgment, speak to an attorney in your area for specific guidance. Or continue searching this site for potential ways to stop a foreclosure.