Foreclosure: Is A National Bank Authorized To Foreclose Non-Judicially In Arkansas?

JPMorgan Chase Bank, N.A. v. Johnson, 719 F.3d 1010 (8th Cir. 2013) -

The 8th Circuit considered the issue of whether a national bank is "authorized to do business" in Arkansas, as required by a state statute in order to proceed with a non-judicial foreclosure, in connection with a consolidation of three bankruptcy cases that were appealed to the district court, another case that was removed from state court to the district court, and a fifth class action case.

As background, the Arkansas legislature amended its non-judicial foreclosure statute to provide that no one can "avail themselves of the procedures under this chapter unless authorized to do business in this state." This legislation was adopted in response to what was perceived as an emergency as explained in the findings that:

foreign entities not authorized to do business in the state of Arkansas are availing themselves to [sic] the provisions of the Statutory Foreclosure Act of 1987; that often times is to the detriment of Arkansas citizens; and that this act is immediately necessary because the entities should be authorized to do business in the state of Arkansas before being able to use the Statutory Foreclosure Act of 1987.

The parties had stipulated that the national bank in question (JPMorgan) was neither registered with the Arkansas Secretary of State as an entity authorized to conduct business in Arkansas, nor registered with the Arkansas Bank Department as an out-of-state bank doing business in Arkansas.

In the three bankruptcy cases, debtors contended that the fees and costs of JP Morgan incurred in connection with non-judicial foreclosures were not authorized and should not be allowed as part of its claims. The bankruptcy court agreed with the debtors, and JPMorgan appealed to the district court.

In a fourth case, after the borrowers obtained a temporary restraining order in state court enjoining foreclosure by JPMorgan, JPMorgan removed the case to federal court. The fifth case involved a plaintiff seeking damages and restitution on behalf of a class of persons subject to non-judicial foreclosure by JPMorgan, arguing among other things that unauthorized use of the foreclosure procedures violated the Arkansas Deceptive Trade Practices Act.

The district court reversed the bankruptcy court decisions, granted JPMorgan a judgment in the removed case, and dismissed the class action case.

On appeal, the 8th Circuit analyzed the issue as (1) whether an entity seeking to use the...